<PAGE>
As filed with the Securities and Exchange Commission on September 24, 1999
Registration No. 333-85905
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ANDROMEDIA, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7372 68-0370250
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
818 Mission Street, Second Floor, San Francisco, CA 94103, (415) 365-6700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Kent B. Godfrey
Chief Executive Officer
818 Mission Street, Second Floor, San Francisco, CA 94103, (415) 365-6700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Jeffrey A. Herbst Tracy K. Edmonson
Gil M. Labrucherie Tad J. Freese
Christine S. Wong Michael R. Fassler
Wilson Sonsini Goodrich & Rosati Latham & Watkins
Professional Corporation 505 Montgomery Street
650 Page Mill Road Suite 1900
Palo Alto, CA 94304 San Francisco, CA 94111
Phone: (650) 493-9300 Phone: (415) 391-0600
Fax: (650) 493-6811 Fax: (415) 395-8095
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by US federal securities law to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION -- September 24, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 1999
[LOGO OF ANDROMEDIA]
4,000,000 Shares of Common Stock
- --------------------------------------------------------------------------------
Andromedia, Inc.: The Offering:
. We offer a . We are offering
comprehensive 4,000,000 shares of
e-marketing solution our common stock.
that combines
advanced Web site
monitoring,
personalization and
analysis
capabilities.
. The underwriters
have an option to
purchase an
additional 600,000
shares from
Andromedia to cover
over-allotments.
. Andromedia, Inc. 818
Mission Street
Second Floor San
Francisco, CA 94103
(415) 365-6700
. This is our initial
public offering, and
no public market
currently exists for
our shares. We
anticipate that the
initial public
offering price will
be between $10.00
and $12.00.
Proposed Symbol and
Market:
. ANDO/Nasdaq National
Market
-----------------------------------------------
<TABLE>
<S> <C> <C>
Per Share Total
-----------------------------------------
Public offering price: $ $
Underwriting fees:
Proceeds to Andromedia:
-----------------------------------------
</TABLE>
This investment involves risk. See "Risk Factors" beginning on page 5.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
Donaldson, Lufkin & Jenrette
SG Cowen
C.E. Unterberg, Towbin
Wit Capital Corporation
DLJdirect Inc.
<PAGE>
[Inside Front Cover]
[Graphics depicting the Andromedia e-marketing solution with the following
text:]
Closing the E-Marketing Loop
Andromedia's e-marketing software enables companies to implement an integrated
solution that analyzes the success of their Web marketing efforts and
personalizes offerings based on customers' needs in real-time.
<PAGE>
[Front Cover Page Spread]
[Graphics depicting the Andromedia e-marketing solution with the following
text:]
The Comprehensive E-Marketing Solution=Andromedia
1. Monitor. Our solution monitors and captures customer behavior data in real-
time, including both navigational and transactional data captured implicitly
from observing visitors or explicitly by asking them questions.
2. Analyze. Our solution analyzes customer behavior data, comparing it against
the behaviors of others who have visited a Web site. Our solution analyzes both
real-time data that has been captured online and historical data, such as
purchase history.
3. Personalize. Our solution provides personally relevant content and product
recommendations to customize interactions with customers who are actively
browsing a Web site. Our solution becomes more effective with each purchase or
customer interaction, continually refining its profile of each customer and
improving its personalization capabilities.
4. Measure+Report. Our solution provides activity reports that are available
immediately to provide important and timely insight on the effectiveness of
online marketing campaigns.
E-Marketers
Our solution enables marketers to add "virtual salesperson" capabilities to
their e-commerce strategies. Our solution provides marketers with valuable
information about the effectiveness of their Internet marketing and selling
efforts, enabling them to make informed online marketing decisions.
Online Shoppers
We believe that our software engages online customers, keeps them on a Web site
longer, and encourages them to return to the site more frequently.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 5
Use of Proceeds...................... 14
Dividend Policy...................... 14
Capitalization....................... 15
Dilution ............................ 16
Selected Consolidated Financial
Data................................ 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business............................. 29
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Management........................................ 43
Certain Transactions.............................. 54
Principal Stockholders............................ 55
Description of Capital Stock...................... 57
Shares Eligible for Future Sale................... 60
Underwriting...................................... 62
Legal Matters..................................... 64
Experts........................................... 65
Where You Can Find More Information............... 65
Index to Financial Statements..................... F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and the related notes
appearing elsewhere in this prospectus. Unless stated otherwise, the
information contained in this prospectus assumes that the underwriters' over-
allotment option is not exercised and that we reincorporate into Delaware and
effect a 7-for-10 reverse stock split prior to the offering. In this
prospectus, unless the context indicates otherwise, the "Company,"
"Andromedia," "we," "us" and "our" refer to Andromedia, Inc. and its
consolidated subsidiaries.
Andromedia, Inc.
We are a leading provider of e-marketing software solutions. We offer a
comprehensive e-marketing solution that combines advanced Web site monitoring,
personalization and analysis capabilities. Our solution monitors and analyzes
Web site activity and visitor behavior data and, in real-time, helps our
customers improve the effectiveness of their Internet marketing and selling
efforts. Our solution helps companies identify and target the most qualified
customers, understand their tastes and preferences, refine sales and marketing
tactics in real-time and predict likely cross-selling opportunities. We have
designed our solution to convert Web site browsers into buyers, and buyers into
loyal customers, which we believe can significantly increase our customers' e-
commerce revenues.
The Internet has emerged as a powerful and rapidly growing medium for
communication and commerce. While some early participants in e-commerce have
achieved a high degree of brand recognition and revenue growth, they are now
facing an increasingly competitive market. The result is that many companies
are finding it difficult to attract and retain customers through their Web
sites. Forrester Research estimates that only 2.7% of visitors to an e-commerce
Web site convert from browsers into buyers.
In order to attract and retain customers, companies must improve their Web
site monitoring,
personalization and analysis capabilities. With improved Web site monitoring
capabilities, companies are able to gain insight about their customers by
observing and capturing customer behavior in real-time as customers browse
their Web site. By personalizing Web page content to better reflect customer
tastes and preferences, companies are able to enhance the user's Web site
experience and improve the conversion rate of browsers into buyers. With
improved Web site analysis, companies can receive feedback to measure and
evaluate the effectiveness of their marketing messages, promotions and
campaigns.
Our e-marketing software applications consist of our ARIA and LikeMinds
product lines which are sold as an integrated solution or individually.
. ARIA provides comprehensive Web site monitoring and analysis that allows
marketers to better understand how customers respond to particular Web
pages, content categories and e-marketing campaigns.
. LikeMinds personalization software provides personally relevant
predictions of which content and products will be best suited for Web
site visitors.
1
<PAGE>
In addition, we provide professional services to assist customers in
identifying, implementing and integrating Web-based technologies to improve the
effectiveness of their Internet marketing and selling efforts.
We believe our solution provides a highly effective "virtual salesperson" for
online customers. It collects data on customer browsing and shopping behavior
and works with other e-commerce applications to interact with online customers
in real-time. Our solution gains information about their tastes and preferences
and provides personally relevant information and purchase recommendations. Our
solution also refines its marketing and selling tactics based on immediate
feedback and analysis.
Our objective is to be the leading provider of e-marketing software solutions
for marketing and selling on the Internet. Key elements of our strategy include
establishing our products as the leading e-marketing software solution,
delivering the most comprehensive e-marketing solution, leveraging and
expanding relationships with leading e-commerce software providers, expanding
our global presence, capitalizing on our installed base of customers and
pursuing strategic acquisitions.
We have over 100 customers in a broad range of industries including
education, government, entertainment, financial services, manufacturing, media,
online merchants and traditional retailers. We market our products and services
primarily through our direct sales force and to a lesser extent through
indirect channels including Internet service providers, application service
providers, systems integrators and Web design studios, as well as other
technology and marketing partners.
We were incorporated in California in January 1996, and we intend to
reincorporate in Delaware immediately prior to the offering. Our corporate
headquarters are located at 818 Mission Street, Second Floor, San Francisco,
California 94103. We maintain sales and support offices in Boston, Chicago,
London, Los Angeles, New York City and Washington, D.C.
Andromedia(R), ARIA(R), LikeMinds(TM) and Moviecritic(R) are
trademarks/service marks of Andromedia, Inc. Every other trademark, trade name
or service mark of any other company appearing in this prospectus is the
property of its holder.
Certain statistics set forth in this prospectus have been provided by
Forrester Research and International Data Corporation. Forrester Research is
one of our customers. Neither Forrester Research nor International Data
Corporation has provided any form of consultation, advice or counsel regarding
any aspect of this offering and they are in no way associated with the
offering.
2
<PAGE>
The Offering
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<S> <C>
Common stock offered by
Andromedia...................... 4,000,000 shares
Common stock to be outstanding
after this offering............. shares
Use of proceeds.................. We plan to use the proceeds from this offering for
general corporate purposes, principally working capital
and capital expenditures , as well as potential
acquisitions.
Proposed Nasdaq National Market
symbol.......................... ANDO
</TABLE>
This table is based on shares outstanding as of June 30, 1999. This table
excludes:
. 2,229,608 shares subject to outstanding options as of June 30, 1999 at a
weighted average exercise price of $2.76 per share;
. 140,087 additional shares available for grant as of June 30, 1999 under
our 1996 stock plan and 1997 stock plan;
. 1,750,000 shares available for grant under our 1999 stock plan and 1999
employee stock purchase plan; and
. 111,461 shares of common stock subject to outstanding warrants at a
weighted average exercise price of $7.00 per share.
3
<PAGE>
Summary Consolidated Financial Data
(In thousands, except per share data)
You should read the following summary consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations." You should also refer to the other information set forth in
this prospectus, including our financial statements and the related notes.
<TABLE>
<CAPTION>
Years Ended Six Months
December 31, Ended June 30,
---------------- ----------------
1997 1998 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Licenses................................. $ 413 $ 1,153 $ 461 $ 1,715
Services and maintenance................. 36 816 196 907
------- ------- ------- -------
Total revenues.......................... 449 1,969 657 2,622
Gross profit.............................. 406 954 424 590
Loss from operations...................... (3,409) (9,677) (3,449) (8,626)
Net loss.................................. (3,350) (9,556) (3,454) (8,608)
Pro forma basic and diluted net loss per
share.................................... $ (1.35) $ (0.84)
======= =======
Shares used to compute pro forma basic and
diluted net loss per share............... 7,067 10,265
</TABLE>
The pro forma basic and diluted share calculations above reflect the
conversion upon the closing of the offering of all outstanding shares of
preferred stock into 11,176,666 shares of common stock as if the conversion
occurred at the date of original issuance.
<TABLE>
<CAPTION>
As of June 30, 1999
--------------------
Pro Forma
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................. $ 9,075 $ 48,995
Working capital........................................... 7,392 47,312
Total assets.............................................. 16,537 56,457
Long-term debt and lease obligations, less current........ 255 255
Mandatorily redeemable convertible preferred stock........ 55,141 --
Total stockholders' equity (deficit)...................... (44,003) 51,058
</TABLE>
The pro forma as adjusted column reflects the conversion of our outstanding
preferred stock to common stock, which will occur upon the closing of the
offering, the sale of 4,000,000 shares of common stock in the offering at an
assumed initial public offering price of $11.00 per share and the application
of the net proceeds from the offering, after deducting underwriting discounts
and commissions and estimated offering expenses. For more information on how we
will use the proceeds from this offering, see "Use of Proceeds."
4
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the following risk factors before you buy our common stock.
The risks described below are not the only ones that face our business. You
should also refer to the other information set forth in this prospectus,
including our financial statements and the related notes. Our business,
financial condition and results of operations could be seriously harmed by any
of the following risks. In the event our business is seriously harmed by one or
more of these risks, then the market price of our common stock could decline
significantly, and you could lose all or a part of your investment.
Evaluating the future prospects of our business is difficult because we are an
early-stage company that may encounter significant risks and difficulties in
the new and rapidly evolving market in which we participate.
Andromedia was incorporated in January 1996 and has a limited operating
history. We began shipping our ARIA product line in the first quarter of 1997.
We generated revenues of $449,000 in 1997, $2.0 million in 1998 and $2.6
million in the first six months of 1999. As a result of our limited operating
history, it is difficult to evaluate the future prospects of our business. We
participate in the new and rapidly evolving market for e-marketing software
applications. Accordingly, we encounter the risks and difficulties frequently
encountered by early-stage companies in new and rapidly evolving markets. We
cannot assure you that we will successfully address these risks and
difficulties, and if we fail to do so, it may cause us serious harm.
The market for e-marketing software applications is in its early stage of
development. The use of these applications by businesses that have historically
relied upon traditional sales and marketing techniques will require widespread
acceptance of a new and substantially different sales and marketing approach.
To date, few companies have measured the effectiveness of their Internet sales
and marketing activities and, as a result, it is too early to accurately judge
the effectiveness of selling and marketing over the Internet as compared to
traditional marketing and selling methods. Accordingly, the demand for, and
market acceptance of, our products is uncertain. This uncertainty is compounded
by the risk that e-commerce may not grow to the extent we expect or within an
adequate time frame to allow our business to succeed.
We have a history of losses, expect to incur substantial losses and may not
achieve or maintain profitability in the future.
We had net losses of $3.4 million in 1997, $9.6 million in 1998 and $8.6
million in the first six months of 1999. As of June 30, 1999, we had an
accumulated deficit of $42.0 million. We have not had a profitable quarter to
date and we may not be able to achieve profitability in future quarters. We
expect that our losses will continue to increase in 1999. We expect to continue
to incur significant sales and marketing, research and development and general
and administrative expenses. As a result, we will need to generate significant
quarterly revenues to achieve profitability, which we may be unable to do.
Although our revenues have grown in recent quarters, we do not believe that we
can sustain these growth rates, or that such growth rates are indicative of
future revenue growth rates.
Our quarterly operating results often depend on a small number of large orders
and, as a result, our quarterly operating results would be adversely affected
if we fail to complete one or more large orders in any quarter.
We derive a significant portion of our revenues in each quarter from a small
number of relatively large orders. Our quarterly operating results would be
adversely affected if we were unable to complete one or more large orders in
any quarter. For example, during five of our last six quarters, we had at least
one customer that accounted for more than 10% of total revenues in each of
those quarters.
5
<PAGE>
Fluctuations in our results of operations make it difficult to predict our
future performance and may result in volatility in the market price of our
common stock.
Our annual and quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future due to a variety of factors,
particularly as a result of the risks we describe in this section. In this
regard, most of our expenses are fixed in the short-term, and we may not be
able to quickly reduce spending if our revenues are lower than expected. In
addition, our ability to forecast revenue is limited. As a result, our
operating results are volatile and difficult to predict and you should not rely
on the results of one quarter as an indication of future performance. In some
future quarter our operating results may fall below the expectations of
securities analysts and investors. In this event, the market price of our
common stock could fall significantly.
We depend on our ARIA and LikeMinds product lines. A decline in the demand for
ARIA or LikeMinds would seriously harm our operating results and financial
condition.
We currently derive substantially all of our revenues from our ARIA and
LikeMinds product lines and related services. We expect to continue to depend
on revenues generated from new and enhanced versions of our ARIA and LikeMinds
product lines for the foreseeable future. Consequently, a decline in the price
of or demand for these products, or their failure to achieve broad market
acceptance, would seriously harm our operating results and financial condition.
In addition, we cannot assure you that we will successfully develop and
introduce new and enhanced versions of our ARIA and LikeMinds product lines or
that such products will achieve market acceptance.
The functionality of our products could be seriously limited by the privacy
concerns of e-commerce participants and government regulatory requirements.
Our ARIA product line captures, and our LikeMinds product line uses,
information about the tastes and preferences of online users each time a user
visits a Web site or volunteers information in response to survey questions.
Privacy concerns may cause Web site visitors to resist providing the personal
data necessary to support this profiling capability. More importantly, even the
perception of privacy concerns may indirectly inhibit market acceptance of our
products. If customer privacy concerns are not adequately addressed, we could
be seriously harmed.
In addition, there is a substantial probability that new U.S. legislative and
regulatory requirements designed to protect individual privacy could be imposed
on businesses engaged in e-commerce. For example, the recently enacted
Children's Online Privacy Act, which takes effect on October 21, 1999, imposes
new obligations on all online businesses which target customers who are
children under the age of 13 and other requirements on all businesses engaged
in e-commerce to protect the privacy of children under the age of 13.
In addition, our ARIA product line captures some of its data with "cookies"
to identify unique user information and preferences. A "cookie" is a bit of
information keyed to a specific server, file pathway or directory location. A
number of commentators, advocates and governmental bodies in the United States
and other countries have urged passage of laws limiting or abolishing the use
of cookies.
We face intense competition, and if we are unable to compete successfully, we
could experience loss of market share, price reductions and reduced gross
margins for our products.
Even though the market for our products is in an early stage of development,
it is already intensely competitive, and we expect competition to increase in
the future. Increased competition could result in loss of market share, price
reductions and reduced gross margins for our products, any of which could
seriously harm us. For a discussion of our primary competitors see "Business--
Competition."
6
<PAGE>
We may not be able to compete successfully against current and future
competitors. Many of our competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
significantly greater name recognition and a larger installed base of customers
than we have. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our target markets. As a result, our competitors may be able to
respond more quickly to evolving industry standards and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products than we can. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address customer needs. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share.
We need to substantially expand our direct sales operations to increase our
revenues; however there is a shortage of qualified sales personnel and it takes
time for new hires to achieve productivity.
We need to substantially expand our direct sales operations if we are to
increase our revenues. We have recently expanded our direct sales force and
plan to hire additional sales personnel. Competition for qualified sales
personnel is intense, and we might not be able to hire the kind and number of
sales personnel we are targeting. New hires will require extensive training and
typically take several months to achieve productivity. We cannot be certain
that our recent hires will be as productive as we desire.
If we lose key personnel, we could experience reduced sales, delays in new
product development, decreased customer satisfaction and diversion of
management resources.
Our future success depends on the continued service of our senior management
and other key personnel. In particular we rely on the continued services of
Kent B. Godfrey, our Chief Executive Officer, Paul R. Gifford, our President
and Chief Operating Officer and Stephen F. Ghiglieri, our Vice President of
Finance and Chief Financial Officer. The loss of the services of one or more of
these individuals or other of our key personnel could result in reduced sales,
delays in new product development, decreased customer satisfaction and a
division of management resources. Most of our key personnel are not bound by
employment agreements. In addition, we do not carry key person life insurance
on any of our employees.
Because competition is intense for qualified personnel in our industry, we may
not be able to successfully recruit or retain qualified personnel, which could
adversely impact our product development and sales.
Our future success also depends on our continuing ability to attract, hire,
train and retain a substantial number of highly skilled managerial, technical,
sales, marketing and customer support personnel. Competition for such qualified
personnel in our industry and geographical location in the San Francisco Bay
Area is intense, particularly for software development and technical personnel.
We would be seriously harmed if we are unable to retain our key employees, or
to attract, assimilate or retain other highly qualified personnel in the
future.
The expansion of our business has placed, and continues to place, a significant
strain on our management, operating infrastructure and resources and could
seriously harm us.
We have recently experienced a period of significant expansion of our
business that has placed, and continues to place, a significant strain on our
management, operating infrastructure and resources. A failure to properly
manage the expansion of our business could seriously harm us. We
7
<PAGE>
have recently hired a significant number of employees and plan to further
increase our total headcount. Furthermore, our Chief Financial Officer and Vice
President of Sales joined us in June and July 1999, respectively, and they have
had limited exposure to our prior operations. To properly manage this growth,
we must, among other measures, implement and improve on a timely basis our
operating infrastructure including our administrative, financial and
operational systems, procedures and controls. We may not be able to complete
the necessary improvements to our systems, procedures and controls on a timely
basis, which could seriously harm us.
To remain competitive we intend to acquire complementary businesses, products,
services and technologies. Acquisitions may be unavailable to us, may not
improve our market position, could be difficult to integrate, may divert
management resources and could negatively impact our operating results.
Due to the intense competition in the e-marketing software market, we believe
that our success will depend in part on our ability to successfully identify
and acquire complementary businesses, products, services and technologies. For
example, in late 1998 we acquired LikeMinds, Inc., and the LikeMinds product
line now represents a significant portion of our product offerings. Although we
currently do not have any agreements or understandings to do so, we do intend
to acquire complementary businesses, products, services and technologies in the
future. Some of the risks and difficulties that we may encounter in making
future acquisitions and investments include:
. complementary business, products, services and technologies may not be
available on commercially reasonable terms;
. we may not be able to successfully compete for acquisition and investment
opportunities with many of our competitors who have greater financial
resources and more well-established industry relationships;
. acquired products, services and technologies may not meet customer needs
and therefore may not achieve widespread market acceptance;
. we may incur difficulties in assimilating acquired products, services and
technologies with our existing products, services and technologies;
. we may incur difficulties associated with the integration of the
personnel and operations of an acquired company with our personnel and
operations; and
. integration of acquired and existing products and services may result in
decreased revenue from existing products and services.
These risks and difficulties could disrupt our ongoing business, distract our
management and other key employees, increase our expenses and adversely affect
our results of operations. In addition, acquisitions and investments may have a
negative effect on our reported results of operations from acquisition or
investment related charges and amortization of acquired technology, goodwill
and other intangible assets. Any of these acquisition-related risks could
seriously harm us.
We rely on technology licensed from Object Design, Inc. for our ARIA products.
A failure to renew this license on commercially reasonable terms, or at all,
could adversely affect our business and operating results.
We license technology from Object Design that is incorporated into our ARIA
products under a license which expires on December 31, 1999. In the event we
are unable to renew this license on commercially reasonable terms, or at all,
it would result in substantial product development expenditures and could
result in delays in product shipments, either of which could adversely affect
our business and operating results. In addition, even if the Object Design
license is renewed, any increase in royalty rates would adversely affect our
gross margin on sales of ARIA products.
8
<PAGE>
We rely on our strategic technology and distribution relationships to
facilitate the development and widespread acceptance of our products. A loss of
one or more of these strategic relationships could seriously harm our ability
to develop new and enhanced products, successfully deploy our products or
generate additional product sales opportunities.
We rely on our strategic relationships with:
. leading platform and applications providers such as Allaire, ATG,
BroadVision, Netscape/America Online, Sun Microsystems and Vignette;
. Internet services companies such as Anubis, BASE Consulting, Fort Point
Partners, iXL, Multimedia Live, Net Effect, Net Quotient, Novo
Interactions, Oven Digital and Stonebridge; and
. Webcraft, a leading provider of personalized direct marketing services
and a subsidiary of Big Flower Holdings, Inc., which provides us access
to traditional geographic, demographic and psychographic data.
We have no binding contractual commitments with most of these companies and,
as a result, these companies generally may terminate their relationships with
us without penalty. The loss of one or more of these strategic relationships
could seriously harm our ability to develop new and enhanced products,
successfully deploy our products or generate additional product sales
opportunities.
Our professional services organization may remain unprofitable, which could
adversely impact our operating results.
We plan to substantially increase the size of our Services Group. We expect
our services and maintenance revenue to increase as we continue to provide
consulting, training and customer support services that complement our products
and as our installed base of customers grows. We generally bill our clients for
our services on a fixed-price project basis. Failure to estimate accurately the
resources and time required for a services engagement or to complete fixed-
price engagements within budget could expose us to risks associated with cost
overruns and may adversely affect our results of operations. We cannot assure
you that we will successfully expand our services capabilities or that our
services organization will achieve or maintain profitability.
If our potential new products or product enhancements are not launched on a
timely basis, or do not achieve market acceptance, our business would be
seriously harmed.
The life cycles of products within our ARIA and LikeMinds product lines are
difficult to predict because the e-marketing software market is characterized
by changing customer needs, frequent new software product introductions and
rapidly evolving industry standards. The introduction of products embodying new
technologies and the emergence of new industry standards could render our
existing products obsolete and unmarketable. If we do not launch new products
or new versions of existing products on a timely basis, or if these products do
not achieve market acceptance, our business would be seriously harmed.
Development of our software products is complex and subject to frequent
delays, and we may encounter difficulties, as we have in the past, that could
delay or prevent the successful and timely development, introduction and
marketing of the new products and product releases. Moreover, even if new
products or product releases are completed and introduced, they may never
achieve widespread market acceptance. Failure to release these products under
development on a timely basis, or failure of these products under development,
if and when released, to achieve widespread market acceptance, could seriously
harm us.
9
<PAGE>
Future expansion of our international operations is important to the growth of
our business; however, this expansion will require significant management
attention and financial resources. The international markets for products and
services related to e-commerce are in earlier stages of development than in the
United States.
Although we recognized approximately 8% of our total revenue in 1998 from
products and services sold to customers located outside of the United States,
international revenue may account for an increasing percentage of our total
revenue in the future. We believe that we must continue to expand our
international sales and marketing activities in order to be successful. To
successfully expand international sales, we must expand our international
operations, recruit additional international sales and support personnel, and
expand our distribution channels.
This strategy will require significant management attention and financial
resources. We have five employees located outside of the United States as of
July 31, 1999, and have very limited experience in marketing, selling and
distributing our products and services internationally. The acceptance and use
of the Internet in international markets are in earlier stages of development
than in the United States, particularly as a method for conducting commerce. If
the Internet or e-commerce fail to gain sufficient acceptance in international
markets, or we fail to further expand our international operations in a timely
and effective manner, we could be seriously harmed.
We depend on increasing use of the Internet and on the growth of e-commerce. If
the use of the Internet and e-commerce does not grow as anticipated, we would
be seriously harmed.
Our future revenues depend upon the increased acceptance and use of the
Internet and other online services as a medium of commerce. Rapid growth in the
use of the Internet as a medium of commerce is a relatively recent phenomenon.
Acceptance and use may not continue to develop at historical rates and a
sufficiently broad base of customers may not adopt or continue to use the
Internet and other online services as a medium of commerce. Demand and market
acceptance for recently introduced services and products over the Internet are
subject to a high level of uncertainty and few proven services and products
exist.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. If the
Internet continues to experience significant expansion in the number of users,
frequency of use or bandwidth requirements, the infrastructure of the Internet
may be unable to support the demands placed upon it. In addition, the Internet
could lose its viability as a commercial medium due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of Internet activity, or due to increased governmental
regulation. Changes in, or insufficient availability of, telecommunications
services to support the Internet also could result in slower response times and
adversely affect usage of the Internet generally.
If we are unable to protect our intellectual property we may lose a valuable
asset or competitive advantage or incur costly litigation to protect our
rights.
Our success is highly dependent upon our ability to protect the intellectual
property contained in our software products and associated with our brand
names. We seek to protect our technology through a combination of patent,
copyright, trade secret and trademark laws. For a discussion of our
intellectual property, see "Business--Intellectual Property" on page 39.
It is possible that our current patents or potential future patents may be
found invalid or unenforceable or otherwise be successfully challenged. It is
also possible that any patent issued to us may not provide us with any
competitive advantages. In addition, the patents of others may
10
<PAGE>
seriously limit our ability to do business. In this regard, we have not
performed any comprehensive analysis of patents of others that may limit our
ability to do business.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or obtain and use information that
we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, we expect software piracy to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate, and our
competitors may independently develop similar technology, duplicate our
products or design around our patents or our other intellectual property.
There has been a substantial amount of litigation in the software industry
regarding intellectual property rights. We have from time to time received
claims that we are infringing a third party's intellectual property rights. It
is possible that in the future third parties may claim that our current or
potential future products infringe their intellectual property rights. We
expect that software developers will increasingly be subject to infringement
claims as the number of products and competitors in our industry segment grows
and the functionality of products in different industry segments overlaps. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or require us to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to us or at all, which could seriously
harm us.
If our systems or the systems of our customers or key suppliers are not year
2000 compliant, we could experience a substantial disruption to our business
and require substantial expenditures to remediate the disruption.
We could be seriously harmed by year 2000 compliance problems experienced by
us, our customers or third party suppliers of equipment and software. Although
we have conducted a year 2000 compliance review of our ARIA and LikeMinds
products and our software and operating systems which we believe to be
critical, we cannot assure you that our testing procedures are adequate to
discover year 2000 compliance problems that could seriously harm us. Although
to date we have not incurred material expenditures in connection with
identifying, evaluating and correcting year 2000 problems, we cannot assure you
that we will not discover year 2000 compliance problems that may cause
substantial disruptions to our business and require substantial expenditures to
fix. This could seriously harm our business and operating results. In addition,
we believe that many of our larger customers will restrict or eliminate
software purchasing decisions in the last quarter of 1999 in order to gain
system stability for the year 2000 date change. For more information regarding
the state of our year 2000 readiness, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Year 2000 Compliance" on page
25.
Management has broad discretion as to the use of proceeds from this offering
and may apply the proceeds of this offering to uses that do not increase our
market value or improve our operating results.
The net proceeds from the sale of the common stock being sold in this
offering will be used for general working capital. We have not reserved or
allocated the net proceeds for any specific purpose, and we cannot specify with
certainty how we will use the net proceeds. Accordingly, our management will
have considerable discretion in the application of the net proceeds, and you
will not have the opportunity, as part or your investment decision, to assess
whether the proceeds are being used appropriately. We cannot assure you that
the net proceeds will be used for purposes that increase our results of
operations or market value.
11
<PAGE>
Shares eligible for public sale after this offering could adversely affect our
stock price.
The availability of a large number of shares of our common stock for sale
will generally result in the need for sellers to accept a lower price in order
to complete the sale. This would result in a lower market price of our common
stock. After this offering, there will be outstanding 16,140,486 shares of our
common stock, or 16,740,486 if the underwriters' over-allotment option is
exercised in full. Of these shares, the 4,000,000 shares sold in this offering
will be freely tradable except for any shares purchased by our "affiliates" as
defined in Rule 144 under the Securities Act. The remaining shares of common
stock held by our existing stockholders are subject to 180-day lock-up
agreements and are eligible for sale after that time only if registered or if
they qualify for an exemption from registration under Rule 144 or 701 under the
Securities Act. Subject to the provisions of Rule 144 or 701, 11,829,370 shares
of our common stock will be available for sale in the public market 180 days
after the date of this prospectus, subject in the case of shares held by
affiliates to compliance with volume restrictions.
Following the offering, trading in our common stock may be limited and you must
be able to withstand a possible loss of your investment.
A public market for trading our common stock has not existed prior to this
offering. Although this offering will result in a public trading market for our
common stock, we do not know how liquid the market for our stock will be. The
price of the common stock being sold in this offering will be determined
through negotiations between the underwriters and us. If you purchase common
stock in this offering, you may not be able to resell such stock at or above
the price you paid.
The market price of our common stock, like other Internet-related technology
stocks, may be volatile.
The stock markets have in general, and with respect to Internet-related
technology companies in particular, recently experienced extreme stock price
and volume volatility. The stock markets may continue to experience volatility
that may adversely affect the market price and trading volume of our common
stock. Stock prices for many companies in the technology and emerging growth
sector have experienced wide fluctuations that have often been unrelated to
their financial performance. Similar fluctuations may affect the market price
of our common stock. In addition, if we fail to address any of the risks
described in this section, the market price of our common stock and the value
of your investment could decline significantly.
The amount you pay for shares in this offering will be substantially greater
than the per share value of our assets after subtracting liabilities.
The initial public offering price per share of our common stock will
significantly exceed the net tangible book value per share. If we were to
liquidate immediately following this offering, investors purchasing shares in
this offering would receive a per share amount of tangible assets net of
liabilities that would be substantially less than the per share initial public
offering price. Investors purchasing shares in this offering will suffer
immediate dilution of $7.94 per share from their investment. See "Dilution" on
page 15 for further discussion of the dilution that you will incur.
Our charter documents and Delaware law will make it more difficult for a third
party to acquire us.
Provisions of our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. For example, our board of directors is divided into three
classes, with one class being elected each year by our stockholders, which
generally makes it more difficult for stockholders to replace a majority of
directors and obtain
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<PAGE>
control of our board. In addition, stockholder meetings may be called only by
our board of directors, the chairman of the board and the president, advance
notice is required prior to stockholder proposals, and stockholders may not act
by written consent. Further, we have authorized preferred stock that is
undesignated, making it possible for the board of directors to issue preferred
stock with voting or other rights or preferences that could impede the success
of any attempt to change control of Andromedia.
Delaware law also could make it more difficult for a third party to acquire
us. Specifically, Section 203 of the Delaware General Corporation Law may have
an anti-takeover effect with respect to transactions not approved in advance by
the board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by our
stockholders.
You should not rely on forward-looking statements because they are inherently
uncertain.
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends," and similar expressions to identify these
forward-looking statements. This prospectus also contains forward-looking
statements attributed to certain third parties relating to their estimates
regarding growth of the number of Web users and e-commerce. You should not
place undue reliance on these forward-looking statements, which apply only as
of the date of this prospectus. Our actual results could differ materially from
those anticipated in these forward-looking statements for many reasons,
including the risks faced by us described above and elsewhere in this
prospectus.
13
<PAGE>
USE OF PROCEEDS
We estimate net proceeds from the sale of the 4,000,000 shares of common
stock in this offering to be approximately $39.9 million based on an assumed
initial public offering price of $11.00 per share after deducting underwriting
discounts and commissions and our estimated offering expenses. If the
underwriters' over-allotment option is exercised in full, the net proceeds
would be approximately $46.1 million.
We expect to use the net proceeds for general corporate purposes, principally
working capital and capital expenditures. In addition, we may use a portion of
the net proceeds to acquire complementary businesses, products, services and
technologies; however, we currently have no agreements or understandings for
such acquisitions. We intend to invest the net proceeds of this offering in
interest-bearing, investment grade securities until they are used.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future. In addition, our existing bank line of credit
prohibits the payment of dividends.
14
<PAGE>
CAPITALIZATION
The following table sets forth the following information:
. the cash position and actual capitalization of Andromedia as of June 30,
1999;
. the pro forma capitalization of Andromedia after giving effect to the
conversion of all outstanding shares of convertible preferred stock into
7,823,666 shares of common stock; and
. the pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at an assumed initial public offering price of
$11.00 per share in this offering, less underwriting discounts and
commissions and estimated offering expenses payable by Andromedia.
<TABLE>
<CAPTION>
As of June 30, 1999
------------------------------
Pro Pro Forma As
Actual Forma Adjusted
------- ------- ------------
(In thousands)
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 9,075 $ 9,075 $48,995
======= ======= =======
Long-term debt and lease obligations less
current........................................ $ 255 $ 255 $ 255
Mandatorily redeemable convertible preferred
stock; 9,156,210 shares issued and outstanding
actual; none issued and outstanding pro forma
and pro forma as adjusted ..................... 55,141 -- --
Stockholders' equity (deficit):.................
Convertible preferred stock; $0.001 par value:
5,199,602 shares authorized, 4,928,689 shares
issued, and outstanding actual; 7,500,000
shares authorized, none issued and outstanding
pro forma and pro forma as adjusted .......... 1 -- --
Common stock: $0.001 par value; 20,000,000
shares authorized actual; 4,316,820 shares
issued and outstanding actual; 150,000,000
shares authorized pro forma and pro forma as
adjusted, 12,140,486 shares issued and
outstanding pro forma and 16,140,486 shares
issued and outstanding pro forma as adjusted
.............................................. 4 12 16
Paid-in capital................................ -- 55,134 95,050
Deferred stock compensation.................... (2,015) (2,015) (2,015)
Accumulated deficit............................ (41,993) (41,993) (41,993)
------- ------- -------
Total stockholders' equity (deficit)......... (44,003) 11,138 51,058
------- ------- -------
Total capitalization........................... $11,393 $11,393 $51,313
======= ======= =======
</TABLE>
This table does not include:
. 2,229,608 shares subject to outstanding options as of June 30, 1999 at a
weighted average exercise price of $2.76 per share;
. 140,087 additional shares available for grant as of June 30, 1999 under
our 1996 stock plan, 1997 stock plan;
. 1,750,000 shares available for grant under our 1999 stock plan and 1999
employee stock purchase plan; and
. 111,461 shares of common stock subject to outstanding warrants at a
weighted average exercise price of $7.00 per share.
Upon completion of the offering, each share of Series A convertible preferred
stock will convert into 2.80 shares of common stock, each share of Series B, C
and E convertible preferred stock will convert into 0.70 share of common stock;
and each share of Series D convertible preferred stock will convert into 0.81
share of common stock.
15
<PAGE>
DILUTION
If you invest in our common stock, the estimated offering price of $11.00 per
share will be substantially greater than the per share value of our tangible
assets after subtracting liabilities, or net tangible book value per share. The
pro forma net tangible book value of our common stock on June 30, 1999 was
approximately $9.4 million, or approximately $0.77 per share. Pro forma net
tangible book value per share represents the amount of our total tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding, assuming conversion of all outstanding shares of convertible
preferred stock into common stock. Dilution in net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of our common stock in this offering and the net tangible book value
per share of our common stock immediately afterwards. After giving effect to
our sale of 4,000,000 shares of common stock offered by this prospectus at an
assumed price of $11.00 per share and after deducting the underwriting discount
and estimated offering expenses payable by us, our net tangible book value
would have been $49.3 million, or approximately $3.06 per share. This
represents an immediate increase in net tangible book value of $2.29 per share
to existing stockholders and an immediate dilution in net tangible book value
of $7.94 per share to new investors.
<TABLE>
<S> <C> <C>
Estimated public offering price per share..................... $11.00
Pro forma net tangible book value per share as of June 30,
1999....................................................... $0.77
Increase per share attributable to new investors............ 2.29
-----
As adjusted net tangible book value per share after the
offering..................................................... 3.06
------
Dilution in net tangible book value per share to new public
investors.................................................... $ 7.94
======
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. As of June 30, 1999, there were options
outstanding to purchase a total 2,229,608 shares of common stock with a
weighted average exercise price of $2.76 per share and warrants outstanding to
purchase a total of 111,461 shares of common stock with a weighted average
exercise price per share of $7.00. The exercise of outstanding options and
warrants having an exercise price less than the offering price would increase
the dilutive effect to new investors.
The following table sets forth on a pro forma basis, as of June 30, 1999, the
differences between the number of shares of common stock purchased from us, the
total price and average price per share paid by existing stockholders and by
the new investors, before deducting expenses payable by us, using the assumed
public offering price of $11.00 per share. While your investment in this
offering contributes 56.9% of the total consideration received by us for all
our issuances of common stock, your shares represent only 24.8% of our company
after the offering.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------- ---------------------- Average Price
Number Percentage Amount Percentage Per Share
---------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 12,140,486 75.2% $33,280,000 43.1% $ 2.74
New investors........... 4,000,000 24.8 44,000,000 56.9 11.00
---------- ----- ----------- ----- ------
Total................. 16,140,486 100.0% $77,280,000 100.0% $ 4.79
========== ===== =========== ===== ======
</TABLE>
If the underwriters over-allotment option is exercised in full, the number of
shares held by new public investors will be increased to 4,600,000 or
approximately 27.5% of the total number of shares of our common stock
outstanding after this offering.
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere in this prospectus. The selected consolidated
statement of operations data for the years ended December 31, 1996, 1997 and
1998 and the selected balance sheet data as of December 31, 1997 and 1998 have
been derived from our audited consolidated financial statements and the related
notes included elsewhere in this prospectus. The selected consolidated balance
sheet data as of December 31, 1996 have been derived from our audited
consolidated financial statements not included in this prospectus. The selected
consolidated statement of operations data for the six months ended June 30,
1998 and 1999 and the selected consolidated balance sheet data as of June 30,
1999 have been derived from unaudited consolidated financial statements
included elsewhere in this prospectus. In the opinion of management, this
unaudited data have been prepared on the same basis as the audited financial
statements referred to above and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of results of
operations for the indicated periods. Results of operations for the six months
ended June 30, 1999 are not necessarily indicative of the results that may be
expected for the full fiscal year.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Licenses..................... $ -- $ 413 $ 1,153 $ 461 $ 1,715
Services and maintenance..... -- 36 816 196 907
------- ------- -------- ------- --------
Total revenues.............. -- 449 1,969 657 2,622
------- ------- -------- ------- --------
Cost of revenues:
Licenses..................... 25 69 20 129
Services and maintenance..... 18 946 213 1,903
------- ------- -------- ------- --------
Total cost of revenues...... 43 1,015 233 2,032
------- ------- -------- ------- --------
Gross profit.................. -- 406 954 424 590
Operating expenses:
Sales and marketing.......... 387 1,512 5,199 1,837 4,610
Research and development..... 884 1,446 2,337 1,021 1,731
General and administrative... 365 857 2,106 970 1,950
Amortization of acquired
intangible assets........... -- -- 247 -- 496
Non-cash stock compensation.. -- -- 287 45 429
Write off of acquired in
process technology.......... -- -- 455 -- --
------- ------- -------- ------- --------
Total operating expenses.... 1,636 3,815 10,631 3,873 9,216
------- ------- -------- ------- --------
Loss from operations.......... (1,636) (3,409) (9,677) (3,449) (8,626)
Interest income (expense),
net.......................... 10 59 121 (5) 18
------- ------- -------- ------- --------
Net loss...................... (1,626) (3,350) (9,556) (3,454) (8,608)
Preferred stock accretion..... -- -- (1,351) (1,351) (25,080)
------- ------- -------- ------- --------
Net loss attributable to
common stockholders.......... $(1,626) $(3,350) $(10,907) $(4,805) $(33,688)
======= ======= ======== ======= ========
Net loss per share:
Basic and diluted............ $ (0.69) $ (1.36) $ (3.80) $ (1.86) $ (8.59)
======= ======= ======== ======= ========
Weighted average shares...... 2,341 2,472 2,873 2,578 3,921
Pro forma net loss per share:
Basic and diluted............ $ (1.35) $ (0.84)
======== ========
Weighted average shares...... 7,067 10,265
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
As of
December 31, As of
------------------------ June 30,
1996 1997 1998 1999
------ ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................. $ 383 $ 696 $ 1,881 $ 9,075
Working capital........................... 116 549 829 7,392
Total assets.............................. 628 1,389 6,795 16,537
Long-term debt and lease obligations, less
current ................................. 84 390 255
Mandatorily redeemable convertible
preferred stock.......................... -- 3,548 14,838 55,141
Total stockholders' equity (deficit)...... 308 (2,751) (10,758) (44,003)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations with the financial statements and the notes to the
financial statements included elsewhere in this prospectus. This discussion
contains forward-looking statements based on our current expectations,
assumptions, estimates and projections. These forward-looking statements
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, as more fully described in the "Risk Factors" section and
elsewhere in this prospectus. We undertake no obligation to update any forward-
looking statements for any reason, even if new information becomes available or
other events occur in the future.
Overview
We believe that we are the first company to offer a comprehensive e-marketing
solution that combines advanced Web site monitoring, personalization and
analysis capabilities. Our solution monitors and analyzes Web site activity and
visitor behavior data and, in real-time, helps our customers improve the
effectiveness of their Internet marketing and selling efforts. Our ARIA product
line provides comprehensive Web site monitoring and analysis, collecting the
customer data necessary for marketers to understand the effectiveness of their
Web sites. Our LikeMinds product has the ability to turn the data collected
from ARIA, other e-commerce applications and traditional data resources into
personally relevant predictions for marketing to Web site visitors. In
addition, we provide professional services to assist customers in identifying,
implementing and integrating Web-based technologies to improve the
effectiveness of their Internet marketing and selling efforts.
From our inception in 1996 through most of 1998, our operations were focused
primarily on activities such as raising capital, recruiting personnel,
developing our products, building sales channels and a market for our products
and developing an operating infrastructure. In the first quarter of 1997, we
introduced and licensed the initial version of our ARIA product, ARIA 1.0.
During 1998 and 1999, we released various upgrades to ARIA, including our most
recent version, ARIA 3.0.
In October 1998, we acquired LikeMinds for approximately 1.3 million shares
of our common stock. As a result of this transaction, we expensed certain in
process research and development that was acquired in this transaction totaling
$455,000. The acquisition included the purchase of patented technologies
related to collaborative filtering, the technology used in the personalization
process. In addition to the acquisition of patents and other proprietary
rights, we acquired LikeMinds personnel with skills in the fields of
technology, research and development and marketing. Moviecritic, an application
that showcases the LikeMinds personalization technology, was also included in
the LikeMinds acquisition. In December 1998, we introduced our initial version
of the LikeMinds personalization software for licensing to customers which
enabled us to offer a comprehensive e-marketing solution that combines both Web
site analysis and personalization technology.
Through June 30, 1999, we have derived substantially all of our revenues from
product licensing and associated services. Product licensing revenues consist
of license fees for the perpetual use of our ARIA and LikeMinds products.
Service revenues are attributable to the installation, configuration,
consulting and other support services associated with the sale of our products.
We anticipate that license and service revenues from our ARIA and LikeMinds
products will continue to account for a substantial portion of our revenues in
the future.
Selling prices for our software products typically range from ten thousand to
several hundred thousand dollars. Annual support and maintenance contracts
entitle customers to telephone and Web-based support and upgrades. The price
for our support and maintenance program is based on a
19
<PAGE>
percentage of list price and is generally paid in advance. Consulting fees for
implementation services and training are generally charged on a fixed-fee basis
for package services and billed as time is incurred.
We generally provide software installation and configuration services in
conjunction with the licensing of our products to customers. We recognize
license revenues upon shipment for contracts which require minimal installation
and configuration services. On certain contracts which require more extensive
configuration, modification or customization services as part of the initial
installation, we recognize license and service revenues using percentage of
completion contract accounting with labor days as the basis for determining the
percentage complete. Where multiple products or services are sold together
under one contract, we allocate revenue to each element based on its relative
fair value, with fair value determined using the price charged for that element
when sold separately. We recognize service revenues as services are performed.
We recognize maintenance service revenue ratably over the term of the
maintenance agreement. Cash received in advance of revenue recognition is
recorded as deferred revenue on our balance sheet.
We market our products primarily through our direct sales force. Sales
derived through indirect channels accounted for less than 5% of our total
revenues to date. Sales derived through indirect channels may increase as a
percentage of total revenues as we expand our international efforts and
domestic distribution channels. In 1997, two customers, 3Com Corporation and
Computer Associates, accounted for 11% and 10%, respectively, of total revenues
and in 1998 the United States Postal Service accounted for 13% of total
revenues. For the six months ended June 30, 1999, Intuit, Inc. accounted for
13% of total revenues.
We have sustained losses on a quarterly and annual basis since inception. As
of our quarter ended June 30, 1999, we had an accumulated deficit of $42.0
million. Our net loss was $1.6 million in 1996, $3.4 million in 1997, $9.6
million in 1998 and $8.6 million in the six months ended June 30, 1999. These
losses resulted from significant costs incurred in the development and sale of
our products and services. We expect to experience significant growth in our
operating expenses in order to execute our business plan, particularly in the
areas of sales and marketing, research and development and expansion of
international operations. Although we have not specifically allocated our cash
resources for any particular purposes, we anticipate that these operating
expenses, as well as planned capital expenditures, will constitute a material
use of our cash resources. We expect to incur additional losses and continued
negative cash flow from operations in the future. We cannot assure you that we
will achieve or sustain profitability.
20
<PAGE>
Results of Operations
The following table sets forth certain data expressed as a percentage of
total revenue for the periods indicated.
<TABLE>
<CAPTION>
Six Months
Years Ended Ended
December 31, June 30,
--------------- ---------------
1997 1998 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues:
Licenses............................. 92.0% 58.6% 70.2% 65.4%
Services and maintenance............. 8.0 41.4 29.8 34.6
------ ------ ------ ------
Total revenues...................... 100.0 100.0 100.0 100.0
------ ------ ------ ------
Cost of revenues:
Licenses............................. 5.6 3.5 3.0 4.9
Services and maintenance............. 4.0 48.0 32.4 72.6
------ ------ ------ ------
Total cost of revenues.............. 9.6 51.5 35.4 77.5
------ ------ ------ ------
Gross profit........................... 90.4 48.5 64.6 22.5
Operating expenses:
Sales and marketing.................. 336.7 264.0 279.6 175.8
Research and development............. 322.0 118.7 155.4 66.0
General and administrative........... 190.9 107.0 147.6 74.4
Amortization of acquired intangible
assets.............................. -- 12.5 -- 18.9
Non-cash stock compensation.......... -- 14.6 6.8 16.4
Write off of acquired in process
technology.......................... -- 23.1 -- --
------ ------ ------ ------
Total operating expenses............ 849.6 539.9 589.4 351.5
------ ------ ------ ------
Loss from operations................... (759.2) (491.4) (524.8) (329.0)
Interest income (expense), net......... 13.1 6.1 (0.8) 0.7
------ ------ ------ ------
Net loss............................... (746.1)% (485.3)% (525.6)% (328.3)%
====== ====== ====== ======
</TABLE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1999
Revenues
Total Revenues. Revenues increased from $657,000 in the six months ended June
30, 1998 to $2.6 million in the six months ended June 30, 1999.
License Revenues. Software license revenues increased by approximately $1.2
million from $461,000 in the six months ended June 30, 1998 to $1.7 million in
the six months ended June 30, 1999. The increase resulted primarily from an
increase in the number of licenses of our ARIA product, the addition of
LikeMinds licenses in 1999 which contributed revenues of approximately $287,000
and an increase in the average selling price of these products. Average selling
prices increased due to a few major product sales that carried higher prices.
Service Revenues. Service and maintenance revenues increased from $196,000 in
the six months ended June 30, 1998 to $907,000 in the six months ended June 30,
1999. The increase resulted primarily from increased license sales which
resulted in an increase in associated consulting services. Maintenance revenues
also increased as a result of an increase in the installed customer base.
Cost of Revenues
Costs of Licenses. Cost of license revenues consists primarily of royalties
associated with third party software embedded in our software products as well
as software product costs such as user manuals, distribution and media costs.
Cost of license revenues increased from $20,000 in the six months ended June
30, 1998 to $129,000 in the six months ended June 30, 1999. The increase in
costs of licenses resulted from the increase in license transactions in the
1999 period.
21
<PAGE>
Cost of Services. Cost of service revenues generally consists of salaries,
benefits and associated overhead costs of our Services Group. Cost of service
revenues increased from $213,000 in the six months ended June 30, 1998 to $1.9
million in the six months ended June 30, 1999. This increase was primarily the
result of increased personnel in our Services Group. Historically, we have
reported cost of service revenues in excess of our service revenues because of
our investment in the growth of this organization. Our Services Group has grown
from one person at December 31, 1997 to 16 at December 31, 1998 and 29 at July
31, 1999. This growth has required that we invest in hiring and training
personnel and building management and operational infrastructure. We expect
that our cost of services will continue to exceed our service revenues for at
least the next several quarters.
Operating Expenses
Sales and Marketing. We market our products principally through our direct
sales force. Sales and marketing expenses consist of personnel costs, including
commissions and related overhead costs, as well as travel and entertainment
expenses, advertising and promotion expenses, trade shows and other marketing
costs. Sales and marketing expenses increased from $1.8 million in the
six months ended June 30, 1998 to $4.6 million in the six months ended June 30,
1999. This increase was due mainly to higher commissions associated with
growing revenues and to increased sales and marketing personnel. We expect
sales and marketing expenses to increase as we expand our direct sales force
and our other sales and marketing efforts. Specifically, we expect that sales
commissions and other direct selling expenses will increase as revenues and the
number of sales personnel increase.
Research and Development. Research and development expense consists
principally of salaries, benefits and related overhead costs as well as the
cost of consultants. Research and development expense increased from $1.0
million in the six months ended June 30, 1998 to $1.7 million in the six months
ended June 30, 1999. This increase was due primarily to increased research and
development personnel including consultants retained to assist in research and
development activity. We expect to continue to invest in research and
development for the foreseeable future.
General and Administrative. General and administrative expenses include
salaries, benefits and overhead associated with our executive, finance, human
resource, legal, accounting and internal information systems functions. General
and administrative expenses increased from $970,000 in the six months ended
June 30, 1998 to $2.0 million in the six months ended June 30, 1999. This
increase was due primarily to increased general and administrative personnel.
We expect general and administrative expenses to increase as we continue to
build our operational infrastructure and incur additional overhead associated
with being a public company.
Amortization of Acquired Intangible Assets. Amortization of acquired
intangible assets consists primarily of intangible assets acquired as part of
the LikeMinds acquisition in October 1998 and includes amortization of
goodwill, assembled workforce and patent costs. These intangible assets are
being amortized over their estimated weighted average economic life of 2.5
years. Amortization of acquired intangible assets increased from zero in the
six months ended June 30, 1998 to $496,000 in the six months ended June 30,
1999 due to the timing of the LikeMinds acquisition.
Non-cash Stock Compensation. We granted certain stock options to our officers
and employees at prices deemed to be below fair value of the underlying stock.
The cumulative differential between the fair value of the underlying stock at
the date the options were granted and the exercise price of the granted options
was $2.7 million at June 30, 1999. This amount is being amortized, on an
accelerated basis, over the four year vesting period of the granted options. As
a consequence, our results from operations will include deferred compensation
expense at least through 2003. During the six months ended June 30, 1998 and
1999, $45,000 and $429,000, respectively, was recognized as expense.
22
<PAGE>
Preferred Stock Accretion. Shares of our Series C, D and E mandatorily
redeemable convertible preferred stock are redeemable at the higher of the
original issuance price or the fair market value at any time after February 1,
2004. Accordingly, we have valued the mandatorily redeemable convertible
preferred stock at its fair value at the end of each period presented, with the
periodic differences recorded as preferred stock accretion. We recorded
preferred stock accretion of $25.1 million in the six months ended June 30,
1999. Upon completion of this offering, all outstanding shares of convertible
preferred stock will convert into shares of common stock, and preferred stock
accretion will cease.
Fiscal Years Ended December 31, 1996, 1997 and 1998
Revenues
Total Revenues. Revenues increased from $449,000 in 1997 to $2.0 million in
1998. We did not have any revenues in 1996 as we commenced shipping our first
product in 1997. Although we acquired LikeMinds in October 1998, we did not
derive any significant revenues from LikeMinds products in 1998.
License Revenues. License revenues increased from $413,000 in 1997 to $1.2
million in 1998. The increase resulted primarily from an increase in the number
of licenses of our ARIA product line.
Service and Maintenance Revenues. Service and maintenance revenues increased
from $36,000 in 1997 to $816,000 in 1998. The increase resulted primarily from
increased license sales which resulted in increased associated consulting
services. Maintenance revenues also increased as a result of an increase in the
installed customer base.
Cost of Revenues
Costs of Licenses. Cost of license revenues increased from $25,000 in 1997 to
$69,000 in 1998 as a result of the increase in the number of licenses sold in
1998.
Cost of Services and Maintenance. Cost of services revenues increased from
$18,000 in 1997 to $946,000 in 1998. This increase was primarily the result of
growth in the number of our Services Group personnel. We formed our Services
Group in late 1997 as a result of the increase in our software license
transactions. Throughout 1998, we built this organization by hiring personnel
and building operational infrastructure.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from $387,000 in
1996 to $1.5 million in 1997 and $5.2 million in 1998. The increase from 1996
to 1997 resulted mainly from increases in the number of sales and marketing
personnel and the related costs to develop a sales and marketing function. The
increase from 1997 to 1998 resulted primarily from increases in the number of
sales and marketing personnel as well as increased sales commissions resulting
from increased sales activity, increased travel and entertainment expenses from
the increased number of personnel and an increase in advertising expenses as we
began developing marketing programs to build awareness of Andromedia and our
products. Sales and marketing personnel increased from seven at December 31,
1996 to 15 at December 31, 1997 to 37 at December 31, 1998.
Research and Development. Research and development expenses increased from
$884,000 in 1996 to $1.4 million in 1997 and $2.3 million in 1998. The
increases in each of these periods were due primarily to increased numbers of
research and development personnel and consultants retained to assist in
research and development activities. Research and development personnel
increased from eight at December 31, 1996 to 13 at December 31, 1997 to 19 at
December 31, 1998.
23
<PAGE>
General and Administrative. General and administrative expenses increased
from $365,000 in 1996 to $857,000 in 1997 and $2.1 million in 1998. The
increases in each of these periods resulted primarily from increased personnel
and from 1997 to 1998, due to an increase in professional services for legal,
accounting and recruiting related activities. General and administrative
personnel increased from five at December 31, 1996 to seven at December 31,
1997 to 14 at December 31, 1998.
Amortization of Acquired Intangible Assets. Amortization of acquired
intangible assets totaled $247,000 in 1998 resulting from the LikeMinds
acquisition. There was no amortization of intangible assets in 1996 and 1997.
Non-cash Stock Compensation. Our results of operations will include
amortization of deferred non-cash stock compensation expense at least through
2003. Non-cash stock compensation expense totaled $287,000 in 1998. There was
no amortization of deferred non-cash stock compensation in 1996 or 1997.
Write Off of Acquired In Process Technology. In connection with the
acquisition of LikeMinds in October 1998, we recorded an expense for in process
research and development acquired from LikeMinds which had not yet reached
technological feasibility. This expense amounted to $455,000 and is stated
separately on our 1998 statement of operations.
The value assigned to acquired in process technology was determined by
identifying research projects in areas for which technological feasibility had
not been established as of the acquisition date. These include projects,
primarily major version upgrades, for our LikeMinds product line. We determined
the value by estimating the revenue contribution of each of these products and
the amount of the revenues attributable to the core/developed technology and
the in process technology. The net cash flows were then discounted utilizing a
weighted average cost of capital of 26.5%. This discount rate takes into
consideration the inherent uncertainties surrounding the successful development
of the in process research and development, the profitability levels of such
technology and the uncertainty of technological advances which could
potentially impact the estimates described above. We estimated the completion
level of acquired in process technology based on the time and related costs
incurred in development before the close of the acquisition in relation to
aggregate estimated costs of completing the project. The average percentage of
completion of the projects was 59% at the date of the acquisition. Revenues are
projected to be generated in 1999 for the versions in development at the
acquisition date. If these projects are not successfully developed, our future
revenues and profitability may be adversely affected. Additionally, the value
of other intangible assets acquired may become impaired.
Income Taxes. We did not record any provision or benefit for income taxes for
any of the periods presented as we have incurred net operating losses and have
no ability to carryback losses. At December 31, 1998, we had approximately
$11.9 million of federal net operating loss carryforwards available to offset
future taxable income. We have fully reserved our gross deferred tax assets
based on a number of factors including the lack of a long history of profits.
Preferred Stock Accretion. We recorded preferred stock accretion of $1.4
million in the year ended December 31, 1998.
24
<PAGE>
Quarterly Results of Operations
The following table sets forth certain unaudited consolidated statements of
operations data for the six quarters ended June 30, 1999, as well as the
percentage of our revenues represented by each item. These data have been
derived from unaudited interim consolidated financial statements prepared on
the same basis as the audited consolidated financial statements and, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, considered necessary for a full presentation of such
information when read in conjunction with the consolidated financial statements
and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- --------
Consolidated Statement of
Operations Data: (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses.............. $ 263 $ 198 $ 249 $ 443 $ 822 $ 893
Services and
maintenance........... 55 141 160 460 257 650
------- ------- ------- ------- ------- -------
Total revenues........ 318 339 409 903 1,079 1,543
------- ------- ------- ------- ------- -------
Cost of revenues:
Licenses.............. 10 11 16 32 51 78
Services and
maintenance........... 73 140 185 548 770 1,133
------- ------- ------- ------- ------- -------
Total cost of
revenues.............. 83 151 201 580 821 1,211
------- ------- ------- ------- ------- -------
Gross profit........... 235 188 208 323 258 332
Operating expenses:
Sales and marketing... 771 1,066 1,572 1,790 1,962 2,648
Research and
development........... 495 526 694 622 760 971
General and
administrative........ 442 530 453 681 874 1,076
Amortization of
acquired intangible
assets................ -- -- -- 247 248 248
Non-cash stock
compensation.......... 5 40 108 134 172 257
Write off of acquired
in process
technology............ -- -- -- 455 -- --
------- ------- ------- ------- ------- -------
Total operating
expenses.............. 1,713 2,162 2,827 3,929 4,016 5,200
------- ------- ------- ------- ------- -------
Loss from operations... (1,478) (1,974) (2,619) (3,606) (3,758) (4,868)
Interest income
(expense), net......... (17) 12 90 36 (64) 82
------- ------- ------- ------- ------- -------
Net loss............... $(1,495) $(1,962) $(2,529) $(3,570) $(3,822) $(4,786)
======= ======= ======= ======= ======= =======
As a Percentage of Total
Revenues:
Revenues:
Licenses.............. 82.7 % 58.4 % 60.9 % 49.1 % 76.2 % 57.9 %
Services and
maintenance........... 17.3 41.6 39.1 50.9 23.8 42.1
------- ------- ------- ------- ------- -------
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- -------
Cost of revenues:
Licenses.............. 3.1 3.2 3.9 3.5 4.7 5.1
Services and
maintenance........... 23.0 41.3 45.2 60.7 71.4 73.4
------- ------- ------- ------- ------- -------
Total cost of
revenues.............. 26.1 44.5 49.1 64.2 76.1 78.5
------- ------- ------- ------- ------- -------
Gross profit........... 73.9 55.5 50.9 35.8 23.9 21.5
Operating expenses:
Sales and marketing... 242.5 314.5 384.4 198.2 181.8 171.6
Research and
development........... 155.7 155.2 169.7 68.9 70.4 62.9
General and
administrative........ 139.0 156.3 110.8 75.4 81.0 69.7
Amortization of
acquired intangible
assets................ -- -- -- 27.4 23.0 16.0
Non-cash stock
compensation.......... 1.6 11.8 26.4 14.8 15.9 16.7
Write off of acquired
in process
technology............ -- -- -- 50.4 -- --
------- ------- ------- ------- ------- -------
Total operating
expenses.............. 538.8 637.8 691.3 435.1 372.1 336.9
------- ------- ------- ------- ------- -------
Loss from operations... (464.9) (582.3) (640.4) (399.3) (348.2) (315.4)
Interest income
(expense), net......... (5.3) 3.5 22.0 4.0 (5.9) 5.3
------- ------- ------- ------- ------- -------
Net loss............... (470.2)% (578.8)% (618.4)% (395.3)% (354.1)% (310.1)%
======= ======= ======= ======= ======= =======
</TABLE>
25
<PAGE>
We develop our business plans and establish our hiring and staffing plans
based on expectations of future revenue. Since we operate in an emerging market
and have a short operating history, our revenues are difficult to forecast with
accuracy and consequently, our expectations of future revenue may not be
accurate. If our revenues fall short of our expectations, our results of
operations may be disproportionately adversely affected as our expenses are, in
large part, fixed. In addition, as we have a short operating history, quarter
to quarter comparisons of our operating results may not be meaningful and
should not be relied upon as an indicator of future performance.
Liquidity and Capital Resources
Since inception, we have financed our operations and funded our capital
expenditures through the private sale of equity securities, resulting in net
proceeds of $30.5 million through June 30, 1999. As of June 30, 1999, we had
$9.1 million in cash and cash equivalents and $7.4 million in working capital.
Net cash used in operating activities was approximately $1.3 million in 1996,
$3.3 million in 1997, $7.9 million in 1998 and $6.9 million for the six months
ended June 30, 1999. For such periods, net cash used in operating activities
was primarily used to fund ongoing operations.
Net cash used in investing activities was approximately $135,000 in 1996,
$105,000 in 1997, $1.1 million in 1998 and $1.2 million for the six months
ended June 30, 1999. Investing activities for the periods consisted primarily
of capital expenditures, including the purchase of computer equipment and
related software. Although we did not have any material capital expenditure
commitments outstanding at June 30, 1999, we expect that our capital
expenditures will continue to increase as our operations grow. We have recently
executed a lease for a significant amount of additional office space to
accommodate our growth. We will make aggregate rental payments of approximately
$5.2 million over the five year term of this lease.
Net cash provided by financing activities was $1.8 million in 1996, $3.7
million in 1997, $10.2 million in 1998, and $15.2 million for the six months
ended June 30, 1999, and consisted primarily of proceeds from the issuance of
preferred stock. We have a $2.0 million accounts receivable revolving line of
credit with Silicon Valley Bank that bears interest at the prime rate (7.75% at
June 30, 1999) and expires in February 2000. There are currently no outstanding
borrowings under this line, although the amount available for borrowing has
been reduced by the issuance of a $100,000 letter of credit. We have a $1.0
million equipment line of credit with the same bank bearing interest at prime
rate plus 0.50% (7.75% at June 30, 1999) that expires in February 2000. In
August 1999 and February 2000, amounts funded under this line convert to a term
note repayable in 36 equal monthly installments. As of June 30, 1999, we had
approximately $452,000 in borrowings outstanding under this equipment line. We
also have an outstanding term loan with the same bank bearing interest at a
rate of prime plus 0.50% in the amount of $326,000 as of June 30, 1999. This
term loan is being repaid in equal monthly installments through May 2001. The
term loan and lines of credit are secured by all of our tangible and intangible
personal property, including our intellectual property rights. Our borrowing
arrangements require us to comply with various financial covenants and restrict
us from declaring dividends.
We expect to experience significant growth in our operating expenses and
capital expenditures for the foreseeable future. Management believes that the
net proceeds of this offering, together with our existing cash and cash
equivalents, and commercial credit facilities will be sufficient to meet our
working capital and capital expenditure needs for at least the next 12 months.
In addition, we may use cash resources to fund acquisitions or investments in
complementary businesses, products, services and technologies. Thereafter, we
may require additional funds to support our working capital requirements or for
other purposes and may seek to obtain additional equity or debt financing. We
cannot assure you that additional financing will be available at all, or if
available, that it will be obtainable on favorable terms.
26
<PAGE>
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000
from dates prior to the year 2000. Many companies' software and computer
systems may need to be upgraded or replaced in order to correctly process dates
beginning in 2000.
State of Readiness. Our business is dependent on the operation of numerous
systems that could potentially be impacted by year 2000 related problems. Those
systems include, among others:
.hardware and software systems used by us to deliver services to our
customers, including our proprietary software systems as well as hardware
and software supplied by third parties;
.communications networks, such as the Internet and private intranets, which
we depend on to communicate both internally and with our customers and
potential customers;
.the internal systems of our customers and suppliers;
.the hardware and software systems used internally by us in the management
of our business; and
.non-information technology systems and services used by us in our
business, such as telephone systems and building systems.
We have and plan to continue to internally review both our internal
operational systems as well as our software and service product offerings to
determine their year 2000 readiness. With regard to internal systems, we have
primarily focused on information technology systems that serve critical
operational, financial, administrative and customer support functions. Our
evaluation and remediation of such issues have centered on ensuring that we are
operating on manufacturer provided software and system updates that the
manufacturers have identified either directly to us or generally through
product literature as being year 2000 ready. We have not undertaken audits and
tests of those systems to ensure year 2000 readiness because vendors for these
systems have made written representations either directly to us or through
product literature that their systems are year 2000 compliant although we do
not independently verify the accuracy of such representations. In the event our
vendors do not provide us adequate assurance of the year 2000 readiness of
their systems, we intend where possible to identify other vendors offering
comparative product offerings who can provide us such assurances. As a result,
some of these systems may, either independently or in combination with systems
become affected by the year 2000 date change. In addition, we are aware of a
number of non-critical software products we use internally in everyday
operations which are not expected to be year 2000 certified by their
manufacturers. These systems are generally off-the-shelf software products
which we believe are replaceable without material affect on the company if they
prove to be incapacitated in the year 2000. Further, we have not initiated and
do not plan to initiate a review of our non-information technology systems
which we believe to be non-critical.
With regard to our software products and services, we have tested our ARIA
and LikeMinds versions 3.0 and later releases using the British Industry
Standard test methods to determine whether our products will function as
warranted across certain dates generally recognized as being of potential
concern for software applications. Based on the results of these tests, we have
concluded that these releases of our software are year 2000 ready. We cannot
assure you that our testing procedures are adequate to identify all potential
year 2000 issues. We have made available to our customers year 2000 compliant
versions of ARIA and LikeMinds under the terms and conditions of our standard
maintenance and support agreements.
Costs. To date, we have not incurred any material expenditures in connection
with identifying or evaluating year 2000 compliance issues. Most of our
expenses have related to, and are expected to continue to relate to, the
operating costs associated with time spent by employees in the evaluation
27
<PAGE>
process and year 2000 compliance matters generally. While we have not completed
all of our year 2000 readiness efforts, based on our assessment to date of year
2000 readiness of systems critical to our business operations, we do not
anticipate that we will incur significant operating expenses or be required to
invest heavily in computer systems improvements to be year 2000 compliant.
However, significant uncertainty exists concerning the potential costs and
effects associated with year 2000 compliance. If expenses relating to year 2000
compliance are higher than anticipated, it could seriously harm us.
Risks. We are not currently aware of any year 2000 compliance problems
relating to our software solutions that would seriously harm us. However, we
cannot assure you that we will not discover year 2000 compliance problems that
will require substantial expenditures to correct. In addition, clients use our
software products in numerous and varied computing environments and in
combination with numerous other software products. We have not undertaken a
study of our customers' year 2000 readiness nor have we undertaken a study of
the environments in which our software may be deployed. Further, our software
is integrated with a number of third party software products, some of which
have not been classified as year 2000 ready by their manufacturers. Our
software testing procedures included these third party software components in
the testing of our own products and we believe that the noncompliant aspects of
these third party products do not affect that functions that our software
relies on. There can be no assurance that our testing procedures are adequate
to identify all potential year 2000 issues.
Furthermore, our success may depend on our customers success in identifying
and managing year 2000 issues in a timely manner. We expect that in general,
many of our larger clients will restrict or eliminate software system
purchasing decisions in the last quarter of 1999 in order to gain system
stability for the year 2000 date change. Further, depending on the success of
our customers in identifying and mitigating their year 2000 issues, significant
remediation of year 2000 issues required in the first of quarter of 2000 is
possible. This may have the result of significantly reducing new contract sales
opportunities in the fourth quarter of 1999 and the first quarter of 2000 and
may impact the investment made by our customers in continuing to install
software previously acquired from us during these quarters. This may cause us
serious harm.
Worst Case Scenario. We believe that our worst case scenario would be a
complete failure of our ARIA and LikeMinds product lines. Any such failures
would cause our customers to be unable to monitor, analyze and improve the
effectiveness of their Web site activity, and could cause the partial or
complete failure of other unrelated software being utilized by such customers.
Contingency Plan. As discussed above, we are engaged in an ongoing year 2000
assessment and have not yet developed any contingency plans. The results of our
year 2000 testing and the responses received from third-party vendors and
service providers will be taken into account in determining the nature and
extent of any contingency plans. We currently expect to develop a contingency
plan, if we deem it necessary, prior to December 1, 1999. If we should
determine that a contingency plan is not warranted, our business and financial
condition could be seriously harmed in the event of unanticipated year 2000
related problems.
Interest Rate Risk
We have an investment portfolio of money market funds and fixed income
certificates of deposit. The fixed income certificates of deposit, like all
fixed income securities, are subject to interest rate risk and will fall in
value if market interest rates increase. We attempt to limit this exposure by
investing primarily in short-term securities. In view of the nature and mix of
our total portfolio, a 10% movement in market interest rates would not have a
significant impact on the total value of our portfolio as of June 30, 1999.
28
<PAGE>
BUSINESS
We are a leading provider of e-marketing solutions. We offer a comprehensive
e-marketing solution that combines advanced Web site monitoring,
personalization and analysis capabilities. Our solution monitors and analyzes
Web site activity and visitor behavior data and, in real-time, helps our
customers improve the effectiveness of their Internet marketing and selling
efforts. Our solution helps companies identify and target the most qualified
customers, know their tastes and preferences, refine sales and marketing
tactics in real-time and predict likely cross-selling opportunities.
Our e-marketing software applications consist of our ARIA and LikeMinds
product lines that are sold as an integrated solution or individually. ARIA
provides comprehensive Web site monitoring and analysis software that allows
marketers to better understand how customers respond to particular Web pages,
content categories and e-marketing campaigns. LikeMinds personalization
software provides personally relevant predictions of which content and products
will be best suited for Web site visitors. LikeMinds personalization software
also provides a Web site experience that we believe engages online customers,
keeps them at a Web site longer and encourages them to return to the Web site
more frequently. In addition, we provide professional services to assist
customers in identifying, implementing and integrating Web-based technologies
to improve the effectiveness of their Internet marketing and selling efforts.
Industry Background
Growth of the Internet and E-commerce. The Internet has emerged as a powerful
and rapidly growing medium for communication and commerce. International Data
Corporation estimates that the number of Web users will grow from approximately
142 million worldwide in 1998 to 502 million by the end of 2003, and Forrester
Research estimates that Internet business-to-business and business-to-consumer
transactions in the United States will grow from $51 billion in 1998 to over
$1.4 trillion in 2003.
We believe that companies generally adopt the Internet as a medium of
commerce in three phases. In the first phase, or the e-presence phase,
companies seek to quickly establish a presence on the Internet. These early
efforts often consist of a Web site composed primarily of a company's marketing
literature that provides online access to information about a company's
products or services, organization and operations. In the second phase, or the
e-commerce phase, a company begins, often in a rudimentary manner, to offer
goods and services for sale online. During this phase, companies generally
begin to evaluate the effectiveness of their online presence. In the third
phase, or the e-marketing phase, companies begin to focus on effectively
marketing to the growing number of individuals and businesses buying goods and
services on the Internet by delivering a highly personalized experience to
online buyers.
Challenges of Marketing and Selling on the Internet. While some early
participants in e-commerce have achieved a high degree of brand recognition and
revenue growth, they are now facing an increasingly competitive market.
Forrester Research estimates that 82% of large U.S. companies (1,000 or more
employees) will be doing business online by 2002.
In addition to increased competition, companies using the Internet face the
following marketing and selling challenges.
. High Level of Customer Choice. The Internet greatly facilitates
comparison shopping and increases the ease of switching online merchants.
. Lack of Traditional Competitive Differentiation. The Internet reduces the
effectiveness of many of the key factors that previously differentiated a
company's products or services such as price, location, availability and
access.
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. Reduced Personal Interaction. The Internet greatly reduces the
opportunity for face-to-face contact and interpersonal relationships that
serves as a powerful means of customer acquisition and retention.
. High Level of Customer Expectations. Online customers expect a high
degree of product selection and are beginning to require a higher level
of service and support.
The result is that many companies conducting business on the Internet are
finding it difficult to attract and retain customers. Forrester Research
estimates that only 2.7% of visitors to an e-commerce Web site convert from
browsers into buyers. Forrester Research also reports that 44% of online
merchants do not track their rate of success in converting browsers into
buyers. Nevertheless, these results come in an environment where the data to
better understand and attract online customers is readily available. The
Internet enables the collection of information on a customer's tastes and
preferences in a way previously unavailable using other media. The Internet
offers the ability to capture an unprecedented amount of data on what
individual customers buy, as well as how they respond to advertising,
promotions and Web site layout. Importantly, this data is available in real-
time, meaning at the moment the customer is engaged with a Web site.
In order to attract and retain customers, companies must improve their Web
site monitoring, personalization and analysis capabilities. With improved Web
site monitoring capabilities, companies are able to gain insight about their
customers by observing and capturing customer behavior in real-time as the
customer browses the Web site. By personalizing Web page content to better
reflect customer tastes and preferences, companies will be able to enhance the
user's Web site experience and improve the conversion rate of browsers into
buyers. With improved Web site analysis, companies can receive feedback to
measure and evaluate the effectiveness of their marketing messages, promotions
and campaigns.
Limitations of Current Solutions. To date, companies have primarily purchased
and implemented two groups of specific applications to address the challenges
of online marketing and selling. The first group of specific applications
consists of Web site analysis and tracking tools. Most of these tools analyze
the information contained in the detailed activity logs generated by Web
servers. However, to date these products have not analyzed the more valuable
data stored within an e-commerce application, such as when a user puts an item
in a shopping cart, purchases the contents of the cart or rejects items rather
than purchasing them. In addition, these products have been limited in their
ability to scale to handle the demands of highly trafficked Web sites. The
second and newer group of specific applications, personalization software,
enables Web site content and services to be tailored to particular individuals
based on detailed information about their tastes and preferences. However, we
believe current personalization software is limited in its ability to predict
individual tastes and preferences and buying behavior. In this regard, if a
company is unable to accurately predict a customer's buying patterns, it
becomes much more difficult to create a personally relevant Web site experience
that attracts users back to the Web site. For example, if a company is using
its Web site to sell books, making poor or inaccurate recommendations will
erode user trust.
The Andromedia Opportunity. We believe a significant market opportunity
exists for a comprehensive solution that integrates advanced Web site
monitoring, personalization and analysis capabilities. The benefits of an
integrated solution are two-fold. First, the accuracy of personalization can be
significantly improved by leveraging the information gained through real-time
Web site monitoring, thereby ensuring that more personally relevant content is
delivered to online users. Second, personalization effectiveness can be
measured, evaluated and adjusted through offline analysis.
In short, an integrated e-marketing solution must:
.observe, capture and analyze customer behavior;
.provide personally relevant information to a customer;
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.adjust that information based on real-time customer responses;
.measure the effectiveness of that interaction to refine the e-marketing
process; and
.provide enhanced analysis of captured customer data and other traditional
data resources.
Our Solution
We are a leading provider of e-marketing software solutions. We provide an
integrated solution that monitors and analyzes Web site activity and visitor
behavior data and, in real-time, helps our customers improve the effectiveness
of their Internet marketing and selling efforts. We combine sophisticated data
monitoring, personalization, analysis and reporting, and the ability to
leverage captured online data with other traditional data resources. Our
solution helps companies identify and target the most qualified customers,
understand their tastes and preferences, refine sales and marketing tactics in
real-time and predict likely cross-selling opportunities. We have designed our
solution to convert Web site browsers into buyers, and buyers into loyal
customers, which we believe can significantly increase our customers' e-
commerce revenues.
Our integrated e-marketing solution includes the following product lines:
. ARIA software provides comprehensive Web site monitoring and analysis.
ARIA directly interfaces with Web servers and e-commerce applications to
gather data on customer behavior in real-time. ARIA then allows marketers
to analyze this information to better understand how customers respond to
particular Web pages, content categories and e-marketing campaigns. ARIA
also captures and provides the customer behavior data necessary to enable
effective personalization.
. LikeMinds personalization software provides personally relevant
predictions of which content and products will be best suited for Web
site visitors. These predictions may be based upon data gathered by ARIA,
other e-commerce applications or traditional data resources. LikeMinds
personalization software also provides a Web site experience that we
believe engages online customers, keeps them at a Web site longer and
encourages them to return to the Web site more frequently.
We sell our two software product lines, ARIA and LikeMinds, as an integrated
solution or individually. The flexibility and breadth of our product offering
allows our customers to purchase a solution that matches the initial scope of
their e-commerce strategies and that can be easily augmented as they develop
more sophisticated e-marketing needs.
To understand how our e-marketing solution works, consider the sales process
in a traditional business. A good salesperson carefully watches how a customer
shops. Based on those observations the salesperson can infer what the shopper
is most interested in and may even learn something about the shopper's
personality. A good salesperson then helps the shopper find what he or she
wants, learns more about the customer through that interaction, and uses that
information to sell additional merchandise. Through a series of such
interactions, a salesperson learns to recognize customer tastes and
preferences, builds his or her sales skills and transitions from being simply a
salesperson to a trusted advisor.
Our integrated e-marketing software solution behaves similarly. It collects
data on customer browsing and shopping behavior. It works with other e-commerce
applications to intelligently interact with online customers. It gains
information about their tastes and preferences and provides personally relevant
information and purchase recommendations. Our e-marketing software refines its
marketing and selling tactics based on immediate feedback and analysis. In
short, we believe our software provides a highly effective "virtual
salesperson" for online customers.
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We believe our solution offers the following benefits:
Delivers Improved Marketing Results. LikeMinds personalization capabilities
are designed to reflect the characteristics of an individual customer rather
than a group of customers and thereby provide more accurate and relevant
information to online customers. LikeMinds also adapts and responds to customer
behavior in real-time. This allows marketers to continuously refine their
understanding of each customer, thereby improving their ability to provide the
most up-to-date and personally relevant recommendations to customers while they
are actively engaged on a Web site. We believe that this will be extremely
beneficial to companies as customers increasingly demand a more personalized
experience based upon the time and frequency spent at Web sites.
Provides Enhanced Marketing Feedback. ARIA's activity reports are available
to immediately provide important and timely insight on the effectiveness of
online marketing campaigns. We have designed ARIA to interface directly with e-
commerce Web applications, rather than simply a Web log file, providing higher
value marketing information. ARIA's real-time monitoring of customer behavior
provides improved insight into a customer's timing and propensity of product
purchases.
Scales with the Growth of E-commerce. ARIA can collect, store and analyze the
data generated from more than 40 million page views and 200 million Web hits in
a single day, making it capable of handling the most demanding e-commerce
applications in use today. In addition, ARIA can operate across multiple Web
servers, giving organizations the capability to monitor, capture and analyze
data across multiple, complex Web sites.
Leverages a Broad Range of Data. LikeMinds is designed to integrate with
legacy databases that contain important historical customer data, such as
purchase history.
Our Strategy
Our objective is to be the leading provider of e-marketing software solutions
for marketing and selling on the Internet. Our strategy includes the following:
Establish Our Products as the Leading E-marketing Software Solution. We
believe that the e-marketing software application market has just begun to
emerge. We believe that by being the first to market with an integrated e-
marketing software solution, we have an opportunity to establish our products
as the leading solution for comprehensive and effective e-marketing. By
implementing our solution across a broad spectrum of companies engaging in e-
commerce, our goal is to establish our products as the most widely used
automated e-marketing solution.
Deliver the Most Comprehensive E-marketing Solution. We intend to extend the
capabilities of our integrated Web site monitoring, personalization and
analysis solution. The core value of our integrated solution, which enables
companies to provide a personally relevant Web site experience for each
visitor, is dependent on the quality and breadth of online and other
traditional customer data available for analysis. As a result, we intend to
continue to improve our ability to identify, monitor and gather high-value
sources of online customer behavior as well as our ability to integrate with
leading e-commerce applications and third-party offline data sources. In
addition, as our customers' needs evolve, we intend to extend our decision
support and reporting capabilities with additional data analysis and data
mining techniques to provide companies with additional information and more
detailed reporting capabilities.
Leverage and Expand Relationships with Leading E-commerce Software
Providers. We intend to strengthen our existing relationships, and to develop
new relationships, with leading e-commerce software providers which will enable
us to continue to enhance the value of our solutions to customers and
accelerate the market acceptance of our products. For example, through our
existing
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relationships with early leaders in Internet relationship management, including
BroadVision and Vignette, we have been able to design our solutions to directly
capture customer behavior, such as shopping cart inserts, deletions and
checkouts and keyword searches, which are stored in their software
applications. In many cases, this enables our customers to more easily employ
our products as part of larger, off-the-shelf solutions, thereby minimizing the
need for custom application development. We also intend to expand our
relationships with e-commerce software application providers whose applications
are suitable for the acceptance of recommendations and profiles from our
LikeMinds Personalization Server. We believe that a continued focus on
strategic relationships will enable us to continue to broaden the market for
our products.
Expand Our Global Presence. We believe that the e-marketing software market
has just begun to emerge in the United States and we are focused on capturing
new customers and expanding our presence in the domestic market. We intend to
increase the number of our direct sales professionals as well as utilize
systems integrators and resellers to address our domestic market opportunity.
We believe that international markets will represent a significant market for
our products and services. To capitalize on this growing international market,
we plan to expand our direct sales, marketing and support presence in selected
European markets and, to a lesser extent, develop alliances with international
distributors. We believe that an early presence in these markets will enhance
our long-term competitive position in these regions.
Capitalize on Our Installed Base of Customers. We currently have an installed
base of over 100 customers. Since most of our customers have purchased only one
or a few product components, we believe there is a significant opportunity for
follow-on sales. In addition, many customers use our products in specific
business units or locations, giving us the opportunity to sell across the
enterprise. Finally, since many of our customers are experiencing increasing
Web site traffic, we may be able to sell additional licenses based on increased
usage levels.
Pursue Strategic Acquisitions. We intend to pursue acquisitions of
businesses, products, services and technologies that are complementary to our
strategic focus and to expand our position in the e-marketing software
marketplace. For example, our acquisition of LikeMinds in late 1998 has enabled
us to provide an integrated Web site analysis and personalization solution.
Our Products
We offer a comprehensive line of e-marketing software applications that
consists of our ARIA and LikeMinds product lines. Our ARIA product line
captures, and our LikeMinds product line uses, information about the tastes and
preferences of online users each time a user visits a Web site or volunteers
information in response to survey questions. We offer ARIA and LikeMinds to
customers as stand-alone applications or as an integrated e-marketing solution.
ARIA Product Line. ARIA is a leading Web site activity tracking and analysis
solution for high-traffic Web sites. Marketers and Web site developers rely on
ARIA to measure the effectiveness of their e-marketing activities. For example,
ARIA can:
.analyze and identify the most valuble customers and what attracted them to
the Web site;
.identify the best-selling products;
.determine which promotions are the most effective;
.identify the most effective cross-selling opportunities; and
.improve Web site lay out based on navigation patterns of Web site
visitors.
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The table below provides an overview of our ARIA product line and its key
capabilities.
<TABLE>
<CAPTION>
ARIA Product Key Capabilities
- ----------------------------------------------------------------------------------------
<C> <S>
ARIA Standard . Provides Web site monitoring, analysis and
reporting capabilities for a single host Web
server.
- ----------------------------------------------------------------------------------------
ARIA Enterprise . Includes same functionality as ARIA Standard.
. In addition, provides highly scalable Web site
monitoring and analysis capable of analyzing Web
site visitor behavior across complex, dynamic
and multi-server Web sites with high traffic
levels.
- ----------------------------------------------------------------------------------------
ARIA eCommerce . Includes same functionality as ARIA Enterprise.
. In addition, interfaces directly with e-commerce
applications and provides real-time reports on
events that occur within those applications.
- ----------------------------------------------------------------------------------------
Personal ARIA . Provides intuitive user interface that enables
marketers to create, run and save custom reports
tailored to their particular marketing needs.
</TABLE>
ARIA Standard, ARIA Enterprise and ARIA eCommerce all provide easily
customizable pre-designed reports to effectively distribute insight on customer
behavior and the effectiveness of e-marketing campaigns. Reports can be
generated on demand or in regular intervals and can be distributed in a
spreadsheet format or accessed through a Web browser. Customers who need more
highly customized reports use Personal ARIA, which we provide with both ARIA
Enterprise and ARIA eCommerce.
LikeMinds Product Line. Our LikeMinds Personalization Server provides
personally relevant content and product recommendations to customize
interaction with customers who are actively browsing a Web site. LikeMinds
Personalization Server becomes more effective with each purchase or customer
interaction, continuously refining its understanding of each consumer and
improving its predictive capabilities. It can use explicitly expressed
preferences as well as preferences implicit in interactions such as purchases,
shopping activity or responses to promotions. The LikeMinds Personalization
Server can be used to:
. create a recommendation application. Users often like to express their
opinion on products, such as rating a movie or a restaurant. LikeMinds
can use this information to present similar products most likely to
appeal to that individual user;
. deliver instant recommendations when a user first enters a Web site based
on the user's browsing and purchase history and demographic profile;
. deliver personalized content and product recommendations based on a
user's clickstream, such as additions and deletions from a shopping cart;
and
. make recommendations based on users' expressed lifestyle preferences such
as their taste in food, music, clothes and activities.
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We offer our LikeMinds Personalization Server with a variety of analysis
engines to meet the requirements of each customer. While the Preference Engine
and Product Matching Engine are included with the LikeMinds Personalization
Server, the Purchase Engine and Clickstream Engine are sold separately. The key
capabilities of each analysis engine that we currently offer are described in
the table below.
<TABLE>
<CAPTION>
LikeMinds Product Key Capabilities
- -------------------------------------------------------------------------------
<C> <S>
. Provides core personalization
LikeMinds Personalization Server technology.
Preference Engine . Uses explicitly stated user preferences
to make personally relevant product
recommendations.
Product Matching Engine . Makes personally relevant product
recommendations based on product
similarities.
. Observes online behavior and enables
the automatic tailoring of Web site
content to each customer's tastes and
preferences.
- -------------------------------------------------------------------------------
Purchase Engine . Enables e-commerce companies to
leverage customer purchase history data
to make personally relevant
recommendations.
- -------------------------------------------------------------------------------
Clickstream Engine . Builds online customer profiles in
real-time, based on navigational data
as customers browse a Web site.
</TABLE>
Our Technology
[FLOW CHART OF ANDROMEDIA E-MARKETING PLATFORM]
Our ARIA and LikeMinds products leverage the functionality of a common
platform to enable scalable, flexible and accurate Web site monitoring,
analysis and personalization. Both the ARIA and LikeMinds products generally
run on Sun MicroSystems Solaris and Microsoft NT operating systems with the
exception of the ARIA recorder which operates only on Sun MicroSystems Solaris.
The architecture is compatible with application programming interfaces, or
APIs, communication protocols and file formats to enable integration with
external systems such as Web e-commerce servers and business process
applications. The architecture also utilizes numerous standard programming
languages, including extensible markup language, or XML, and network protocols,
including the Information and Content Exchange protocol, or ICE. ICE is
utilized to syndicate and distribute data from ARIA monitors to the LikeMinds
Personalization Server and reporting applications.
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ARIA Technology
We have based the ARIA product line on a common architecture that consists of
three core components:
Monitors. We have equipped ARIA with Web site monitors that are able to
interface with Web servers and applications to gather Web site activity data in
real-time. Unlike other Web site tracking software, the ARIA monitors do not
capture information from Web server transaction logs, which can rapidly become
very large and significantly slow down processing times. Unlike the Web log
file approach, we believe that our monitor technology provides the level of
detail required for marketers to translate Web site activity information into
useful marketing and sales intelligence. In addition, unlike the ARIA monitors,
other software solutions that use monitors store data in a database or data
warehouse where the data is not available for real-time analysis or
personalization. ARIA monitors can be easily extended to collect new kinds of
Web site information that is provided to third-party applications such as the
LikeMinds Personalization Server. ARIA currently uses three different types of
monitors:
. ARIA Network Monitors. These monitors are placed at strategic points
within the network to capture the interaction between Web browsers and
the Web server. They examine the content of the interaction and extract
page tags, page titles and other valuable information;
. ARIA Server Monitors. These monitors plug directly into Web servers,
providing the only method of accessing data that is transmitted through
the Secure Sockets Layer connection. They supply real-time Web site
activity data by automatically capturing and making available information
from the Web server; and
. ARIA Application Monitors. These monitors integrate with e-commerce
applications to gather data on Web site activity such as shopping cart
inserts, deletes and checkouts, key word searches and other e-commerce
activities.
Recorders. The ARIA recorder is the processing engine that resides in the
central part of the application and receives the data from the monitors. We
license technology from Object Design, Inc. for the recorder database under a
license agreement pursuant to which we pay royalties to Object Design based on
sales of ARIA products incorporating the Object Design technology. This license
agreement expires on December 31, 1999. We expect to renew this license but
cannot assure you that a renewal, if any, will be on commercially reasonable
terms.
Reporter. The ARIA reporter creates reports based on the Web site activity
information stored in a highly scaleable object database optimized for creating
ARIA reports. ARIA reports can be generated on demand or in regular intervals
and can be distributed in a spreadsheet format or as HTML documents accessible
by a Web browser.
LikeMinds Technology
The LikeMinds Personalization Server uses our patented collaborative
filtering algorithms. Collaborative filtering technology works as follows:
. the system records a value to represent a user interaction such as rating
a product, viewing a page or purchasing a product. The values can be
derived directly from explicit ratings or implied from data such as
clickstreams or purchase history;
. LikeMinds matches the selected user with others who have viewed or
purchased the same items;
. LikeMinds then computes how similar the target user is to other users who
have viewed or purchased the same items;
. after the comparison, similar users are selected as "proxies" or
"mentors"; and
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. when an application requests a recommendation for personalized content or
a product recommendation, the LikeMinds Personalization Server retrieves
the relevant data associated with that person's proxies or mentors to
predict items likely to appeal to the target individual.
We believe that LikeMinds' patented collaborative filtering process provides
an advantage over competing technologies. Other collaborative filtering
algorithms typically partition users into static clusters which provide an
individual prediction that is the arithmetic mean of all users in the same
static cluster. This static cluster methodology works for those users whose
behavior closely matches the average of the cluster, but its accuracy suffers
for users whose behavior deviates from the average. In contrast, LikeMinds
dynamically creates an individual cluster in real-time for each customer every
time a personalization application requests a recommendation for that customer.
As a customer's tastes change, the members of the customer's cluster change so
that only those individuals that most closely match the behavior of the target
customer remain as proxies or mentors for that customer. As a result,
LikeMinds' predictions are based on dynamically updated customer data and
continuously provide the most personally relevant content and product
recommendations for each customer.
Customers
Our customers represent a broad spectrum of enterprises in diverse sectors
including education and government, entertainment, financial services,
manufacturers, media, online merchants, traditional retailers and technology
companies. Below is representative list of our customers that have purchased at
least $25,000 of our products and services since January 1, 1998:
<TABLE>
<CAPTION>
Online Companies Manufacturers/Retailers Technology
<S> <C> <C>
Big Star Entertainment Audi BellSouth
Everything LLC/CheckOut.com Daimler-Chrysler Broderbund Software
Cybershop International Encyclopedia Britannica EarthLink
E*Trade Hallmark Home Services Network
Giant Step Levi Strauss & Co. Intelenet Communications
iVillage Office Depot MatraNet
Internet Gift Registry Office Max Sun Microsystems
Medscape United Parcel Service US West
Motley Fool Xerox Corporation Telecom New Zealand Ltd.
NetFlix.com
Duck Corporation/On2.com Media Financial Services
Pangolin All Media Guide Chase Manhattan Bank
RealEstate.com Forrester Research First Union
visitalk.com Fox Home Entertainment Interactive Investor
www.com Launch Media Intuit
NewsReal
Government Total Sports
General Services Administration The Weather Channel
U.S. Postal Service
Entertainment
Cinemax/HBO
Columbia House
Diva Systems
Sony Online Entertainment
West Coast Video
</TABLE>
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Customer Case Studies
The following customer case studies illustrate the use and implementation of
our products and services by two customers that we believe represent typical
customers for our products and services.
Internet Gift Registries, Inc.
Internet Gift Registries, Inc., a Denver-based multi-media Internet eCommerce
company, owns and operates WeddingNetwork.com, a leading online bridal registry
service.
Business Challenge. Internet Gift Registries wanted to personalize its online
dress catalog to enhance its customer service and increase its revenue and
upsell opportunities. Traditionally, the dress selection process has required
women to have extensive knowledge about the numerous styles and sizes that are
available. Women often do not know what to look for and consequently have
difficulty finding a dress they like. Internet Gift Registries wanted a
solution to enhance the dress selection process by providing personalized dress
recommendations through its online catalog. The challenge of providing
personalized service was compounded by the number and variety of dress types,
styles and cuts available.
Our Solution. Using our LikeMinds Personalization Server, Internet Gift
Registries is constructing a virtual showroom for bridal dress selection. The
LikeMinds Personalization Server will be used to generate recommendations based
on a user's tastes and preferences gathered after rating a variety of dresses.
Users will then be able to select from additional options in their price and
style range that they would otherwise not have known about. To ensure privacy,
the interactive showroom displaying the dress will be password protected,
allowing users to privately share their selections with family and friends.
The Weather Channel
The Weather Channel Web site, weather.com, is a leading source of weather on
the Web.
Business Challenge. Weather.com's success depends on the effectiveness of its
marketing campaigns and strategic distribution partnerships. The Weather
Channel needed timely and accurate metrics on its distribution partnerships as
well as other e-marketing campaigns to determine which partnerships were the
most profitable and which campaigns were most effective. In addition, the
Weather Channel needed to implement a solution that could scale to handle the
demands of its Web site which is deployed across multiple Web servers and
averages more than 130 million page views per month.
Our Solution. The Weather Channel implemented the ARIA solution to monitor,
analyze and report on its distribution partnerships and marketing campaigns in
real-time. ARIA has significantly reduced the time and effort the Weather
Channel previously spent using conventional log file analysis tools and
dramatically improved the quality and depth of information available to analyze
its distribution partnerships and marketing campaigns. With the information
gathered from ARIA. The Weather Channel has been able to determine the
effectiveness of distribution partnerships and better understand how visitors
respond to individual marketing campaigns. In addition, ARIA has been able to
handle the high traffic demands of the Weather.com Web site. The ARIA solution
is designed to handle Web site usage spikes of more than 40 million page views
per day triggered by users researching severe weather conditions.
Professional Services
Our Services Group provides consulting services and customer support. We
believe that providing superior consulting services and customer support are
critical to the satisfaction of our customers and our own success. As of July
31, 1999, our Services Group consisted of 29 employees.
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Consulting Services. We provide a variety of consulting services to help
companies implement our products and improve their marketing strategies. Our
Services Group offers a high level of expertise in Web analysis and reporting,
personalization techniques, customization and technology integration. We also
offer extensive education and training programs for our customers at our
offices in San Francisco and at customer sites.
Customer Support. We provide our customers with a variety of support
services, including telephone support, Web-based support and updates to our
products and documentation. Our Web-based support is available 24 hours a day
and provides answers to frequently asked questions, technical advice and an
area for downloading product updates. We enter our maintenance and support
contracts separate from our product license agreements. In addition to our
standard maintenance and support program, we also offer a premium maintenance
and support program that includes proactively monitoring the customer's Web
site to anticipate problems and provide real-time solutions.
Sales and Marketing
We market our products and services primarily through our direct sales force
and through indirect channels including Internet service providers, application
service providers, systems integrators, and Web design studios, as well as
other technology and marketing partners. We maintain sales offices in Boston,
Chicago, London, Los Angeles, New York and Washington, D.C. We also have sales
representatives based in Atlanta, Austin and Minneapolis. As of July 31, 1999,
we had 30 sales representatives, managers and support personnel. We intend to
increase our North American and European sales forces by opening new offices as
appropriate to meet demand.
We use a variety of marketing programs to build market awareness of
Andromedia and our integrated software solutions, as well as to identify
potential customers for our products and services. Our marketing department
currently includes 13 employees who conduct public relations, produce marketing
materials, participate in trade shows, conferences and seminars, develop sales
tools and presentations, conduct marketing research and establish and maintain
close relationships with industry experts. In addition, our marketing
department creates and maintains our Web site. Finally, product managers in our
marketing department conduct competitive research, determine marketing
requirements for our products and set product direction and priorities.
We also use our personalization technology to develop market awareness of
Andromedia. For example, we developed our Moviecritic.com Web site which
provides a place for online users to send and receive movie critiques and get
movie recommendations based on personal preferences provided by the user. We
believe that Moviecritic.com is now regarded as one of the leading movie
evaluation Web sites with an average of 45,000 visitors each month during 1999.
Although we do not currently operate Moviecritic.com as a separate business, we
may in the future establish it as a stand-alone business if we believe its
operating model becomes mature enough to exist independently. We are also in
the process of launching Bookcritic.com which will provide book recommendations
in a manner similar to Moviecritic.com.
Strategic Relationships
A key element of our strategy is to establish strategic relationships that
enable us to continue to enhance the value of our e-marketing solutions to
customers and accelerate the market acceptance of our products. These
relationships fall into two categories: technology partners and distribution
partners. We have strategic relationships with leading platform and
applications providers such as Allaire, ATG, BroadVision, Netscape/America
Online, Sun Microsystems and Vignette. We share with our partners sales and
marketing materials, sales leads and technology integration services. We have
also entered into distribution partnerships with eleven Internet services
companies: Anubis, BASE Consulting, DataSage, Fort Point Partners, iXL Inc.,
Multimedia Live, Net Effect, Net Quotient, Novo
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Interactive, Oven Digital and Stonebridge. We believe that these relationships
will both facilitate the successful deployment of our products and generate
additional product sales opportunities. With limited exceptions, our strategic
relationships are not governed by contractual terms and may be terminated at
any time without penalty. In addition, although we believe these relationships
are important to our business strategy, we do not typically generate revenue
that is directly attributable to our strategic partners.
Competition
The market for e-marketing software applications, including Web site tracking
and analysis solutions and personalization solutions, is new, rapidly evolving
and intensely competitive. We expect competition to increase both from existing
competitors and new market entrants. We believe that the principal competitive
factors in our market are:
. product features, including performance and scalability;
. ""plug-and-play" capability with leading e-commerce hardware and software
applications;
. quality of customer service and support and professional consulting
services;
. company reputation; and
. to a lesser extent, price.
We believe that there are currently no direct competitors that provide
comprehensive e-marketing software solutions. However, in various segments of
this market, we compete with a number of companies.
. Web Site Tracking and Analysis. The primary competitors for our ARIA
product line include Accrue, net.Genesis and WebTrends.
. Personalization. The primary competitors for our LikeMinds product line
include Net Perceptions, the Apex division of HNC Software, Engage and
Personify.
Many of our current competitors, as well as a number of potential new
competitors, have longer operating histories and substantially greater name
recognition, financial, technical and marketing resources than we. Some of our
current and potential competitors may also have larger more diverse customer
bases than we. In addition, current or potential competitors have established
and may establish strategic partnerships or consolidate to more effectively
market and distribute their products and enhance their product and service
offerings.
In addition to these current and potential competitors, we also face
competition from the internal marketing capabilities of Web publishers who
develop proprietary marketing solutions rather than employ the commercial
solutions of Andromedia or our competitors. We cannot assure you that we will
be able to successfully compete with these internal solutions.
Intense competition may result in price reductions, reduced gross margins and
loss of market share, any of which could seriously harm us. We cannot assure
you that we will be able to successfully compete against existing or future
competitors.
Intellectual Property
We depend upon protecting our intellectual property assets, which consist
primarily of the computer software technology in our products and the
trademarks and brand names associated with our company and its products. If we
do not adequately protect our intellectual property, we could be seriously
harmed.
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<PAGE>
We currently hold two U.S. patents and one foreign patent and we have one
U.S. patent application pending. One of our U.S. patents protects the
collaborative filtering technology contained in our LikeMinds personalization
software. Our other U.S. patent is a continuation of the collaborative
filtering patent that clarifies the prediction and recommendation capabilities
of this technology. Our foreign patent also protects our collaborative
filtering technology. It is possible that any patent or trademark issued to us
may not provide us with any competitive advantages or that the patents or
proprietary rights of third parties may substantially restrict our ability to
conduct our business. We generally have not performed any comprehensive patent
search for other patents that may limit our ability to do business. In
addition, the laws of some foreign countries do not protect our intellectual
property to the same extent as U.S. law.
Our software products are sold to our customers under software licenses that
impose restrictions on our customers' ability to duplicate, reverse engineer or
otherwise use our software for purposes which could compromise our intellectual
property rights. We also seek to protect our software, documentation and other
proprietary written materials under trade secret and copyright laws, which
afford only limited protection.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or obtain and use information that
we regard as proprietary. Preventing unauthorized use of our products and
proprietary information is difficult, and while we are unable to know the
extent to which unauthorized copying and use of our software takes place, we
expect this to be a persistent problem. A discussion of the risks associated
with the protection of our intellectual property rights and potential
infringement by us of the patents and intellectual property rights of others is
set forth in "Risk Factors--Protection our intellectual property may not be
adequate."
Product Development
We believe that our future success will in large part depend on our ability
to improve the ARIA and LikeMinds product lines, develop new products, maintain
technological leadership and meet rapidly evolving customer requirements for
large scale marketing software applications. Our product development and
engineering organization is primarily responsible for product architecture,
core technology, product testing and quality assurance, writing end-user
documentation, and expanding the ability of our software applications to
efficiently operate with the leading hardware platforms, operating systems,
database management systems and critical e-commerce transaction processing
standards.
Since our inception, we have made substantial investments in product
development and related activities. As of July 31, 1999, product development
and engineering staff consisted of 28 employees. Our total expenses for
research and development were $884,000, $1.4 million and $2.3 million in 1996,
1997 and 1998, respectively, and $1.7 million in the first six months of 1999.
We expect to continue to devote substantial resources to our product
development and related activities although to date we have not designated a
specified amount of resources for this purpose.
Employees
As of July 31, 1999, we had a total of 125 employees, of whom there were 29
in our Services Group, 28 in development and engineering, 51 in sales and
marketing and 17 in corporate finance and administration. None of our employees
is represented by a labor union, and we have never experienced a work stoppage.
We believe our relationship with our employees is good.
Facilities
Our principal executive and corporate offices and development and network
operations are located in San Francisco, California, in approximately 11,000
square feet of leased office space under a
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<PAGE>
lease that expires in 2003. We plan to relocate our principal executive and
corporate offices during the fourth quarter of 1999 to approximately 28,000
square feet of leased office space located in San Francisco under a lease that
expires in 2004. We believe that our facilities are adequate for our current
operations and that additional leased space can be obtained if needed.
Legal Proceedings
We are not currently involved in any material legal proceedings. We may from
time to time become a party to various legal proceedings in the ordinary course
of business.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information regarding Andromedia's
current executive officers and directors:
<TABLE>
<CAPTION>
Name Age Position
<C> <S> <C>
Kent B. Godfrey.................. 41 Chairman of the Board and Chief Executive Officer
Paul R. Gifford.................. 47 President, Chief Operating Officer and Director
Neil R. Blumenfield.............. 45 Vice President of Worldwide Services
James W. Doubek.................. 46 Vice President of Engineering
Stephen F. Ghiglieri............. 38 Vice President of Finance and Chief Financial Officer
Daniel R. Greening, Ph.D. ....... 40 Vice President and Chief Solutions Architect
Stephen P. Kanzler............... 48 Vice President of Marketing
Jeffrey M. Tedesco............... 41 Vice President of Sales
L. William Krause(b)............. 57 Director
Hyunja F. Laskin(a).............. 32 Director
Jack L. Rivkin(b)................ 59 Director
Robert J. Saldich(b)............. 66 Director
Richard Wolpert.................. 37 Director
Kristopher A. Wood(a)............ 28 Director
</TABLE>
- --------
(a) Member of the Audit Committee.
(b) Member of the Compensation Committee.
Kent B. Godfrey has served as Chief Executive Officer and a director of
Andromedia since its inception in January of 1996 and has served as Chairman of
the Board since June 1999. From January 1996 to September 1998, Mr. Godfrey
served as President and Chief Executive Officer of Andromedia. From February
1995 to January 1996, Mr. Godfrey served as an outside consultant to Sequent
Computer Systems, a manufacturer of computer systems used in high-end
transaction processing and decision support applications. From September 1993
to February 1995, Mr. Godfrey served as Vice President Marketing/Strategic
Planning for IA Corp., a high-end custom solutions provider. From July 1991 to
December 1992, Mr. Godfrey served as Vice President of Marketing and Business
Development at Epoch Systems, a hierarchical storage management software
company. From February 1986 to July 1991, Mr. Godfrey held various executive
management positions at Sequent Computer Systems. Mr. Godfrey serves on the
boards of directors of TRM Corporation and HipBone, Inc. Mr. Godfrey received a
B.S. degree in Operations Research from Babson College and a M.S. degree in
Economics from the London School of Economics.
Paul R. Gifford has served as President and Chief Operating Officer of
Andromedia since September 1998, and has served as a director since July 1999.
From July 1998 to September 1998, Mr. Gifford served as Vice President of
Marketing of Andromedia. From April 1998 to July 1998, Mr. Gifford served as a
strategic planning consultant to Andromedia. From October 1996 to April 1998,
Mr. Gifford served as Vice President of Product Development at Auspex Systems,
a provider of high-performance network file servers and high-availability data
management software solutions. From January 1996 to March 1996, Mr. Gifford
served President of Kirkwood Interactive, an Internet services company. From
March 1996 to October 1996, Mr. Gifford served as a Vice President at Tencor
Instruments, a manufacturer of capital equipment for semiconducter test
applications. From December 1985 to December 1995, Mr. Gifford held various
positions at Sequent Computer Systems, including Vice President of Corporate
Strategic Programs. Mr. Gifford received B.S. and M.S. degrees in Electrical
Engineering from the Rochester Institute of Technology and has completed the
Executive Masters of Business Administrations Program at Stanford University.
Neil R. Blumenfield has served as Vice President of Worldwide Services of
Andromedia since October of 1998. From April 1998 to October 1998, Mr.
Blumenfield served as Director of Sales at
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Pictra, Inc., a developer of Web-based photographic imaging software and
services. From November 1997 to January 1998, Mr. Blumenfield served as a Sales
Director at Influence Software, a leading provider of analytical applications
for business performance management. From April 1994 to October 1997, Mr.
Blumenfield served as Vice President of the Data Visualization Group at
Visigenic Software, a developer of software for distributed Internet and
intranet applications. Mr. Blumenfield received a B.A. degree in Political
Science from the University of California, Berkeley.
James W. Doubek has served as Vice President of Engineering of Andromedia
since the merger of Andromedia and LikeMinds in October 1998. From March 1997
to October 1998, Mr. Doubek was Vice President of Engineering at LikeMinds.
From January 1995 to March 1997, Mr. Doubek was Vice President, Engineering at
Chaco Communications, a software development company. From September 1989 to
November 1994, Mr. Doubek was Director of Appware Foundation at Software
Transformation, a software company acquired by Novell. Mr. Doubek received B.S.
and M.S. degrees in Mathematics from the University of Miami.
Stephen F. Ghiglieri has served as Vice President of Finance and Chief
Financial Officer of Andromedia since July 1999. From July 1994 to May 1999,
Mr. Ghiglieri served as Vice President, Finance and Administration and Chief
Financial Officer at Oacis Healthcare Holdings, Corp. and its wholly owned
subsidiary, Oacis Healthcare Systems, Inc., a healthcare information system
software company. From 1992 to 1994, Mr. Ghiglieri served as Controller for
Oclassen Pharmaceuticals, Inc., a pharmaceutical development and marketing
company. Prior to 1992, Mr. Ghiglieri worked in the auditing division of Price
Waterhouse. Mr. Ghiglieri received a B.S. in Business Administration from the
California State University, Hayward and is a certified public accountant.
Daniel R. Greening, Ph.D. has served as Vice President and Chief Solutions
Architect of Andromedia since the merger of Andromedia and LikeMinds in October
1998. From March 1997 to October 1998, Dr. Greening was a co-founder and Chief
Technical Officer at LikeMinds. From November 1994 to March 1997, Dr. Greening
was the Chief Executive Officer of Chaco Communications, a software development
company. From March 1991 to October 1994, he was Director of Frameworks at
Software Transformation, a software company acquired by Novell. Dr. Greening
received a B.S. degree in Computer Engineering from the University of Michigan
and M.S. and Ph.D. degrees in Computer Science from the University of
California, Los Angeles.
Stephen P. Kanzler has served as Vice President of Marketing of Andromedia
since the merger of Andromedia and LikeMinds in October 1998. From March 1996
to October 1998, Mr. Kanzler was co-founder, President, Chief Executive Officer
and a director of LikeMinds. From August 1992 to March 1996, Mr. Kanzler served
as a business consultant. From June 1987 to August 1992, Mr. Kanzler developed
product and marketing strategies for operating systems and networking products
in Microsoft's Systems Division. His last position at Microsoft was National
Marketing Manager of Microsoft's Enterprise Systems Division. Mr. Kanzler
served in the U.S. Navy and attended the U.S. Navy's Nuclear Power School.
Jeffrey M. Tedesco has served as Vice President of Sales of Andromedia since
June 1999. From November 1998 to May 1999, Mr. Tedesco served as Vice President
of Sales and Business Development for Netmosphere, a provider of collaborative
project management software. From December 1996 to July 1998, Mr. Tedesco
served as Vice President of Sales, Consulting, and Customer Support for
FirstFloor Software, a marketing encyclopedia systems company. From January
1993 to December 1996, Mr. Tedesco served as Director, Sales for the Western
Region of Banyan Systems Incorporated, a provider of enterprise software
solutions. Mr. Tedesco received a B.S. degree in Business Management from Santa
Clara University.
L. William Krause has served as a director of Andromedia since August 1999.
Since November 1998, Mr. Krause has been President of LWK Ventures, a private
investment company. Mr. Krause served as President, Chief Executive Officer and
as a director of Storm Technology, Inc., a provider of
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computer peripherals for digital imaging, from October 1991 to November 1998
when it filed for protection under federal bankruptcy laws. Prior to that, Mr.
Krause spent ten years at 3Com Corporation, a manufacturer of networking
systems, where he served as President and Chief Executive Officer until he
retired in September 1990. Mr. Krause continued as Chairman of the Board for
3Com Corporation until 1993. Previously, Mr. Krause served in various marketing
and general management executive positions at Hewlett-Packard Company. Mr.
Krause currently serves as a director of Aureal, Inc., Infoseek Corporation,
Pinnacle Systems, Inc., Ramp Networks, Inc. and Sybase, Inc.
Hyunja F. Laskin has served as a director of Andromedia since April 1998.
Since August 1994, Ms. Laskin has been a Principal of UBS Capital LLC, the
private equity business of UBS AG. Prior to joining UBS Capital, Ms. Laskin
worked in the strategic planning department of Pepsico, Inc. and in the high
yield group of Merrill Lynch. Ms. Laskin is a director of a number of private
companies in which UBS Capital has an investment. Ms. Laskin received a B.A.
degree from Wellesley College and a M.B.A. degree from Columbia University.
Jack L. Rivkin has served as a director of Andromedia since April 1998. Since
October 1995, Mr. Rivkin has served as an officer of Citigroup Investments,
Inc., where he is currently an Executive Vice President. From September 1994 to
September 1998, he was a director and member of the Investment Committee of
Greenwich Street Capital Partners, Inc. From March 1993 to October 1995, Mr.
Rivkin served as Vice Chairman and Director of Global Research at Smith Barney
Inc. Mr. Rivkin presently is a director of a number of private companies in
which Citigroup Investments or its affiliates have investments. He also is a
director of PRT Group Inc., 24/7 Media, Inc. and On2.com. Mr. Rivkin received a
professional degree in metallurgical engineering from the Colorado School of
Mines and a MBA degree from Harvard University. He is an adjunct professor at
Columbia University.
Robert J. Saldich has served as a director of Andromedia since August 1999,
after having previously served on the board from September 1996 to March 1999.
On October 1, 1995, Mr. Saldich retired as President and Chief Executive
Officer of Raychem Corporation, a producer of technology-based products for
industry, which recently merged with TYCO Corporation. Mr. Saldich joined
Raychem in 1964 and held various positions until elected president and chief
executive officer in January 1990. Mr. Saldich currently serves on the boards
of the Center for the Common Good, the American Leadership Forum of Silicon
Valley and the National Conference for Community and Justice in Silicon Valley.
He is on the Technology Advisory Board for the National Institute of Standards
and Technology in Washington, D.C. Mr. Saldich received a B.S. degree in
chemical engineering from Rice University and a MBA degree from Harvard
University.
Richard Wolpert has served as a director of Andromedia since August 1999.
Since July 1998, Mr. Wolpert has served as the partner in charge of Internet
and technology ventures for The Yucaipa Companies, a private investment firm.
Since August 1998, Mr. Wolpert has also served as acting Chief Executive
Officer of CheckOut.com, an entertainment e-commerce company. From March 1996
to July 1998, Mr. Wolpert served in various executive capacities at Disney
Online, most recently as President. From June 1994 to March 1996, Mr. Wolpert
was President of Chance Technologies, a private investment portfolio of various
Internet and technology companies. Mr. Wolpert is also a director of
CheckOut.com, GameSpy Industries and Scour.net. Mr. Wolpert received a B.S.
degree in math and computer science for the University of California, Los
Angeles.
Kristopher A. Wood has served as a director of Andromedia since March 1999.
Since September 1997, Mr. Wood has been a Managing Director of XL Ventures,
Inc., the venture capital investment subsidiary of Big Flower Holdings, Inc.,
an advertising, marketing and information services company. Since September
1995, Mr. Wood has also been Managing Director of Mergers and Acquisitions of
Big Flower Holdings, Inc. From July 1993 to May 1995, Mr. Wood was a member of
the Global Finance Group at BT Alex. Brown. Mr. Wood serves as a director of
About.com, Inc. and also has agreed to
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serve as a director of Webstakes.com, Inc. upon completion of its initial
public offering. Mr. Wood received a B.S. degree in Economics from the Wharton
School of the University of Pennsylvania.
Board Composition
Our certificate of incorporation will provide for a classified board of
directors consisting of three classes of directors, each serving a staggered
three-year term. As a result, a portion of Andromedia's board of directors will
be elected each year. To implement the classified structure, prior to the
consummation of the offering, two of the nominees to the board will be elected
to one-year terms, two will be elected to two-year terms and three will be
elected to three-year terms. Thereafter, directors will be elected for three-
year terms. Ms. Laskin and Mr. Rivkin have been designated Class I directors
whose term expires at the 2000 annual meeting of stockholders. Messrs. Wood,
Gifford and Godfrey have been designated Class II directors whose term expires
at the 2001 annual meeting of stockholders. Messrs. Saldich, Krause and Wolpert
have been designated Class III directors whose term expires at the 2002 annual
meeting of stockholders. This classification of the board of directors may have
the effect of delaying or preventing changes in control of our company. See
"Description of Capital Stock--Certain Anti-Takeover Effects of Our Certificate
of Incorporation and Bylaws and of Delaware Law" on page 56 for a description
of the anti-takeover provisions in our charter documents and Delaware law.
Board Committees
Our Board currently has two committees: an audit committee and a compensation
committee.
The audit committee is currently comprised of Mr. Wood and Ms. Laskin. The
audit committee reviews and recommends to our board the internal accounting and
financial controls for us and the accounting principles and auditing practices
and procedures to be used for our financial statements. The audit committee
makes recommendations to our board concerning the engagement of independent
public accountants and the scope of the audit to be undertaken by such
accountants.
The compensation committee is currently comprised of Messrs. Krause, Rivkin
and Saldich. The compensation committee reviews and recommends to our board
policies, practices and procedures relating to the compensation of our officers
and other managerial employees and the establishment and administration of our
employee benefit plans.
Director Compensation
We do not pay any compensation to directors for serving in that capacity.
Directors are reimbursed for all reasonable expenses incurred by them in
attending board and committee meetings. Our board of directors has the
discretion to grant options and rights to directors pursuant to our stock
plans. Employee directors are eligible to participate in our employee stock
purchase plan. "See--Employee Benefit Plans" beginning on page 47 for more
detailed description information regarding our stock option plans.
Compensation Committee Interlocks and Insider Participation
The compensation committee consists of Messrs. Krause, Rivkin and Saldich,
none of whom is one of our employees. None of our executive officers serves as
a director or member of the compensation committee or other board committee
performing equivalent functions of another entity that has one or more
executive officers serving on our board of directors or compensation committee.
Executive Compensation
The following table sets forth information concerning the compensation earned
for services rendered to us in 1998 by our Named Executive Officers: (1) our
Chief Executive Officer, (2) our four other most highly compensated executive
officers who earned more than $100,000 in 1998 and except
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<PAGE>
as otherwise noted were serving as executive officers at the end of 1998 and
(3) certain other of our current executive officers. Under the rules of the
SEC, this table does not include certain perquisites and other benefits
received by the Named Executive Officers which do not exceed the lesser of
$50,000 or 10% of any such officer's salary and bonus disclosed in this table.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
-------------------- ------------
Securities
Underlying
Salary Bonus(g) Options (#)
Name and Principal Position -------- -------- ------------
<S> <C> <C> <C>
Kent B. Godfrey.......................... $166,607(h) $40,000 --
Chairman of the Board and
Chief Executive Officer
Paul R. Gifford(a)....................... 70,456 20,000(k) 273,000
President and Chief Operating Officer
Stephen F. Ghiglieri(b).................. -- -- --
Vice President of Finance and
Chief Financial Officer
Mark A. Brewer(c)........................ 150,000 40,353 --
Former Vice President of Sales
Scott G. Capdevielle(d).................. 130,982(i) -- --
Former Chief Technical Officer
James A. Cohan(e)........................ 146,607(j) 26,325 --
Former Chief Financial Officer
Paula B. Hawthorn(f)..................... 100,500 7,033 --
Former Vice President of Product
Development
</TABLE>
- --------
(a) Mr. Gifford, our President and Chief Operating Officer, joined Andromedia
in July 1998.
(b) Mr. Ghiglieri, our Vice President of Finance and Chief Financial Officer,
joined Andromedia in July 1999.
(c) Mr. Brewer served as our Vice President of Sales until June 1999.
(d) Mr. Capdevielle served as our Chief Technical Officer until June 1999.
(e) Mr. Cohan served as our Chief Financial Officer until March 1999.
(f) Ms. Hawthorn served as our Vice President of Product Development until
October 1998.
(g) Bonus compensation was determined by the board of directors based upon
attainment of individual and corporate business goals, and includes sales
incentive compensation.
(h) $16,607 of which represents salary earned in 1997 but paid in 1998.
(i) $5,982 of which represents salary earned in 1997 but paid in 1998.
(j) $21,607 of which represents salary earned in 1997 but paid in 1998.
(k) Represents signing bonus paid to Mr. Gifford upon commencement of his
employment.
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Option Grants During Year Ended December 31, 1998
The following table sets forth certain information for the year ended
December 31, 1998 with respect to grants of stock options to each of the Named
Executive Officers. All options granted by us in 1998 were granted under its
1997 Stock Plan. These options have a term of 10 years. See "Employee Benefit
Plans" beginning on page 48 for a description of the material terms of these
options. Andromedia granted options to purchase common stock equal to a total
of 957,914 shares during 1998. Options were granted at an exercise price equal
to the fair market value of our common stock, as determined in good faith by
our board of directors. Our board of directors determined the fair market value
based on our financial results and prospects and the share price derived for
arms-length transactions. Potential realizable values are net of exercise price
before taxes, and are based on the assumption that our common stock appreciates
at the annual rate shown, compounded annually, from the date of grant until the
expiration of the ten-year term. These numbers are calculated based on SEC
requirements and do not reflect our projection or estimate of future stock
price growth.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------
% of Potential Realizable
Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted Exercise Price Appreciation
Underlying to Price for Option Term
Name Options Employees Per Expiration ----------------------
Granted in 1998 Share Date 5% 10%
---------- --------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kent B. Godfrey......... -- -- % $ -- -- $ -- $ --
Paul R. Gifford......... 168,000 17.5 0.93 7/28/08 98,108 248,624
105,000 11.0 1.43 10/7/08 94,334 239,061
Stephen F. Ghiglieri.... -- -- -- -- -- --
Mark A. Brewer.......... -- -- -- -- -- --
Scott G. Capdevielle.... -- -- -- -- -- --
James A. Cohan.......... -- -- -- -- -- --
Paula B. Hawthorn....... -- -- -- -- -- --
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and 1998 Year-End Option Values
The following table sets forth information with respect to the Named
Executive Officers concerning exercisable and unexercisable options held as of
December 31, 1998. The value of in-the-money options is based on the positive
spread between the respective exercise prices of outstanding stock options and
$11.00, the assumed initial public offering price of our common stock. No
shares were acquired by the Named Executive Officers upon exercise of stock
options or stock purchase rights in the year ended December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at December 31, In-the-Money Options
1998 at December 31, 1998
------------------------- -------------------------
Exercisable Unexercisable Exercisable Unexercisable
Name ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Kent B. Godfrey............. -- -- $ -- $ --
Paul R. Gifford............. -- 273,000 -- 2,697,000
Stephen F. Ghiglieri........ -- -- -- --
Mark A. Brewer.............. 36,400 72,800 388,960 777,920
Scott G. Capdevielle........ -- -- -- --
James A. Cohan.............. -- -- -- --
Paula B. Hawthorn........... 42,000 -- 444,000 --
</TABLE>
Options shown above were granted under the 1997 Stock Plan and vest at a rate
of 25% of the shares on the first anniversary of the date of grant and 1/48 of
the shares each month thereafter.
Change of Control Agreements
We have entered into change of control agreements with Kent B. Godfrey, Paul
R. Gifford, Stephen F. Ghiglieri, Neil R. Blumenfield and Jeffrey M. Tedesco.
These agreements provide for accelerated vesting of shares, options, warrants
and rights to purchase shares of our common stock held by a key employee upon a
change of control and an involuntary termination of the key employee within 12
months of the change of control. In addition, upon the occurrence of these
events, our repurchase rights with respect to the key employee's shares,
options, warrants and rights to purchase our capital stock shall automatically
lapse.
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<PAGE>
Employee Benefit Plans
1999 Stock Plan
Our board of directors adopted the Andromedia, Inc. 1999 Stock Plan in August
1999 and our stockholders will be asked to approve the 1999 Plan in October
1999. The 1999 Plan provides for the grant of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code to employees, and for
the grant of nonstatutory stock options and stock purchase rights to employees,
directors and consultants.
Number of Shares of Common Stock Available under the 1999 Plan. A total of
1,400,000 shares of common stock are reserved for issuance pursuant to the 1999
Plan, no options to acquire shares of common stock are currently issued and
outstanding. The 1999 Plan provides for annual increases in the number of
shares available for issuance, on the first day of each new fiscal year,
beginning with our fiscal year 2000, equal to the lesser of 5% of the
outstanding shares of common stock on the applicable first day of the fiscal
year, 700,000 shares or such other lesser amount as the board may determine.
Administration of the 1999 Plan. The Administrator, which is the board of
directors or a committee of the board, administers the 1999 Plan. In the case
of options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Internal Revenue Code, the committee will
consist of two or more "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code. The Administrator has the power to determine the
terms of the options or stock purchase rights granted, including the exercise
price, the number of shares subject to each option or stock purchase right, the
exercisability of the options and the form of consideration payable upon
exercise.
Options. The Administrator determines the exercise price of nonstatutory
stock options granted under the 1999 Plan, but with respect to nonstatutory
stock options intended to qualify as "performance-based compensation" within
the meaning of Section 162(m) of the Internal Revenue Code, the exercise price
must at least be equal to the fair market value of the common stock on the date
of grant. The exercise price of all incentive stock options granted under the
1999 Plan must be at least equal to the fair market value of the common stock
on the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of our outstanding capital
stock, the exercise price of any incentive stock option granted must equal to
at least 110% of the fair market value on the grant date and the term of such
incentive stock option must not exceed five years. The term of all other
options is determined by the Administrator. An optionee generally must exercise
an option granted under the 1999 Plan at the time set forth in the optionee's
option agreement after termination of the optionee's status as one of our
employees, directors or consultants, or within 12 months after the optionee's
termination by death or disability, but in the case of incentive stock options
no later than ten years from the date of grant.
Stock Purchase Rights. The Administrator determines the exercise price of
stock purchase rights granted under the 1999 Plan. In the case of stock
purchase rights, unless the Administrator determines otherwise, the restricted
stock purchase agreement entered into in connection with the exercise of the
stock purchase right shall grant us a repurchase option that we may exercise
upon the voluntary or involuntary termination of the purchaser's service with
us for any reason (including death or disability). The purchase price for
shares we repurchase pursuant to restricted stock purchase agreements shall
generally be the original price paid by the purchaser and may be paid by
cancellation of any indebtedness of the purchaser to us. The repurchase option
shall lapse at a rate that the Administrator determines.
Transferability of Options and Stock Purchase Rights. An optionee generally
may not transfer options and stock purchase rights granted under the 1999 Plan
and only the optionee may exercise an option and stock purchase right during
his or her lifetime.
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<PAGE>
Adjustments upon Merger or Asset Sale. The 1999 Plan provides that in the
event of our merger with or into another corporation or a sale of substantially
all of our assets, the successor corporation shall assume or substitute each
option or stock purchase right. If the outstanding options or stock purchase
rights are not assumed or substituted, the Administrator shall provide notice
to the optionee that he or she has the right to exercise the option or stock
purchase right as to all of the shares subject to the option or stock purchase
right, including shares which would not otherwise be exercisable, for a period
of fifteen days from the date of the notice. The option or stock purchase right
will terminate upon the expiration of the fifteen-day period.
Amendment and Termination of the 1999 Plan. Unless terminated sooner, the
1999 Plan will terminate automatically in 2009. In addition, the Administrator
has the authority to amend, suspend or terminate the 1999 Plan, provided that
no such action may affect any share of common stock previously issued and sold
or any option previously granted under the 1999 Plan.
1997 Stock Plan
In January 1997 our board adopted, and our stockholders approved, the 1997
Stock Plan. A total of 2,289,000 shares of common stock have been reserved for
issuance under the 1997 Stock Plan, as amended. Unless terminated sooner, the
1997 Plan will terminate automatically in January 2007. The 1997 Stock Plan
provides for the discretionary grant of incentive stock options, within the
meaning of Section 422 of the Code to employees and for the grant of
nonstatutory stock options and stock purchase rights, to employees, directors
and consultants. As of June 30, 1999, options to purchase an aggregate of
2,078,673 shares of common stock were outstanding under the 1997 Stock Plan,
with exercise prices ranging from $0.27 to $7.5 per share and a weighted
average exercise price of $2.94 per share. Of the shares subject to outstanding
options, 251,117 shares were exercisable as of June 30, 1999.
The 1997 Stock Plan may be administered by the Administrator, which is our
board of directors or a committee of our board. The Administrator has the power
to determine the terms of the options or stock purchase rights granted,
including the exercise price of the options or stock purchase rights, the
number of shares subject to each option or stock purchase right, the
exercisability thereof, and the form of consideration payable upon such
exercise. In addition, our board has the authority to amend, alter, suspend or
terminate the 1997 Stock Plan, provided that no share of common stock
previously issued and sold or any option previously granted under the 1997
Stock Plan is affected.
The exercise price of all incentive stock options granted under the 1997
Stock Plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and
stock purchase rights granted under the 1997 Stock Plan is determined by the
Administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Internal Revenue Code, the exercise price must be at least equal
to the fair market value of the common stock on the date of grant. With respect
to any participant who owns stock possessing more than 10% of the voting power
of all classes of our outstanding capital stock, the exercise price of any
incentive stock option granted must be at least equal 110% of the fair market
value on the grant date and its term must not exceed five years. The term of
all other options granted under the 1997 Stock Plan may not exceed ten years.
Options generally vest as to 25% at the end of the first year and monthly
thereafter over a period of three years so that the entire option is vested
after four years, based upon the optionee's continued employment or consulting
relationship with us.
In the case of stock purchase rights unless the Administrator determines
otherwise, the restricted stock purchase agreement will grant us a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with us for any reason,
including death or disability. The purchase price for shares repurchased
pursuant to a
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restricted stock purchase agreement must be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to us. The repurchase option will lapse at a rate determined by the
Administrator.
Options and stock purchase rights granted under the 1997 Stock Plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by the optionee.
Options granted under the 1997 Stock Plan must generally be exercised within 90
days after the end of optionee's status as an employee, director or consultant
of Andromedia, or within one year after such optionee's termination by
disability or death, respectively, but in no event later than the expiration of
the option's term.
The 1997 Stock Plan provides that, in the event of our merger with or into
another corporation, each outstanding option and stock purchase right must be
assumed or an equivalent option substituted by the successor corporation. If
the outstanding options and stock purchase rights are not assumed or
substituted by the successor corporation, the outstanding options and stock
purchase rights will fully vest.
1996 Stock Plan
In February 1996, our board adopted, and our stockholders approved, the 1996
Stock Plan. We reserved for issuance 350,000 shares of common stock under the
1996 Plan. The terms of the 1996 Stock Plan are generally the same as the terms
of the 1997 Stock Plan. As of June 30, 1999, options to purchase an aggregate
of 150,935 shares of common stock were outstanding under the 1996 Stock Plan,
with exercise prices ranging from $0.036 to $0.27 per share and a weighted
average exercise price of $0.14 per share. Of the shares subject to outstanding
options, 92,530 shares were exercisable as of June 30, 1999.
1999 Employee Stock Purchase Plan
Our board of directors adopted the Andromedia, Inc. 1999 Employee Stock
Purchase Plan in August 1999. Our stockholders will be asked to approve the
Purchase Plan in October 1999.
Number of Shares of Common Stock Available under the Purchase Plan. A total
of 350,000 shares of common stock have been reserved for issuance under the
Purchase Plan. In addition, the Purchase Plan provides for annual increases in
the number of shares available for issuance on the first day of each fiscal
year, beginning with our fiscal year 2000, equal to the lesser of 2% of the
outstanding shares of common stock on the first day of the fiscal year, 350,000
shares or such other lesser amount as may be determined by our board.
Administration of the Purchase Plan. Our board of directors or a committee
appointed by our board administers the Purchase Plan. Our board of directors or
its committee has full and exclusive authority to interpret the terms of the
Purchase Plan and determine eligibility.
Eligibility to Participate. Employees are eligible to participate if they are
customarily employed by us or any participating subsidiary for at least 20
hours per week and more than five months in any calendar year. However, an
employee may not be granted an option to purchase stock under the Purchase Plan
if such employee:
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock; or
. whose right to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
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Offering Periods and Contributions. The Purchase Plan, which is intended to
qualify under Section 423 of the Internal Revenue Code, contains consecutive,
overlapping 24-month offering periods. Each offering period includes four 6-
month purchase periods. The offering periods generally start on the first
trading day on or after November and May of each year, except for the first
such offering period which will commence on the first trading day on or after
the effective date of this offering and will end on the last trading day on or
before October 30, 1999.
The Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 15% of the participant's "compensation."
Compensation is defined as the participant's base salary and commissions, but
excludes payments for overtime, shift premium, incentive compensation,
incentive payments, bonuses and other compensation. The maximum number of
shares a participant may purchase during a single offering period is 3,500
shares.
Purchase of Shares. Amounts deducted and accumulated by the participant are
used to purchase shares of common stock at the end of each offering period. The
price of stock purchased under the Purchase Plan is 85% of the lower of the
fair market value of the common stock at the beginning or end of the offering
period. In the event the fair market value at the end of a purchase period is
less than the fair market value at the beginning of the offering period,
participants will be withdrawn from the current offering period following their
purchase of shares on the purchase date and will be automatically re-enrolled
in a new offering period. Participants may end their participation at any time
during an offering period, and they will be paid their payroll deductions to
date. Participation ends automatically upon termination of employment with us.
Transferability of Rights. A participant may not transfer rights granted
under the Purchase Plan other than by will, the laws of descent and
distribution or as otherwise provided under the Purchase Plan.
Adjustments upon Merger or Asset Sale. The Purchase Plan provides that, in
the event of our merger with or into another corporation or a sale of
substantially all of our assets, a successor corporation may assume or
substitute for each outstanding purchase right. If the successor corporation
refuses to assume or substitute for the outstanding purchase rights, the
offering period then in progress will be shortened, and a new exercise date
will be set prior to the merger or sale of assets.
Amendment and Termination of the Purchase Plan. The 1999 Purchase Plan will
terminate in 2009. However, our board of directors has the authority to amend
or terminate the Purchase Plan, except that, subject to certain exceptions
described in the Purchase Plan, no such action may adversely affect any
outstanding rights to purchase stock under the Purchase Plan.
401(k) Plan
We participate in a tax-qualified employee savings and retirement plan, or
the "401(k) Plan," which covers all of our full-time employees. Under the
401(k) Plan, eligible employees may defer up to 20% of their pre-tax earnings,
subject to the Internal Revenue Service's annual contribution limit. The 401(k)
Plan permits additional discretionary matching contributions by us on behalf of
all participants in the 401(k) Plan in such a percentage amount as may be
determined by our board. To date, we have made no matching contributions. The
401(k) Plan is intended to qualify under Section 401 of the Internal Revenue
Code, as amended, so that contributions to the 401(k) Plan, and income earned
on plan contributions, are not taxable to employees until withdrawn from the
401(k) Plan, and so that contributions by us, if any, will be deductible by us
when made. The trustee under the 401(k) Plan, at the direction of each
participant, invests the assets of the 401(k) Plan in any of a number of
investment options.
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Limitation on Liability and Indemnification Matters
Our certificate of incorporation and bylaws limit or eliminate the personal
liability of our directors for monetary damages for breach of the directors'
fiduciary duty of care. The duty of care generally requires that, when acting
on behalf of the corporation, directors exercise an informed business judgment
based on all material information reasonably available to them. Consequently, a
director or officer will not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
. any breach of the director's duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; and
. any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation also provides that we will indemnify, to the
fullest extent permitted by law, any person made or threatened to be made a
party to any action or proceeding by reason of the fact that he or she is or
was one of our directors or officers or serves or served at any other
enterprise as a director, officer or employee at our request.
Our bylaws provide that we will, to the maximum extent and in the manner
permitted by Delaware law, indemnify each of the following persons against
expenses, including attorneys' fees, judgments, fines, settlements, and other
amounts incurred in connection with any proceeding arising by reason of the
fact that he or she is or was one of our agents:
. a current or past director or officer of ours;
. a current or past director or officer of another enterprise who served at
the request of us; or
. a current or past director or officer of a corporation that was a
predecessor corporation of ours or of another enterprise at the request
of a predecessor corporation.
We intend to enter into indemnification agreements with each of our directors
and executive officers to give them additional contractual assurances regarding
the scope of the indemnification described above and to provide additional
procedural protections. These agreements, among other things, indemnify our
directors and executive officers for certain expenses, including attorneys'
fees, judgments, fines, penalties and settlement amounts incurred by them in
any action or proceeding arising out of their services to us, our subsidiaries
or any other enterprise to which they provide services at our request. In
addition, we intend to obtain directors' and officers' insurance providing
indemnification for our directors, officers and certain employees for certain
liabilities. We believe that these indemnification provisions and agreements
are necessary to attract and retain qualified directors and officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against directors and officers, even though
a derivative action, if successful, might otherwise benefit us and our
stockholders. Furthermore, a stockholder's investment in us may be adversely
affected to the extent we pay the costs of settlement and damage awards against
our directors and officers under these indemnification provisions.
At present, there is no pending or threatened litigation or proceeding
involving any of our directors, officers or employees where indemnification is
expected to be required or permitted, and
we are not aware of any threatened litigation or proceeding that might result
in a claim for indemnification.
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CERTAIN TRANSACTIONS
Since January 1996, our inception date, there has not been nor is there
currently proposed any transaction or series of similar transactions to which
we or any of our subsidiaries was or is to be a party in which the amount
involved exceeds $60,000 and in which any director, executive officer, holder
of more than 5% of our common stock or any member of the immediate family of
any of the foregoing persons had or will have a direct or indirect material
interest other than (1) compensation agreements and other arrangements, which
are described where required in "Management," and (2) the transactions
described below.
Transactions with Directors, Executive Officers and 5% Stockholders
Issuances of Preferred Stock. Between April 18, 1997 and July 17, 1997, we
sold an aggregate of 1,627,269 shares of Series C preferred stock at a purchase
price of $2.20 per share. Between April 14, 1998 and June 23, 1998, we sold an
aggregate of 3,301,420 shares of Series D preferred stock at a purchase price
of $3.029 per share. Between March 15, 1999 and April 8, 1999, we sold an
aggregate of 4,227,521 shares of Series E preferred stock at a purchase price
of $3.533 per share. Simultaneously with the consummation of this offering, all
shares of these series of preferred stock will be converted into shares of
common stock. Listed below are those directors, executive officers and
stockholders who beneficially own 5% or more of our securities who participated
in these financings. We believe that the shares issued in these transactions
were sold at the then fair market value and that the terms of these
transactions were no less favorable than we could have obtained from
unaffiliated third parties.
<TABLE>
<CAPTION>
Series C Series D Series E Aggregate
Preferred Preferred Preferred Cash
Stock Stock Stock Consideration
Stockholder --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Entities affiliated with JK&B
Capital.......................... 1,363,637 330,141 -- $3,999,999
Sippl MacDonald Ventures II,
L.P. ............................ -- 158,530 56,609 680,187
The Travelers Insurance Company... -- 990,425 651,005 5,299,998
UBS Capital II LLC................ -- 1,320,567 178,319 4,629,998
XL Ventures, LLC.................. -- -- 1,132,182 3,999,999
</TABLE>
Eileen Richardson, a partner of JK&B Capital, served as a director of
Andromedia from April 1997 to August 1999. Roger Sippl, a partner of Sippl
MacDonald Ventures II, L.P., served as a director of Andromedia from June 1998
to February 1999. Jack Rivkin, a director of Andromedia, is the Senior Vice
President of the Travelers Investment Group, Inc., an affiliate of The
Travelers Insurance Company. Hyunja Laskin, a director of Andromedia, is an
officer of UBS Capital LLC, an affiliate of UBS Capital II LLC. Kristopher A.
Wood, a director of Andromedia, is a Managing Director of XL Ventures, Inc.
Acquisition of LikeMinds, Inc. On October 8, 1998, we acquired all the
outstanding shares of LikeMinds, Inc. for 1,299,670 shares of our common stock.
The shares of common stock issued were valued at $2.00 per share based on an
independent appraisal. Listed below are those directors, executive officers and
stockholders who beneficially own 5% or more of our securities who acquired
shares of common stock pursuant to the acquisition.
<TABLE>
<CAPTION>
Common Aggregate
Stock Consideration
Stockholder ------- -------------
<S> <C> <C>
James W. Doubek........................................... 114,376 $228,752
Daniel R. Greening........................................ 152,886 305,772
Stephen P. Kanzler........................................ 111,398 222,796
O'Reilly & Associates..................................... 262,801 525,602
Tim O'Reilly.............................................. 86,243 172,486
</TABLE>
Tim O'Reilly, founder of O'Reilly & Associates, served as director of
Andromedia from October 7, 1998 to August 18, 1999.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of June 30, 1999, and as adjusted to
reflect the sale of the shares of common stock offered by this prospectus,
certain information with respect to the beneficial ownership of common stock as
to:
. each person or entity known by us to own beneficially more than 5% of the
outstanding shares of our common stock;
. each of the Named Executive Officers;
. each of our directors; and
. all directors and executive officers as a group.
Except as otherwise indicated, and subject to applicable community property
laws, the persons named below have sole voting and investment power with
respect to all shares of common stock held by them.
Applicable percentage ownership in the table is based on 12,140,486 shares of
common stock outstanding as of June 30, 1999, assuming conversion of all
outstanding shares of preferred stock into common stock. Beneficial ownership
is determined in accordance with the rules of the SEC. Shares of common stock
subject to options that are presently exercisable or exercisable within 60 days
of June 30, 1999, are deemed outstanding for the purpose of computing the
percentage ownership of the person or entity holding the options, but are not
treated as outstanding for the purpose of computing the percentage ownership of
any other person or entity.
Unless otherwise indicated below, each person or entity named below has an
address in care of Andromedia's principal executive offices.
<TABLE>
<CAPTION>
Percentage of Shares
Number of Beneficially Owned
Shares ------------------------
Beneficially Before After
Owned Offering Offering
Name of Beneficial Owner ------------ ---------- ----------
<S> <C> <C> <C>
The Travelers Insurance
Company(a)........................ 1,260,552 10.4% 7.8
Jack L. Rivkin(b)................. 1,260,552 10.4 7.8
JK&B Capital, L.P. and affiliated
entities(c)....................... 1,222,828 10.1 7.6
UBS Capital II LLC(d).............. 1,197,956 9.9 7.4
Hyunja F. Laskin(e)............... 1,197,956 9.9 7.4
Scott G. Capdevielle(f)............ 1,050,000 8.7 6.5
Jamie A. Cohan(g).................. 1,036,000 8.5 6.4
XL Ventures, LLC(h)................ 792,527 6.5 4.9
Kristopher A. Wood(i)............. 792,527 6.5 4.9
Kent B. Godfrey(j)................. 714,582 5.9 4.4
Paul R. Gifford(k)................. 57,750 * *
Mark A. Brewer(l).................. 60,025 * *
Paula B. Hawthorn.................. 21,000 * *
Robert J. Saldich(m)............... 16,210 * *
L. William Krause.................. -- * *
Richard Wolpert.................... -- * *
All directors and officers as a
group (14 persons)(n)............. 4,422,028 36.2 27.3
</TABLE>
- --------
* Less than 1%
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<PAGE>
(a) The address of record for The Travelers Insurance Company is One Tower
Square, 9 Plaza Building, Hartford, Connecticut 06183.
(b) Number of shares includes 1,260,552 shares held by The Travelers Insurance
Company. Mr. Rivkin is the Senior Vice President of the Travelers
Investment Group, Inc., an affiliate of the Travelers Insurance Company.
Mr. Rivkin disclaims beneficial ownership of the shares held by The
Travelers Insurance Company except to the extent of his proportionate
pecuniary interest in the entity.
(c) The address of record for each entity affiliated with JK&B Capital, L.P. is
205 N. Michigan Avenue, Suite 808, Chicago, Illinois 60601. Number of
shares includes 847,038 held by JK&B Capital, L.P. and 375,790 shares held
by JK&B Capital II, L.P. JK&B Management, LLC is the general partner of
JK&B Capital, L.P. and JK&B Capital II, L.P. and the managers of JK&B
Management LLC have voting power over all shares held of record by such
entities.
(d) The address of record for UBS Capital II LLC is 299 Park Avenue, 34th
Floor, New York, New York 10171.
(e) Number of shares includes 1,197,956 shares held by UBS Capital II LLC. Ms.
Laskin is an officer of UBS Capital LLC. Ms. Laskin disclaims beneficial
ownership of the shares held by UBS Capital II LLC except to the extent of
her proportionate pecuniary interest in the entity.
(f) The address of record for Mr. Capdevielle is 52 Camino Encinas, Orinda,
California 94563.
(g) The address of record for Mr. Cohan is 1324 Willard Street, San Francisco,
California 94117.
(h) The address of record for XL Ventures, LLC is 1105 North Market Street,
Suite 1300, Wilmington, DE 19801.
(i) Number of shares includes 792,527 shares held by XL Ventures, Inc. Mr. Wood
is a Managing Director of XL Ventures, Inc., an affiliate of XL Ventures,
LLC. Mr. Wood disclaims beneficial ownership of the shares held by XL
Ventures, LLC except to the extent of his proportionate pecuniary interest
in the entity.
(j) Number of shares includes 14,582 shares of common stock issuable upon
exercise of options exercisable within 60 days of June 30, 1999.
(k) Number of shares includes 57,750 shares of common stock issuable upon
exercise of options exercisable within 60 days of June 30, 1999.
(l) Number of shares includes 60,025 shares of common stock issuable upon
exercise of options exercisable within 60 days of June 30, 1999.
(m) Number of shares includes 7,000 shares of common stock issuable upon
exercise of options exercisable within 60 days of June 30, 1999.
(n) Includes the shares beneficially owned by current directors and officers,
plus an additional 382,451 shares beneficially owned by other executive
officers. Of the shares beneficially owned by other executive officers,
378,659 shares were outstanding as of June 30, 1999 and 3,791 shares are
subject to options that are exercisable within 60 days of June 30, 1999.
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DESCRIPTION OF CAPITAL STOCK
The following summarizes the material provisions of Andromedia's capital
stock. Our certificate of incorporation and bylaws, copies of which have been
filed as exhibits to the registration statement of which this prospectus is a
part, provide further information about our capital stock.
As of, June 30, 1999, there were 12,140,486 shares of common stock
outstanding, $0.001 par value, assuming the conversion of all outstanding
shares of preferred stock into shares of common stock. Upon closing of this
offering, 150,000,000 shares of common stock and 7,500,000 shares of preferred
stock will be authorized.
Common Stock
The issued and outstanding shares of common stock are, and the shares of
common stock offered by this prospectus will be upon payment for the shares
validly issued, fully paid and nonassessable. The holders of outstanding shares
of common stock are entitled to receive dividends out of legally available
assets at a time and in amounts as our board may from time to time determine.
The shares of common stock are not convertible, and the holders thereof have no
preemptive or subscription rights to purchase any of our securities. Upon our
liquidation, dissolution or winding up, the holders of common stock are
entitled to receive pro rata our assets that are legally available for
distribution, after payment of all debts and other liabilities. Each
outstanding share of common stock is entitled to one vote on all matters
submitted to a vote of our stockholders, including election of directors. There
is no cumulative voting in the election of directors.
Preferred Stock
Upon the closing of this offering, our certificate of incorporation will
provide that we may issue preferred stock in one or more series and that our
board has the authority, without further action by the stockholders, to fix the
designation, rights, preferences and powers thereof, including dividend rights,
conversion rights, voting rights, rights and terms of redemption, liquidation
preferences and sinking fund terms, any or all of which may be greater than the
rights of the common stock. The issuance of preferred stock could adversely
affect the voting power of holders of common stock and the likelihood that such
holders would receive dividend payments and payments upon liquidation. The
issuance of preferred stock could have the effect of decreasing the market
price of the common stock. The issuance of preferred stock may also have the
effect of delaying, deterring or preventing a change in control of Andromedia.
We have no present plans to issue any shares of preferred stock.
Warrants
We have outstanding warrants to purchase 21,000 shares of common stock at an
exercise price of $21.43 per share. We also have outstanding warrants to
purchase 96,667 shares of Series C preferred stock, 12,417 shares of Series D
preferred stock and 18,159 shares of Series E preferred stock, at exercise
prices ranging from $2.20 to $3.53 and expiration dates ranging from September
2002 to February 2009. Upon closing of this offering the preferred stock
warrants will become exercisable for an aggregate of 90,461 shares of common
stock.
Registration Rights
The holders of approximately 7,817,180 shares of common stock issuable upon
conversion of our preferred stock or their permitted transferees are entitled
to certain rights with respect to registration of their shares, or the
"registrable securities," under the Securities Act.
At any time after six months following the effective date of this offering,
we can be required to file a registration statement covering registrable
securities by the holders of at least 20% of the registrable securities then
outstanding, or any lesser percent if the reasonably anticipated aggregate
offering price to the public would exceed $2.0 million. In addition, six months
after this offering,
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<PAGE>
holders of registrable securities may require that we register their shares for
public resale on Form S-3 or any successor form, provided we are eligible to
use Form S-3 or any successor form and the reasonably anticipated aggregate
offering price to the public would exceed $2.0 million. Furthermore, in the
event we elect to register any of our shares of common stock or other
securities for purposes of effecting any public offering, the holders of
registrable securities are entitled to include their registrable securities in
the registration, subject however to our right to reduce the number of shares
proposed to be registered in view of market conditions. All of these rights
have been waived in connection with this offering. All expenses in connection
with any registration, other than underwriting discounts and commissions, will
be borne by us. Registration rights, other than the right to require us to
register shares on Form S-3 or any successor form, will terminate at such time
as our shares are publicly traded and the holder is entitled to sell all of its
shares in any three-month period under Rule 144 of the Securities Act. If our
stockholders with registration rights cause a large number of securities to be
registered and sold in the public market, those sales could have an adverse
effect on the market price for our common stock. If we were to initiate a
registration and include registrable securities because of the exercise of
registration rights, the inclusion of registrable securities could have an
adverse effect on our ability to raise capital.
Certain Anti-Takeover Effects of Provisions of Our Certificate of Incorporation
and Bylaws and of Delaware Law
General. Certain provisions of Delaware law and our certificate of
incorporation and bylaws could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring,
control of Andromedia. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of our common stock.
These provisions of Delaware law and our certificate of incorporation and
bylaws may also have the effect of discouraging or preventing certain types of
transactions involving an actual or threatened change of control of Andromedia,
including unsolicited takeover attempts, even though such a transaction may
offer our stockholders the opportunity to sell their stock at a price above the
prevailing market price.
Delaware Takeover Statute. Following consummation of this offering, we will
be subject to the "business combination" provisions of Section 203 of the
Delaware General Corporation Law. In general, those provisions prohibit a
publicly-held Delaware corporation from engaging in various "business
combination" transactions with any interested stockholder for a period of three
years after the date of the transaction in which the person became an
interested stockholder, unless:
. the transaction is approved by the board of directors prior to the date
the interested stockholder obtained interested stockholder status;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned by (a) persons who are directors
and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
. on or subsequent to the date the business combination is approved by the
board of directors and approved by the affirmative vote of at least 66
2/3% of the outstanding voting stock that is not owned by the interested
stockholder. A "business combination" is defined to include mergers,
asset sales and other transactions resulting in financial benefit to a
stockholder. In general, an "interested stockholder" is a person who (a)
owns 15% or more of the corporation's voting stock; (b) is an affiliate
or associate of the corporation and was an owner of 15% or more of the
corporation's outstanding voting stock within the last 3 years; or (c) is
an affiliate or associate of persons described in (a) or (b).
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The statute could prohibit or delay mergers or other takeover or change in
control attempts with respect to us and, accordingly, may discourage attempts
to acquire us.
Certificate of Incorporation and Bylaws. Our certificate of incorporation
provides that any action to be taken by our stockholders must be effected at an
annual or special stockholder meeting and may not be taken by written consent.
Our bylaws provide that special meetings of our stockholders may be called by
our board, the chairman of our board or our President. Our bylaws also require
advance written notice by a stockholder of a proposal or director nomination
that such stockholder desires to present at an annual or special stockholders
meeting. These provisions will delay consideration of a stockholder proposal
until the next annual meeting unless a special meeting is called by our Board.
Our bylaws provide that the authorized number of directors may be changed by
an amendment to our bylaws adopted by our board or by our stockholders.
Vacancies on our board may be filled by a majority of directors in office,
although less than a quorum. Our certificate of incorporation provides for a
staggered board. Under a staggered board, each director is designated to one of
three categories. Each year the directors' positions in one of the three
categories are subject to election so that it would take three years to replace
the entire board, absent resignation or premature expiration of a director's
term, which may have the effect of deterring a hostile takeover or delaying or
preventing changes in control or management of Andromedia.
Transfer Agent and Registrar
ChaseMellon Shareholder Services L.L.C. has been appointed as transfer agent
and registrar for our common stock.
Listing
Application for listing of our common stock on the Nasdaq National Market
under the symbol "ANDO" has been made.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and we
cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through sale of our equity securities. As
described below, no shares currently outstanding will be available for sale
immediately after this offering because of certain contractual restrictions on
resale. Sales of substantial amounts of our common stock in the public market
after the restrictions lapse could adversely affect the prevailing market price
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding 16,140,486 shares
of common stock based upon shares outstanding as of June 30, 1999, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants prior to completion of this offering. Of these
shares, the 4,000,000 shares sold in this offering will be freely tradable
without restriction under the Securities Act except for any shares purchased by
our "affiliates" as that term is defined in Rule 144 under the Securities Act.
The remaining 12,140,486 shares of common stock held by existing stockholders
are "restricted shares" as that term is defined in Rule 144. All such
restricted shares are subject to lock-up agreements providing that, with
certain limited exceptions, the stockholder will not offer, sell, contract to
sell or otherwise dispose of any common stock or any securities that are
convertible into common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Donaldson, Lufkin & Jenrette.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, none of
these shares will be resellable until 181 days after the date of this
prospectus. Beginning 181 days after the date of this prospectus, approximately
11,829,370 restricted shares will be eligible for sale in the public market,
all of which are subject to volume limitations under Rule 144, except those
shares eligible for sale under Rule 144(k) and Rule 701. In addition, as of
June 30, 1999, there were outstanding options and warrants to purchase an
aggregate of 2,341,069 shares of common stock, some of which may be exercised
prior to this offering. Donaldson, Lufkin & Jenrette may, in their sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding which will
equal approximately 161,405 shares immediately after this offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Andromedia at any time during the three months preceding a sale,
and who has beneficially owned the shares proposed to be sold for at least two
years including the holding period of any prior owner except an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
60
<PAGE>
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of
or consultant to Andromedia who purchased shares under a written compensatory
plan or contract may be entitled to rely on the resale provisions of Rule 701.
Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144
without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell such shares in reliance on Rule
144 without having to comply with the holding period, public information,
volume limitation or notice provisions of Rule 144. All holders of Rule 701
shares are required to wait until 90 days after the date of this prospectus
before selling such shares. However, all Rule 701 shares are subject to lock-up
agreements and will only become eligible for sale at the earlier of the
expiration of the 180-day lock-up agreements or no sooner than 90 days after
the offering upon obtaining the prior written consent of Donaldson, Lufkin &
Jenrette.
Following the effectiveness of this offering, we will file a registration
statement on Form S-8 registering 4,119,695 shares of common stock subject to
outstanding options or reserved for future issuance under our stock plans. As
of June 30, 1999, options to purchase a total of 2,229,608 shares were
outstanding and 1,890,087 shares were reserved for future issuance under our
stock plans. Common stock issued upon exercise of outstanding vested options or
issued under our purchase plan, other than common stock issued to our
affiliates, is available for immediate resale in the open market.
Also beginning six months after the date of this offering, holders of
7,817,180 restricted shares will be entitled to certain registration rights for
sale in the public market. See "Description of Capital Stock-Registration
Rights." Registration of such shares under the Securities Act would result in
such shares becoming freely tradable without restriction under the Securities
Act, except for shares purchased by affiliates, immediately upon the
effectiveness of such registration.
61
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
dated , 1999, the underwriters named below, who are represented
by Donaldson, Lufkin & Jenrette Securities Corporation, SG Cowen Securities
Corporation, C.E. Unterberg, Towbin, Wit Capital Corporation and DLJdirect Inc.
have severally agreed to purchase from Andromedia the respective number of
shares of common stock set forth opposite their names below:
<TABLE>
<CAPTION>
Number
of
Shares
Underwriters: ------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..................
SG Cowen Securities Corporation......................................
C.E. Unterberg, Towbin...............................................
Wit Capital Corporation..............................................
DLJdirect Inc........................................................
----
Total..............................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares of common stock in the offering
are subject to approval by their counsel of legal matters concerning the
offering and to condition precedents that must be satisfied by Andromedia. The
underwriters are obligated to purchase and accept delivery of all of the shares
of common stock in the offering, other than those shares covered by the over-
allotment option described below, if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to dealers, including the
underwriters, at such price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, to other dealers a
concession not in excess of $ per share. After the initial offering of the
common stock, the public offering price and other selling terms may be changed
by the representatives of the underwriters at any time without notice. The
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
An electronic prospectus will be available on the Web sites maintained by
DLJdirect Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and Wit Capital Corporation. In addition, all dealers purchasing
shares from Wit Capital in this offering have agreed to make a prospectus in
electronic format available on Web sites maintained by each of these dealers.
Wit Capital, a member of the National Association of Securities Dealers, Inc.,
will participate in this offering as one of the underwriters. Other than the
prospectus in electronic format, the information on these Web sites relating to
the offering is not part of this prospectus and has not been approved or
endorsed by Andromedia or the underwriters, and should not be relied on by
prospective investors.
Andromedia has granted to the underwriters an option, exercisable for 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of additional shares of common stock at the
initial public offering price less underwriting discounts and commissions. The
underwriters may exercise the option solely to cover over-allotments, if any,
made in connection with the offering. To the extent the underwriter exercise
the option, each underwriter will become obligated, subject to conditions in
the underwriting agreement, to purchase its pro rata portion of such additional
shares based on the underwriter's percentage underwriting commitment as
indicated in the above table.
62
<PAGE>
The following table sets forth the compensation payable to the underwriters
by us in connection with the offering:
<TABLE>
<CAPTION>
Total
Discounts and -----------------------------
Commissions Additional Without With
per Share Compensation Over-Allotment Over-Allotment
------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts
and commissions paid by
us.....................
Expenses payable by us..
</TABLE>
Certain entities affiliated with C.E. Unterberg, Towbin, one of the
underwriters in this offering, are stockholders of Andromedia. In March 1999,
these affiliates acquired an aggregate of 283,045 shares of our Series E
Preferred Stock. All shares of Series E Preferred Stock will automatically
convert to common stock at the time of this offering. A managing director at
Wit Capital Corporation holds a non-qualified stock option to purchase 10,000
shares of our common stock.
Andromedia has agreed to indemnify the underwriters against liabilities which
may arise in connection with the offering, including liabilities under the
Securities Act of 1933, or to contribute to payments that the underwriters may
be required to make.
Andromedia and each of its executive officers, directors, stockholders and
option holders have agreed not to for a period of 180 days from the date of
this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock, or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any such transaction described above is to be
settled by delivery of common stock or other securities, in cash, or
otherwise.
Donaldson, Lufkin & Jenrette Securities Corporation may choose to release
some of these shares from such restrictions prior to the expiration of the 180-
day period lock-up period, although it has no current intention of doing so.
In addition, during such 180-day period, Andromedia has also agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and stockholders of Andromedia have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price of the shares of common stock
offered will be determined by negotiation among Andromedia and the
underwriters. The factors to be considered in determining the initial public
offering price include:
. the history of and the prospects for the industry in which we compete;
. our past and present operations;
. our historical results of operations;
. our prospects for future earnings;
63
<PAGE>
. the recent market prices of securities of generally comparable companies;
and
. the general condition of the securities markets at the time of the
offering.
Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered in any jurisdiction where action for that purpose is required. The
shares of common stock offered may not be offered or sold, directly or
indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and observe any restrictions
relating to the offering and the distribution of this prospectus. This
prospectus does not constitute an offer to sell or a solicitation of any offer
to buy any shares of common stock offered in any jurisdiction in which such an
offer or a solicitation is unlawful.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may over-allot the offering, creating a
syndicate short position. The underwriters may bid for and stabilize the price
of the common stock. In addition, the underwriting syndicate may reclaim
selling concessions from syndicate members and selected dealers if they
repurchase previously distributed common stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
LEGAL MATTERS
The validity of the common stock in the offering will be passed upon for
Andromedia by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. Certain legal matters will be passed upon for the
underwriters by Latham & Watkins, San Francisco, California. As of the date of
this prospectus, certain investment partnerships composed of certain current
and former members of and persons associated with Wilson Sonsini Goodrich &
Rosati, Professional Corporation, as well as certain individual attorneys of
this firm, beneficially own an aggregate of 34,394 shares of our common stock
on an as-converted to common stock basis.
64
<PAGE>
EXPERTS
The financial statements of Andromedia, Inc. as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998 included
in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of LikeMinds, Inc. for the year ended December 31,
1997 and for the period from January 1, 1998 to October 8, 1998 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered by this prospectus.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules which are part of the
registration statement. For further information with respect to Andromedia and
the common stock, reference is made to the registration statement and its
exhibits and schedules which may be inspected and copied at the principal
office of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at Seven World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and copies of all or any part thereof may be
obtained at prescribed rates from the SEC's Public Reference Section at such
addresses. Also, the SEC maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
Upon completion of this offering, Andromedia will become subject to the
information and periodic reporting requirements of the Exchange Act and, in
accordance therewith, will file periodic reports, proxy and information
statements and other information with the SEC. Such periodic reports, proxy and
information statements and other information will be available for inspection
and copying at the regional offices, public reference facilities and Web site
of the SEC referred to above.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Andromedia, Inc.
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)................ F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
LikeMinds, Inc.
Report of Independent Accountants........................................ F-23
Statements of Operations................................................. F-24
Statements of Shareholders' Equity (Deficit)............................. F-25
Statements of Cash Flows................................................. F-26
Notes to Financial Statements............................................ F-27
Unaudited Pro Forma Combined Statement of Operations
Unaudited Pro Forma Combined Statement of Operations..................... F-32
Notes to Unaudited Pro Forma Combined Statement of Operations............ F-34
</TABLE>
F-1
<PAGE>
The reincorporation described in Note 1 to the financial statements has not
been consummated as of September 23, 1999. When the reincorporation has been
consummated, we will be in a position to furnish the following report:
REPORT OF INDEPENDENT ACCOUNTANTS
"To the Board of Directors and Stockholders of
Andromedia, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Andromedia, Inc. at December 31, 1997 and 1998, and the consolidated results of
their operations and their cash flows for the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
August 10, 1999, except for Note 1
which is as of October , 1999"
F-2
<PAGE>
ANDROMEDIA, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
As of Pro forma
December 31, As of Stockholders'
----------------- June 30, Equity as of
1997 1998 1999 June 30, 1999
------- -------- ----------- -------------
(Unaudited) (Note 11)
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................... $ 696 $ 1,881 $ 9,075
Accounts receivable, net..................... 229 1,113 2,776
Prepaid expenses and other current assets.... 132 160 685
------- -------- --------
Total current assets........................ 1,057 3,154 12,536
Property and equipment, net.................. 332 1,399 2,255
Intangible assets, net....................... -- 2,242 1,746
------- -------- --------
$ 1,389 $ 6,795 $ 16,537
======= ======== ========
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable............................. $ 184 $ 561 $ 366
Accrued liabilities.......................... 187 729 1,762
Deferred revenue............................. 70 745 2,273
Current portion of debt and lease
obligations................................. 67 290 743
------- -------- --------
Total current liabilities................... 508 2,325 5,144
------- -------- --------
Long-term debt and lease obligations less
current..................................... 84 390 255
------- -------- --------
Commitments (Note 5)
Mandatorily Redeemable Convertible Preferred
Stock: 9,365,285 shares authorized;
1,627,269, 4,928,689 and 9,156,210
(unaudited) shares outstanding actual
(aggregate liquidation preference of
$28,516, unaudited) and none outstanding in
pro forma (unaudited)....................... 3,548 14,838 55,141
------- -------- --------
Stockholders' Equity (Deficit):
Convertible Preferred Stock: $0.001 par
value; 744,910 shares authorized, issued and
outstanding (aggregate liquidation
preference of $2,130) actual; 7,500,000
shares authorized, none issued and
outstanding pro forma (unaudited)........... 1 1 1 $ --
Common Stock: $0.001 par value; 20,000,000
shares authorized actual; 2,800,000,
4,159,487 and 4,316,820 (unaudited) shares
issued actual; 150,000,000 shares
authorized, 12,140,486 shares issued and
outstanding pro forma (unaudited)........... 3 4 4 12
Paid-in-capital.............................. 2,221 4,420 -- 55,134
Deferred stock compensation.................. -- (651) (2,015) (2,015)
Accumulated deficit.......................... (4,976) (14,532) (41,993) (41,993)
------- -------- -------- --------
Total stockholders' equity (deficit)........ (2,751) (10,758) (44,003) $ 11,138
------- -------- -------- ========
$ 1,389 $ 6,795 $ 16,537
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
ANDROMEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses...................... $ -- $ 413 $ 1,153 $ 461 $ 1,715
Services and maintenance...... -- 36 816 196 907
------- ------- -------- ------- --------
Total revenues............... -- 449 1,969 657 2,622
------- ------- -------- ------- --------
Cost of Revenues:
Licenses...................... -- 25 69 20 129
Services and maintenance...... -- 18 946 213 1,903
------- ------- -------- ------- --------
Total cost of revenues....... -- 43 1,015 233 2,032
------- ------- -------- ------- --------
Gross profit................... -- 406 954 424 590
Operating Expenses:
Sales and marketing........... 387 1,512 5,199 1,837 4,610
Research and development...... 884 1,446 2,337 1,021 1,731
General and administrative.... 365 857 2,106 970 1,950
Amortization of acquired
intangible assets............ -- -- 247 -- 496
Non-cash stock compensation... -- -- 287 45 429
Write off of acquired in
process technology........... -- -- 455 -- --
------- ------- -------- ------- --------
Total operating expenses..... 1,636 3,815 10,631 3,873 9,216
------- ------- -------- ------- --------
Loss from operations........... (1,636) (3,409) (9,677) (3,449) (8,626)
Interest income (expense),
net........................... 10 59 121 (5) 18
------- ------- -------- ------- --------
Net loss....................... (1,626) (3,350) (9,556) (3,454) (8,608)
Preferred stock accretion...... -- -- (1,351) (1,351) (25,080)
------- ------- -------- ------- --------
Net loss attributable to common
stockholders.................. $(1,626) $(3,350) $(10,907) $(4,805) $(33,688)
======= ======= ======== ======= ========
Net Loss Per Share:
Basic and diluted............. $ (0.69) $ (1.36) $ (3.80) $ (1.86) $ (8.59)
======= ======= ======== ======= ========
Weighted average shares....... 2,341 2,472 2,873 2,578 3,921
Pro Forma Net Loss Per Share
(Unaudited):
Basic and diluted............. $ (1.35) $ (0.84)
======== ========
Weighted average shares....... 7,067 10,265
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ANDROMEDIA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible
Preferred
Stock Common Stock Deferred
-------------- ---------------- Paid-in Stock Accumulated
Shares Amount Shares Amount Capital Compensation Deficit Total
------- ------ --------- ------ ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock
to founders ........... -- $ -- 2,800,000 $ 3 $ 106 $ -- $ -- $ 109
Issuance of Series A
Convertible Preferred
Stock net of issuance
costs.................. 248,120 -- -- -- 1,143 -- -- 1,143
Issuance of Series B
Convertible Preferred
Stock net of issuance
costs.................. 365,211 1 -- -- 681 -- -- 682
Net loss................ -- -- -- -- (1,626) (1,626)
------- ----- --------- ---- ------- ------- -------- --------
Balance at December 31,
1996................... 613,331 1 2,800,000 3 1,930 -- (1,626) 308
Issuance of Series B
Convertible Preferred
Stock net of issuance
costs.................. 131,579 -- -- -- 245 -- -- 245
Issuance of Common Stock
Options................ -- -- -- -- 46 -- -- 46
Net loss................ -- -- -- -- -- (3,350) (3,350)
------- ----- --------- ---- ------- ------- -------- --------
Balance at December 31,
1997................... 744,910 1 2,800,000 3 2,221 -- (4,976) (2,751)
Issuance of Common Stock
upon acquisition of
LikeMinds, Inc......... -- -- 1,299,670 1 2,599 -- -- 2,600
Deferred stock
compensation........... -- -- -- -- 938 (938) -- --
Amortization of deferred
stock compensation..... -- -- -- -- 287 -- 287
Exercise of stock
options................ -- -- 59,817 -- 16 -- -- 16
Foreign translation
adjustment............. -- -- -- -- (3) -- -- (3)
Preferred Stock
accretion.............. -- -- -- -- (1,351) -- -- (1,351)
Net loss................ -- -- -- -- -- -- (9,556) (9,556)
------- ----- --------- ---- ------- ------- -------- --------
Balance at December 31,
1998................... 744,910 1 4,159,487 4 4,420 (651) (14,532) (10,758)
Deferred stock
compensation
(unaudited)............ -- 1,793 (1,793) --
Amortization of deferred
stock compensation
(unaudited)............ -- -- -- -- -- 429 -- 429
Exercise of stock
options (unaudited).... -- -- 157,333 -- 45 -- -- 45
Foreign translation
adjustment
(unaudited)............ -- -- -- -- (31) -- -- (31)
Preferred Stock
accretion (unaudited).. -- -- -- -- (6,227) -- (18,853) (25,080)
Net loss (unaudited).... -- -- -- -- -- -- (8,608) (8,608)
------- ----- --------- ---- ------- ------- -------- --------
Balance at June 30, 1999
(unaudited)............ 744,910 $ 1 4,316,820 $ 4 $ -- $(2,015) $(41,993) $(44,003)
======= ===== ========= ==== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ANDROMEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net loss.................... $ (1,626) $ (3,350) $ (9,556) $ (3,454) $ (8,608)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. 36 106 547 91 800
Acquired in-process
technology................ -- -- 455 -- --
Non-cash stock
compensation.............. -- -- 287 45 429
Other...................... 85 46 8 11 29
Changes in assets and
liabilities, excluding
effect of acquisition:
Accounts receivable, net... -- (229) (865) (406) (1,663)
Prepaid expenses and other
current assets............ (51) (81) (28) (21) (225)
Other assets............... (62) 62 -- -- --
Accounts payable........... 200 (16) 76 248 (195)
Accrued liabilities........ 102 85 464 142 1,033
Deferred revenue........... -- 70 675 367 1,528
-------- -------- -------- -------- --------
Net cash used in operating
activities............... (1,316) (3,307) (7,937) (2,977) (6,872)
-------- -------- -------- -------- --------
Cash Flows from Investing
Activities:
Purchase of property and
equipment.................. (135) (105) (1,072) (349) (1,160)
-------- -------- -------- -------- --------
Net cash used in investing
activities............... (135) (105) (1,072) (349) (1,160)
-------- -------- -------- -------- --------
Cash Flows from Financing
Activities:
Proceeds from issuance of
Mandatorily Redeemable
Convertible Preferred
Stock, net................. -- 3,548 9,927 9,927 14,863
Proceeds from issuance of
Convertible Preferred
Stock, net................. 1,623 245 -- -- --
Proceeds from issuance of
Common Stock............... 18 -- 16 4 45
Proceeds from borrowings.... 202 -- 425 37 453
Principal payments on
borrowings................. (9) (68) (174) (37) (135)
-------- -------- -------- -------- --------
Net cash provided by
financing activities..... 1,834 3,725 10,194 9,931 15,226
-------- -------- -------- -------- --------
Net increase in cash and
cash equivalents........... 383 313 1,185 6,605 7,194
Cash and cash equivalents at
beginning of period........ -- 383 696 696 1,881
-------- -------- -------- -------- --------
Cash and cash equivalents at
end of period.............. $ 383 $ 696 $ 1,881 $ 7,301 $ 9,075
======== ======== ======== ======== ========
Supplemental Disclosure of
Cash Flow Information:
Cash paid for interest..... $ 1 $ 11 $ 43 $ 20 $ 43
Non-cash Financing and
Investing Transactions:
Shares of Common Stock
issued for acquisition of
LikeMinds.................. -- -- 2,600 -- --
Property and equipment
acquired under capital
leases..................... 27 201 279 84 --
Conversion of Convertible
note to Series A
Convertible Preferred
Stock...................... 202 -- -- -- --
Convertible Preferred Stock
Warrants issued............ -- -- 12 12 360
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company And Summary Of Significant Accounting Policies
The Company
Andromedia, Inc. (the "Company" or "Andromedia"), was incorporated in
California on January 10, 1996. The Company provides a comprehensive e-
marketing solution that combines advanced Web site monitoring, personalization
and analysis capabilities. The Company's Solution monitors and analyzes Web
site activity and visitor behavior data and, in real-time helps its customers
improve the effectiveness of their Internet marketing and selling efforts.
On August 18, 1999, the Company's Board of Directors authorized, subject to
stockholders' approval, reincorporation of the Company in Delaware. The Board
also authorized an increase in authorized shares of Common Stock to 150,000,000
and a decrease in authorized shares of preferred stock to 7,500,000, to be
effective upon the closing of the offering contemplated by this Prospectus (the
"Offering"). In September 1999, the Company's Board of Directors authorized,
subject to stockholders' approval, a 7-for-10 reverse split of the Company's
issued and outstanding shares of common stock. Share data in the accompanying
financial statements has been retroactively adjusted to reflect the proposed
reincorporation and the reverse stock split, which are expected to be completed
prior to the Offering becoming effective.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in the consolidation process.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue recognition
The Company's revenues are derived from licenses for its software products
and related services, which include maintenance, training and consulting.
Effective January 1, 1998, the Company adopted the provisions of the American
Institute of Certified Public Accountants (AICPA) Statement of Position 97-2
("SOP 97-2"), "Software Revenue Recognition," as amended by Statement of
Position 98-4, "Deferral of the Effective Date of Certain Provisions of SOP 97-
2."
For agreements which do not require significant installation and
configuration services, license revenues are recognized upon shipment of the
product if no significant vendor obligations remain and collection of the
resulting receivable is probable. Maintenance revenues consist of ongoing
support and unspecified product enhancements and are recognized ratably over
the maintenance period, which is typically one year. Revenues from consulting
and training are recognized as the services are performed. For the multiple-
element agreements, the revenue is allocated to each individual element based
on the vendor-specific objective evidence of its fair value.
F-7
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company's software licensing agreements may include more extensive
configuration, modification or customization services. Under such
circumstances, the combined license and service revenues are recognized under
contract accounting with labor days as the basis for determining percentage
complete. When reliable estimates of costs to be incurred are available,
revenue is recognized using the percentage of completion method based upon the
level of effort required to complete the project. The completed contract method
is used where reliable estimates to complete are not feasible.
Payments received in advance of revenue recognition are recorded as deferred
revenue. Revenue recognized in advance of billings is recorded as unbilled
receivable
Prior to the adoption of SOP 97-2, license revenue was recognized upon
shipment of products to customers, if no significant vendor obligations
remained and collection of the resulting receivable was probable.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 1998 and 1997, approximately $200,000 and $275,000 of certificates of
deposits, the fair value of which approximate cost, are included in cash and
cash equivalents, respectively. The Company deposits cash and cash equivalents
with high credit quality financial institutions.
Concentration of credit risk and certain risks
Financial instruments that potentially subject the Company to a concentration
of credit risk consist of cash and cash equivalents and accounts receivable.
The Company's accounts receivable are derived from revenue earned from
customers located primarily in the United States. The Company performs credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for doubtful
accounts receivable based upon the expected collectibility of accounts
receivable.
At December 31, 1997, one customer accounted for 20% of total accounts
receivable. At December 31, 1998, two customers accounted for 28% and 11% of
total accounts receivable.
The market in which the Company competes is characterized by changing
customer needs, frequent new software product introductions and rapidly
evolving industry standards. Significant technological change could adversely
affect the Company's operating results.
Capitalized software development costs
Software development costs are included in research and development and are
expensed as incurred. Software development costs incurred subsequent to
establishment of technological feasibility are capitalized, if material. To
date, the period between achieving technological feasibility, which the Company
has defined as the establishment of a working model and the general
availability of such software has been short, and software development costs
qualifying for capitalization have been insignificant. Accordingly, the Company
has not capitalized any software development costs.
F-8
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally 3
years, or the lease term, if shorter for leased assets.
Intangible assets
Intangible assets include goodwill, patent and workforce associated with
business acquisitions and are being amortized over their weighted average
useful life of 2.5 years.
Stock-based compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25,
compensation expense is based on the difference, if any, between the fair value
of the Company's stock and the exercise price of the option on the measurement
date, which is typically the date of grant.
The Company accounts for options granted to non-employees under SFAS No. 123.
Under SFAS No. 123, options are recorded at their fair value on the measurement
date, which is typically the date of grant.
Preferred stock accretion
Shares of Series C, D and E Mandatorily Redeemable Convertible Preferred
Stock are redeemable at the higher of original issuance price or fair market
value at or any time after February 1, 2004. Accordingly, the Company has
valued the Mandatorily Redeemable Convertible Preferred Stock at its fair value
at the end of each period presented, with the periodic differences recorded as
preferred stock accretion. The Company recorded preferred stock accretion of
$1,351,000 and $25,080,000 (unaudited) for the year ended December 31, 1998 and
the six months ended June 30, 1999 based on $3.03 and $6.00 (unaudited) per
share being the estimated fair market values of shares of such stock at
December 31, 1998 and June 30, 1999, respectively.
Historical and pro forma net loss per share
Historical basic and diluted net loss per share are computed using the
weighted average number of common shares outstanding. Options, warrants and
preferred stock were not included in the computation of diluted net loss per
share because the effect would be antidilutive.
Pro forma net loss per share has been computed assuming the conversion of all
outstanding shares of convertible preferred stock into shares of common stock
which will occur upon the closing of the Offering.
F-9
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of historical and pro forma
basic and diluted net loss per share for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
----------------------------------------- -----------------
1996 1997 1998 1998 1999
------------ ------------ ------------- ------- --------
(In thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C>
Historical:
Numerator:
Net loss.............. $ (1,626) $ (3,350) $ (9,556) $(3,454) $ (8,608)
Accretion of Series C
and D Mandatorily
Redeemable
Convertible Preferred
Stock................ -- -- (1,351) (1,351) (25,080)
------------ ------------ ------------- ------- --------
Net loss attributable
to common
stockholders........ $ (1,626) $ (3,350) $ (10,907) $(4,805) $(33,688)
------------ ------------ ------------- ------- --------
Denominator:
Weighted average
shares............... 2,800 2,800 3,132 2,808 4,267
Weighted average
unvested common
shares subject to
repurchase........... (459) (328) (259) (230) (346)
------------ ------------ ------------- ------- --------
Total weighted
average shares...... 2,341 2,472 2,873 2,578 3,921
------------ ------------ ------------- ------- --------
Net loss per share:.... -- --
Basic and diluted..... $ (0.69) $ (1.36) $ (3.80) $ (1.86) $ (8.59)
============ ============ ============= ======= ========
Pro forma:
Numerator:
Net loss.............. $ (9,556) $ (8,608)
============= ========
Denominator:
Weighted average
common shares, basic
and diluted.......... 2,873 3,921
Conversion of
Convertible Preferred
Stock................ 4,194 6,344
------------- --------
Total weighted
average shares...... 7,067 10,265
============= ========
Pro forma net loss per
share:
Basic and diluted.... $ (1.35) $ (0.84)
============= ========
</TABLE>
Comprehensive income (loss)
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components and is
effective for periods beginning after December 15, 1997. The Company adopted
this statement as of the first quarter of 1998. Comprehensive loss approximated
net loss for all periods presented.
Foreign currency translation
Financial statements of the Company's foreign subsidiary are translated into
U.S. dollars at current rates, except that revenues, costs and expenses are
translated at weighted-average rates in effect during the year. Translation
adjustments for the periods presented were not significant.
F-10
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income taxes
The Company accounts for income taxes under the liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax basis of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future tax benefits of utilizing net
operating losses and research and development credit carryforwards. A valuation
allowance is provided against deferred tax assets if it is more likely than not
that they will not be realized.
Advertising expense
The Company expenses all advertising expenses as incurred. The Company's
advertising expenses were none in 1996 and $587,000 and $991,000 for 1997 and
1998, respectively.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the Financial Accounting Standards Board
deferred the effective date of SFAS 133 until the first fiscal quarter ending
June 30, 2000. The Company will adopt SFAS 133 in its quarter ending June 30,
2000 and does not expect such adoption to have an impact on the Company's
results of operations, financial position or cash flows.
In December 1998, the AICPA, issued Statement of Position 98-9 ("SOP 98-9"),
"Modification of SOP 97-2, "Software Revenue Recognition,' with respect to
certain transactions." SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence ("VSOE") of the
fair values of all the undelivered elements that are not accounted for by means
of long-term contract accounting, and (2) VSOE of fair value does not exist for
one or more of the delivered elements, and (3) all revenue recognition criteria
of SOP 97-2 has been met. SOP 98-9 will be effective for transactions that are
entered into in fiscal years beginning after March 15, 1999. Retroactive
application is prohibited. The Company does not expect SOP 98-9 to have a
material effect on its financial position, results of operations or cash flows.
Unaudited interim financial information
The accompanying consolidated balance sheet as of June 30, 1999, the
consolidated statements of operations and of cash flows for the six months
ended June 30, 1999 and 1998 and the consolidated statement of stockholders
deficit for the six months ended June 30, 1999 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of only
normal recurring adjustments, necessary for the fair presentation of the
results for the interim periods. The data disclosed in the consolidated
financial statements as of such dates and for such periods are unaudited.
Results of the six months ended June 30, 1999 are not necessarily indicative of
results of the entire year.
F-11
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. Balance Sheet Components (in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998 1999
----- ------ -----------
(unaudited)
<S> <C> <C> <C>
Accounts receivable, net:
Accounts receivable................................. $ 250 $1,212 $3,176
Less: Allowance for doubtful accounts............... (21) (99) (400)
----- ------ ------
$ 229 $1,113 $2,776
===== ====== ======
Property and equipment, net:
Computer equipment.................................. $ 427 $1,497 $2,608
Furniture and fixtures.............................. 24 34 40
Leasehold improvements.............................. 23 309 352
----- ------ ------
474 1,840 3,000
Less: Accumulated depreciation and amortization..... (142) (441) (745)
----- ------ ------
$ 332 $1,399 $2,255
===== ====== ======
Intangible assets, net:
Patent.............................................. $ -- $ 133 $ 133
Assembled workforce................................. -- 895 895
Goodwill............................................ -- 1,461 1,461
----- ------ ------
-- 2,489 2,489
Less: Accumulated amortization...................... -- (247) (743)
----- ------ ------
$ -- $2,242 $1,746
===== ====== ======
Accrued liabilities:
Payroll and related expenses........................ $ 167 $ 495 $1,117
Other............................................... 20 234 645
----- ------ ------
$ 187 $ 729 $1,762
===== ====== ======
</TABLE>
Property and equipment includes $228,000 and $507,000 of computer equipment
under capital leases at December 31, 1997 and 1998, respectively. Accumulated
amortization of assets under capital leases totaled $45,000 and $155,000 at
December 31, 1997 and 1998, respectively.
3. Acquisition
On October 8, 1998, the Company acquired all the outstanding shares of
LikeMinds, Inc. ("LikeMinds") for 1,299,670 shares of common stock. The
transaction was accounted for under the purchase method. The shares of common
stock issued in connection with the LikeMinds acquisition were valued at $2.00
per share based on an independent appraisal obtained by the Company. The total
purchase price of approximately $2,980,000 (including $380,000 of liabilities
acquired and merger related expenses) was assigned, based on the independent
appraisal, to the fair value of the assets acquired including $36,000 to
tangible assets acquired, $455,000 to in-process research and development,
$1,028,000 to other identified intangibles and the remainder of $1,461,000 to
goodwill. The in-process research and development was expensed at the
acquisition date. Goodwill and other identified acquired intangibles are being
amortized over their weighted average life of approximately 2.5 years. The
Company's consolidated financial statement include the results of operations of
LikeMinds from the date of acquisition.
F-12
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The value assigned to acquired in-process technology was determined by
identifying research projects in areas for which technological feasibility had
not been established as of the acquisition date. These include projects
(primarily major version upgrades) for the LikeMinds product line. The value
was determined by estimating the revenue contribution of each of these products
and the amount of the revenues attributable to the core/developed technology
and the in-process technology. The net cash flows were then discounted
utilizing a weighted average cost of capital of 26.5%. This discount rate takes
into consideration the inherent uncertainties surrounding the successful
development of the in-process research and development, the expected
profitability levels of such technology and the uncertainty of technological
advances which could potentially impact the estimates described above. The
completion level of acquired in process technology was estimated based on the
time and related costs incurred in development before the close of the
acquisition in relation to aggregate estimated costs of completing the project.
The average percentage of completion of the projects was 59% at the date of the
acquisition. Revenues are projected to be generated in 1999 for the versions in
development at the acquisition date. If these projects are not successfully
developed, future revenues and profitability of the Company may be adversely
affected. Additionally, the value of other intangible assets acquired may
become impaired.
The following unaudited pro forma consolidated financial information reflects
the results of operations for the years ended December 31, 1997 and 1998, as if
the acquisition had occurred on January 1, 1997 and 1998 and after giving
effect to purchase accounting adjustments but excluding the impact of write off
of acquired in-process technology. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of what
operating results would have been had the acquisition actually taken place on
January 1, 1998 and may not be indicative of future operating results (in
thousands, except per share data).
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1997 1998
------- --------
(Unaudited)
<S> <C> <C>
Revenues................................................. $ 697 $ 2,537
Net loss................................................. (4,980) (10,111)
Net loss attributable to common stockholders............. (4,980) (11,462)
Net loss per share (basic and diluted)................... $ (1.35) $ (2.99)
Weighted average shares (basic and diluted).............. 3,689 3,828
</TABLE>
4. Borrowings
Line of credit
In September 1997, the Company entered into a revolving line of credit
agreement with a bank which provided for borrowings of up to $500,000. In
conjunction with this line of credit, the Company issued warrants for 6,667
shares of Series C Convertible Preferred Stock. The line of credit expired in
December 1998. The warrant's value was estimated to be approximately $10,000
using the Black-Scholes model with expected volatility of 50%, risk free
interest of 5.0% and expected life of 5 years and was considered an additional
interest expense.
In February 1999, the Company entered into a revolving accounts receivable
based line of credit agreement with a bank which provides for borrowings of up
to $2,000,000. The line of credit requires compliance with certain financial
tests, prohibits payment of dividends, charges interest at the bank's prime
rate and expires in February 2000. Borrowings are collateralized by all of the
assets of the Company.
F-13
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At June 30, 1999, the Company had one letter of credit of $100,000
outstanding under this line (unaudited).
Equipment line of credit
The Company has a term loan outstanding which requires monthly payments, is
collateralized by all the assets of the Company and bears interest at the
bank's prime rate plus 0.5%. As of December 31, 1998, outstanding borrowings
under this loan aggregated $411,000.
The loan requires the Company to meet certain financial tests and to comply
with certain other covenants. The Company was in compliance with such covenants
at December 31, 1998 and June 30, 1999 (unaudited).
Future principal payments under the loan as of December 31 ,1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ending
December 31,
<S> <C>
1999.................................................................... $170
2000.................................................................... 170
2001.................................................................... 71
----
$411
====
</TABLE>
In February 1999, the Company entered into an equipment financing line with a
bank which provides for borrowings of up to $1,000,000. The equipment loan is
repayable in monthly installments through August 2002 and February 2003 and
bears interest at the bank's prime rate plus 0.5%.
Bridge loan agreement
In February 1999, the Company entered into a bridge loan agreement (the "1999
Bridge Loan") with a bank to borrow up to $2,400,000. The loan was due at the
earlier of May 31, 1999 or the receipt of the Series E Preferred Stock
financing. In February 1999, the Company borrowed $1,003,000 against the line.
Approximately $550,000 of principal amount, plus accrued interest, was
subsequently repaid in March 1999 and the remaining $453,000 of loan balance
was rolled into the aforementioned February 1999 equipment line of credit.
5. Commitments
Leases
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through December 2002. Rent
expense for the years ended December 31, 1996, 1997 and 1998 was $38,000,
$60,000 and $230,000, respectively.
In February 1998, the Company entered into a new office lease agreement for
its San Francisco facility which expires in July 2003. The Company has the
right to request a five year extension at the end of the original lease term.
As of December 31, 1998, the Company had provided a $100,000 of letter of
credit to the landlord, as security for faithful performance of the lease. The
balance of the letter of credit will decline by $20,000 each year.
F-14
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum lease payments under noncancelable operating and capital
leases as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ended Leases Leases
December 31, ------- ---------
(In thousands)
<S> <C> <C>
1999....................................................... $ 137 $ 406
2000....................................................... 99 330
2001....................................................... 57 220
2002....................................................... -- 225
2003....................................................... -- 125
----- ------
Total minimum lease payments............................... 293 $1,306
======
Less: amount representing interest......................... (24)
-----
Present value of capital lease obligations................. 269
Less: Current portion...................................... (120)
-----
Long-term portion of capital lease obligations............. $ 149
=====
</TABLE>
6. Mandatorily Redeemable Convertible Preferred Stock and Convertible Preferred
Stock
Mandatorily Redeemable Convertible Preferred Stock consists of the following
(in thousands, except share data):
<TABLE>
<CAPTION>
Shares
Outstanding Amount
----------- -------
<S> <C> <C>
Issuance of Series C Preferred Stock................... 1,627,269 $ 3,548
--------- -------
Balance at December 31, 1997........................... 1,627,269 3,548
Issuance of Series D Preferred Stock................... 3,301,420 9,927
Issuance of Series D Preferred Stock Warrants.......... -- 12
Preferred Stock accretion.............................. -- 1,351
--------- -------
Balance at December 31, 1998........................... 4,928,689 14,838
Issuance of Series E Preferred Stock (unaudited)....... 4,227,521 14,863
Issuance of Series C and E Preferred Stock Warrants
(unaudited)........................................... -- 360
Preferred Stock accretion (unaudited).................. -- 25,080
--------- -------
Balance at June 30, 1999 (unaudited)................... 9,156,210 $55,141
========= =======
</TABLE>
The Company has 248,120 shares of Series A Convertible Preferred Stock and
496,790 shares of Series B Convertible Preferred Stock authorized, issued and
outstanding at December 31, 1997 and 1998.
The holders of Mandatorily Redeemable Convertible Preferred Stock and
Convertible Preferred Stock have various rights and preferences as follows:
Redemption
Upon written notice of at least a majority of the holders of Series C, Series
D or Series E Convertible Preferred Stock, at any time subsequent to February
1, 2004, the Company must redeem a specified percentage of Series C, D and E
Convertible Preferred Stock at a price equal to the greater of (i) $2.20
(Series C), $3.029 (Series D) and $3.533 (Series E) per share, respectively,
plus all declared
F-15
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
but unpaid dividends on such shares or (ii) the per share fair market value as
determined by mutual agreement between a majority of the holders of the
applicable series of redeemable preferred and a majority of the Board of
Directors.
Voting
Each share of Series A, B, C, D and E Convertible Preferred Stock has voting
rights equal to an equivalent number of shares of Common Stock into which it is
convertible and votes together as one class with the Common Stock.
As long as 300,000 shares of Series C Convertible Preferred Stock are
outstanding, the holders of the shares of such series voting together as a
separate series, are entitled to elect one member of the Board of Directors. So
long as there remain outstanding 540,000 shares of Series D Convertible
Preferred Stock, the holders of the Series D Convertible Preferred Stock,
voting together as a separate series, shall be entitled to elect two members of
the Board of Directors. So long as there remain outstanding 690,000 shares of
Series E Convertible Preferred Stock, the holders of Series E Convertible
Preferred Stock voting together as a separate series, shall be entitled to
elect one member of Board of Directors. The remaining directors shall be
elected by the holders of Common and Preferred Stock voting as a single class.
The Company shall not, without first obtaining the affirmative vote or
written consent of the holders of not less than (1) a majority of the
outstanding shares of Series C Convertible Preferred Stock so long as there
remain outstanding 300,000 shares of Series C Convertible Preferred Stock,
(2) 67% of outstanding shares of the Series D Convertible Preferred Stock so
long as there remain outstanding 540,000 shares of Series D Convertible
Preferred Stock and (3) 67% of outstanding shares of Series E Convertible
Preferred Stock so long as there remain outstanding 690,000 shares of Series E
Convertible Preferred Stock: enter into any merger, consolidation,
reorganization, recapitalization or sale of assets transaction or series of
transactions which results in the shareholders of the Company not owning a
majority of the outstanding shares of the surviving corporation; enter into or
otherwise become a party to any agreement whereby any shareholder or
shareholders of the Company shall transfer capital stock of the Company to an
independent third party or a group of independent third parties pursuant to
which such parties acquire capital stock of the Company possessing the voting
power to elect a majority of the Company's board of directors; declare any
dividends or distributions on any shares of capital stock of the Company, but
this restriction shall not apply to the repurchase of shares of Common Stock
pursuant to repurchase agreements or prevent the Company from entering into an
agreement, directly or indirectly with officers, employees, stockholders or
directors of the Company, unless approved by a majority of the Company's
disinterested directors on the Board of Directors; enter into any financial
commitments in excess of $500,000; dismiss or hire the Company's Chief
Financial Officer or other equivalent senior level financial officer; or
approve the annual budget of the Company.
Dividends
Holders of Series A, B, C, D and E Convertible Preferred Stock are entitled
to receive noncumulative dividends at the per annum rate of $0.24, $0.10,
$0.11, $0.15 and $0.18 per share, respectively, when and if declared by the
Board of Directors. The holders of Series A, B, C, D and E Convertible
Preferred Stock will also be entitled to participate in dividends on Common
Stock, when and if declared by the Board of Directors, based on the number of
shares of Common Stock held on an as-if converted basis. No dividends on
Convertible Preferred Stock or Common Stock have been declared by the Board
from inception through December 31, 1998.
F-16
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners
of the Company's Common Stock and Convertible Preferred Stock own less than 50%
of the resulting voting power of the surviving entity, the holders of Series A,
B, C, D and E Convertible Preferred Stock are entitled to receive an amount of
$4.78, $1.90, $2.20, $3.029 and $3.533 per share, respectively, plus any
declared but unpaid dividends prior to and in preference to any distribution to
the holders of Common Stock. The remaining assets, if any, shall be distributed
among the holders of Series C, D and E Convertible Preferred Stock and Common
Stock in the same manner as if all the shares of Series C, D and E Convertible
Preferred Stock had been converted into Common Stock until the aggregate amount
received by the holders of Series C, D and E Convertible Preferred Stock is an
amount equal to $4.40, $4.81 and $5.73 per share, respectively; thereafter, any
such of Series C, D and E Convertible Preferred Stock shall have no further
right to share in any remaining assets and surplus fund of the Company. Should
the Company's legally available assets be insufficient to satisfy the
liquidation preferences, the funds will be distributed among the holders of
Series A, B, C, D and E Convertible Preferred Stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
Conversion
Each share of Series A, B, C, D and E Convertible Preferred Stock is
convertible into Common Stock, at the option of the holder. Series A
Convertible Preferred Stock converts on a ratio of one share of Preferred Stock
to 2.8 shares of Common Stock subject to adjustment for dilution. Series B, C
and E Convertible Preferred Stock convert on a ratio of one share of Preferred
Stock to 0.7 share of Commons Stock, subject to adjustment for dilution. Each
share of Series D Convertible Preferred Stock converts on a ratio of 1 to 0.81
subject to adjustment for dilution. Each share of Series A, B, C, D and E
Convertible Preferred Stock automatically converts into the number of shares of
Common Stock at the then effective conversion ratio upon: (i) the closing of a
public offering of Common Stock at a per share price of at least $10.14 per
share with gross proceeds of at least $20,000,000, or (ii) the consent of the
holders of at least 67% of the shares of such series of Preferred Stock, voting
as a separate class. The conversion ratio of each share of Series E Convertible
Preferred Stock is subject to change in the event of failure of the Company to
achieve certain predefined revenue milestones. However, no adjustment would
occur in the event the Company completes the initial public offering by
December 31, 1999.
At December 31, 1998, the Company reserved an aggregate of 4,864,455 shares
of Common Stock for issuance upon the conversion of Series A, B, C and D
Convertible Preferred Stock, respectively.
Warrants for Mandatorily Redeemable Convertible Preferred Stock
In 1998, in connection with securing a bridge loan, the Company issued
warrants to purchase 12,417 shares of Series D Convertible Preferred Stock at
$3.03 per share, which expire in February 2003. The Company recorded the bridge
loan at a discount of approximately $12,000 which discount was allocated to the
warrants and amortized as interest expense in 1998. The fair value of the
warrants was estimated on the date of grant using the Black-Scholes model with
expected volatility of 50%, risk-free interest rate of 5.5% and expected life
of 5 years.
During the quarter ended March 31, 1999, in connection with securing the 1999
Bridge Loan agreement, the Company issued warrants to purchase 18,159 shares of
Series E Convertible Preferred Stock at $3.53 per share to the lending
institution. These warrants will expire in the year 2009. The
F-17
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company recorded the bridge loan at a discount of approximately $60,000 which
discount was allocated to the warrants and amortized as interest expense during
the six month period ended June 30, 1999. The fair value of the warrants was
estimated on the date of grant using the Black-Scholes model with expected
volatility of 70%, risk-free interest rate of 5.5% and expected life of 10
years.
In March 1999, the Company issued warrants to purchase 90,000 shares of
Series C Convertible Preferred Stock at $2.20 per share to a vendor for
services to be rendered. These warrants will expire in March 2004. The fair
value of the warrants of $300,000 was estimated based on the value of the
services to be rendered by such vendor which also approximated the fair value
under the Black-Scholes model, with expected volatility of 70%, risk free
interest rate of 5.5% and expected life of 5 years.
7. Common Stock
The Company's articles of incorporation, as amended in March 1999, authorize
the Company to issue 14,000,000 shares of no par value Common Stock. Upon
incorporation of the Company in January 1996, the Company issued 2,800,000
shares of Common Stock to three founders. Such shares are subject to the
Company's right of first refusal and a portion of which are also subject to a
right of repurchase by the Company. Approximately 247,674 shares issued to
employees of LikeMinds, Inc. are also subject to the Company's right of
repurchase, which right lapses over an eighteen month period. At December 31,
1998 and June 30, 1999 approximately 379,274 shares and 313,474 shares
(unaudited) were subject to the Company's right to repurchase.
8. Stock Option Plans
1996 Stock Option Plan
The 1996 Stock Plan (the "Plan") provides for the issuance of up to 350,000
shares of Common Stock in connection with incentive and non-statutory stock
option awards granted to employees, directors and consultants to the Company.
Stock purchase rights may also be granted under the Plan. Options must be
issued at prices not less than 100 percent and 85 percent of the estimated fair
value of the stock on the date of grant for incentive and non-statutory
options, respectively, and are exercisable for periods not exceeding ten years
from the date of grant. Options granted to shareholders who own greater than 10
percent of the outstanding stock at the time of grant are exercisable for
periods not exceeding five years from the date of grant and must be issued at
prices not less than 110 percent of the estimated fair value at the date of
grant. Options granted under the Plan vest ratably over four years following
the date of grant, although the Board of Directors may issue options that vest
over shorter periods.
1997 Stock Option Plan
The Company adopted the 1997 Stock Option Plan in May 1997 and amended it in
April 1998. The terms under this plan are consistent with the 1996 Stock Option
Plan except for the vesting period. Under the 1997 Stock Option Plan, any
option granted shall be exercisable according to the terms determined by the
Board of Directors, but in no case at a rate of less than 20% per year over
five years from the date the option is granted. To date, options granted
generally vest 25% after one year of service and monthly for the three years
thereafter. The Company has reserved 2,289,000 shares of Common Stock for
issuance under this Plan.
F-18
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following is a summary of stock option activity under the 1996 and 1997
stock option plans:
<TABLE>
<CAPTION>
Weighted
Options Average
Available Options Exercise
for Grant Outstanding Price
---------- ----------- --------
<S> <C> <C> <C>
Shares authorized.............................. 350,000 -- $ --
Options granted................................ (342,350) 342,350 0.16
---------- ---------
Outstanding at December 31, 1996............... 7,650 342,350 0.16
Additional shares authorized.................. 525,000 -- --
Options granted............................... (473,075) 473,075 0.37
Options canceled.............................. 11,507 (11,507) 0.27
---------- ---------
Outstanding at December 31, 1997............... 71,082 803,918 0.29
Additional shares authorized.................. 924,000 -- --
Options granted............................... (957,914) 957,914 1.07
Options exercised............................. -- (59,817) 0.27
Options canceled.............................. 269,535 (269,535) 0.46
---------- ---------
Outstanding at December 31, 1998............... 306,703 1,432,480 0.77
Additional shares authorized (unaudited)...... 840,000 --
Options granted (unaudited)................... (1,119,650) 1,119,650 4.64
Options exercised (unaudited)................. -- (157,333) 0.29
Options canceled (unaudited).................. 165,189 (165,189) 0.77
---------- ---------
Outstanding at June 30, 1999 (unaudited)....... 192,242 2,229,608 $2.76
========== =========
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding at Options Exercisable
December 31, 1998 at December 31, 1998
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Outstanding (in years) Price Outstanding Price
Range of Exercise Price ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.04 -- $0.18............ 190,035 7.28 $0.09 129,602 $0.09
0.27 -- 0.43.............. 443,504 8.67 0.36 181,414 0.36
0.93 -- 1.43.............. 798,941 9.65 1.17 23,539 0.99
--------- -------
1,432,480 9.03 $0.77 334,555 $0.30
========= =======
</TABLE>
The Company accounts for employee and board of director stock options in
accordance with the provisions of APB No. 25 and complies with the disclosure
provisions of SFAS No. 123.
Under APB No. 25, compensation expense is recognized based on the amount by
which the fair value of the underlying common stock exceeds the exercise price
of the stock options at the measurement date, which in the case of employee
stock options is typically the date of grant. For financial reporting purposes,
the Company has determined that the deemed fair market value on the date of
grant of certain employee stock options was in excess of the exercise price of
the options. This amount is recorded as deferred compensation and is classified
as a reduction of stockholders' equity and is amortized as a charge to
operations over the vesting period of the applicable options. The vesting
period is generally four years. The fair value per share used to calculate
deferred compensation was derived by reference to the preferred stock values
and the Company's initial
F-19
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
public offering price range. Consequently, the Company recorded deferred stock
compensation of $938,000 and $1,793,000 (unaudited) during the year ended
December 31, 1998, and the six months ended June 30, 1999, respectively.
Amortization recognized for the year ended December 31, 1998 and the six months
ended June 30, 1999 totaled $287,000 and $429,000 (unaudited), respectively.
The weighted average fair values of the options granted in 1996, 1997 and
1998 were $0.03, $0.06 and $0.81, respectively.
Had compensation cost for option grants to employees been determined
consistent with SFAS No. 123, the Company's net loss would have been as follows
(in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
Pro forma net loss................................ $ 1,633 $ 3,376 $ 10,200
Pro forma net loss attributable to common
stockholders..................................... 1,633 3,376 11,551
Pro forma net loss per share, basic and diluted... $ (0.70) $ (1.37) $ (4.02)
</TABLE>
The above proforma disclosures are not necessarily representative of the
effects on reported income or loss for future years as additional grants are
made each year and options vest over several years.
The fair value of each option grant was estimated on the date of grant using
the minimum value options pricing model with the following weighted average
assumptions by year:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate................................. 5.9% 5.4% 5.1%
Expected life........................................... 5 years 5 years 5 years
Dividends............................................... -- -- --
</TABLE>
Because the Company does not have actively traded equity securities,
volatility is not considered in determining the value of options granted to
employees.
9. Income Taxes
No domestic or foreign provision or benefit for income taxes has been
recognized for any of the periods presented as the Company has incurred net
operating losses and has no carryback potential.
The difference between the amount of income tax benefit recorded of zero and
the amount of income tax benefit calculated using the federal statutory rate of
34% is primarily due to net operating losses being fully offset by a valuation
allowance.
During the years ended December 31, 1996, 1997 and 1998, substantially all of
the losses incurred by the Company related to its U.S. operations.
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1997 1998
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 1,500 $ 4,850
Accruals and reserves................................... 23 73
Research tax credits.................................... 150 455
Capitalized start-up costs.............................. 250 190
------- -------
1,923 5,568
Valuation allowance..................................... (1,923) (5,568)
------- -------
$ -- $ --
======= =======
</TABLE>
F-20
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Management believes that, based on a number of factors including the lack of
a long history of profits and that the Company operates in a developing market
that is characterized by rapidly changing technology, it is more likely than
not that the deferred tax assets will not be utilized, such that a full
valuation allowance has been recorded.
At December 31, 1998, the Company had approximately $11,900,000 of federal
operating loss carryforwards, available to offset future taxable income which
expire in varying amounts through 2018. At December 31, 1998, the Company had
approximately $257,000 and $198,000 of federal and state research tax credits
which expire in varying amounts through 2013. Under the Tax Reform Act of 1986,
the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances including as a result of a
cumulative ownership change of more than 50%, as defined, over a three year
period. The issuance of the Company's convertible preferred securities during
1996, 1997 and 1998 may have resulted in a limitation on utilization of such
net operating loss carryforwards.
10. Significant Customers And Geographic Information
The Company has adopted the Financial Accounting Standards Board's Statements
of Financial Accounting Standards No. 131, or SFAS 131, "Disclosure about
Segments of an Enterprise and Related Information."
The Company has one reportable segment. Management uses one measurement of
profitability for its business. The Company markets its products and related
services to customers in many industries in the United States and Europe.
Revenue by geographic region is as follows (in thousands):
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1996 1997 1998
----- ---- ------
<S> <C> <C> <C>
United States................................................. $ -- $449 $1,813
Europe........................................................ -- -- 156
----- ---- ------
$ -- $449 $1,969
===== ==== ======
</TABLE>
Two customers individually accounted for 11% and 10% of revenues in 1997. One
customer accounted for 13% of revenues in 1998.
11. Subsequent Events (Unaudited)
On August 12, 1999, the Company entered into a five year noncancelable lease
agreement. Aggregate future minimum payments under this lease total to
approximately $5,170,000. In connection with this agreement, the Company issued
a warrant to purchase 21,000 shares of the Company's Common Stock at an
exercise price of $21.43 per share. This warrant expires on August 12, 2001.
Additionally, the Company is required to deposit cash or maintain a letter of
credit in the amount of $1 million.
On August 23, 1999, the Company's Board of Directors authorized the Company
to file a registration statement with the Securities and Exchange Commission
for the purpose of an initial public offering of the Company's common stock.
Upon the completion of this offering, the
F-21
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company's preferred stock will be converted into shares of common stock, and
all outstanding shares of preferred stock will be cancelled and retired. The
pro forma effect of the conversion has been presented as a separate column in
the Company's balance sheet, assuming the conversion had occurred as of June
30, 1999.
The Board of Directors also authorized, subject to stockholders' approval,
establishment of the 1999 Stock Plan with 1.4 million shares authorized for
future option grants and the 1999 Employee Stock Purchase Plan with 350,000
shares reserved for issuance. These plans will become effective upon the
closing of the initial public offering.
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
LikeMinds, Inc.
In our opinion, the accompanying statements of operations, of shareholders'
equity (deficit) and of cash flows of LikeMinds, Inc. present fairly, in all
material respects, the results of its operations and its cash flows for the
year ended December 31, 1997 and the period from January 1, 1998 to October 8,
1998 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of LikeMinds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
August 10, 1999
F-23
<PAGE>
LIKEMINDS, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period
From
January 1,
Year Ended 1998 to
December 31, October 8,
1997 1998
------------ ----------
<S> <C> <C>
Revenues................................................ $ 248 $ 568
Cost of revenues........................................ 158 211
------ ------
Gross profit.......................................... 90 357
Operating expenses:
Sales and marketing.................................... 178 111
Research and development............................... 296 278
General and administrative............................. 133 90
Amortization of acquired intangible assets............. 100 100
------ ------
Total operating expenses.............................. 707 579
------ ------
Loss from operations.................................... (617) (222)
Interest income (expense), net.......................... (18) (40)
------ ------
Net loss................................................ $ (635) $ (262)
====== ======
Net Loss Per Share:
Basic and diluted..................................... $(0.29) $(0.10)
====== ======
Weighted average shares............................... 2,198 2,544
</TABLE>
The accompanying notes are an integral part of these financial statements
F-24
<PAGE>
LIKEMINDS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Convertible
Preferred Total
Stock Common Stock Stock Shareholders'
-------------- ----------------- Subscription Accumulated Equity
Shares Amount Shares Amount Receivable Deficit (Deficit)
------- ------ --------- ------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... -- $ -- 1,896,453 $ 27 $ (8) $ (83) $ (56)
Proceeds from stock
subscription
receivable............. -- -- -- -- 8 -- --
Issuance of Common Stock
for acquisition of
Chaco Communications... -- -- 1,000,000 450 -- -- 450
Issuance of Series A
Preferred Stock, net... 602,461 550 -- -- -- -- 550
Net loss................ -- -- -- -- (635) (635)
------- ---- --------- ---- ----- ----- -----
Balance at December 31,
1997................... 602,461 550 2,896,453 477 -- (718) 309
Repurchase of unvested
Common Stock, net...... -- -- (75,408) (2) -- -- (2)
Net loss................ -- -- -- -- (262) (262)
------- ---- --------- ---- ----- ----- -----
Balance at October 8,
1998................... 602,461 $550 2,821,045 $475 $ -- $(980) $ 45
======= ==== ========= ==== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements
F-25
<PAGE>
LIKEMINDS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Period
from
January 1,
Year Ended 1998 to
December 31, October 8,
1997 1998
------------ ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss.............................................. $(635) $(262)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 119 102
Changes in current assets and liabilities:
Accounts receivable.................................. (49) 38
Other assets......................................... 19 --
Accounts payable and accrued liabilities............. (40) (74)
Deferred revenue..................................... 67 (67)
----- -----
Net cash used in operating activities............... (519) (263)
----- -----
Cash Flows from Investing Activities:
Cash acquired from acquisition........................ 19 --
Purchase of property and equipment.................... (25) --
----- -----
Net cash used in investing activities............... (6) --
----- -----
Cash Flows from Financing Activities:
Proceeds from issuance of Series A Preferred Stock.... 550 --
Proceeds from issuance of Common Stock................ 8 --
Proceeds from advances made by Andromedia............. -- 129
Repurchase of Common Stock, net....................... -- (2)
----- -----
Net cash provided by financing activities........... 558 127
----- -----
Net increase (decrease) in cash and cash equivalents... 33 (136)
Cash and cash equivalents at beginning of period....... 113 146
----- -----
Cash and cash equivalents at end of period............. $ 146 $ 10
===== =====
Supplemental Non-cash Investing and Financing Activity:
Issuance of 1,000,000 shares of Common Stock for
acquisition of Chaco Communications.................. $ 450 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements
F-26
<PAGE>
LIKEMINDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
LikeMinds
LikeMinds, Inc., ("LikeMinds"), formerly Website Software Company, Inc., was
incorporated in California on February 14, 1996. LikeMinds develops, markets
and supports customer Web site personalization software.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue recognition
Combined license and service revenues are recognized under contract
accounting. When reliable estimates of costs to be incurred are available,
revenue is recognized using the percentage of completion method based upon the
level of effort required to complete the project. The completed contract method
is used where reliable estimates to complete are not feasible.
Maintenance revenue is deferred and recognized on a straight-line basis over
the life of the related contract, which generally is one year.
Cash and cash equivalents
LikeMinds considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Concentration of credit risk and significant customers
Financial instruments that potentially subject LikeMinds to a concentration
of credit risk consist of cash and cash equivalents and accounts receivable.
LikeMinds deposits cash and cash equivalents with high credit quality financial
institutions. LikeMinds' accounts receivable are derived from revenue earned
from customers located in the U.S. LikeMinds performs credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. LikeMinds maintains an allowance for doubtful accounts receivable
based upon the expected collectibility of accounts receivable.
The following table summarizes the revenues from customers in excess of 10%
of the total revenues:
<TABLE>
<CAPTION>
Period From
Year Ended January 1, 1998
December 31, to October 1,
1997 1998
------------ ---------------
<S> <C> <C>
Company A....................................... 15% --%
Company B....................................... -- 19
</TABLE>
At December 31, 1997, Company A accounted for 100% of total accounts
receivable. At October 8, 1998, Company B accounted for 100% of total accounts
receivable.
F-27
<PAGE>
LIKEMINDS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Capitalized software development costs
Software development costs are included in research and development and are
expensed as incurred. Software development costs incurred subsequent to
establishment of technological feasibility are capitalized, if material. To
date, the period between achieving technological feasibility, which LikeMinds
has defined as the establishment of a working model, which typically occurs
upon completion of the first beta version and the general availability of such
software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, LikeMinds has not
capitalized any software development costs.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally three to five years.
Goodwill
The goodwill represents the excess of the cost of acquired business over the
fair value of net assets acquired. The goodwill is being amortized over three
years using the straight-line method.
Stock-based compensation
LikeMinds accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123").
Income taxes
LikeMinds accounts for income taxes under the liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax basis of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future tax benefits of utilizing net
operating losses and research and development credit carryforwards. A valuation
allowance is provided against deferred tax assets if it is more likely than not
that they will not be realized.
Recent accounting pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133") which establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Substantially all of LikeMinds revenues and
costs are dollar denominated and LikeMinds has not engaged in derivative and
hedging activities.
In December 1998, the AICPA, issued Statement of Position 98-9 ("SOP 98-9"),
"Modification of SOP 97-2, "Software Revenue Recognition,' with respect to
certain transactions." SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence ("VSOE") of the
fair
F-28
<PAGE>
LIKEMINDS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
values of all the undelivered elements that are not accounted for by means of
long-term contract accounting, and (2) VSOE of fair value does not exist for
one or more of the delivered elements, and (3) all revenue recognition criteria
of SOP 97-2 has been met. SOP 98-9 will be effective for transactions that are
entered into in fiscal years beginning after March 15, 1999. Retroactive
application is prohibited. LikeMinds does not expect SOP 98-9 to have any
effect on its results of operations.
Segment information
Effective January 1, 1998, LikeMinds adopted the provisions of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
LikeMinds identifies its operating segments based on business activities,
management responsibility and geographical location. During the year and period
ended December 31, 1997 and October 8, 1998, LikeMinds operated in a single
business segment operating in the software community, primarily in the United
States. Through October 8, 1998, foreign operations had not been significant.
Net loss per share
Historical basic and diluted net loss per share are computed using the
weighted average number of common shares, outstanding preferred stock and
unvested shares of common stock were not included in the computation of diluted
net loss per share because the effect would be antidilutive.
The following table sets forth the computation of historical basic and
diluted net loss per share for the periods indicated (in thousands, except per
share data):
<TABLE>
<CAPTION>
Period from January
Year ended 1998 to October 8,
December 31, 1997 1998
----------------- -------------------
<S> <C> <C>
Numerator:
Net loss............................... $ (635) $(262)
====== ======
Denominator:
Weighted average shares................ 2,600 2,846
Weighted average unvested common shares
subject to repurchase................. (402) (302)
------ ------
2,198 2,544
====== ======
Net loss per share:
Basic and diluted...................... $(0.29) $(0.10)
====== ======
</TABLE>
2. Acquisition
On April 17, 1997, LikeMinds acquired all the outstanding shares of Chaco
Communications, a provider of software consulting services. The acquisition has
been accounted for using the purchase method. The total purchase price of
approximately $450,000 consisted of 1,000,000 shares of LikeMinds' Common Stock
and has been allocated to the tangible and intangible assets acquired and the
liabilities assumed on the basis of their respective fair values on the
acquisition date. The fair value of the net tangible assets acquired was
$19,000 and the remainder amount of $431,000 was allocated to goodwill which is
being amortization over three years using the straight line method.
F-29
<PAGE>
LIKEMINDS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
3. Income Taxes
LikeMinds did not have any provision for income taxes as a result of losses
incurred since inception. Management believes that, based on a number of
factors, it is more likely than not that the deferred tax assets will not be
realized, such that a full valuation allowance has been recorded.
At October 8, 1998, LikeMinds had approximately $700,000 of federal and state
net operating loss carryforwards available to offset future taxable income
which expire in varying amounts beginning in 2005. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. Events which cause limitations in
the amount of net operating losses that LikeMinds may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than
50%, as defined, over a three year period. As a result of LikeMinds acquisition
by Andromedia, utilization of its net operating losses is subject to an annual
limitation of approximately $150,000.
4. Preferred Stock
At October 8, 1998, Likeminds had 1,000,000 and 602,461 shares of Series A
Preferred Stock authorized and outstanding, respectively. The outstanding
shares of Series A Preferred Stock have a liquidation preference of $570,000.
The holders of Preferred Stock have various rights and preferences as
follows:
Voting
Each share of Series A has voting rights equal to an equivalent number of
shares of Common Stock into which it is convertible and votes together as one
class with the Common Stock.
As long as at least fifty percent of the shares of Preferred Stock remain
outstanding, LikeMinds must obtain approval from a majority of the holders of
Preferred Stock in order to alter the articles of incorporation as related to
Preferred Stock, change the authorized number of shares of Preferred Stock,
repurchase any shares of Common Stock other than shares subject to the right of
repurchase by LikeMinds, change the authorized number of Directors, authorize a
dividend for any class or series other than Preferred Stock, create a new class
of stock or effect a merger, consolidation or sale of assets where the existing
shareholders retain less than 50% of the voting stock of the surviving entity.
Dividends
Holders of Series A Preferred Stock are entitled to receive noncumulative
dividends at the per annum rate of $0.028 per share, when and if declared by
the Board of Directors. The holders of Series A Preferred Stock will also be
entitled to participate in dividends on Common Stock, when and if declared by
the Board of Directors, based on the number of shares of Common Stock held on
an as-if converted basis. No dividends on Preferred Stock or Common Stock have
been declared by the Board from inception through December 31, 1997 and October
8, 1998, respectively.
Liquidation
In the event of any liquidation, dissolution or winding up of LikeMinds,
including a merger, acquisition or sale of assets where the beneficial owners
of LikeMinds' Common Stock and Preferred Stock own less than 51% of the
resulting voting power of the surviving entity, the holders of Series A
F-30
<PAGE>
LIKEMINDS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Preferred Stock are entitled to receive an amount equal to the original issue
price of the Series A preferred stock per share, respectively, plus any
declared but unpaid dividends prior to and in preference to any distribution to
the holders of Common Stock. The remaining assets, if any, shall be distributed
pro rata. Should LikeMinds' legally available assets be insufficient to satisfy
the liquidation preferences, the funds will be distributed to the Series A
Preferred stockholders ratably.
Conversion
Each share of Series A Preferred Stock is convertible, at the option of the
holder, according to a conversion ratio, subject to adjustment for dilution.
Each share of Series A Preferred Stock automatically converts into the number
of shares of Common Stock into which such shares are convertible at the then
effective conversion ratio upon: (1) the closing of a public offering of Common
Stock at a per share price of at least $5.00 per share with gross proceeds of
at least $7,500,000, (2) a merger, sale of substantially all of the assets or
other transactions which result in a change in control or (3) the consent of
the holders of the majority of Preferred Stock.
At December 31, 1997 and October 8, 1998, LikeMinds had reserved 1,000,000
shares of Common Stock for the conversion of Series A Preferred Stock.
5. Common Stock
LikeMinds' Articles of Incorporation, as amended, authorize LikeMinds to
issue 10,000,000 shares of no par value Common Stock and 1,000,000 shares of
Preferred Stock. A portion of the shares sold to employees are subject to a
right of repurchase by LikeMinds subject to vesting, which is generally over a
four year period from the earlier of grant date or employee hire date, as
applicable, until vesting is complete. At December 31, 1997, and October 8,
1998, there were 344,806 and 258,604 shares subject to LikeMinds' right to
repurchase.
6. Acquisition by Andromedia, Inc.
On October 8, 1998, Andromedia, Inc. ("Andromedia") acquired all of
LikeMinds' outstanding shares, at which time LinkMinds merged with Andromedia.
Prior to completing the acquisition, Andromedia provided advances aggregating
approximately $129,000 to LikeMinds.
F-31
<PAGE>
ANDROMEDIA, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations give
effect to the acquisition by Andromedia, Inc. ("Andromedia" or the "Company")
of LikeMinds, Inc. ("LikeMinds") in a transaction accounted for as a purchase.
The unaudited pro forma combined statement of operations is based on the
individual statement of operations of Andromedia for the year ended December
31, 1998 and LikeMinds for the period from January 1, 1998 through October 8,
1998, appearing elsewhere in this prospectus. LikeMinds' operating results for
the period from October 9, 1998 to December 31, 1998 are included in
Andromedia's historical consolidated statement of operations for the year ended
December 31, 1998. Adjustments have been made to such information to give
effect to the October 8, 1998 acquistion of LikeMinds, as if the acquisition
had occurred on January 1, 1998.
The following unaudited pro forma combined statement of operations is not
necessarily indicative of the future results of operations of the Company or
the results of operations which would have resulted had the Company and
LikeMinds been combined during the period presented. In addition, the pro forma
results are not intended to be a projection of future results. The unaudited
pro forma combined statement of operations should be read in conjunction with
the consolidated financial statements of Andromedia and subsidiaries and the
financial statements of LikeMinds, including the notes thereto, appearing
elsewhere in the Prospectus.
F-32
<PAGE>
ANDROMEDIA, INC.
(In thousands, except per share amounts)
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS--(Continued)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------
Like Pro
Andromedia Minds Adjustments Forma
---------- ------ ----------- --------
<S> <C> <C> <C> <C>
Total revenues...................... $ 1,969 $ 568 $ -- $ 2,537
Cost of revenues.................... 1,015 211 -- 1,226
-------- ------ ----- --------
Gross profit....................... 954 357 -- 1,311
Operating expenses:
Sales and marketing................ 5,199 111 -- 5,310
Research and development........... 2,337 278 -- 2,615
General and administrative......... 2,106 90 -- 2,196
Amortization of acquired intangible
assets............................ 247 100 748 (a) 1,095
Non cash stock compensation........ 287 -- -- 287
Write off of acquired in process
technology 455 -- (455)(b) --
-------- ------ ----- --------
Total operating expenses......... 10,631 579 293 11,503
-------- ------ ----- --------
Loss from operations................ (9,677) (222) (293) (10,192)
Interest income (expense), net...... 121 (40) -- 81
-------- ------ ----- --------
Net loss............................ (9,556) (262) (293) (10,111)
Preferred stock accretion........... (1,351) -- -- (1,351)
-------- ------ ----- --------
Net loss attributable to common
stockholders....................... $(10,907) $ (262) $(293) $(11,462)
======== ====== ===== ========
Net loss per share: Basic and
diluted............................ $(3.80) $(0.10) $ (2.99)
======== ====== ========
Shares used in computing net loss
per share: Basic and diluted....... 2,873 2,544 3,828
</TABLE>
See accompanying notes to pro forma combined statement of operations.
F-33
<PAGE>
ANDROMEDIA, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Note 1--Basis of Presentation:
The unaudited pro forma combined statement of operations has been prepared to
reflect the acquisition of LikeMinds by Andromedia, as if the acquisition had
occurred on January 1, 1998.
Note 2--Pro Forma Adjustments:
Based on an independent appraisal, the total purchase price of the
acquisition of approximately $2,980,000 (including $380,000 for liabilities
assumed and merger related expenses) was assigned to the fair value of the net
assets acquired, including $36,000 to tangible assets, $455,000 to acquired in-
process technology, $1,028,000 to other identified intangible assets and the
remaining $1,461,000 to goodwill.
The following adjustments were applied to the historical statement of
operations to arrive at the pro forma combined statement of operations:
(a) Reflects the additional amortization expense of $748,000 related to
intangible assets resulting from the acquisition of LikeMinds over their
estimated useful lives.
(b) Eliminates the nonrecurring write-off of in-process research and
development directly attributable to the acquisition of LikeMinds.
F-34
<PAGE>
[Inside Back Cover]
[Graphics depicting the Andromedia e-marketing solution with the following
text:]
Andromedia's Core Personalization Technology
How Collaborative Filtering Generates Recommendations
Andromedia's collaborative filtering technology dynamically creates mentor
groups--segmented groups of customers who have viewed or purchased similar
items--for each Web visitor in real-time. Our solution retrieves relevant data
associated with each visitor's mentors to predict products and make
recommendations likely to appeal to the target individual. These
recommendations are refined with each additional interaction with the Web
visitor.
<TABLE>
<S> <C> <C> <C> <C>
Information about Andromedia Andromedia software LikeMinds Generates The Web site
the Web visitor is software stores builds a "mentor group" recommendations, giving presents the
gathered implicitly individual profiles of likeminded customers The heaviest weighting to recommendations
and explicitly in a database for each Web visitor in mentors most similar to to the visitors.
real-time. the Web visitor.
</TABLE>
Advantage of Real-Time Personalization Over Other Solutions
We believe that Andromedia's dynamically created mentor groups provide
recommendations that are more personally relevant than those of other
personalization solutions. Other vendors' solutions partition users into static
clusters, which are modified only when sufficient differentiating information
is available to move a customer to a different static cluster. The static
cluster model creates a recommendation "accuracy gap" that can reduce the
personal relevance of recommendations to a Web site visitor and, in turn, can
significantly erode the visitor's confidence in the online merchant.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO OF ANDROMEDIA]
4,000,000 Shares of Common Stock
---------------------
PROSPECTUS
---------------------
Donaldson, Lufkin & Jenrette
SG Cowen
C.E. Unterberg, Towbin
Wit Capital Corporation
DLJdirect Inc.
- --------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give you
written information other than this prospectus or to make representations as to
matters not stated in this prospectus. You must not rely on unauthorized
information. This prospectus is not an offer to sell these securities or our
solicitation of your offer to buy the securities in any jurisdiction where that
would not be permitted or legal. Neither the delivery of this prospectus nor
any sales made hereunder after the date of this prospectus shall create an
implication that the information contained herein or the affairs of Andromedia
have not changed since the date hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Until , 1999 (25 days after the date of this prospectus), all
dealers that effect transactions in these shares of common stock may be
required to deliver a prospectus. This is in addition to the dealer's
obligation to deliver a prospectus when acting as an underwriter and with
respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of common stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
Amount To
Be Paid
----------
<S> <C>
Securities and Exchange Commission registration fee.............. $ 11,120
NASD filing fee.................................................. 4,250
Nasdaq National Market listing fee............................... 88,500
Printing and engraving expenses.................................. 100,000
Professional fees and expenses................................... 700,000
Blue Sky fees and expenses....................................... 7,500
Transfer agent fees.............................................. 5,000
Miscellaneous 83,630
----------
Total............................................................ $1,000,000
==========
</TABLE>
- --------
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by applicable law.
Article Sixth of the Registrant's certificate of incorporation provides for
the indemnification of directors to the fullest extent permissible under
Delaware law.
Article VI of the Registrant's bylaws provides for the indemnification of
officers and directors (and allows the Registrant to indemnify other employees
and third parties) acting on behalf of the Registrant if such person acted in
good faith and in a manner reasonably believed to be in and not opposed to the
best interest of the Registrant, and, with respect to any criminal action or
proceeding, the indemnified party had no reason to believe his or her conduct
was unlawful.
The Registrant intends to enter into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
The Registrant intends to obtain directors' and officers' insurance providing
indemnification for certain of the Registrant's directors, officers and
employees for certain liabilities.
Reference is also made to Section 7 of the Underwriting Agreement to be filed
as Exhibit 1.1 to the Registration Statement for information concerning the
Underwriters' obligation to indemnify the Registrant and its officers and
directors in certain circumstances.
Item 15. Recent Sales of Unregistered Securities
During the past three years, the Registrant has issued and sold the following
securities:
(a) During the past three years, the Registrant sold an aggregate 228,325
shares of unregistered common stock to directors, officers, employees, former
employees and consultants at prices ranging
II-1
<PAGE>
from $0.036 to $4.57 per share, for aggregate cash consideration of $71,084.
These shares were sold pursuant to the exercise of options granted by the
Board. As to each director, officer, employee, former employee and consultant
of the Registrant who was issued these securities, the Registrant relied upon
Rule 701 of the Securities Act of 1933, as amended (the "Securities Act"). Each
such person purchased securities of the Registrant pursuant to a written
contract between such person and the Registrant. In addition, the Registrant
met the conditions imposed under Rule 701(b).
(b) On December 19, 1996, the Registrant sold 365,217 shares of unregistered
Series B Preferred Stock at a price per share of $1.90 to fourteen investors
for aggregate cash consideration of $693,912. The Registrant relied upon
Section 4(2) of the Securities Act in connection with the sale of the shares.
(c) On December 27, 1996, the Registrant sold 131,573 shares of unregistered
Series B Preferred Stock at a price per share of $1.90 to one investor for
aggregate cash consideration of $249,988. The Registrant relied upon Section
4(2) of the Securities Act in connection with the sale of the shares.
(d) On April 18, 1997, the Registrant sold 1,454,547 shares of unregistered
Series C Preferred Stock at a price per share of $2.20 to four investors for
aggregate cash consideration of $3,200,003. The Registrant relied upon Section
4(2) of the Securities Act in connection with the sale of the shares.
(e) On July 17, 1997, the Registrant sold 172,722 shares of unregistered
Series C Preferred Stock at a price per share of $2.20 to ten investors for
aggregate cash consideration of $379,988.40. The Registrant relied upon Section
4(2) of the Securities Act in connection with the sale of the shares.
(f) On September 17, 1997, the Registrant issued a warrant to purchase up to
6,667 shares of Series C Preferred Stock at an exercise price of $3.00 per
share. The Registrant relied upon Section 4(2) of the Securities Act in
connection with the issuance of the warrant.
(g) On February 2, 1998, the Registrant issued a warrant to purchase up to
12,417 shares of Series D Preferred Stock at an exercise price of $3.02 per
share. The Registrant relied upon Section 4(2) of the Securities Act in
connection with the issuance of the warrant.
(h) On April 14, 1998, the Registrant sold 2,872,232 shares of unregistered
Series D Preferred Stock at a price per share of $3.029 to five investors for
aggregate cash consideration of $8,699,990. The Registrant relied upon Section
4(2) of the Securities Act in connection with the sale of the shares.
(i) On June 23, 1998, the Registrant sold 429,188 shares of unregistered
Series D Preferred Stock at a price per share of $3.029 to twenty-four
investors for aggregate cash consideration of $1,300,010. The Registrant relied
upon Section 4(2) of the Securities Act in connection with the sale of the
shares.
(j) On October 15, 1998, the Registrant issued 1,299,670 shares of Common
Stock pursuant the Agreement and Plan of Merger between the Registrant and
LikeMinds, Inc. The Registrant relied upon Section 4(2) of the Securities Act
in connection with the sale of the shares.
(k) On February 2, 1999, the Registrant issued a warrant to purchase up to
18,159 shares of Series E Preferred Stock at an exercise price of $3.533 per
share. The Registrant relied upon Section 4(2) of the Securities Act in
connection with the issuance of the warrant.
(l) On March 15, 1999, the Registrant sold 3,783,046 shares of unregistered
Series E Preferred Stock at a price per share of $3.533 to nineteen investors
for aggregate cash consideration of $13,365,501. The Registrant relied upon
Section 4(2) of the Securities Act in connection with the sale of the shares.
II-2
<PAGE>
(m) On March 15, 1999, the Registrant issued a warrant to purchase up to
90,000 shares of Series C Preferred Stock at an exercise price per share of
$2.20 to one investor. The Registrant relied upon Section 4(2) of the
Securities Act in connection with the issuance of the shares.
(n) On April 8, 1999, the Registrant sold 444,475 shares of unregistered
Series E Preferred Stock at a price per share of $3.533 to nineteen investors
for aggregate cash consideration of $1,570,330. The Registrant relied upon
Section 4(2) of the Securities Act in connection with the sale of the shares.
(o) On August 12, 1999, the Registrant issued a warrant to purchase up to
21,000 shares of common stock at an exercise price of $15.00 to one investor.
The Registrant relied upon Section 4(2) of the Securities Act in connection
with the issuance of the warrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1+ Agreement and Plan of Merger, dated September 18, 1998 by and among
Registrant, LikeMinds, Inc. and LM Acquisition Corp.
3.1+ Articles of Incorporation of the Registrant, as currently in effect.
3.2 Form of Certificate of Incorporation, in connection with the
reincorporation of the Registrant in Delaware.
3.3 Form of Restated Certificate of Incorporation of the Registrant, to be
filed immediately following the closing of the offering made under this
Registration Statement.
3.4+ Bylaws of the Registrant, as currently in effect.
3.5 Form of Bylaws of the Registrant, in connection with the reincorporation
of the Registrant in Delaware.
4.1* Specimen Common Stock certificate.
4.2+ Amended and Restated Investors' Rights Agreement dated as of March 15,
1999 among the Registrant and certain of the Registrant's security
holders.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1 Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.
10.2+ 1996 Stock Plan.
10.3+ 1997 Stock Plan.
10.4+ 1999 Stock Plan.
10.5+ 1999 Employee Stock Purchase Plan.
10.6+ Office lease dated February 5, 1998 between the Registrant and Ahdi
Nashashibi.
10.7 Sublease Agreement dated August 12, 1999 between the Registrant and
Patrick & Co., Inc.
10.8 Value Added Reseller Agreement dated April 29, 1996, as amended, between
the Registrant and Object Design, Inc.
10.9+ Form of Change of Control Agreement between the Registrant and certain
of the Registrant's officers.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
23.2 Consent of PricewaterhouseCoopers LLP, independent accountants, relating to Andromedia, Inc.
23.3 Consent of PricewaterhouseCoopers LLP, independent accountants, relating to LikeMinds, Inc.
24.1+ Power of Attorney
27.1+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the consolidated financial
statements or notes thereto.
Item 17. Undertakings
(a) The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) 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 referenced in Item 14 of this
Registration Statement 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 hereunder, 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.
(c) The undersigned Registrant hereby undertakes that:
(1) 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.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, we
have duly caused this Registration Statement to be signed on our behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on this 23rd day of September, 1999.
ANDROMEDIA, INC.
/s/ Kent B. Godfrey
By: _________________________________
Kent B. Godfrey
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kent B. Godfrey Chief Executive Officer and September 23, 1999
____________________________________ Chairman of the Board
Kent B. Godfrey (Principal Executive
Officer)
* Vice President of Finance September 23, 1999
____________________________________ and Chief Financial Officer
Stephen F. Ghiglieri (Principal Financial and
Accounting Officer)
* President and Director September 23, 1999
____________________________________
Paul R. Gifford
* Director September 23, 1999
____________________________________
L. William Krause
* Director September 23, 1999
____________________________________
F. Laskin
* Director September 23, 1999
____________________________________
Jack L. Rivkin
* Director September 23, 1999
____________________________________
Robert J. Saldich
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
* Director September 23, 1999
____________________________________
Richard Wolpert
* Director September 23, 1999
____________________________________
Kristopher A. Wood
/s/ Kent B. Godfrey September 23, 1999
____________________________________
Kent B. Godfrey
*Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<C> <S>
1.1 Form of Underwriting Agreement.
2.1+ Agreement and Plan of Merger, dated September 18, 1998 by and among
Registrant, LikeMinds, Inc. and LM Acquisition Corp.
3.1+ Articles of Incorporation of the Registrant, as currently in effect.
3.2 Form of Certificate of Incorporation, in connection with the
reincorporation of the Registrant in Delaware.
3.3 Form of Restated Certificate of Incorporation of the Registrant, to be
filed immediately following the closing of the offering made under
this Registration Statement.
3.4+ Bylaws of the Registrant, as currently in effect.
3.5 Form of Bylaws of the Registrant, in connection with the
reincorporation of the Registrant in Delaware.
4.1* Specimen Common Stock certificate.
4.2+ Amended and Restated Investors' Rights Agreement dated as of March 15,
1999 among the Registrant and certain of the Registrant's security
holders.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding the legality of the securities being issued.
10.1 Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.
10.2+ 1996 Stock Plan.
10.3+ 1997 Stock Plan.
10.4+ 1999 Stock Plan.
10.5+ 1999 Employee Stock Purchase Plan.
10.6+ Office lease dated February 5, 1998 between the Registrant and Ahdi
Nashashibi.
10.7 Sublease Agreement dated August 12, 1999 between the Registrant and
Patrick & Co., Inc.
10.8 Value Added Reseller Agreement dated April 29, 1996, as amended,
between the Registrant and Object Design, Inc.
10.9+ Form of Change of Control Agreement between the Registrant and certain
of the Registrant's officers.
21.1+ Subsidiaries of the Registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of PricewaterhouseCoopers LLP, independent accountants,
relating to Andromedia, Inc.
23.3 Consent of PricewaterhouseCoopers LLP, independent accountants,
relating to LikeMinds, Inc.
24.1+ Power of Attorney
27.1+ Financial Data Schedule.
</TABLE>
- --------
+ Previously filed.
* To be filed by amendment.
<PAGE>
EXHIBIT 1.1
__________ Shares
ANDROMEDIA, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SG COWEN
C.E. UNTERBERG, TOWBIN
WIT CAPITAL CORPORATION
As representatives of the
several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Ladies and Gentlemen:
Andromedia, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell ____________ shares of its common stock, par value $0.001 per share
(the "Firm Shares"), to the several underwriters named in Schedule I hereto (the
"Underwriters"). The Company also proposes to issue and sell to the several
Underwriters not more than an additional _______ shares of its common stock, par
value $0.001 per share (the "Additional Shares"), if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter referred to collectively as the "Shares". The shares of
common stock of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Common Stock".
SECTION 1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the
1
<PAGE>
Commission thereunder (collectively, the "Act"), a registration statement on
Form S-1, including a prospectus, relating to the Shares. The registration
statement, as amended at the time it became effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as
the "Registration Statement"; and the prospectus in the form first used to
confirm sales of Shares is hereinafter referred to as the "Prospectus". If the
Company has filed or is required pursuant to the terms hereof to file a
registration statement pursuant to Rule 462(b) under the Act registering
additional shares of Common Stock (a "Rule 462(b) Registration Statement"),
then, unless otherwise specified, any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462(b) Registration Statement.
SECTION 2. AGREEMENTS TO SELL AND PURCHASE AND LOCK-UP AGREEMENTS. ON THE
BASIS OF THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, AND
SUBJECT TO ITS TERMS AND CONDITIONS, THE COMPANY AGREES TO ISSUE AND SELL, AND
EACH UNDERWRITER AGREES, SEVERALLY AND NOT JOINTLY, TO PURCHASE FROM THE COMPANY
AT A PRICE PER SHARE OF $______ (THE "PURCHASE PRICE") THE NUMBER OF FIRM SHARES
SET FORTH OPPOSITE THE NAME OF SUCH UNDERWRITER IN SCHEDULE I HERETO.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. The Underwriters may exercise their right to purchase
Additional Shares in whole or in part from time to time by giving written notice
thereof to the Company within 30 days after the date of this Agreement. You
shall give any such notice on behalf of the Underwriters and such notice shall
specify the aggregate number of Additional Shares to be purchased pursuant to
such exercise and the date for payment and delivery thereof, which date shall be
a business day (i) no earlier than two business days after such notice has been
given (and, in any event, no earlier than the Closing Date (as hereinafter
defined)) and (ii) no later than ten business days after such notice has been
given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be purchased from the Company as the number of Firm Shares
set forth opposite the name of such Underwriter in Schedule I bears to the total
number of Firm Shares.
The Company hereby agrees not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plans and (ii) the
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Company may issue shares of Common Stock upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof. The
Company also agrees not to file any registration statement with respect to any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock for a period of 180 days after the date of the
Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation. The Company shall, prior to or concurrently with the
execution of this Agreement, deliver an agreement executed by (i) each of the
directors and officers of the Company and (ii) each stockholder of the Company
to the effect that such person will not, during the period commencing on the
date such person signs such agreement and ending 180 days after the date of the
Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
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SECTION 3. Terms of Public Offering. The Company is advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Company shall deliver the Shares, or cause the Shares to be credited with any
transfer taxes thereon duly paid by the respective Sellers, to Donaldson,
Lufkin & Jenrette Securities Corporation through the facilities of The
Depository Trust Company ("DTC"), for the respective accounts of the several
Underwriters, against payment to the Company of the Purchase Price therefore
by wire transfer of Federal or other funds immediately available in New York
City. The time and date of delivery and payment for the Firm Shares shall be
9:00 A.M., New York City time, on ________, 1999 or such other time on the
same or such other date as Donaldson, Lufkin & Jenrette Securities Corporation
and the Company shall agree in writing. The time and date of delivery for the
firm shares are hereinafter referred to as the "Closing Date". The time and
date of delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be 9:00 A.M., New York City time, on the date specified in
the applicable exercise notice given by you pursuant to Section 2 or such
other time on the same or such other date as Donaldson, Lufkin & Jenrette
Securities Corporation and the Company shall agree in writing. The time and
date of delivery for the Option Shares are hereinafter referred to as an
"Option Closing Date".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 8 of this agreement
shall be delivered at the offices of Latham & Watkins, 505 Montgomery Street,
Suite 1900, San Francisco, California 94111, Attention: Tracy K. Edmonson, and
the Shares shall be delivered at the office of DTC or its designated custodian,
all on the Closing Date or such Option Closing Date, as the case may be.
SECTION 5. AGREEMENTS OF THE COMPANY. THE COMPANY AGREES WITH YOU:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or
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changes in the Registration Statement or the Prospectus in order to make the
statements therein not misleading. If at any time the Commission shall issue any
stop order suspending the effectiveness of the Registration Statement, the
Company will use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
(b) To furnish to you five signed copies of the Registration Statement as
first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and, during such period, to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall occur
or condition shall exist as a result of which, in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the reasonable
opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to prepare
and file with the Commission an appropriate amendment or supplement to the
Prospectus so that the statements in the Prospectus, as so amended or
supplemented, will not in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with
applicable law, and to furnish to each Underwriter and to any dealer as many
copies thereof as such Underwriter or dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you and
counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of
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process or other documents as may be necessary in order to effect such
registration or qualification; provided, however, that the Company shall not be
required in connection therewith to qualify as a foreign corporation in any
jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending [date
one year after the end of the Company's fiscal quarter in which the Closing will
occur], that shall satisfy the provisions of Section 11(a) of the Act, and to
advise you in writing when such statement has been so made available.
(h) During the period of three years after the date of this Agreement, to
furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel and
the Company's accountants in connection with the registration and delivery of
the Shares under the Act and all other fees and expenses in connection with the
preparation, printing, filing and distribution of the Registration Statement
(including financial statements and exhibits), any preliminary prospectus, the
Prospectus and all amendments and supplements to any of the foregoing, including
the mailing and delivering of copies thereof to the Underwriters and dealers in
the quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) all costs of printing or producing this
Agreement and any other agreements or documents in connection with the offering,
purchase, sale or delivery of the Shares, (iv) all expenses in connection with
the registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states and all costs of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel for
the Underwriters in connection with such registration or qualification and
memoranda relating thereto), (v) the filing fees and disbursements of counsel
for the Underwriters in connection with the review and clearance of the offering
of the Shares by the National Association of Securities Dealers, Inc., (vi) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to the listing of the Shares on the Nasdaq National
Market, (vii) the cost of printing certificates representing the Shares, (viii)
the costs and charges of any transfer agent, registrar and/or depositary, and
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(ix) all other costs and expenses incident to the performance of the obligations
of the Company hereunder for which provision is not otherwise made in this
Section.
(j) To use its best efforts to list for quotation the Shares on the Nasdaq
National Market and to maintain the listing of the Shares on the Nasdaq National
Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of this
Agreement does not cover all of the Shares, to file a Rule 462(b) Registration
Statement with the Commission registering the Shares not so covered in
compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
SECTION 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the
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statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) Each of the Company and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; and the Shares have been duly
authorized and, when issued and delivered to the Underwriters against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
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(i) Neither the Company nor any of its subsidiaries is in violation of its
respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any material
indenture, loan agreement, mortgage, lease or other agreement or instrument
that is material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or to the
knowledge of the Company threatened to which the Company or any of its
subsidiaries is or could be a party or to which any of their respective
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described; nor are
there any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement that are not so described
or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act, or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and
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operate its respective properties and to conduct its business, except where the
failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole. Each such Authorization is valid and in
full force and effect and each of the Company and its subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which allows or,
after notice or lapse of time or both, would allow, revocation, suspension or
termination of any such Authorization or results or, after notice or lapse of
time or both, would result in any other impairment of the rights of the holder
of any such Authorization; and such Authorizations contain no restrictions that
are burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance, the
occurrence of any such event or the presence of any such restriction would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(o) This Agreement has been duly authorized, executed and delivered by the
Company.
(p) PricewaterhouseCoopers LLP are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
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(r) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(s) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company or to require the
Company to include such securities with the Shares registered pursuant to the
Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(u) The Company and its subsidiaries have good and marketable title in fee
simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
(v) The Company and its subsidiaries own or possess, or can acquire on
reasonable terms, all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names ("intellectual property") currently employed by
them in connection with the business now operated by them except where the
failure to own or possess or otherwise be able to acquire such intellectual
property would not, singly or in the aggregate, have a material adverse effect
on the business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole; and neither the Company nor any
of its subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any of such intellectual property
which, singly or in the aggregate, would have a material adverse effect on the
business, prospects,
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financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(w) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any of its subsidiaries (i) has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order to
continue such insurance or (ii) has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers at a cost that would not
have a material adverse effect on the business, prospects, financial conditions
or results of operations of the Company and its subsidiaries, taken as a whole.
(x) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or the Prospectus which is not so described.
(y) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) All material tax returns required to be filed by the Company and each
of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith or for which extensions have been lawfully
requested, and all material taxes, including withholding taxes, penalties and
interest, assessments, fees and other charges due pursuant to such returns or
pursuant to any assessment received by the Company or any of its subsidiaries
have been paid, other than those being contested in good faith and for which
adequate reserves have been provided.
(aa) The current versions software and hardware operated and/or sold by
Company and its subsidiaries are capable of providing or are being adapted to
provide uninterrupted millennium functionality to record, store, process and
present calendar dates falling on or after January 1, 2000 and date-dependent
data in substantially the same manner and with the same functionality as such
software and hardware record, store, process and present such calendar dates and
date-dependent data as of the date of this Agreement, except as could not
reasonably be expected to have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. To the knowledge of Company, the ability of
Company's and its subsidiaries' significant
12
<PAGE>
suppliers, customers and others with which they conduct business to resolve
their own Year 2000 issues will not have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole.
(bb) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(cc) Each certificate signed by any officer of the Company and delivered to
the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
SECTION 7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter,
its directors, its officers and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein; provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus (as then
amended or supplemented, provided by the Company to the several Underwriters in
the required quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages
and liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in such Prospectus and such Prospectus was required by law to
be delivered at or prior to the written confirmation of sale to such person.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent
as the foregoing indemnity from the Company to such Underwriter but only with
reference to information relating to such Underwriter furnished in writing to
the Company by such Underwriter through you
13
<PAGE>
expressly for use in the Registration Statement (or any amendment thereto), the
Prospectus (or any amendment or supplement thereto) or any preliminary
prospectus.
(c) In case any action shall be commenced involving any person in respect
of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case
of parties indemnified pursuant to Section 7(a), and by the Company, in the case
of parties indemnified pursuant to Section 7(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from
14
<PAGE>
all liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 7 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 7(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 7(d)(i) above but also the
relative fault of the Company on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Company, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The relative
fault of the Company on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
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<PAGE>
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
SECTION 8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Kent B. Godfrey and Stephen F. Ghiglieri, in their
capacities as the Chief Executive Officer and Chief Financial Officer of the
Company, confirming the matters set forth in Sections 6(t), 8(a) and 8(b) and
that the Company has complied with all of the agreements and satisfied all of
the conditions herein contained and required to be complied with or satisfied by
the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 8(d)(i),
8(d)(ii) or 8(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Company, to
the effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation
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<PAGE>
and has the corporate power and authority to carry on its business as described
in the Prospectus and to own, lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly qualified and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights;
(iv) the Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor as provided by this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar rights;
(v) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and delivered
by the Company;
(vii) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the Act,
no stop order suspending its effectiveness has been issued and no proceedings
for that purpose are, to the best of such counsel's knowledge after due inquiry,
pending before or contemplated by the Commission;
(ix) the statements under the captions "Management Employment and
Change of Control Agreements"(to the extent of the description of the agreements
described therein), "Management - Employee Benefit Plans" (to the extent of the
description of the terms of the employee benefit plans),and "Description of
Capital Stock" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of the
legal matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings;
(x) neither the Company nor any of its subsidiaries is in violation
of its respective charter or by-laws and, to the best of such counsel's
knowledge after due inquiry, neither the Company nor any of its subsidiaries is
in default in the performance of any obligation, agreement, covenant or
condition contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or their respective property is
bound;
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<PAGE>
(xi) the execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (A) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (C) violate or conflict
with any applicable law or any rule, regulation, judgment, order or decree of
any court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property or (D) result in
the suspension, termination or revocation of any Authorization of the Company or
any of its subsidiaries or any other impairment of the rights of the holder of
any such Authorization;
(xii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is or could be a party or to which any of their respective
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described, or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so described or filed as
required;
(xiii) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an
18
<PAGE>
"investment company" as such term is defined in the Investment Company Act of
1940, as amended;
(xiv) to the best of such counsel's knowledge after due inquiry, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement; and
(xv) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and other
financial data included therein as to which no opinion need be expressed) comply
as to form with the Act, (B) such counsel has no reason to believe that at the
time the Registration Statement became effective, the Registration Statement and
the prospectus included therein (except for the financial statements and other
financial data as to which such counsel need not express any belief) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (C) such counsel has no reason to believe that the Prospectus, as
amended or supplemented, if applicable (except for the financial statements and
other financial data, as aforesaid) as of the respective dates thereof contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
The opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
described in Section 8(e) above shall be rendered to you at the request of the
Company and shall so state therein.
(f) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Latham & Watkins, counsel for the Underwriters, as to the
matters referred to in Sections 8(e)(iv), 8(e)(vi), and 8(e)(xvi).
In giving such opinions with respect to the matters covered by Section
8(e)(xvi), Wilson Sonsini Goodrich & Rosati, Professional Corporation, and
Latham & Watkins may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
(g) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from PricewaterhouseCoopers LLP,
independent public accountants, containing the information and statements of the
type ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(h) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
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<PAGE>
(i) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(j) The Company shall not have failed on or prior to the Closing Date to
perform or comply with any of the agreements herein contained and required to be
performed or complied with by the Company on or prior to the Closing Date.
(k) The Company shall have provided such other documents or items that
have been reasonably requested by the Underwriters or Latham & Watkins.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
SECTION 9. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Company if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
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<PAGE>
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to you
and the Company for purchase of such Firm Shares are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter and the Company. In any such case which does
not result in termination of this Agreement, either you or the Company shall
have the right to postpone the Closing Date, but in no event for longer than
seven days, in order that the required changes, if any, in the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected. If, on an Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than one-
tenth of the aggregate number of Additional Shares to be purchased on such date,
the non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase such Additional Shares or (ii) purchase not
less than the number of Additional Shares that such non-defaulting Underwriters
would have been obligated to purchase on such date in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of any such Underwriter
under this Agreement.
SECTION 10. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows:(i) if to the Company, to
Andromedia, Inc., 818 Mission Street, Second Floor, San Francisco, California
94103, Attention: Chief Executive Officer, and (ii) if to any Underwriter or to
you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Syndicate Department, or in any
case to such other address as the person to be notified may have requested in
writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company and the several Underwriters set
forth in or made pursuant to this Agreement shall remain operative and in full
force and effect, and will survive delivery of and payment for the Shares,
regardless of (i) any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the officers or directors of any
Underwriter, any person controlling any Underwriter, the Company, the officers
or directors of the Company or any person controlling the Company, (ii)
acceptance of the Shares and payment for them hereunder and (iii) termination of
this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 9), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this
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Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse
the several Underwriters, their directors and officers and any persons
controlling any of the Underwriters for any and all fees and expenses
(including, without limitation, the fees disbursements of counsel) incurred by
them in connection with enforcing their rights hereunder (including, without
limitation, pursuant to Section 7 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Underwriters, the
Underwriters' directors and officers, any controlling persons referred to
herein, the Company's directors and the Company's officers who sign the
Registration Statement and their respective successors and assigns, all as and
to the extent provided in this Agreement, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
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Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
ANDROMEDIA, INC.
By:
----------------------------------
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SG COWEN
C.E. UNTERBERG, TOWBIN
WIT CAPITAL CORPORATION
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
----------------------------------
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SCHEDULE I
----------
Underwriters Number of Firm Shares
to be Purchased
Donaldson, Lufkin & Jenrette Securities
Corporation
SG Cowen
C.E. Unterberg, Towbin
WIT Capital Corporation
Total
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EXHIBIT 3.2
CERTIFICATE OF INCORPORATION
OF
ANDROMEDIA, INC.
FIRST. The name of the Corporation is Andromedia, Inc.
-----
SECOND. The address of the Corporation's registered office in the State of
------
Delaware is Corporation Trust Center, 1209 Orange St., Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
-----
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. The Corporation is authorized to issue two classes of shares of
------
stock which shall be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that the Corporation is authorized to issue
is 30,110,195 shares. The number of shares of Common Stock authorized is
20,000,000 shares, $0.001 par value. The number of shares of Preferred Stock
authorized is 10,110,195 shares, $0.001 par value.
1. Title of Series and Number of Shares. The first series of Preferred
------------------------------------
Stock shall be comprised of 248,120 shares and shall be designated Series A
Preferred Stock (the "Series A Preferred"). The second series of Preferred
Stock shall be comprised of 496,790 shares and shall be designated Series B
Preferred Stock (the "Series B Preferred"). The third series of Preferred Stock
shall be comprised of 1,818,182 shares and shall be designated Series C
Preferred Stock (the "Series C Preferred"). The fourth series of Preferred
Stock shall be comprised of 3,301,420 shares and shall be designated Series D
Preferred Stock (the "Series D Preferred"). The fifth series of Preferred Stock
shall be comprised of 4,245,683 shares and shall be designated Series E
Preferred Stock (the "Series E Preferred"). As used herein, the term "Preferred
Stock" without designation shall refer to shares of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred.
2. Dividend Rights of Preferred Stock. The holders of the outstanding
----------------------------------
shares of Preferred Stock shall be entitled, when, as and if declared by the
Board of Directors of the Corporation, to noncumulative dividends out of funds
legally available therefor of $0.24 per annum for each share of Series A
Preferred, $0.10 per annum for each share of Series B Preferred, $0.11 per annum
for each share of Series C Preferred, $0.15 per annum for each share of Series D
Preferred and $0.18 per annum for each share of Series E Preferred held by them
(as equitably adjusted for any stock dividends, combinations or splits with
respect to such shares). The right to dividends on shares of Preferred Stock
under this Section shall not be cumulative, and no right shall accrue to the
holders of Preferred Stock
<PAGE>
under this Section by reason of the fact that dividends on such shares are not
declared in any prior period. No dividend or distribution shall be declared or
paid on any shares of Common Stock (other than dividends payable solely in
Common Stock of the Corporation) unless at the same time an equivalent dividend
or distribution is paid or declared and set aside for payment on the Preferred
Stock (on an as-if converted to Common Stock basis). If and when dividends are
paid on any shares of Preferred Stock, such dividends shall be paid on each
series of Preferred Stock ratably in proportion to the respective annual
dividend rates fixed therefor.
3. Liquidation Preference. In the event of any liquidation, dissolution,
----------------------
or winding up of the Corporation, either voluntary or involuntary, distributions
to the shareholders of the Corporation shall be made in the following manner:
(a) The holders of Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
the Corporation to the holders of the Common Stock by reason of their ownership
of such stock, the sum of $4.78 plus declared and unpaid dividends, if any, for
each share of Series A Preferred then held by them, the sum of $1.90 plus
declared and unpaid dividends, if any, for each share of Series B Preferred then
held by them, the sum of $2.20 plus declared and unpaid dividends, if any, for
each share of Series C Preferred then held by them, the sum of $3.029 plus
declared and unpaid dividends, if any, for each share of Series D Preferred then
held by them and the sum of $3.533 plus declared and unpaid dividends, if any,
for each share of Series E Preferred then held by them. If upon the occurrence
of such event, the assets and funds available for distribution among the holders
of Preferred Stock shall be insufficient to permit the payment to such holders
of the full preferential amounts, then the entire assets and funds of the
Corporation legally available for distribution to the shareholders shall be
distributed among the holders of Preferred Stock in proportion to the full
preferential amount each such holder of Preferred Stock is otherwise entitled to
receive.
(b) Subject to paragraph (c) below, upon the occurrence of a
liquidation, dissolution or winding up, and after payment of the full
preferential amounts to the holders of Preferred Stock in accordance with
Section 3(a) above, the holders of the Series C Preferred, the Series D
Preferred, the Series E Preferred and Common Stock shall be entitled to share in
all such remaining assets and surplus funds of the Corporation on a pro-rata
basis in the same manner as if all the shares of Series C Preferred, Series D
Preferred and Series E Preferred had been converted into Common Stock; provided,
however, that once any holder of Series C Preferred, Series D Preferred or
Series E Preferred has received an aggregate amount (including any amounts paid
to such holder pursuant to Section 3(a) above) of $4.40 with respect to any
share of Series C Preferred, $4.81 with respect to any share of Series D
Preferred or $5.733 with respect to any share of Series E Preferred held by such
holder, respectively, then any such share of Series C Preferred, Series D
Preferred or Series E Preferred, as the case may be, shall have no further right
to share in any remaining assets and surplus funds of the Corporation pursuant
to this Section 3(b).
-2-
<PAGE>
(c) For purposes of this Section 3, a merger or consolidation of the
Corporation with or into any other corporation as a result of which
consolidation or merger the shareholders of the Corporation hold securities
representing less than fifty percent (50%) of the voting securities of the
surviving corporation (a "Merger"), or a sale of all or substantially all of the
assets of the Corporation, shall be treated as a liquidation, dissolution or
winding up of the Corporation, unless the holders of the Preferred Stock would
receive in such Merger or sale (without regard to the preferences described in
Section 3(a) and with all shares treated on an as-if converted to Common Stock
basis, i.e., so that the $4.40 amount set forth below shall be deemed to be
----
reached depending on whether shares of Common Stock, after conversion of all
shares of Preferred Stock into Common Stock, would receive such $4.40 amount) an
amount in cash and/or securities equal to or greater than $4.40 per share
(appropriately adjusted for stock splits, combinations and similar events). In
the event that a Merger or sale is not treated as a liquidation, dissolution or
winding up of the Corporation as described above, the holders of the Common
Stock and Preferred Stock shall be entitled to participate in the proceeds of
the Merger or sale on a pro-rata basis, with the holders of the Preferred Stock
treated on an as-if converted to Common Stock basis for such purpose.
4. Voting Rights.
-------------
(a) General. Except as otherwise required by law and except as
-------
required in Section 4(b) and Section 7 hereof, each holder of Preferred Stock
shall be entitled to vote on all matters and 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 whole number of shares of the Corporation's Common Stock into which such
shares of Preferred Stock are convertible, in accordance with the terms of the
Corporation's Seventh Amended and Restated Articles of Incorporation, as amended
from time to time, immediately after the close of business on the record date
fixed for such meeting or the effective date of such written consent. Each
holder of shares of Common Stock shall be entitled to one vote for each share of
Common Stock held by such holder.
(b) Board of Directors. So long as there remains outstanding 300,000
------------------
shares of Series C Preferred, the holders of the Series C Preferred, voting
together as a separate series, shall be entitled to elect (1) one member of the
Board of Directors at each meeting or pursuant to each consent of the
Corporation's shareholders for the election of directors. So long as there
remains outstanding 540,000 shares of Series D Preferred, the holders of the
Series D Preferred, voting together as a separate series, shall be entitled to
elect two (2) members of the Board of Directors at each meeting or pursuant to
each consent of the Corporation's shareholders for the election of directors.
So long as there remains outstanding 690,000 shares (appropriately adjusted for
stock splits, combinations and similar events) of Series E Preferred, the
holders of the Series E Preferred, voting together as a separate series, shall
be entitled to elect (1) one member of the Board of Directors at each meeting or
pursuant to each consent of the Corporation's shareholders for the election of
directors. All remaining authorized members of the Board of Directors shall be
elected by the holders of Common Stock and Preferred Stock, voting
-3-
<PAGE>
together as a single class, in the manner set forth in Section 4(a) hereof at
each meeting or pursuant to each consent of the Corporation's shareholders for
the election of directors.
5. Conversion. The holders of the Preferred Stock shall have conversion
----------
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
----------------
convertible into Common Stock, 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. Each share of Preferred Stock shall be
convertible into the number of fully paid and nonassessable shares of Common
Stock which results from dividing the per share Conversion Value (as hereinafter
defined) by the Conversion Price (as hereinafter defined) per share in effect
for such series at the time of conversion of such series. The Conversion Values
of the Preferred Stock shall be $4.78 per share of Series A Preferred, $1.90 per
share of Series B Preferred, $2.20 per share of Series C Preferred, $3.029 per
share of Series D Preferred and $3.533 per share of Series E Preferred. The
initial Conversion Prices of the Preferred Stock shall be $1.195 per share of
Series A Preferred, $1.90 per share of Series B Preferred, $2.20 per share of
Series C Preferred, $2.61 per share of Series D Preferred and $3.533 per share
of Series E Preferred. The initial Conversion Price of the Preferred Stock
shall be subject to adjustment from time to time as provided below. The number
of shares of Common Stock into which a share of a series of Preferred Stock is
convertible is hereinafter referred to as the "Conversion Rate" of each such
series.
(b) Automatic Conversion.
--------------------
(i) Each share of Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective Conversion Rate
applicable for each series of Preferred Stock immediately prior to the closing
of the sale of Common Stock of the Corporation in a firm commitment underwritten
public offering by a nationally recognized underwriter pursuant to an effective
registration statement under the Securities Act of 1933, as amended ("Securities
Act"), covering the offering and sale of Common Stock for the account of the
Corporation to the public (an "IPO") at a price per share (prior to underwriter
commissions and offering expenses) of not less than $5.50 (as appropriately
adjusted for stock splits, combinations and similar events) and at an aggregate
offering price to the public of not less than $20,000,000 (a "Qualified IPO").
(ii) Time of Conversion. In the event of the automatic
------------------
conversion of any series of Preferred Stock upon a Qualified IPO as described
above, 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 sale of
securities.
(iii) Elective Conversion. Each share of a series of
-------------------
Preferred Stock also shall be automatically converted into shares of Common
Stock at its then effective Conversion Rate upon the
-4-
<PAGE>
affirmative vote of the holders of at least sixty-seven percent (67%) of the
shares of such series of Preferred Stock, voting as a separate series.
(c) Mechanics of Conversion. Before any holder of Preferred Stock
-----------------------
shall be entitled to convert the same into shares of Common Stock and receive
certificates therefor, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Preferred Stock and shall give written notice to the Corporation
at such office that such holder elects to convert the same; provided, however,
-------- -------
that in the event of an automatic conversion pursuant to Section 5(b), the
outstanding shares of the series of Preferred Stock so converted shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent, and provided further that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Preferred Stock are either delivered to the Corporation or its
transfer agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery, or such
agreement and indemnification in the case of a lost certificate, issue and
deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which the holder shall
be entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, or in the case of automatic conversion as
provided in Section 5(b), and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.
(d) Fractional Shares. In lieu of any fractional shares to which the
-----------------
holder of Preferred Stock would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the fair market value of one share of
Common Stock, as determined in good faith by the Board of Directors of the
Corporation. Whether or not fractional shares are issuable upon such conversion
shall be determined on the basis of the total number of shares of Preferred
Stock each holder at the time converting into Common Stock and the number of
shares of Common Stock issuable upon such aggregate conversion.
(e) Adjustment to Series E Conversion Price For Certain Financial
-------------------------------------------------------------
Milestones.
- ----------
(i) Special Definitions. For purposes of this Section 5(e) of
-------------------
Article III, the term "1999 Revenue Milestone" shall mean the dollar amount of
gross revenues earned by the Corporation during the Corporation's fiscal year
ended December 31, 1999, as determined by reference
-5-
<PAGE>
to the Corporation's audited financial statements and calculated in accordance
with the line item "Total Income" in the Corporation's annual budget.
(ii) Adjustments Based Upon Certain Milestones.
-----------------------------------------
(A) In the event that the Corporation achieves a 1999 Revenue
Milestone of $10,685,000 or above, then there shall be no adjustment made to the
Series E Conversion Price pursuant to this Section 5(e).
(B) In the event that the Corporation achieves a 1999 Revenue
Milestone of at least $8,685,000 but less than $10,685,000, then the Series E
Conversion Price shall be adjusted to the amount equal to (x) $3.00 plus (y) (a)
(the 1999 Revenue Milestone minus $8,685,000) divided by 2,000,000 multiplied by
-------------
(b) $0.533 (such resulting number to be appropriately adjusted, pursuant to
Sections 5(f), (g) and (h) below, in the event of the occurrence of any of the
events contemplated therein between the date hereof and the time that the
Corporation's 1999 Revenue Milestone has been definitively determined).
(C) In the event the Corporation does not achieve a 1999 Revenue
Milestone of at least $8,685,000, then the Series E Conversion Price shall be
adjusted to equal $3.00 (such resulting number to be appropriately adjusted,
pursuant to Sections 5(f), (g) and (h) below, in the event of the occurrence of
any of the events contemplated therein between the date hereof and the time that
the Corporation's 1999 Revenue Milestone has been definitively determined).
(iii) Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 5(e) if the Corporation, on or before December 31, 1999, (A)
undergoes a liquidation, dissolution, winding up, sale of substantially all of
the assets of the Corporation, or a sale or merger of the Corporation such that
(x) the shareholders of the Corporation prior to such sale or merger hold
securities representing less than fifty percent (50%) of the voting securities
of the surviving corporation and (y) the holders of shares of Series E Preferred
Stock receive in such event an amount in cash and/or securities equal to $7.07
per share (appropriately adjusted for stock splits, combinations and similar
events) or (B) consummates a Qualified IPO.
(f) Adjustments to the Series C Preferred Conversion Price, Series D
----------------------------------------------------------------
Conversion Price and Series E Conversion Price With Respect to Certain Diluting
- -------------------------------------------------------------------------------
Issuances.
- ---------
(i) Special Definitions. For purposes of this Section 5(f) of
-------------------
Article III, the following definitions apply:
(A) "Options" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible Securities
(defined below).
-6-
<PAGE>
(B) "Original Issue Date" shall mean the date on which the first share
of Series E Preferred is issued.
(C) "Convertible Securities" shall mean any evidences of indebtedness,
shares or other securities that are ultimately convertible into or exchangeable
for Common Stock.
(D) "Additional Shares of Common" shall mean all shares of Common
Stock issued (or, pursuant to Section 5(f)(iii) of this Article III, deemed to
be issued) by the Corporation after the Original Issue Date, other than:
(1) shares of Common Stock issued or issuable to officers,
directors or employees of the Corporation pursuant to stock option or stock
purchase plans or agreements on terms approved by a majority of the
disinterested directors on the Board of Directors of the Corporation, or those
independent contractors or consultants with which the Corporation shall have an
agreement approved by a resolution of the Board of Directors pursuant to which
such independent contractor or consultant shall perform services for the
Corporation;
(2) as a dividend or distribution on the Preferred Stock if such
dividend or distribution is distributed to the holders of Preferred Stock
ratably based on the number of shares of Common Stock issuable upon conversion
of the Preferred Stock at the Conversion Rate in effect on the record date for
such dividend or distribution;
(3) by reason of a stock split, reverse stock split, stock
dividend or other adjustment covered by Section 5(g) hereof;
(4) Options or Convertible Securities issued to financial
institutions or lessors in connection with commercial credit arrangements,
equipment financings or similar transactions approved by the Board of Directors
of the Corporation;
(5) by reason of a reorganization, reclassification, exchange,
substitution or other adjustment covered by Section 5(h) hereof;
(6) shares of Common Stock issued or issuable upon conversion of
the Preferred Stock;
(7) which are otherwise excluded by the affirmative vote or
written consent of the holders of at least fifty percent (50%) of the shares of
Series C Preferred then outstanding, with respect to issuances which would
affect the Series C Conversion Price;
-7-
<PAGE>
(8) which are otherwise excluded by the affirmative vote or
written consent of the holders of at least fifty percent (50%) of the shares of
Series D Preferred then outstanding, with respect to issuances which would
affect the Series D Conversion Price;
(9) which are otherwise excluded by the affirmative vote or
written consent of the holders of at least sixty-seven percent (67%) of the
shares of Series E Preferred then outstanding, with respect to issuances which
would affect the Series E Conversion Price; or
(10) shares of Common Stock issued or issuable upon conversion of
the Series E Preferred Stock by reason of an adjustment to the Series E
Preferred Conversion Price pursuant to Section 5(e) hereof.
(ii) No Adjustment for Conversion Price. Any provision herein to the
----------------------------------
contrary notwithstanding, no adjustment in the Conversion Price of a particular
share of Series C Preferred, Series D Preferred or Series E Preferred shall be
made in respect of the issuance of Additional Shares of Common if the
consideration per share (determined pursuant to Section 5(f)(v) of this Article
III) for the Additional Shares of Common issued or deemed to be issued by the
Corporation is equal to or greater than the applicable Series C Conversion
Price, Series D Conversion Price or Series E Conversion Price, respectively, in
effect on the date of, and immediately prior to, the issue of such Additional
Shares of Common.
(iii) Deemed Issue of Additional Shares of Common. In the event the
-------------------------------------------
Corporation at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then entitled to receive any
such Options or Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common ultimately issued as of the
time of such issue or, in case such a record date shall have been fixed, as of
the close of business on such record date, provided that in any such case in
which Additional Shares of Common are deemed to be issued:
(A) no further adjustments in the applicable Series C
Conversion Price, Series D Conversion Price or Series E Conversion Price shall
be made upon the subsequent issue of the Options or Convertible Securities or
shares of Common Stock issuable upon the exercise of such Options or conversion
or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase or decrease in
the consideration payable to the Corporation, or decrease or increase in the
number of shares of Common Stock issuable, upon the
-8-
<PAGE>
exercise, conversion or exchange thereof, the applicable Series C Conversion
Price, Series D Conversion Price or Series E Conversion Price, computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities (provided, however, that no such
-------- -------
adjustment of the applicable Series C Conversion Price, Series D Conversion
Price or Series E Conversion Price shall affect Common Stock previously issued
upon conversion of the Series C Preferred, Series D Preferred and Series E
Preferred, if any);
(C) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the applicable Series C Conversion Price, Series D Conversion
Price and Series E Conversion Price, computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or Options for Common
Stock, the only Additional Shares of Common issued were the shares of Common
Stock, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange; and
(2) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued upon the exercise thereof were
issued at the time of issue of such Options, and the consideration received by
the Corporation for the Additional Shares of Common deemed to have been then
issued was the consideration actually received by the Corporation for the issue
of all such Options, whether or not exercised, plus the consideration deemed to
have been received by the Corporation (determined pursuant to Section 5(f)(v) of
this Article III) upon the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above shall have the
effect of increasing the applicable Series C Conversion Price, Series D
Conversion Price or Series E Conversion Price to an amount which exceeds the
lower of (a) the Conversion Price on the original adjustment date (prior to such
adjustment), or (b) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common between the original adjustment date and
such readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares
-----------------------------------------------------------------
of Common. If the Corporation shall at any time after the Original Issue Date
- ---------
issue Additional Shares of
-9-
<PAGE>
Common (including Additional Shares of Common deemed to be issued pursuant to
Section 5(f)(iii) of this Article III, but excluding shares issued as a
dividend, stock split or recombination as provided in Section 5(g) of this
Article III or pursuant to a transaction for which an adjustment is provided for
in Section 5(h) of this Article III), without consideration or for a
consideration per share less than the applicable Series C Conversion Price,
Series D Conversion Price or Series E Conversion Price in effect on the date of
and immediately prior to the date of issue, then and in such event, such Series
C Conversion Price, Series D Conversion Price and Series E Conversion Price, as
applicable, shall be reduced, concurrently with such issue to a price
(calculated to the nearest cent) determined by multiplying the Conversion Price
of the Series C Preferred, Series D Preferred or Series E Preferred, as the case
may be, by a fraction, (a) the numerator of which shall be (1) the number of
shares of Common Stock outstanding immediately prior to such issue plus (2) the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common so issued
would purchase at such Conversion Price; and (b) the denominator of which shall
be (1) the number of shares of Common Stock outstanding immediately prior to
such issue plus (2) the number of Additional Shares of Common so issued. For
purposes of the above calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall be deemed to be equal to the
number of shares of Common Stock outstanding at such time plus the number of
shares of Common Stock issuable upon the ultimate exercise or conversion of all
Options and Convertible Securities then outstanding.
(v) Determination of Consideration for Options and Convertible
----------------------------------------------------------
Securities. The consideration per share received by the Corporation for
- ----------
Additional Shares of Common deemed to have been issued pursuant to Section
5(f)(iii) of Article III, relating to Options and Convertible Securities shall
be determined by dividing:
(A) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any provision contained
therein designed to protect against the dilution) issuable upon the exercise of
such Options or conversion or exchange of such Convertible Securities.
(g) Adjustments for Subdivisions, Combinations or Consolidation of
--------------------------------------------------------------
Common Stock. In the event the outstanding shares of Common Stock shall be
- ------------
subdivided (by stock split, stock dividend, reclassification or otherwise) into
a greater number of shares of Common Stock, the
-10-
<PAGE>
Conversion Prices of each series of Preferred Stock then in effect shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the Conversion Prices of each series of Preferred Stock
then in effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(h) Adjustments for Reorganization, Reclassification, Exchange and
--------------------------------------------------------------
Substitution. If the shares of Common Stock issuable upon conversion of any
- ------------
shares of Preferred Stock shall be changed into the same or a different number
of shares of any other class or classes of stock or other securities or
property, whether by reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for in Section 5(g) of this
Article III), the Conversion Prices of the affected series of Preferred Stock
then in effect shall, concurrently with the effectiveness of such reorganization
or reclassification, be proportionately adjusted such that the shares of
Preferred Stock shall be convertible into, in lieu of the number of shares of
Common Stock which the holders thereof would otherwise have been entitled to
receive upon such conversion, a number of shares of such other class or classes
of stock or other securities or property equivalent to the number of shares of
Common Stock that would have been issuable to the holders of Preferred Stock if
their shares of Preferred Stock had been converted immediately before such
change; and, in any such case, appropriate adjustment (as determined by the
Board of Directors) shall be made in the application of the provisions herein
set forth with respect to the rights and interest thereafter of the holders of
Preferred Stock, to the end that the provisions set forth herein (including the
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Preferred Stock.
(i) No Impairment. The Corporation will not through any
-------------
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 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.
This provision shall not restrict the Corporation's right to amend its Articles
of Incorporation with the requisite shareholder consent.
(j) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon written request at any time
of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) all such adjustments and
readjustments, (ii) the Conversion Price at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of
-11-
<PAGE>
other property which at the time would be received upon the conversion of such
holder's shares of Preferred Stock.
(k) Reservation of Common Stock Issuable Upon Conversion. The
----------------------------------------------------
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of Preferred Stock such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
6. Redemption of Series C Preferred, Series D Preferred or Series E
----------------------------------------------------------------
Preferred. On or at any time after February 1, 2004 upon the election of the
- ---------
holders of a majority of the then outstanding shares of Series C Preferred,
Series D Preferred or Series E Preferred, as the case may be (the date of such
election being referred to herein as the "Redemption Date"), such holders may
require the Corporation to redeem their shares to the extent legally
permissible. Any such redemption of Series C Preferred, Series D Preferred or
Series E Preferred (collectively, the "Redeemable Preferred") shall be effected
at the applicable "Redemption Price" which is equal to the greater of (i) $2.20
per share with respect to the Series C Preferred (as equitably adjusted for any
stock dividends, combinations or splits with respect to such shares), $3.029 per
share with respect to the Series D Preferred (as equitably adjusted for any
stock dividends, combinations or splits with respect to such shares) and $3.533
per share with respect to the Series E Preferred (as equitably adjusted for any
stock dividends, combinations or splits with respect to such shares), plus any
accrued and unpaid dividends declared by the Board of Directors of the
Corporation, if any or (ii) the fair market value per share of the applicable
series of Redeemable Preferred on the Redemption Date as determined by mutual
agreement of the majority of the holders of the applicable series of Redeemable
Preferred requesting redemption and the Company, or if such holders of
Redeemable Preferred and the Company are unable to so agree, at the
Corporation's sole expense, by an investment banker of national reputation
selected by the Corporation and a majority of the holders of the applicable
series of Redeemable Preferred requesting redemption.
Not more than thirty (30) days following the Redemption Date, a notice
shall be mailed by the Corporation (the "Redemption Notice") to the holders of
all series of Redeemable Preferred by means of first class mail, postage paid,
addressed to the holders of record of the shares to be redeemed, at their
respective addresses then appearing on the books of the Corporation. Each such
notice shall specify (i) the number of shares as to which such holder has the
right to request redemption, and (ii) the Redemption Price applicable to the
shares. In the event no funds or insufficient funds are available to redeem all
or any part of the shares of the Redeemable Preferred entitled and electing to
be redeemed pursuant to this Section 6, the Redemption Notice shall specify in
reasonable detail the reasons therefor
-12-
<PAGE>
and shall state that such holder may revoke his or her redemption request as to
all or any portion of the shares of the Redeemable Preferred for which such
holder has the right to request redemption.
If no funds or insufficient funds are legally available to the Corporation
at any time to meet the Corporation's obligations to redeem shares of Redeemable
Preferred, the Corporation shall take all necessary actions at the earliest
practicable date, including but not limited to, a sale of the Corporation (by
merger or otherwise) or sale of all or substantially all of its assets, to make
sufficient funds legally available to meet its redemption obligations under this
Section 6. In the event no funds or insufficient funds are available to redeem
all shares of Redeemable Preferred entitled and electing to be redeemed pursuant
to this Section 6, the Corporation shall effect such redemption by redeeming
shares on a pro rata basis from the holders of the Redeemable Preferred based
upon the number of shares of Redeemable Preferred then held by each holder and
electing to be redeemed. If any shares of Redeemable Preferred are not redeemed
after the delivery by the holder of a written request to the Corporation to
effect such redemption, then the Corporation's obligation to redeem such shares
shall continue until such time as sufficient funds are legally available to
effect such redemption; provided, however, any holder of Redeemable Preferred
-------- -------
may revoke the election to redeem all or any portion of his or her shares as set
forth in a written notice to the Corporation not more than thirty (30) days
after the Corporation notified such holder that the Corporation could not meet
its redemption obligation under this Section 6.
Each holder who desires to have his or her shares redeemed pursuant to this
Section 6 shall so request by written notice to the Corporation within twenty-
five (25) days after delivery of the Redemption Notice. The holder of any
shares of Redeemable Preferred so redeemed shall not be entitled to receive
payment of the Redemption Price for such shares until such holder shall cause to
be delivered, to the place specified in the Redemption Notice, (i) the
certificates representing such shares of Redeemable Preferred or affidavits of
lost certificates and (ii) transfer instrument(s) satisfactory to the
Corporation and sufficient to transfer such shares to the Corporation free of
any adverse interest.
Upon the redemption of any share of Redeemable Preferred pursuant to this
Section 6, such share shall (provided the Redemption Price of such share has
been paid or properly provided for) be deemed to cease to be outstanding, and
all rights of any person other than the Corporation in such share shall be
extinguished on the Redemption Date for such share (plus all rights to receive
future dividends with respect to such share), except for the right to receive
the Redemption Price, without interest, in accordance with the provisions of
this Section 6.
Any shares of Redeemable Preferred that are not redeemed as set forth
herein shall remain outstanding with all rights, preferences, privileges and
restrictions set forth herein.
7. Protective Covenants.
--------------------
(a) In addition to any other rights provided by law, the Corporation
shall not, without first obtaining the affirmative vote or written consent of
the holders of not less than (1) a majority of the
-13-
<PAGE>
outstanding shares of each of the Series A Preferred, Series B Preferred and
Series C Preferred and (2) sixty-seven percent (67%) of the outstanding shares
of each of the Series D Preferred and Series E Preferred:
(i) amend or repeal any provision of, or add any provision to, the
Corporation's Articles of Incorporation or by-laws if such action would alter or
change the preferences, rights, privileges or powers of, or the restrictions
provided for the benefit of, the Preferred Stock or any series thereof, or
increase or decrease the number of shares of Common Stock or any series of
Preferred Stock authorized hereby;
(ii) authorize or issue shares of Common Stock or any class or series
of stock having any preference or priority as to dividends or assets superior or
on parity with any such preference or priority of each series of Preferred
Stock; authorize or issue shares of stock of any class or series of any bonds,
debentures, notes or other obligations convertible into or exchangeable for, or
having option rights to purchase, any shares of Common Stock or stock of the
Corporation having any preference or priority as to dividends or assets superior
to or on parity with any such preference or priority of each series of Preferred
Stock; or
(iii) reclassify any class or series of any Common Stock into shares
having any preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of Preferred Stock.
(b) The Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of not less than (1) the majority of the
outstanding shares of Series C Preferred so long as there remain outstanding
300,000 shares of Series C Preferred, (2) sixty-seven percent (67%) of the
outstanding shares of the Series D Preferred so long as there remain outstanding
540,000 shares of Series D Preferred and (3) sixty-seven percent (67%) of the
outstanding shares of the Series E Preferred so long as there remain outstanding
690,000 shares of Series E Preferred, each voting as a separate series:
(i) enter into any merger, consolidation, reorganization,
recapitalization or sale of assets transaction other than in the ordinary course
of business;
(ii) enter into or otherwise become a party to any agreement whereby
any shareholder or shareholders of the Corporation shall transfer capital stock
of the Corporation to an independent third party or a group of independent third
parties pursuant to which such parties acquire capital stock of the Corporation
possessing the voting power to elect a majority of the Corporation's board of
directors;
(iii) pay or declare any dividends or distributions on, or redeem,
repurchase or acquire any shares of junior capital stock of the Corporation;
provided, however, that this restriction
- -------- -------
-14-
<PAGE>
shall not apply to the repurchase of shares of Common Stock from directors,
consultants or employees of the Corporation or any subsidiary pursuant to
agreements approved by a majority of the disinterested directors on the Board of
Directors, under which the Corporation has the right to repurchase such shares
upon the occurrence of certain events, including but not limited to, termination
of employment or services;
(iv) enter into any agreements, directly or indirectly, with officers,
employees, shareholders or directors of the Corporation (including any employee
benefit, bonus, or stock plan if such plans will provide more benefits than are
currently provided), unless approved by a majority of the Corporation's
disinterested directors on the Board of Directors;
(v) enter into any agreement, contract or other financial commitment
in excess of $500,000;
(vi) dismiss or hire the Corporation's Chief Financial Officer or
other equivalent senior level financial officer; or
(vii) approve the annual budget of the Corporation;
(viii) (a) permit the existence of any liens on the Corporation's
assets, excluding financing done in the normal course of business, (b) make any
material acquisition or capital expenditure, in excess of the amount allocated
for such purposes in the annual budget, or (c) incur material debt or guarantees
in excess of the amount allocated for such purposes in the annual budget;
(ix) adopt any employee benefit, bonus or stock plan, other than such
plans which exist on the date hereof, if such plans will provide more benefits
than are provided under current plans, unless such plans are approved by the
disinterested directors on the Board of Directors of the Corporation;
(x) dispose or acquire assets in excess of $100,000 other than in the
normal course of business; or
(c) The Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of not less than (1) the
majority of the outstanding shares of Series C Preferred so long as there remain
outstanding 300,000 shares of Series C Preferred, (2) sixty-six and two-thirds
(66 2/3%) of the outstanding shares of the Series D Preferred so long as there
remain outstanding 540,000 shares of Series D Preferred and (3) sixty-six and
two-thirds (66 2/3%) of the outstanding shares of the Series E Preferred so long
as there remain outstanding 690,000 shares of Series E Preferred, each voting as
a separate series:
(i) liquidate, dissolve or file a petition for bankruptcy.
-15-
<PAGE>
FIFTH.
-----
A. The management of the business and the conduct of the affairs of
the Corporation shall be vested in the Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed in
the manner designated in the Bylaws of the Corporation.
B. The number of directors which constitute the whole Board of
Directors of the Corporation shall be fixed exclusively by one or more
resolutions adopted from time to time by the Board of Directors.
C. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
D. Elections of directors need not be by written ballot except and to
the extent provided in the Bylaws of the corporation.
E. Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by the vote of a
majority, although less than a quorum, of the directors then in office, or by a
sole remaining director
SIXTH.
-----
A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, 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.
B. The Corporation may indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer, employee or
agent of the Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer, employee or agent at the
request of the Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article SIXTH, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article SIXTH, shall eliminate or reduce the effect of
this Article SIXTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SIXTH, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
SEVENTH. The Corporation is to have perpetual existence.
-------
-16-
<PAGE>
EIGHTH.
------
A. Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside of the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
B. Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
NINTH. The Corporation reserves the right to amend, alter, change or
-----
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
-17-
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed this _______ day of
September, 1999.
ANDROMEDIA, INC.
/s/ Jeffrey A. Herbst
---------------------------------
Jeffrey A. Herbst, Incorporator
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304-1050
<PAGE>
EXHIBIT 3.3
RESTATED CERTIFICATE OF INCORPORATION
OF
ANDROMEDIA, INC.
FIRST. The name of the Corporation is Andromedia, Inc.
-----
SECOND. The address of the Corporation's registered office in the State of
------
Delaware is Corporation Trust Center, 1209 Orange St., Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
-----
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOURTH. This Corporation is authorized to issue two classes of shares to
------
be designated, respectively, Common Stock ("Common") and Preferred Stock
------
("Preferred"). The total number of shares of Common this Corporation shall have
- -----------
authority to issue is 150,000,000 with a par value of $0.001 per share. The
total number of shares of Preferred this Corporation shall have authority to
issue is 7,500,000 with a par value of $0.001 per share.
The Board of Directors is authorized, subject to limitations prescribed by
law, to provide for the issuance of the shares of Preferred in series and, by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in such series,
and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(a) the number of shares constituting that series and the distinctive
designation of that series;
(b) the dividend rate on the shares of that series, whether dividends
shall be cumulative and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that series;
(c) whether that series shall have voting rights, in addition to the voting
rights provided by law and, if so, the terms of such voting rights;
(d) whether that series shall have conversion privileges and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
<PAGE>
(e) whether or not the shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) whether that series shall have a sinking fund for the redemption or
purchase of shares of that series and, if so, the terms and amount of such
sinking fund; and
(g) the rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that series.
FIFTH.
-----
A. The management of the business and the conduct of the affairs of
the Corporation shall be vested in the Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed in
the manner designated in the Bylaws of the Corporation.
B. The number of directors which constitute the whole Board of
Directors of the Corporation shall be fixed exclusively by one or more
resolutions adopted from time to time by the Board of Directors. The Board of
Directors shall be divided into three classes designated as Class I, Class II,
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the date hereof, the term
of office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of
stockholders following the date hereof, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the date
hereof, the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders, directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
C. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, alter, amend or
repeal the Bylaws of the Corporation.
D. Elections of directors need not be by written ballot except and to
the extent provided in the Bylaws of the corporation.
E. Vacancies created by newly created directorships, created in
accordance with the Bylaws of this Corporation, may be filled by the vote of a
majority, although less than a quorum, of the directors then in office, or by a
sole remaining director
<PAGE>
SIXTH.
-----
A. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, 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.
B. The Corporation may indemnify to the fullest extent permitted by
law any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer, employee or
agent of the Corporation or any predecessor of the Corporation or serves or
served at any other enterprise as a director, officer, employee or agent at the
request of the Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article SIXTH, nor the
adoption of any provision of this Corporation's Certificate of Incorporation
inconsistent with this Article SIXTH, shall eliminate or reduce the effect of
this Article SIXTH, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article SIXTH, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
SEVENTH. The Corporation is to have perpetual existence.
-------
EIGHTH.
------
A. Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside of the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the Corporation.
B. The stockholders of the Corporation may not take any action by
written consent in lieu of a meeting and any action contemplated by stockholders
must be taken at a duly called annual or special meeting of stockholders.
C. Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
NINTH. The Corporation reserves the right to amend, alter, change or
-----
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
<PAGE>
IN WITNESS WHEREOF, this Certificate has been signed this _______ day of
October, 1999.
ANDROMEDIA, INC.
-------------------------------------------
Kent B. Godfrey, Chief Executive Officer
ATTEST:
- --------------------------------------
Jeffrey A. Herbst, Assistant Secretary
<PAGE>
EXHIBIT 3.5
BYLAWS
OF
ANDROMEDIA, INC.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
ARTICLE I CORPORATE OFFICES...........................................................................................1
1.1 REGISTERED OFFICE...................................................................................1
1.2 OTHER OFFICES.......................................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS...................................................................................1
2.1 PLACE OF MEETINGS...................................................................................1
2.2 ANNUAL MEETING......................................................................................1
2.3 SPECIAL MEETING.....................................................................................2
2.4 NOTICE OF STOCKHOLDERS'MEETINGS.....................................................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................................................2
2.6 QUORUM..............................................................................................2
2.7 ADJOURNED MEETING; NOTICE...........................................................................2
2.8 VOTING..............................................................................................3
2.9 WAIVER OF NOTICE....................................................................................3
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.............................................3
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.........................................4
2.12 PROXIES.............................................................................................5
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE...............................................................5
2.14 NOMINATIONS AND PROPOSALS...........................................................................5
ARTICLE III DIRECTORS.................................................................................................6
3.1 POWERS..............................................................................................6
3.2 NUMBER OF DIRECTORS.................................................................................7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.............................................7
3.4 RESIGNATION AND VACANCIES...........................................................................7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE............................................................8
3.6 FIRST MEETINGS......................................................................................8
3.7 REGULAR MEETINGS....................................................................................8
3.8 SPECIAL MEETINGS; NOTICE............................................................................9
3.9 QUORUM..............................................................................................9
3.10 WAIVER OF NOTICE....................................................................................9
3.11 ADJOURNED MEETING; NOTICE...........................................................................9
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..................................................10
3.13 FEES AND COMPENSATION OF DIRECTORS.................................................................10
3.14 APPROVAL OF LOANS TO OFFICERS......................................................................10
3.15 REMOVAL OF DIRECTORS...............................................................................10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued)
Page
----
<S> <C> <C>
ARTICLE IV COMMITTEES................................................................................................10
4.1 COMMITTEES OF DIRECTORS............................................................................10
4.2 COMMITTEE MINUTES..................................................................................11
4.3 MEETINGS AND ACTION OF COMMITTEES..................................................................11
ARTICLE V OFFICERS...................................................................................................12
5.1 OFFICERS...........................................................................................12
5.2 ELECTION OF OFFICERS...............................................................................12
5.3 SUBORDINATE OFFICERS...............................................................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................................................12
5.5 VACANCIES IN OFFICES...............................................................................12
5.6 CHAIRMAN OF THE BOARD..............................................................................13
5.7 PRESIDENT..........................................................................................13
5.8 VICE PRESIDENT.....................................................................................13
5.9 SECRETARY..........................................................................................13
5.10 CHIEF FINANCIAL OFFICER............................................................................14
5.11 ASSISTANT SECRETARY................................................................................14
5.12 ASSISTANT FINANCIAL OFFICER........................................................................14
5.13 AUTHORITY AND DUTIES OF OFFICERS...................................................................14
ARTICLE VI INDEMNITY.................................................................................................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................................................15
6.2 INDEMNIFICATION OF OTHERS..........................................................................15
6.3 INSURANCE..........................................................................................15
6.4 AMENDMENT AND SCOPE................................................................................16
ARTICLE VII RECORDS AND REPORTS......................................................................................16
7.1 MAINTENANCE AND INSPECTION OF RECORDS..............................................................16
7.2 INSPECTION BY DIRECTORS............................................................................17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................................................17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................................................17
ARTICLE VIII GENERAL MATTERS.........................................................................................17
8.1 CHECKS.............................................................................................17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS...................................................17
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.............................................................18
8.4 SPECIAL DESIGNATION ON CERTIFICATES................................................................18
8.5 LOST CERTIFICATES..................................................................................19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(continued)
Page
----
<S> <C> <C>
8.6 CONSTRUCTION; DEFINITIONS..........................................................................19
8.7 DIVIDENDS..........................................................................................19
8.8 FISCAL YEAR........................................................................................19
8.9 SEAL...............................................................................................19
8.10 TRANSFER OF STOCK..................................................................................19
8.11 STOCK TRANSFER AGREEMENTS..........................................................................20
8.12 REGISTERED STOCKHOLDERS............................................................................20
ARTICLE IX AMENDMENTS................................................................................................20
ARTICLE X DISSOLUTION................................................................................................20
ARTICLE XI CUSTODIAN.................................................................................................21
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES........................................................21
11.2 DUTIES OF CUSTODIAN................................................................................22
</TABLE>
<PAGE>
BYLAWS
------
OF
--
ANDROMEDIA, INC.
----------------
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
-----------------
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. At the meeting, directors shall be
elected and any other proper business may be transacted.
<PAGE>
2.3 SPECIAL MEETING
---------------
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, by the president or, so
long as the corporation is subject to Section 2115 of the California General
Corporation Law, by one or more shareholders holding shares in the aggregate
entitled to cast not less than ten percent (10%) of the votes at that meeting.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
--------------------------------
All notices of meetings with stockholders shall be in writing and shall be
sent or otherwise given in accordance with Section 2.5 of these bylaws not less
than ten (10) nor more than sixty (60) days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 QUORUM
------
The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
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2.8 VOTING
------
The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
2.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of 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. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation, any action
required by this chapter to be taken at any annual or special meeting of
stockholders of the corporation, or any action that may be taken at any annual
or special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
In the event of the delivery, in the manner provided hereby, to the
corporation of the requisite written consent or consents to take corporate
action and/or any related revocation or revocations, the corporation may engage
independent inspectors of elections for the purpose of performing promptly a
ministerial review of the validity of the consents and revocations. For the
purpose of permitting the inspectors to perform such review, in the event such
inspectors are appointed, no action by written consent without a meeting shall
be effective until such date as such appointed independent inspectors certify to
the corporation that the consents delivered to the corporation in accordance
herewith represent at least the minimum number of votes that would be necessary
to take the
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<PAGE>
corporate action. Nothing contained in these Bylaws shall in any way be
construed to suggest or imply that the board of directors or any stockholder
shall not be entitled to contest the validity of any consent or revocation
thereof, whether before or after any certification by any independent
inspectors, or to take any other action (including, without limitation, the
commencement, prosecution or defense of any litigation with respect thereto, and
the seeking of injunctive relief in such litigation).
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the
earliest dated written consent received in accordance herewith, a written
consent or consents signed by a sufficient number of holders to take such action
are delivered to the corporation in the manner prescribed herein.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
(i) Actions other than Written Consent. For the purpose of
----------------------------------
determining the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion, or exchange of stock,
or other lawful purpose (other than the expression of consent to corporate
action in writing without a meeting) the directors may fix, in advance, a record
date, which, in the case of a meeting of stockholders, shall not be more than 60
days nor less than 10 days before the date of such meeting. If no record date is
fixed, the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held
and the record date for determining stockholders for any other purpose pursuant
to this Section 2.11(i) shall be at the close of business on the day on which
the board of directors adopts the resolution relating thereto. A determination
of stockholders of record entitled to notice of or to vote at any 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.
(ii) Action by Written Consent. In order that the corporation may
-------------------------
determine the stockholders entitled to consent to corporate action in writing
without a meeting, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the board of directors. Any stockholder of record seeking to have
the stockholders authorize or take corporate action by written consent shall, by
written notice to the secretary, request the board of directors to fix a record
date. The board of directors may, at any time within ten (10) days after the
date on which such a request is received, adopt a resolution fixing the record
date (unless a record date has previously been fixed by the first sentence of
this Section 2.11(ii)). If no record date has been fixed by the board of
directors pursuant to the first sentence of this Section 2.11(ii) or otherwise
within ten (10) days of the date on which such a request is received, the record
date for determining stockholders entitled to consent to corporate action in
writing without a meeting, when no prior action by the board of directors is
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<PAGE>
required by applicable law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in Delaware, its principal
place of business, or to any officer or agent of the corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the board of directors and prior
action by the board of directors is required by applicable law, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the date on which the
board of directors adopts the resolution taking such prior action.
2.12 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
-------------------------------------
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (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 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 list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
2.14 NOMINATIONS AND PROPOSALS
-------------------------
Nominations of persons for election to the board of directors of the
corporation and the proposal of business to be considered by the stockholders
may be made at any meeting of stockholders only (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 these bylaws, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Section 2.14.
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<PAGE>
For nominations or other business to be properly brought before a
stockholders meeting by a stockholder pursuant to clause (c) of the preceding
sentence, 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 60th day nor earlier
than the close of business on the 90th day prior to the meeting; provided,
however, that in the event that less than 65 days notice of the meeting is given
to stockholders, notice by the stockholder to be timely must be so delivered not
earlier than the close of business on the seventh (7th) day following the day on
which the notice of meeting was mailed. In no event shall the public
announcement of an adjournment of a stockholders meeting commence a new time
period for the giving of a stockholder's notice as described above. 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 in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (or any successor thereto) and Rule 14a-11 thereunder
(or any successor thereto) (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 the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner.
Notwithstanding any provision herein to the contrary, no business shall be
conducted at a stockholders meeting except in accordance with the procedures set
forth in this Section 2.14.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
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<PAGE>
3.2 NUMBER OF DIRECTORS
-------------------
Subject to any contrary provisions in the certificate of incorporation, the
authorized number of directors shall be eight (8). This number may be changed
by a duly adopted amendment to the certificate of incorporation or by an
amendment to this bylaw adopted by the vote or written consent of the holders of
a majority of the stock issued and outstanding and entitled to vote or by
resolution of a majority of the board of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
-------------------------------------------------------
Except as provided in the certificate of incorporation and Section 3.4 of
these bylaws, directors shall be elected at each annual meeting of stockholders
to hold office until the next annual meeting. Directors need not be
stockholders unless so required by the certificate of incorporation or these
bylaws, wherein other qualifications for directors may be prescribed. Each
director, including a director elected to fill a vacancy, shall hold office
until his successor is elected and qualified or until his earlier resignation or
removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
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<PAGE>
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any 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 in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
--------------
The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held at such time and at
such place as shall from time to time be determined by the board.
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3.8 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail, or
facsimile or electronic delivery charges prepaid, addressed to each director at
that director's address as it is shown on the records of the corporation. If
the notice is mailed, it shall be deposited in the United States mail at least
four (4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by facsimile or electronic delivery, it
shall be delivered personally or by telephone at least forty-eight (48) hours
before the time of the holding of the meeting. Any oral notice given personally
or by telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.
3.9 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of 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. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
-------------------------
If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
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3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
--------------------
Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any
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meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the 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 or
in the bylaws of the corporation, 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 that may require it; but no such committee shall have the
power or authority to (i) amend the certificate of incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation), (ii) adopt an agreement of merger or consolidation
under Sections 251 or 252 of the General Corporation Law of Delaware, (iii)
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the board
resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
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ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
--------------------
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
--------------------
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
-----------------------------------
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
--------------------
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
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5.6 CHAIRMAN OF THE BOARD
---------------------
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 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 chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the stockholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
--------------
In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all 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, these bylaws, the
president or the chairman of the board.
5.9 SECRETARY
---------
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and stockholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
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The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.
5.10 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 accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the 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 these bylaws.
5.11 ASSISTANT SECRETARY
-------------------
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the secretary
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.
5.12 ASSISTANT FINANCIAL OFFICER
---------------------------
The assistant financial officer, or, if there is more than one, the
assistant financial officers, in the order determined by the stockholders or
board of directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the chief financial officer or in the
event of his or her inability or refusal to act, perform the duties and exercise
the powers of the chief financial officer and shall perform such other duties
and have such other powers as the board of directors or the stockholders may
from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
--------------------------------
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
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<PAGE>
ARTICLE VI
INDEMNITY
---------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
---------
The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.
-15-
<PAGE>
6.4 AMENDMENT AND SCOPE.
-------------------
The rights conferred in these bylaws are not exclusive, and the corporation
is authorized to enter into indemnification agreements with its directors,
executive officers and employees. Neither any amendment nor repeal of this
Article VI nor the adoption of any provision of these bylaws inconsistent with
this Article VI shall eliminate or reduce the effect of this Article VI, in
respect of any matter occurring, or any action or proceeding accruing or arising
or that, but for this Article VI, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF RECORDS
-------------------------------------
The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (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 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 list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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<PAGE>
7.2 INSPECTION BY DIRECTORS
-----------------------
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
--------------------------------
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
----------------------------------------------
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
---------------
8.1 CHECKS
------
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
------------------------------------------------
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an
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<PAGE>
officer, no officer, agent or employee shall have any power or authority to bind
the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
--------------------------------------
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the chief
financial officer or an assistant financial officer, or the secretary or an
assistant secretary of such corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
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<PAGE>
8.5 LOST CERTIFICATES
-----------------
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
8.7 DIVIDENDS
---------
The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
-----------
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
----
This corporation may have a corporate seal, which may be adopted or altered
at the pleasure of the board of directors, and may use the same by causing it or
a facsimile thereof, to be impressed or affixed or in any other manner
reproduced.
8.10 TRANSFER OF STOCK
-----------------
Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to
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<PAGE>
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS
-------------------------
The corporation shall have power to enter into and perform any agreement
with any number of stockholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
-----------
If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences
-20-
<PAGE>
of the directors and officers shall be executed, acknowledged, and filed and
shall become effective in accordance with Section 103 of the General Corporation
Law of Delaware. Upon such certificate's becoming effective in accordance with
Section 103 of the General Corporation Law of Delaware, the corporation shall be
dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.
ARTICLE XI
CUSTODIAN
---------
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
-------------------------------------------
The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the stockholders
are so divided that they have failed to elect successors to directors whose
terms have expired or would have expired upon qualification of their successors;
or
(ii) the business of the corporation is suffering or is threatened with
irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or
(iii) the corporation has abandoned its business and has failed within
a reasonable time to take steps to dissolve, liquidate or distribute its assets.
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<PAGE>
11.2 DUTIES OF CUSTODIAN
-------------------
The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.
-22-
<PAGE>
CERTIFICATE OF ADOPTION
OF
BYLAWS
OF
ANDROMEDIA, INC.
Certificate by Secretary of Adoption
------------------------------------
by Board of Directors and by Stockholders' Vote
-----------------------------------------------
The undersigned hereby certifies that he is the duly elected, qualified,
and acting Secretary of Andromedia, Inc. and that the foregoing Bylaws,
comprising twenty-two (22) pages, were adopted as the Bylaws of the corporation
by the Board of Directors on ___________, 1999 and were ratified by the vote of
stockholders entitled to exercise the majority of the voting power of the
corporation on ___________, 1999.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed
the corporate seal this ____ day of ________, 1999.
----------------------------------------
Jeffrey A. Herbst, Assistant Secretary
-23-
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI]
September 23, 1999
Andromedia, Inc.
818 Mission Street, Second Floor
San Francisco, CA 94103
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on September 23, 1999, (as such may be
amended or supplemented, the "Registration Statement"), in connection with the
registration under the Securities Act of 1933, as amended, of 4,600,000 shares
of Common Stock of Andromedia, Inc. (the "Shares"). The Shares, which include up
to 600,000 shares of Common Stock issuable pursuant to an over-allotment option
granted to the underwriters, are to be sold to the underwriters as described in
such Registration Statement for the sale to the public or issued to the
representatives of the underwriters. As your counsel in connection with this
transaction, we have examined the proceedings proposed to be taken in connection
with said sale and issuance of the Shares.
It is our opinion that, upon approval by the pricing committee duly
authorized by the Company's Board of Directors, the Shares when issued and sold
in the manner referred to in the Registration Statement will be legally and
validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part hereof, and
any amendment thereto.
Very truly yours,
/s/ Wilson Sonsini Goodrich & Rosati
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 10.1
ANDROMEDIA, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of ________
__, 1999 by and between Andromedia, Inc., a Delaware corporation (the
"Company"), and the indemnitee listed on the signature page hereto
("Indemnitee").
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and its related
entities;
WHEREAS, in order to induce Indemnitee to continue to provide services to
the Company, the Company wishes to provide for the indemnification of, and the
advancement of expenses to, Indemnitee to the maximum extent permitted by law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for the Company's directors, officers, employees,
agents and fiduciaries, the significant increases in the cost of such insurance
and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, the Company and Indemnitee desire to continue to have in place the
additional protection provided by an indemnification agreement and to provide
indemnification and advancement of expenses to the Indemnitee to the maximum
extent permitted by Delaware law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Certain Definitions.
-------------------
(a) "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved,
<PAGE>
cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting Securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of the
Company's assets.
(b) "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
(c) References to the "Company" shall include, in addition to
Andromedia, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which Andromedia, Inc. (or
any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(d) "Covered Event" shall mean any event or occurrence (including any
allegation of an omission) (x) related to the fact that Indemnitee is or was a
director, officer, employee, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
(y) arising, directly or indirectly, by reason of any action or inaction on the
part of Indemnitee while serving in such capacity.
(e) "Expenses" shall mean any and all expenses (including attorneys'
fees and all other costs, expenses and obligations incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, to be a witness in or to participate in, any
action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties and amounts paid in
settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld), actually and reasonably incurred,
of any Claim and any federal, state, local or foreign taxes imposed on the
Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement.
<PAGE>
(f) "Expense Advance" shall mean a payment to Indemnitee pursuant to
Section 3 of Expenses in advance of the settlement of or final judgement in any
action, suit, proceeding or alternative dispute resolution mechanism, hearing,
inquiry or investigation which constitutes a Claim.
(g) "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(h) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
(i) "Reviewing Party" shall mean, subject to the provisions of Section
2(d), any person or body appointed by the Board of Directors in accordance with
applicable law to review the Company's obligations hereunder and under
applicable law, which may include a member or members of the Company's Board of
Directors, Independent Legal Counsel or any other person or body not a party to
the particular Claim for which Indemnitee is seeking indemnification.
(j) "Section" refers to a section of this Agreement unless otherwise
indicated.
(k) "Voting Securities" shall mean any securities of the Company that
vote generally in the election of directors.
2. Indemnification.
---------------
(a) Indemnification of Expenses. Subject to the provisions of Section
---------------------------
2(b) below, the Company shall indemnify Indemnitee for Expenses to the fullest
extent permitted by law if Indemnitee was or is or becomes a party to or witness
or other participant in, or is threatened to be made a party to or witness or
other participant in, any Claim (whether by reason of or arising in part out of
a Covered Event), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses.
(b) Review of Indemnification Obligations. Notwithstanding the
-------------------------------------
foregoing, in the event any Reviewing Party shall have reasonably determined (in
a written opinion, in any case in which Independent Legal Counsel is the
Reviewing Party) that Indemnitee is not entitled to be indemnified hereunder
under applicable law, (i) the Company shall have no further obligation under
Section 2(a) to make any payments to Indemnitee not made prior to such
determination by such
<PAGE>
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid in indemnifying Indemnitee; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee is entitled to
be indemnified hereunder under applicable law, any determination made by any
Reviewing Party that Indemnitee is not entitled to be indemnified hereunder
under applicable law shall not be binding and Indemnitee shall not be required
to reimburse the Company for any Expenses theretofore paid in indemnifying
Indemnitee until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any Expenses shall be
unsecured and no interest shall be charged thereon.
(c) Indemnitee Rights on Unfavorable Determination; Binding Effect. If
--------------------------------------------------------------
any Reviewing Party determines that Indemnitee substantively is not entitled to
be indemnified hereunder in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by such Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and, subject to
the provisions of Section 15, the Company hereby consents to service of process
and to appear in any such proceeding. Absent such litigation, any determination
by any Reviewing Party shall be conclusive and binding on the Company and
Indemnitee.
(d) Selection of Reviewing Party; Change in Control. If there has not
-----------------------------------------------
been a Change in Control, any Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a Change
in Control which has been approved by a majority of the Company's Board of
Directors who were directors immediately prior to such Change in Control), any
Reviewing Party with respect to all matters arising after such Change in Control
concerning the rights of Indemnitee to indemnification of Expenses under this
Agreement or any other agreement or under the Company's Certificate of
Incorporation or Bylaws as now or hereafter in effect, or under any other
applicable law, if desired by Indemnitee, shall be Independent Legal Counsel
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be entitled to be indemnified hereunder under applicable law
and the Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto. Notwithstanding any other provision
of this Agreement, the Company shall not be required to pay Expenses of more
than one Independent Legal Counsel in connection with all matters concerning a
single Indemnitee, and such Independent Legal Counsel shall be the Independent
Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(e) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in
<PAGE>
defense of any Claim, Indemnitee shall be indemnified against all Expenses
incurred by Indemnitee in connection therewith.
3. Expense Advances.
----------------
(a) Obligation to Make Expense Advances. Upon receipt of a written
-----------------------------------
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
therefor by the Company, the Company shall make Expense Advances to Indemnitee.
(b) Form of Undertaking. Any written undertaking by the Indemnitee to
-------------------
repay any Expense Advances hereunder shall be unsecured and no interest shall be
charged thereon.
(c) Determination of Reasonable Expense Advances. The parties agree
--------------------------------------------
that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
---------------------------------------------------
(a) Timing of Payments. All payments of Expenses (including without
------------------
limitation Expense Advances) by the Company to the Indemnitee pursuant to this
Agreement shall be made to the fullest extent permitted by law as soon as
practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than forty-five (45) days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than twenty (20) days after such written
demand by Indemnitee is presented to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement; provided, however,
that any failure by Indemnitee to so notify the Company shall not affect
Indemnitee's right to indemnification or to receive Expense Advances unless and
to the extent that the Company has been materially prejudiced by Indemnitee's
failure to give such notice. Notice to the Company shall be directed to the
Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate in
writing to Indemnitee). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) No Presumptions; Burden of Proof. For purposes of this Agreement,
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that Indemnitee did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by this Agreement or applicable
law. In
<PAGE>
addition, neither the failure of any Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by any
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
this Agreement or applicable law, shall be a defense to Indemnitee's claim or
create a presumption that Indemnitee has not met any particular standard of
conduct or did not have any particular belief. In connection with any
determination by any Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the Company
------------------
of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
hereunder to provide indemnification for or make any Expense Advances with
respect to the Expenses of any Claim, the Company, if a majority of the
Company's Board of Directors or a Reviewing Party reasonably determines that
such action is appropriate, shall be entitled to assume the defense of such
Claim with counsel approved by Indemnitee (which approval shall not be
unreasonably withheld) upon the delivery to Indemnitee of written notice of the
Company's election to do so. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees or
expenses of separate counsel subsequently employed by or on behalf of Indemnitee
with respect to the same Claim; provided that, (i) Indemnitee shall have the
right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of separate counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be Expenses for which Indemnitee shall
receive indemnification or Expense Advances hereunder to the extent that
Indemnitee is otherwise entitled to such indemnification or Expense Advance
pursuant to this Agreement.
5. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify the Indemnitee to
-----
the fullest extent permitted by law, notwithstanding that such indemnification
is not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its board of directors or an officer, employee, agent or fiduciary, it
is the intent of the
<PAGE>
parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits afforded by such change. In the event of any change in any applicable
law, statute or rule which narrows the right of a Delaware corporation to
indemnify a member of its board of directors or an officer, employee, agent or
fiduciary, such change, to the extent not otherwise required by such law,
statute or rule to be applied to this Agreement, shall have no effect on this
Agreement or the parties' rights and obligations hereunder except as set forth
in Section 10(a) hereof.
(b) Nonexclusivity. The indemnification and the payment of Expense
--------------
Advances provided by this Agreement shall be in addition to any rights to which
Indemnitee may be entitled under the Company's Certificate of Incorporation, its
Bylaws, any other agreement, any vote of stockholders or disinterested
directors, the General Corporation Law of the State of Delaware, or otherwise.
The indemnification and the payment of Expense Advances provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under this
--------------------------
Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
7. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
----------------------
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement, the
----------
Company shall not be obligated pursuant to the terms of this Agreement:
<PAGE>
(a) Excluded Action or Omissions. To indemnify Indemnitee for
----------------------------
Expenses resulting from acts, omissions or transactions for which Indemnitee is
prohibited from receiving indemnification under this Agreement or applicable
law; provided, however, that notwithstanding any limitation set forth in this
Section 10(a) regarding the Company's obligation to provide indemnification,
Indemnitee shall be entitled under Section 3 to receive Expense Advances
hereunder with respect to any such Claim unless and until a court having
jurisdiction over the Claim shall have made a final judicial determination (as
to which all rights of appeal therefrom have been exhausted or lapsed) that
Indemnitee has engaged in acts, omissions or transactions for which Indemnitee
is prohibited from receiving indemnification under this Agreement or applicable
law.
(b) Claims Initiated by Indemnitee. To indemnify or make Expense
------------------------------
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification or insurance recovery, as the case may be.
(c) Lack of Good Faith. To indemnify Indemnitee for any Expenses
------------------
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this Agreement, if a court having jurisdiction
over such action determines as provided in Section 13 that each of the material
defenses asserted by Indemnitee in such action was made in bad faith or was
frivolous.
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute; provided, however, that
notwithstanding any limitation set forth in this Section 10(d) regarding the
Company's obligation to provide indemnification, Indemnitee shall be entitled
under Section 3 to receive Expense Advances hereunder with respect to any such
Claim unless and until a court having jurisdiction over the Claim shall have
made a final judicial determination (as to which all rights of appeal therefrom
have been exhausted or lapsed) that Indemnitee has violated said statute.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or
<PAGE>
indirect, and whether by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business or assets of the
Company, by written agreement in form and substance satisfactory to Indemnitee,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform if no such
succession had taken place. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as a director, officer, employee, agent
or fiduciary (as applicable) of the Company or of any other enterprise at the
Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
------------------------------------------------------
Interpretation. In the event that any action is instituted by Indemnitee under
- --------------
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including without limitation attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee in defense of such action
(including without limitation costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action a court having jurisdiction over such action makes a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or lapsed) that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous; provided, however, that
until such final judicial determination is made, Indemnitee shall be entitled
under Section 3 to receive payment of Expense Advances hereunder with respect to
such action.
14. Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable
------------
in the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the
<PAGE>
remaining provisions shall remain enforceable to the fullest extent permitted by
law. Furthermore, to the fullest extent possible, the provisions of this
Agreement (including without limitation each portion of this Agreement
containing any provision held to be invalid, void or otherwise unenforceable,
that is not itself invalid, void or unenforceable) shall be construed so as to
give effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. Choice of Law. This Agreement, and all rights, remedies,
-------------
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to principles of conflicts of laws.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No waiver, amendment, modification,
-------------------------
termination or cancellation of this Agreement shall be effective unless it is in
writing signed by both the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
[Execution Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement as of the date first above written.
ANDROMEDIA, INC.
By: ____________________________
Name: __________________________
Title: _________________________
Address: Andromedia, Inc.
818 Mission Street
Second Floor
San Francisco, CA 94103
AGREED TO AND ACCEPTED
________________________________
(Signature)
________________________________
(Print Name)
<PAGE>
EXHIBIT 10.7
PATRICK & CO., INC.
a California corporation
and
ANDROMEDIA, INC.
a California corporation
SUBLEASE AGREEMENT
Dated
August 12, 1999
<PAGE>
SUBLEASE
<TABLE>
<CAPTION>
Table of Contents
Recitals Page
----
<S> <C> <C>
Section 1. Sublease................................................................ 1
Section 2. Warranty by Sublandlord................................................. 2
Section 3. Term.................................................................... 2
Section 4. Rent.................................................................... 3
Section 5. Security Deposit........................................................ 5
Section 6. Use of Premises......................................................... 6
Section 7. Utilities and Janitorial Services....................................... 6
Section 8. Services................................................................ 7
Section 9. Repairs and Maintenance................................................. 8
Section 10. Assignment and Subletting............................................... 9
Section 11. Other Provisions of Sublease............................................ 12
Section 12. Attorney Fees........................................................... 13
Section 13. Broker.................................................................. 13
Section 14. Notices................................................................. 13
Section 15. Successors and Assigns.................................................. 13
Section 16. Attornment.............................................................. 13
Section 17. Entry................................................................... 13
Section 18. Late Charge and Interest................................................ 14
Section 19. Improvements............................................................ 14
Section 20. Option To Extend Term................................................... 14
Section 21. Determination of Minimum Rent for Extension Option...................... 15
Section 22. Sale by Master Landlord to Sublandlord.................................. 16
Section 23. Quiet Enjoyment......................................................... 16
Section 24. Entire Agreement........................................................ 16
Section 25. Time of Essence......................................................... 16
Section 26. Governing Law........................................................... 16
Section 27. Offer................................................................... 16
Section 28. Further Assurances...................................................... 17
</TABLE>
Schedule of Exhibits
Exhibit A: Master Lease
Exhibit B: Premises
Exhibit C: Work Letter
C-1: Base Building Improvements
Exhibit D: Commencement Date Memorandum
Exhibit W: Warrant
<PAGE>
SUBLEASE
This Sublease ("Sublease") dated for reference purposes as of August 12,
1999, is made between PATRICK & CO. INC., a California corporation
("Sublandlord"), and ANDROMEDIA, INC., a California corporation ("Subtenant").
RECITALS
A. Sublandlord is the tenant under that certain Amended and Restated
Standard Industrial/Commercial Single-Tenant Lease -- Net dated as of September
30, 1998 ("Original Master Lease"), pursuant to which 611 Mission LLC, a
California limited liability company ("Master Landlord") leased to Sublandlord
real property including an approximately 38,500 rentable square foot building
("Building") located in the City and County of San Francisco, State of
California, described as 611 Mission Street ("Master Premises").
B. The original Master Lease has been amended by an Addendum dated June
17, 1999. The Original Master Lease, together with the addendum, are
collectively referred to as the "Master Lease."
C. A copy of the Master Lease with certain confidential information
having been omitted is attached and incorporated in this Sublease as Exhibit A.
D. Master Landlord holds and intends to exercise an option to purchase
the Master Premises during the term of this Sublease.
Section 1. Sublease.
--------
(a) Premises. Sublandlord subleases to Subtenant on the terms and
--------
conditions in this Sublease the following portion of the Master Premises
("Premises"): approximately 27,500 rentable square feet consisting of the third
(3rd) through seventh (7th) floors of the Building shown in the floor plans
attached as Exhibit B. The Rentable Area within the Premises shall be
determined by Sublandlord's Architect as of the Commencement Date and provided
to Subtenant in writing (including the detail of Sublandlord's Architect's
calculations) within ten (10) days of the Commencement Date. The term "Rentable
Area" shall mean the floor area with measurements determined in accordance with
Building Owners and Managers Association International adopted Standard Method
for Measuring Floor Area in Office Buildings, ANSI/BOMA Z65.1-1996. In the
event the Premises Rentable Area or Building Rentable Area differ from the
approximate Rentable Area specified in the Recitals above, the Rent, Security
Deposit, Subtenant's Share, Subtenant Improvement Allowance, and all other
figures calculated from the Rentable Area provided for under this Sublease,
shall be adjusted by Sublandlord to reflect the Rentable Area calculated by
Sublandlord's Architect following the Commencement Date which amounts shall be
memorialized between the parties in a Commencement Date Memorandum (defined
below) executed by Sublandlord and Subtenant.
<PAGE>
(b) Common Areas. In addition to the Premises, Sublandlord grants to
------------
Subtenant a non-exclusive license, irrevocable for the term of this Sublease,
for use of the common stairways, hallways, lobby areas, and elevators located
within the Building but specifically excluding the premises of other tenants of
the Building ("Common Areas") with Sublandlord and other tenants of the Building
and their invitees, contractors, agents and employees. Sublandlord reserves the
right to modify the size, location and/or configuration of all or any portion
the Common Areas provided such modification does not materially and adversely
interfere Subtenant's use of the Premises as permitted under this Sublease. The
use of the Common Areas shall at all times be subject to all reasonable, uniform
and non-discriminatory applicable laws and the rules and regulations adopted by
Sublandlord from time to time.
Section 2. Warranty by Sublandlord. Sublandlord warrants to Subtenant
-----------------------
that: (i) the copy of the Master Lease attached hereto is a true, complete and
correct copy thereof; (ii) the Master Lease has not been amended or modified
except as expressly set forth in the Recitals to this Sublease; (iii) that
Sublandlord is not now, and as of the commencement of the Term (defined in this
Sublease) of this Sublease will not be, in default or breach of any of the
provisions of the Master Lease; (iv) that Sublandlord has no knowledge of any
claim by Master Landlord that Sublandlord is in default or breach of any of the
provisions of the Master Lease; and (v) to Subtenant's knowledge Master Landlord
is not in breach or default of any of its obligations under the Master Lease.
Section 3. Term. The term of this Sublease (the "Term") will commence
----
(the "Commencement Date"), on the later to occur of the Substantial Completion
of the Subtenant Improvements (as defined in the Work Letter attached as Exhibit
C; or November 30, 1999 (the "Estimated Commencement Date") and shall end on the
last day of the sixtieth (60th) full calendar month thereafter ("Termination
Date"), unless extended or terminated sooner in accordance with the provisions
of this Sublease. If the Commencement Date occurs on a date other than the
Estimated Commencement Date, Sublandlord and Subtenant shall execute a
memorandum setting forth the actual date of commencement of the Term
substantially in the form of attached Exhibit D (the "Commencement Date
Memorandum"). For purposes of this Sublease, a "Lease Year" will constitute the
twelve month period following the first day of the first calendar month
following the Commencement Date or anniversary of the Commencement Date
throughout the Lease Term. Possession of the Premises ("Possession") will be
delivered to Subtenant upon Substantial Completion of the Improvements in the
Premises (as defined in the Work Letter). If for any reason Sublandlord does not
deliver Possession to Subtenant on or before the Estimated Commencement Date,
Sublandlord will not be subject to any liability for this failure and the
validity of this Sublease will not be impaired. Rent will be abated until
delivery of Possession. However, if Sublandlord has not delivered Possession to
Subtenant on or before May 15, 2000, at any time after that and before delivery
of Possession, Subtenant may give written notice to Sublandlord of Subtenant's
intention to cancel this Sublease. The notice will set forth an effective date
for the cancellation, which will be at least fifteen (15) days after delivery of
notice to Sublandlord. If Sublandlord delivers Possession to Subtenant on or
before this effective date, this Sublease will remain in full force. If
Sublandlord fails to deliver Possession to Subtenant on or before this effective
date, this Sublease will be canceled. Upon cancellation, all consideration
previously paid by Subtenant to Sublandlord on account of this Sublease will be
returned to Subtenant, this Sublease will have no further force, and
-2-
<PAGE>
Sublandlord will have no further liability to Subtenant because of this delay or
cancellation. If Sublandlord permits Subtenant to take Possession prior to the
Commencement Date, the early Possession will not advance the Termination Date
and will be subject to the provisions of this Sublease, and Section 3.2 of the
Master Lease.
Section 4. Rent. All monetary obligations of Subtenant to Sublandlord
----
under the terms of this Sublease (except for the Security Deposit) are deemed to
be rent ("Rent").
(a) Minimum Rent. Subtenant will pay to Sublandlord as minimum rent
------------
("Minimum Rent"), without deduction, setoff, notice, or demand, at 563 Mission
Street, San Francisco, 94105 or at any other place Sublandlord designates by
notice to Subtenant, the sum per month, in advance of the first day of each
month of the Term in the following amounts per Lease Year:
<TABLE>
<S> <C>
Lease Year 1 (plus any partial month at Term commencement)..................... $80,208 per month
Lease Year 2................................................................... $82,500 per month
Lease Year 3................................................................... $84,792 per month
Lease Year 4................................................................... $89,375 per month
Lease Year 5................................................................... $93,958 per month
</TABLE>
Subtenant will pay to Sublandlord on execution of this Sublease the sum of
Four Hundred Eighty-one Thousand Two Hundred Forty Eight Dollars ($481,248) to
be applied as a credit against the initial installments of Minimum Rent due
hereunder, it being understood that if this Sublease is terminated for any
reason, (other than Subtenant Breach in which case unapplied pre-paid Rent shall
be added to the Security Deposit), before the full amount of such credits has
been applied to accrued Rent, then any such amounts not applied to Rent or other
monetary obligations then due Sublandlord from Subtenant under the terms of this
Sublease, shall be promptly returned by Sublandlord to Subtenant. If the Term
begins or ends on a day other than the first or last day of a month, the rent
for the partial months will be prorated on a per diem basis. In the event the
Rentable Area of the Premises determined pursuant to Section 2 above differs
from the Rentable Area stated in the Recitals, the Minimum Rent shall be
adjusted to the restated Rentable Area in the following amounts per Lease Year:
<TABLE>
<S> <C>
Lease Year 1 (plus any partial month at Term commencement).................... $35 per rentable square foot per month
Lease Year 2.................................................................. $36 per rentable square foot per month
Lease Year 3.................................................................. $37 per rentable square foot per month
Lease Year 4.................................................................. $39 per rentable square foot per month
Lease Year 5.................................................................. $41 per rentable square foot month
</TABLE>
which amounts shall be memorialized between the parties in the Commencement Date
Memorandum (defined above) executed by Sublandlord and Subtenant.
(b) Operating Expenses.
------------------
(i) Building Operating Expenses. The Master Lease requires
Sublandlord to pay to Master Landlord certain of the expenses of operating the
Building of which the Premises are a part (collectively, "Building Operating
Expenses"), including, but not limited to, taxes (Section 10),
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<PAGE>
utilities (Section 11), and insurance (Section 8). Subtenant will pay to
Sublandlord as additional rent Sixty-two and one half percent (62.5%) (subject
to adjustment pursuant to Section 1) ("Subtenant's Share") of the increase in
amounts payable by Sublandlord for Building Operating Expenses incurred during
the Term to the extent such costs exceed Building Operating Expenses paid by
Sublandlord for the 2000 calendar base year (the "Base Year"). Supplemental
property tax assessments shall be attributed to the calendar year in which the
event triggering the re-assessment occurs rather than in the calendar year in
which the property tax bill is actually received by Sublandlord.
(ii) Master Premises Operating Expenses. In addition to the Building
Operating Expenses, Subtenant shall pay as additional Rent hereunder,
Subtenant's Share of the increase of Master Premises Operating Expenses incurred
by Sublandlord in the maintenance and operation of the Master Premises over the
Master Premises Operating Expenses for the Base Year. For purposes of this
Sublease, Master Premises Operating Expenses shall include: (a) all costs of
management, operation, and maintenance of the Building, including without
limitation: wages, salaries, and payroll burden of employees to the extent
related to the management, operation and maintenance of the Building; property
management fees and other related compensation in a reasonable and customary
amount for similarly situated Buildings; maintenance, security, and other
services including janitorial services for common areas of the Building; power,
water, waste disposal, and other utilities shared in common by Subtenant and all
other occupants of the Master Premises; materials and supplies; maintenance and
repairs including Building systems; license costs; insurance premiums and the
deductible portion of any insured loss under Sublandlord's insurance maintained
by Sublandlord but not required under the Master Lease; and depreciation on
personal property; and (b) the cost of any capital improvements made to the
Building by Sublandlord after the Base Year that (i) are made in the reasonable
expectation of reducing other Operating Expenses during the term of this
Sublease (provided that the annual amortized costs do not exceed the actual cost
savings realized and such savings do not primarily benefit any particular
occupant of the Master Premises other than Subtenant), (ii) are required for the
health and safety of tenants, or (iii) are required under any governmental law
or regulation that was not applicable to the Building at the Commencement Date,
this cost to be amortized over the reasonable useful life of such improvement as
reasonably determined by Lessor (which may be the Term for any such improvement
required due to Tenant's unique use, alteration or improvement of the Premises),
together with interest on the unamortized balance at the rate of ten percent
(10%) per annum, or a higher rate equal to that paid by Sublandlord on funds
borrowed for the purpose of constructing or installing those capital
improvements. Master Premises Operating Expenses shall not include; (i) any
Building Operating Expenses; (ii) costs occasioned by casualties or by the
exercise of the power of eminent domain reimbursed by insurance or condemnation
award; (iii) increases in insurance costs caused by the activities of another
occupant of the Master Premises; (iv) costs of structural repairs to the
Premises or Master Premises, including the roof, the exterior load bearing
walls, footings, foundation and structural floors; and (v) costs for which
Sublandlord is reimbursed by its insurance carrier, Master Landlord or any other
third party.
(iii) Building Operating Expenses and Master Premises Operating
Expenses shall collectively be referred to herein as "Operating Expenses".
Component expenses of actual Operating Expenses that are affected by variations
in occupancy levels for both the Base Year and
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<PAGE>
each subsequent calendar year shall be "grossed up" to equal that amount of
Operating Expenses that, using Sublandlord's reasonable projections, would
normally be expected to be incurred during the Base Year or subsequent calendar
year had the total Rentable Area of the Building been occupied. If, during any
calendar following the Base Year, insurance costs incurred by Sublandlord are
increased or reduced because of the inclusion or removal of earthquake or flood
insurance coverage in Building insurance policies, Base Year Operating Expenses
shall be likewise increased or reduced in order to calculate Subtenant's share
of any increase on Operating Expenses during the year in which such change of
insurance coverage occurred.
(iv) The payment by Subtenant of Operating Expenses shall be on the
basis of an estimate delivered to Subtenant prior to the expiration of each
calendar year, or as soon as reasonably possible thereafter and subject to re-
adjustment during the year. Within ninety (90) days following each calendar
year, or as soon as reasonably possible thereafter, Sublandlord shall provide
Subtenant with an accounting of actual Operating Expenses and statement of
required adjustment between estimated and actual Operating Expenses. Any
overpayment of Operating Expenses by Subtenant shall be credited toward
estimated Operating Expenses for the following calendar year and any
underpayment shall be paid by Subtenant to Sublandlord within thirty days of
receipt of such statement from Sublandlord. If this adjustment occurs after the
expiration or earlier termination of the Term, the obligations of Sublandlord
and Subtenant under this Subsection will survive this expiration or termination
and any overpayment by Subtenant shall be refunded.
(v) If Subtenant disputes the amount of Operating Expenses stated in
the statement, Subtenant may designate, within thirty (30) days after receipt of
that statement, an independent certified public accountant to inspect
Sublandlord's records. Subtenant is not entitled to request that inspection,
however, if Subtenant is then in Default under this Sublease. The accountant
must be a member of a nationally recognized accounting firm and must not charge
a fee based on the amount of Operating Expenses that the accountant is able to
save Subtenant by the inspection. Subtenant must give reasonable notice to
Sublandlord of the request for inspection, and the inspection must be conducted
in Sublandlord's offices at a reasonable time or times. If, after that
inspection, Subtenant still disputes the Operating Expenses, a certification of
the proper amount shall be made, at Subtenant's expense, by Sublandlord's
independent certified public accountant. That certification shall be final and
conclusive. If Subtenant discovers an excess of five percent (5%) or greater in
the Operating Expenses charged to Subtenant, then in addition to such
discrepancy amount Sublandlord shall pay the cost of Sublandlord's accountant's
certification and Subtenant's accountant's review within thirty (30) days of
such certification.
(c) Warrant. Upon Sublandlord's and Subtenant's execution and delivery
-------
of this Sublease, Subtenant will deliver to Sublandlord (or Sublandlord's
designee(s), a warrant or warrants (the "Warrant") in the form of Exhibit W
attached hereto and made a part hereof for the purchase of up to thirty thousand
(30,000) shares of the common stock of Subtenant at a price per share equal to
Fifteen Dollars ($15.00) to expire, if not earlier exercised, two (2) years from
the date hereof. As provided in the Warrant, Sublandlord's rights under the
Warrant shall vest only if and when the Commencement Date shall have occurred.
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<PAGE>
Section 5. Security Deposit. As security for Subtenant's faithful
performance of Subtenant's obligations under this Sublease ("Security Deposit")
Subtenant agrees that, on or before the execution of this Sublease, Subtenant
shall deposit with Sublandlord and maintain throughout the Sublease Term (except
as provided below) cash or an irrevocable letter of credit, or a combination of
both, in the total amount of One Million Dollar ($1,000,000). Any such letter of
credit shall be in form and substance and issued by a bank reasonably acceptable
to Sublandlord and Sublandlord's lender and naming Sublandlord (and, if
required, Sublandlord's lender holding the first lien against the Property) as
beneficiary (the "Letter of Credit"). The Letter of Credit will secure the full
and faithful performance of each provision of this Sublease to be performed by
Subtenant. If Subtenant is in Breach of any of Subtenant's obligations under
this Sublease, Sublandlord shall have the absolute right to: (i) first exhaust
any cash portion of the Security Deposit to cure Subtenant's Breach and if the
cash portion of the Security Deposit insufficient to complete any such cure,
then (ii) draw down the full amount of the Letter of Credit on Sublandlord's
sworn statement of the Subtenant Breach. The draw down shall be added to and
increase the amount of the Security Deposit retained by Sublandlord and
thereafter required under this Section 5. If Sublandlord does apply the Security
Deposit, as increased by the Letter of Credit amount, Subtenant must within ten
(10) days written demand replenish the Security Deposit to the amount of the
Security Deposit then required hereunder. On each anniversary of the
Commencement Date, the amount of the Security Deposit may be reduced by Two
Hundred Thousand Dollars ($200,000) upon Subtenant's written request, provided
such request confirms to Sublandlord in Sublandlord's reasonable discretion,
with such evidence as Sublandlord may reasonably require, that: (a) Subtenant
has not been in Breach of this Sublease during the previous twelve-month period;
and (b) there are no uncured monetary nor material non-monetary Defaults under
the Sublease for which Subtenant has received notice. In all other respects not
inconsistent with this Section 5, the Security Deposit shall be governed by the
provisions of the Master Lease.
Section 6. Use of Premises. The Premises will be used and occupied for the
---------------
Agreed Use provided under the Master Lease only and for no other use.
Subtenant's use shall at all time be reasonably compatible with the permitted
use of the Building by Sublandlord and other tenants of the Building. Subtenant
shall not allow the Premises to be used for any unlawful purpose, nor shall
Subtenant cause, maintain or permit any nuisance, either private or public, in,
on or about the Premises.
Section 7. Utilities and Janitorial Service. Subtenant shall obtain and
--------------------------------
maintain service contracts for all utilities that are separately metered to the
Premises and for janitorial services required for Subtenant's use and operation
of the Premises. Sublandlord reserves the right to disapprove any service
provider selected by Subtenant who, in Sublandlord's reasonable judgment,
creates unnecessary risk or disharmony to the efficient maintenance and
operation of the Building. Subtenant shall pay promptly (as the same becomes
due) directly to the entity or authority providing and/or billing the same (or
reimburse the entity paying for the same, as the case nay be), all charges for
electricity, telephone, telex and other electronic communication service, waste
and refuse collection, and any other utilities, materials, or services furnished
directly and exclusively, for the benefit of, and/or used by Subtenant on or
about the Premises during the Term, including, without limitation, any charges
imposed after the Term commences. In the event such charges also apply
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<PAGE>
jointly to other tenant(s) of Sublandlord where there is a common meter or
common usage with other tenant(s), such charges shall be allocated to the
Premises by square footage as reasonably calculated and determined solely by
Sublandlord and charged as a Master Premises Operating Expense. In no event
shall Sublandlord be liable for billings, payment, advancement of money for
payment, or reimbursement to others for or with respect to any of the above
services, materials, or charges contracted for by Subtenant or directly
attributable to Subtenant's use of the Premises, and Subtenant shall not be
entitled to any abatement or reduction of Rent nor any rights of constructive
eviction or termination by reason of any interruption or failure of utilities,
material, or services to the Premises during the Term, except and to the extent
that such interruption or failure of utilities, material, or services to the
Premises exceeds seven consecutive days and results from the active gross
negligence or willful misconduct of Sublandlord or any of Sublandlord's
constituent members, partners, agents, or employees.
Section 8. Services.
---------
(a) Sublandlord shall maintain the public and Common Areas of the Building,
including, windows, the mechanical, plumbing, and electrical equipment serving
the Building, and the structure itself (to the extent not required of Master
Landlord), in reasonably good order and condition so as to meet the reasonable
needs of Subtenant, except for damage caused by the Subtenant (excluding normal
wear and tear) . Damage by Subtenant shall be repaired by Sublandlord (or as
required by Master Landlord under the Master Lease) at Subtenant's expense,
except to the extent paid for by the proceeds of available property insurance
carried or required to be carried by Sublandlord under the terms of this
Sublease or Master Landlord under the terms of the Master Lease. The standard of
maintenance shall be equal to that of other office buildings of a similar class
south of Market Street in downtown San Francisco.
(b) Sublandlord shall furnish (i) electricity (at Subtenant's cost) to
power panels located on each floor; (ii) heat and air conditioning, to the
extent reasonably required for the comfortable occupancy by Subtenant in
Subtenants use of the Premises during the period from 7:00 a m. to 6:00 p.m.
on weekdays and from 7:00 a.m. to 12:00 p.m. on Saturdays, except holidays, or a
shorter period as may be prescribed by applicable policies or regulations
adopted by any utility or governmental agency, (iii) elevator service, (iv)
lighting replacement, for building standard lights, (v) restroom supplies, (vi)
window washing with reasonable frequency, (vii) water for the restrooms and
Subtenant supplied kitchen areas. Sublandlord may establish reasonable measures
to conserve energy and water, including but not limited to, automatic light shut
off after hours and efficient lighting forms, so long as these measures do not
unreasonably interfere with Subtenant's use of the Premises.
(c) Sublandlord shall not be in default under this Sublease, nor be liable
for any damages resulting from, nor shall the required rental be abated because
of (i) the installation, use, or interruption of use of any equipment in
connection with furnishing the previously listed services, (ii) failure to
furnish or delay in furnishing these services, when failure or delay is caused
by accident or conditions beyond the reasonable control of Sublandlord or by
necessary repairs or improvements to the Premises or to the Building, or (iii)
the limitation, curtailment, rationing, or
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<PAGE>
restrictions on use of water, electricity, gas, or any other form of energy
serving the Premises or the Building. Sublandlord shall use reasonable efforts
to diligently remedy interruptions in the furnishing of these services.
(d) If heat-generating equipment or lighting, other than building standard
lights, are installed or used in the Premises, and this equipment or lighting
affects the temperature otherwise maintained by the air conditioning system, or
if equipment is installed in the Premises that requires a separate temperature
controlled room, on Subtenant's request or at Sublandlord's election after
notice to Subtenant, Sublandlord shall install supplementary air conditioning
facilities in the Premises or shall modify the ventilating and air conditioning
system serving the Premises. The capital and maintenance costs of these
facilities and modifications shall be borne by Subtenant. However, if Subtenant
objects to the proposed installation of supplementary air conditioning
facilities or the modification of the ventilating and air conditioning system,
Sublandlord shall not make the installation or modification, but Sublandlord
shall be relieved of obligations under Section 8(b) of this Sublease to the
extent that comfortable occupancy of the Promises cannot be provided without the
installation or modification.
(e) On ten (10) business days' receipt of a bill, Subtenant shall
reimburse Sublandlord for the cost of (i) all heat or air conditioning provided
to the Premises during hours requested by Subtenant when those services are not
otherwise furnished by Sublandlord, and (ii) all power and cooling energy
provided for supplementary air conditioning facilities in the Premises.
Subtenant shall also pay the cost of any transformers, additional risers, panel
boards, and other facilities, if reasonably required to furnish power for
supplementary air conditioning facilities in the Premises. The cost of item (i)
shall be a per hour charge, reflecting the electrical energy, labor, and fixed
plant costs (excluding depreciation) of running the heating and air conditioning
system.
(f) In the event that Sublandlord, at Subtenants request, provides
services to Subtenant that are not otherwise provided for in this Sublease,
Subtenant shall pay Sublandlord's reasonable charges for these services on
billing of Sublandlord.
Section 9. Repairs and Maintenance.
-----------------------
(a) Subtenant shall, at Subtenant's sole expense, keep and maintain the
Premises, including, without limitation, interior walls, all windows (interior),
window frames, plumbing fixtures within the Premises (such as water and drain
lines, sinks, toilets, faucets, drains, showers, and water fountains; but
excluding bathroom plumbing), electrical fixtures within the Premises (such as
conduits outlets, and lighting fixtures, including lamps, bulbs, tubes, and
ballasts), interior surfaces of the Premises, latches, locks, skylights (if
any), and fire extinguishing equipment within the Premises, and all other
interior improvements installed by or on behalf of Subtenant that are part of
the Premises and are not required to be maintained by Sublandlord pursuant to
Section 9(e). Subtenant will keep such items in good and clean condition and
repair, including, without limitation, through a janitorial service contract
(reasonably approved by Sublandlord), and by replacing such items as needed, and
deliver to Sublandlord physical possession of the Premises at the termination of
this Sublease or any sooner expiration thereof, in good condition and repair,
reasonable wear and tear excepted. All repairs and replacements required of
Subtenant shall be promptly made with new
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<PAGE>
materials of like kind and quality. If the work affects the structural elements
of the Premises or if the estimated cost of any item of repair or replacement is
in excess of One Thousand Dollars ($1,000), Subtenant shall first obtain
Sublandlord's written approval of the scope of the work, the plans for the work,
the materials to be used, and the contractor hired to perform the work. At
Sublandlord's election, such maintenance responsibilities and charges shall be
performed by Sublandlord and Subtenant shall reimburse Sublandlord as additional
rent the cost of such maintenance responsibilities and charges.
(b) Subject to reimbursement pursuant to Section 4(b) Sublandlord shall
maintain for the Building, with licensed repair and maintenance contractors: (i)
a service contract for the maintenance of all heating, air conditioning, and
ventilation equipment and (ii) a service contract for the maintenance of fire
alarm and sprinkler systems. The HVAC contract shall provide for periodic
inspections and servicing of the heating, air conditioning, and ventilation
equipment at least once every ninety (90) days during the Term of the Sublease.
(c) If at any time during the Term, including renewals or extensions
thereof, Subtenant fails to maintain the Premises, make any repairs or
replacements as required by this Section, Sublandlord shall have the right to,
but shall not be required to, enter the Premises and perform the maintenance or
make the repairs or replacements or enter into appropriate service contracts, as
the case may be. Any sums expended by Sublandlord in so doing, together with
interest at the lesser of ten percent (10%) per annum or the highest rate
allowed by law, shall be deemed additional rent and shall be due from Subtenant
promptly on demand of Sublandlord.
(d) Subtenant waives the provisions of Civil Code 1941 and 1942 and any
other law that would require Sublandlord to maintain the Premises in a
tenantable condition or would provide Subtenant with the right to make repairs
and deduct the cost of those repairs from the rent.
(e) Subject to reimbursement pursuant to Section 4(b), and Master
Landlord's obligations under the Master Lease, Sublandlord shall maintain the
Common Areas, Building foundation, the exterior wall structure, and the roof,
load-bearing portions of interior walls of the Building, (excluding wall
coverings, painting, glass, and doors), Building systems (HVAC, water, sewer,
electrical and plumbing) and bathroom and Building main plumbing repairs (but
excluding repairs required due to Subtenant's misuse of facilities which may be
completed by Sublandlord at Subtenant's expense, except to the extent paid for
by the proceeds of available property insurance carried or required to be
carried by Sublandlord under the terms of this Sublease or Master Landlord under
the terms of the Master Lease). Except as set forth in Exhibit C, Sublandlord
will not be required to make any, and Subtenant shall be responsible for the
cost of, any repair resulting from: any Alteration or modification to the
Building or to mechanical equipment within the Building performed by, for, or
because of Subtenant or to special equipment or systems installed by, for, or
because of Subtenant; the installation, use, or operation of Subtenant's
property, fixtures, and equipment; the moving of Subtenant's property in or out
of the Building or in and about the Premises; Subtenant's use or occupancy of
the Premises in violation of Section 6 of this Sublease or in the manner not
contemplated by the parties at the time of the execution of this Sublease; the
acts or omissions of Subtenant and Subtenant's employees, agents, invitees,
subtenants, licensees, or
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<PAGE>
contractors; fire and other casualty, except as provided by this Sublease.
Sublandlord shall have no obligation to make repairs under this Section until a
reasonable time after receipt of written notice from Subtenant of the need for
repairs. Subtenant waives any right to repair at the expense Of Sublandlord
under any applicable governmental laws, ordinances, statutes, orders, or
regulations now or later in effect. If Sublandlord's obligations under this
Section would result in capital repairs or improvements to the Premises, such
costs shall be amortized in accordance with Section 4(b)(ii)(b).
Section 10. Assignment and Subletting.
-------------------------
(a) Subtenant shall not assign or hypothecate this Sublease or any interest
herein (by operation of law or otherwise), shall not sublet the Premises or any
part thereof, or permit the use of the Premises by any party other than
Subtenant, shall not mortgage or encumber the Sublease (or otherwise use the
Sublease as a security device) in any manner and shall not materially amend or
modify an assignment, sublease, or other Transfer that has been previously
approved by Sublandlord (each a Transfer) without the prior written consent of
Sublandlord which shall not be unreasonably withheld. If Subtenant is a
corporation, a partnership, or a limited liability company, the transfer (as a
consequence of a single transaction or any number of separate transactions) of
fifty percent (50%) or more of the beneficial ownership interest of the voting
stock of Subtenant issued and outstanding as of the date hereof (other than
stock transfers over a public exchange if Subtenant is or becomes a publicly
traded company on a nationally recognized exchange) or partnership interests in
Subtenant, or ownership interests in Subtenant, as the case may be, shall
constitute a Transfer hereunder for which such consent is required. Further,
Subtenant shall not Transfer this Sublease to any corporation which is
controlled by, or is under common control with Subtenant, or to any corporation
resulting from merger or consolidation with Subtenant, or to any person or
entity which acquires all the assets as a going concern of the business of
Subtenant that is being conducted on the Premises, without the prior written
consent of Sublandlord which shall not be unreasonably withheld. Any of the
foregoing acts without such consent shall be void, and, at the option of
Sublandlord, shall terminate this Sublease. Notwithstanding anything to the
contrary contained in this Section, provided the use of the Premises does not
change and Subtenant fully complies with the remaining provisions of this
Section, including but not limited to subsection (f) below, Subtenant may
Transfer this Sublease without first obtaining Sublandlord's consent (a
"Permitted Transfer") to: (i) an entity which controls Subtenant and has
assumed, or is deemed by law to be liable for, all of the liabilities of
Subtenant; (ii) a wholly owned subsidiary of Subtenant provided Subtenant
remains directly liable under this Sublease; or (iii) a corporation, limited
liability company, or other entity which results from a merger, consolidation,
reorganization, or asset sale with Subtenant in which the surviving entity (A)
acquires substantially all of the assets of Subtenant as a going concern, (B)
assumed, or is deemed by law to be liable for, all of the liabilities of
Subtenant, and (C) has after such merger, consolidation, reorganization, or
asset sale a net worth not less than Subtenant's net worth immediately preceding
such merger, consolidation, or other reorganization.
(b) In the event that Subtenant should desire to Transfer this Sublease,
Subtenant shall provide Sublandlord with written notice of such desire at least
thirty (30) days in advance of the effective date of such Transfer. Such notice
shall include a fully executed letter of intent between
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Subtenant and the transferee setting forth the terms of the Transfer, a current
financial statement of the proposed sublessee or assignee (covering the
preceding three (3) years, if they exist); and a processing fee of One Thousand
Dollars ($1,000). At any time within thirty (30) days following receipt of
Subtenant's notice, Sublandlord may by written notice to Subtenant elect to (i)
in Sublandlord's sole and absolute discretion terminate this Sublease as to the
space affected as of the effective date of the proposed Transfer but only in the
event Subtenant is seeking to sublet one floor or more of the Premises for more
than half of the remaining Term; (ii) consent to the proposed subletting of the
Premises or assignment of this Sublease; or (iii) disapprove of the proposed
Transfer. If Sublandlord elects to terminate this Sublease, Subtenant may,
within five (5) days of Sublandlord's election, rescind its request for the
Transfer and such termination shall not take effect. If Sublandlord does not
elect (or is not permitted) to terminate this Sublease, however, Sublandlord
shall not unreasonably withhold its consent to a proposed Transfer if Subtenant
is not in Breach under this Sublease at the time Subtenant requests such
consent. Without limiting other situations in which it may be reasonable for
Sublandlord to withhold its consent to any proposed assignment or sublease,
Sublandlord and Subtenant agree that it shall be reasonable for Sublandlord to
withhold its consent in any one or more of the following situations: (i) if, in
Sublandlord's reasonable judgment, the net worth of the proposed subtenant or
assignee is not commensurate with the obligations of Subtenant under the
proposed sublease; (ii) in Sublandlord's reasonable judgment, the business
history and reputation in the community of the proposed subtenant or assignee
does not meet the standards applied by Sublandlord; (iii) the proposed subtenant
or assignee shall be a prospective tenant or a then existing tenant of
Sublandlord; (iv) the use proposed by the proposed subtenant or assignee will
violate any lease or agreement to which Sublandlord is a party or introduce
undesirable Hazardous Substances to the Property; (v) the proposed subtenant or
assignee does not meet the qualifications applied by Sublandlord's lender having
a first lien on the Premises; (vi) or the proposed subtenant or assignee is a
governmental agency, maintains the power of eminent domain or is exempt from the
payment of ad valorem or other taxes which would prohibit Sublandlord from
collecting any amounts otherwise payable under this Sublease. In any event,
Sublandlord shall be entitled to exercise its right of termination in lieu of
consenting to a Transfer, as set forth above.
(c) Except with respect to a Permitted Transferee, Sublandlord and
Subtenant agree that fifty percent (50%) of any rent or other consideration
received or to be received by or on behalf of or for the benefit of Subtenant as
a result of any Transfer, in excess of the aggregate of (i) the Minimum Rent
which Subtenant is obligated to pay Sublandlord under this Sublease (prorated to
reflect obligations allocable to that portion of the Premises subject to such
sublease); and (ii) any leasing commissions, marketing costs or transferee
required tenant improvements to the Premises (not to exceed $10 per Rentable
square foot subleased) paid by Subtenant in connection with the entry by it
into the Transfer, amortized over the remaining months of the Sublease Term,
shall be payable to Sublandlord as additional rent under this Sublease without
affecting or reducing any other obligation of Subtenant hereunder.
Sublandlord's share of such excess rent or other consideration shall be paid
monthly by the subtenant or assignee directly to Sublandlord at the same time as
such rent or other consideration is payable to Subtenant.
(d) Regardless of Sublandlord's consent, no Transfer shall release
Subtenant of Subtenant's obligation or alter the primary liability of Subtenant
for rent and performance of all
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<PAGE>
other obligations to be performed by Subtenant hereunder. Acceptance of rent by
Sublandlord from any other person shall not be deemed to be a waiver by
Sublandlord of any provision hereof. Consent to one assignment or subletting
shall not be deemed consent to any subsequent or further Transfers. In the event
of default by any assignee or successor of Subtenant in performing any of the
terms hereof, Sublandlord may proceed directly against Subtenant without the
necessity of exhausting remedies against said assignee or successor. Sublandlord
may consent to subsequent Transfers of this Sublease or amendments or
modifications to this Sublease with assignees of Subtenant, without notifying
Subtenant, or any successor of Subtenant, and without obtaining its or their
consent thereto and such action shall not relieve Subtenant or any successor of
Subtenant of liability under this Sublease.
(e) Subtenant shall pay to Sublandlord, as an additional rent, all out of
pocket and actual costs and reasonable attorney fees incurred by Sublandlord (or
imposed on Sublandlord by its lender having a first lien on the Premises) in
connection with the evaluation, processing, or documentation of any requested
Transfer, whether or not Sublandlord's consent is granted. Sublandlord's costs
shall include the cost of any review or investigation performed by Sublandlord
or on behalf of Sublandlord of: (i) any Hazardous Substances used, stored,
released, or disposed of by the proposed subtenant or assignee, or (ii)
violations of any Applicable Requirement by the Subtenant or the proposed
subtenant or assignee.
(f) In order for any Transfer to be binding on Sublandlord, including any
Permitted Transfer, Subtenant shall deliver to Sublandlord, promptly after
execution thereof an executed copy of such sublease or assignment whereby the
sublessee or assignee shall expressly assume the obligations of Subtenant under
this Sublease. Any Transfer approved by Sublandlord shall not be effective
until Subtenant has delivered to Sublandlord an executed counterpart of the
document evidencing the Transfer in form and substance reasonably satisfactory
to Sublandlord.
(g) Any attempted Transfer without Sublandlord's consent shall constitute
a Breach. Sublandlord's consent to any one Transfer shall not constitute a
waiver of the provision of Section 7 as to any subsequent Transfer or a consent
to any subsequent Transfer. Subtenant hereby waives any right to terminate this
Sublease from the failure of Sublandlord to provide reasonable consent to any
proposed subtenant or assignee under any applicable governmental laws,
ordinances, statutes, orders, or regulations now or later in effect, waives any
and all actual, consequential or punitive damages resulting from any such
failure and agrees that Subtenant's sole remedy in such event of such failure
shall be the remedy of specific performance.
Section 11. Other Provisions of Sublease. Except as specifically modified
----------------------------
by this Sublease, the terms and provisions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublandlord were the lessor,
Subtenant the lessee, and the Premises, the Premises under this Sublease, except
for the following which are expressly not incorporated herein: Sections: 1.1
through 1.7, 1.10, 1.12 (regarding Exhibit B), 2.1 (second sentence only) 3.1,
3.3, 7.1, 7.2, 8.6 (first clause [eight words] only), 10.2(a) (third sentence
only), 11, 12, 13.4, 13.5, 15, 22, 33, 39, 40, 49 and Addendum Sections 2, 3, 4,
6, 8, 9, 10, 12, 14, 15, 17 and Exhibit B. Notwithstanding the foregoing, the
term "Lessor" in the following provisions of the Master Lease shall mean Master
-12-
<PAGE>
Landlord only (and not Sublandlord) 1.9, 8.3 and 9. Subtenant assumes and agrees
to perform the lessee's obligations under the Master Lease during the Term to
the extent that these obligations are applicable to the Premises. However, the
obligation to pay rent and operating costs to Master Landlord under the Master
Lease will be considered performed by Subtenant to the extent and in the amount
rent and operating costs are paid to Sublandlord in accordance with Section 4 of
this Sublease. Subtenant will not commit or suffer any act or omission that will
violate any of the provisions of the Master Lease. Sublandlord will exercise due
diligence in attempting to cause Master Landlord to perform its obligations
under the Master Lease for the benefit of Subtenant. If the Master Lease
terminates at the option of Master Landlord, this Sublease will terminate and
the parties will be relieved of any further liability or obligation under this
Sublease. However, if the Master Lease terminates as a result of a default or
breach by Sublandlord or Subtenant under this Sublease or the Master Lease, the
defaulting party will be liable to the non-defaulting party for the damage
suffered as a result of the termination. Regardless, if the Master Lease gives
Sublandlord any right to terminate the Master Lease in the event of Master
Landlord Default or Breach, the partial or total damage, destruction, or
condemnation of the Master Premises or the building or project of which the
Master Premises are a part, the exercise of this right by Sublandlord will not
constitute a default or breach.
Section 12. Attorney Fees.
-------------
If either party commences an action against the other in connection with
this Sublease, the prevailing party will be entitled to recover costs of suit
and reasonable attorney fees.
Section 13. Broker
------
Sublandlord and Subtenant each warrant that they have not dealt with any
real estate broker in connection with this transaction other than Collier's
International as Sublandlord's Broker and HC&M Commercial Properties as
Subtenant's Broker. Sublandlord and Subtenant each agree to indemnify, defend,
and hold the other harmless against any damages incurred as a result of the
breach of the warranty contained in this Sublease.
Section 14. Notices.
-------
All notices and demands that may be required or permitted by either
party to the other will be in writing. All notices and demands by the
Sublandlord to Subtenant will be sent by United States Mail, postage prepaid,
addressed to the Subtenant at the Premises, and to the address in this Sublease
below, or to any other place that Subtenant may from time to time designate in a
notice to the Sublandlord. All notices and demands by the Subtenant to
Sublandlord will be sent by United States Mail, postage prepaid, addressed to
the Sublandlord at the address in this Sublease, and to any other person or
place that the Sublandlord may from time to time designate in a notice to the
Subtenant.
To Sublandlord: Patrick & Co., Inc.
563 Mission Street
San Francisco, CA 94105
Attn: James Patrick
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<PAGE>
To Subtenant:
Prior to the Commencement Date Following the Commencement Date
Andromedia, Inc. Andromedia Inc.
818 Mission Street 611 Mission Street, Suite 300
San Francisco, CA 94103 San Francisco, CA 94103
Attn: Chief Financial Officer Attn: Chief Financial Officer
Section 15. Successors and Assigns.
----------------------
This Sublease will be binding on and inure to the benefit of the
parties to it, their heirs, executors, administrators, successors in interest,
and assigns.
Section 16. Attornment. If the Master Lease terminates, Subtenant will,
----------
if requested, attorn to Master Landlord and recognize Master Landlord as
Sublandlord under this Sublease. However, Subtenant's obligation to attorn to
Master Landlord will be conditioned on Subtenant's receipt of a non-disturbance
agreement.
Section 17. Entry. Sublandlord reserves the right to enter the Premises on
-----
reasonable prior notice to Subtenent to inspect the Premises or the performance
by subtentans. In an emergency, no notice will be required for entry.
Section 18. Late Charge and Interest. The late payment of any Rent will
------------------------
cause Sublandlord to incur additional costs, including the cost to maintain in
full force the Master Lease, administration and collection costs, and processing
and accounting expenses. If Sublandlord has not received any installment of Rent
within five (5) days after that amount is due, Subtenant will pay ten percent
(10%) of the delinquent amount, which is agreed to represent a reasonable
estimate of the cost incurred by Sublandlord (except on the first such
delinquency in any calendar year on which occasion Subtenant shall only pay 5%
of the delinquent amount). In addition, all delinquent amounts will bear
interest from the date the amount was due until paid in full at a rate per annum
("Applicable Interest Rate") equal to the greater of (a) five percent (5%) per
annum plus the then federal discount rate on advances to member banks in effect
at the Federal Reserve Bank of San Francisco on the 25th day of the month
preceding the date of this Sublease or (b) ten percent (10%). However, in no
event will the Applicable Interest Rate exceed the maximum interest rate
permitted by law that may be charged under these circumstances. Sublandlord and
Subtenant recognize that the damage Sublandlord will suffer in the event of
Subtenant's failure to pay this amount is difficult to ascertain and that the
late charge and interest are the best estimate of the damage that Sublandlord
will suffer. If a late charge becomes payable for any three (3) installments or
Rent within any twelve (12) month period, the Rent will automatically become
payable quarterly in advance.
Section 19. Improvements. Prior to the Commencement Date, Sublandlord
------------
shall provide to Subtenant, at Sublandlord's cost, a completed building shell
including, common lobby/entrance, HVAC system stubbed to the Premises (but not
distributed), electrical panels with 225 amps to each floor (not distributed),
restrooms (with outside walls taped and prepared for painting) elevator, data
(fiber) and phone cabling to phone cabinets (not distributed), plumbing
connections to each floor
-14-
<PAGE>
(not distributed but available in bathroom) smoothed and even floors and a light
well as more particularly shown in attached Exhibit C (the "Base Building
Improvements"). Pursuant to Exhibit C hereto, Sublandlord shall construct
Subtenant Improvements (as defined in Exhibit C for the Premises at Subtenant's
cost. Sublandlord shall contribute a tenant improvement allowance (the
"Allowance") to construct such Subtenant Improvements in the amount of $687,500
(subject to adjustment pursuant to Section 1 in the ratio of $25 per square foot
of Rentable Area) to be applied toward all expenses associated with the
construction, space planning, engineering, construction drawings, construction
management, signage and other necessary permits directly associated with the
Subtenant Improvements. Upon Subtenant's request, Sublandlord shall provide an
additional tenant improvement allowance to Subtenant of up to $412,500 (subject
to adjustment pursuant to Section 1 in the ratio of $15 per square foot of
Rentable Area) to be used for the construction of the Subtenant Improvements
which amount shall be amortized (at an annual interest rate of 10%) and repaid
to Sublandlord over the Term of the Sublease in the form of additional rent by
amendment to this Sublease pursuant to Exhibit C (Sublandlord Additional
Allowance). Under no circumstances shall the Allowance or Sublandlord Additional
Allowance be used for Subtenant's due diligence review of the Premises (or this
Sublease) nor the design, acquisition or planning costs of Subtenant's personal
property, furniture, trade fixtures or equipment.
Section 20. Options To Extend Term. (a) Subtenant shall have one option
----------------------
(the Extension Option) to extend the Term for five (5) years for the entire
Premises by giving Sublandlord prior written notice of Subtenant's election to
exercise this option not less than two hundred and ten (210) days before the
expiration of the Term. However, if there exists an uncured Default or Breach
on Subtenant's part either at the time of the exercise of any Extension Option
or at the time that any Option Period would commence, Sublandlord may cancel
Subtenants exercise of such Extension Option, in which case the Extension Option
shall be of no further force or effect and all subsequent Extension Options
shall be deemed canceled. The Extension Option shall be on all the same terms of
this Sublease provided that the Minimum Rent for each such Option Period shall
be increased in accordance with Section 21 of this Sublease.
(b) The Extension Option is personal to the named tenant herein and any
Transfer of such tenant's interest in the Sublease (other than a Permitted
Transfer), whether or not consented to by Sublandlord, shall cause such
Extension Option to terminate and be of no further force or effect.
Section 21. Determination of Minimum Rent for Extension Option. For
--------------------------------------------------
purposes of Section 20(a), Minimum Rent shall be determined as follows:
(a) Parties shall have until the later to occur of (i) fifteen (15) days
from the receipt by Sublandlord of Subtenant's notice electing to exercise an
Extension Option, or (ii) one hundred ninety-five (195) days prior to the
expiration of the initial Sublease Term to agree on the Minimum Rent for the
Option Period which shall in any case no less than the previous Minimum Rental
due for the last year of the expiring Sublease Term. If the parties agree on
the Minimum Rent for the Option Period, by such date, they shall immediately
execute an amendment to this Sublease stating
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<PAGE>
the Minimum Rent for the Option Period and memorializing the extension of the
Term in accordance with Section 20 hereof.
(b) If the parties are unable to agree upon the Minimum Rent for the
Option Period in accordance with Section 21(a), then within fourteen (14) days
after the parties fail to agree on the Minimum Rent for the Option Period, each
party at its cost and by giving notice to the other party, shall appoint a real
estate appraiser with at least five (5) years full time MAI appraisal experience
in the City and County of San Francisco, to determine the Minimum Rent for the
Option Period, and shall deliver to said appraiser as well as the other party,
such party's proposal for the Minimum Rent for the Option Period. If a party
does not appoint an appraiser within said fourteen (14) day period and the other
party has given notice of the name of its appraiser, the single appraiser
appointed shall be the sole appraiser and shall determine the Minimum Rent for
the Option Period. If an appraiser is appointed by each of the parties as
provided in this section, they shall meet promptly and attempt to set the
Minimum Rent for the Option Period, by agreeing on which party's proposal most
closely reflects the Fair Market Rental Value of the Premises for the Option
Period. If they are unable to agree within thirty (30) days after the second
appraiser has been appointed, the two appraisers shall within ten (10) days
following the end of such thirty-day period chose a third appraiser or if the
two appraisers cannot agree on a third appraiser within such ten-day period,
either of the parties to this Sublease, by giving ten (10) days notice to the
other party, can apply to the then Presiding Judge of the San Francisco Superior
Court for the appointment of a third appraiser who meets the qualifications
stated in this section. The third appraiser, however, shall be a person who has
not previously acted in any capacity for either party during the prior three
years. Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall determine which party's proposal more closely
reflects the Fair Market Rental Value of the Premises for the Option Period.
The party whose proposal is not selected shall bear the cost of appointing the
third appraiser together with such third appraiser's fee. As used herein, Fair
Market Rental Value shall mean the then prevailing annual rental rate per square
foot of rentable area for office space in comparable buildings and with
comparable tenant improvements, in the south of Market Street area in downtown
San Francisco, for the renewal of tenant designed premises which have been
recently improved for tenant occupancy similar to the Premises, comparable in
area and location to the space for which such rental rate is being determined
(to the extent that quoted rental rates vary with regard to location), being
leased for a duration comparable to the term for which such space is being
leased and taking into consideration rental concessions and abatements, tenant
improvement allowances, and renewal commissions, if any, being offered by
Sublandlord, the present condition of the space, operating expenses and taxes,
other adjustments to basic rent and other comparable factors to lease renewal,
but excluding any adjustments for brokerage commissions, pre-occupancy
construction period rent allowances, moving allowances or other concessions
offered in the market for new space leases.
(c) After the appraisers determine which party's proposal more closely
reflects the Fair Market Rental Value of the Premises for the Option Period, the
appraisers shall immediately notify the parties and the parties of their
findings and the parties shall immediately execute an amendment to this Sublease
stating the Minimum Rent for the Option Period, which in any case shall be no
less than the previous Minimum Rental due for the last year of the expiring
Sublease Term, and which amendment shall memorialize the extension of the Term
in accordance with Section 20 hereof.
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<PAGE>
Section 22. Sale by Master Landlord to Sublandlord. In the event of a
----------
sale or conveyance of all of the Master Landlord's right title and interest in
the Master Premises to Sublandlord, Subtenant agrees to look solely to
Sublandlord as the successor in interest of Master Landlord in and to the
Building and this Sublease and this Sublease shall continue in full force and
effect as a direct lease between Sublandlord and Subtenant upon all of the
terms, covenants and conditions of the Sublease. Tenant agrees to attorn to
Sublandlord as the successor in interest of Master Landlord and to execute such
amendments or modifications to this Sublease, or restatement of this Sublease as
a lease, as may reasonably be required by Sublandlord to effect such transfer.
Section 23. Quiet Enjoyment. Subtenant shall peacefully have, hold and
---------------
enjoy the Premises, subject to the terms and conditions of this Sublease,
provided that Subtenant pays all rent and performs all of Subtenant's covenants
and agreements contained herein.
Section 24. Entire Agreement. This Sublease sets forth all the agreements
----------------
between Sublandlord and Subtenant concerning the Premises, and there are no
other agreements either oral or written other than as set forth in this
Sublease.
Section 25. Time of Essence. Time is of the essence in this Sublease.
---------------
Section 26. Governing Law. This Sublease will be governed by and
-------------
construed in accordance with California law.
Section 27. Offer. Preparation of this Sublease by Sublandlord or
-----
Sublandlord's agent and submission to Subtenant shall not be deemed an offer to
lease. This Sublease shall become binding on Sublandlord and Subtenant only when
fully executed by Sublandlord.
Section 28. Further Assurances. In addition to the actions specifically
------------------
mentioned in this Sublease, the parties shall each do whatever may be reasonably
necessary to accomplish the transactions contemplated in this Sublease
including, without limitation, execution of all applications, permits and
approvals required for construction of the Improvements; cooperation in
obtaining Subordination, Non-disturbance and Attornment Agreements from holders
of senior encumbrances on the Property, execution of a mutual waiver of
subrogation of property insurance claims between Subtenant and Master Landlord
and cooperation in completing Subtenant's Y2K compliance audit (at Subtenant's
expense) of the Building and Building Systems.
In Witness Whereof, the parties have executed this Sublease as of the date
first above written.
Subtenant: Andromedia, Inc. Sublandlord: Patrick & Co, Inc.
/s/ Stephen Ghiglieri /s/Jamie T. Patrick
- --------------------- -------------------
Stephen Ghiglieri, Chief Financial Officer Jamie T. Patrick
Date: August __, 1999 Date: August 16, 1999
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<PAGE>
EXHIBIT A
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
AMENDED AND RESTATED
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only
September 30, 1998, is made by and between 611 MISSION LLC, a California limited
- ------------------ -------------------------------------
liability company ("Lessor") and PATRICK & CO., a California corporation
- ----------------- ---------------------------------------
("Lessee"), collectively the "Parties," or individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 611 Mission Street located in the County of San Francisco, State of
------------------ -------------
California, and generally described as (describe briefly the nature of the
- ----------
property and, if applicable, the "Project", if the property is located within a
Project) per paragraph 3 of the Addendum ("Premises"). (See also Paragraph 2)
---------------------------
1.3 Term: Twenty years and zero months ("Original Term")
------ ----
commencing ("Commencement Date") and ending ("Expiration
-------------- --------
Date"). (See also Paragraph 3)
1.4 Early Possession: -not applicable- ("Early Possession Date"). (See
----------------
also Paragraphs 3.2 and 3.3)
1.5 Base Rent: $68,491.13 per month ("Base Rent"), payable on the first
---------- -----
day of each month commencing per Paragraph 4 of the Addendum. (See also
---------------------------
Paragraph 4)
[ ] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $68,491.13 as Base Rent for the period
----------
of the first month of the Commencement Date.
-------------------------------------------
1.7 Security Deposit: $40,000.00 ("Security Deposit"). (See also
----------
Paragraph 5)
1.8 Agreed Use: General office purposes, storage, retail, and light
---------------------------------------------------
manufacturing permitted by applicable laws. (See also Paragraph 6)
- ------------------------------------------
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise
stated herein. (See also Paragraph 8)
1.10 Real Estate Brokers: (See also Paragraph 16)
Page 1
<PAGE>
(a) Representation: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction (check
applicable boxes):
[ ] Grubb & Ellis represents Lessor exclusively ("Lessor's Broker");
----------------
[ ] represents Lessee exclusively ("Lessee's Broker"); or
----------------
[ ] represents both Lessor and Lessee ("Dual Agency").
----------------
(b) Payment to Brokers: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Broker the fee agreed to in their separate
written agreement which fee shall be $200,000.00.
1.11 Guarantor: The obligations of the Lessee under this Lease are to be
guaranteed by none ("Guarantor"). (See also Paragraph 37)
----
1.12 Addenda and Exhibits: Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1 through 23 and Exhibits A (Legal Description) and B
- -- ---------------------------
(Work Letter), all of which constitute a part of this Lease.
- -------------
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agreed is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee broom clean
and free of debris on the Commencement Date or the Early Possession Date,
whichever first occurs ("Start Date"), and, so long as the required service
contracts described in Paragraph 7.1(b) below are obtained by Lessee within
thirty (30) days following the Start Date, warrants that the existing
electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air
conditioning systems ("HVAC"), loading doors, if any, and all other such
elements in the Premises, other than those constructed by Lessee, shall be in
good operating condition on said date and that the structural elements of the
roof, bearing walls and foundation of any buildings on the Premises (the
"Building") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation
with respect to such matter, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If, after the Start Date, Lessee does not give Lessor written
notice of any non-compliance with this warranty within: (i) one year as to the
surface of the roof and the structural portions of the roof, foundations and
bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30)
days as to the remaining systems and other elements of the Building, correction
of such non-compliance shall be the obligation of Lessee at Lessee's sole cost
and expense.
2.3 Compliance. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations and ordinances
Page 2
<PAGE>
("Applicable Requirements") in effect on the Start Date. [Said warranty does not
apply to the use to which Lessee will put the Premises or to any Alterations or
Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by
Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is
appropriate for Lessee's intended use, and acknowledges that past uses of the
Premises may no longer be allowed.] If the Premises do not comply with said
warranty, Lessor shall, except as otherwise provided, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Start Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense. If the Applicable
Requirements are hereafter changed (as opposed to being in existence at the
Start Date, which is addressed in Paragraph 6.2(e) below) so as to require
during the term of this Lease the construction of an addition to or an
alteration of the Building, the remediation of any Hazardous Substance, or the
reinforcement or other physical modification of the Building ("Capital
Expenditure"), Lessor and Lessee shall allocate the cost of such work as
follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures
are required as a result of the specific and unique use of the Premises by
Lessee as compared with uses by tenants in general, Lessee shall be fully
responsible for the cost thereof, provided, however that if such Capital
Expenditure is required during the last two (2) years of this Lease and the cost
thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this
Lease unless Lessor notifies Lessee, in writing, within ten (10) days after
receipt of Lessee's termination notice that Lessor has elected to pay the
difference between the actual cost thereof and the amount equal to six (6)
months' Base Rent. If Lessee elects termination, Lessee shall immediately cease
the use of the Premises which requires such Capital Expenditure and deliver to
Lessor written notice specifying a termination date at least ninety (90) days
thereafter. Such termination date shall, however, in no event be earlier than
the last day that Lessee could legally utilize the Premises without commencing
such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and
unique use of the Premises by Lessee (such as, governmentally mandated seismic
modifications), then Lessor and Lessee shall allocate the obligation to pay for
such costs pursuant to the provisions of Paragraph 7.1(c); provided, however,
that if such Capital Expenditure is required during the last two years of this
Lease or if Lessor reasonably determines that it is not economically feasible to
pay its share thereof, Lessor shall have the option to terminate this Lease upon
ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor,
in writing, within ten (10) days after receipt of Lessor's termination notice
that Lessee will pay for such Capital Expenditure. If Lessor does not elect to
terminate, and fails to tender its share of any such Capital Expenditure, Lessee
may advance such funds and deduct same, with interest, from Rent until Lessor's
share of such costs has been fully paid. If Lessor is unable to finance
Lessor's share, or if the balance of the Rent due and payable for the remainder
of this Lease is not sufficient to fully reimburse Lessee on an offset basis,
Lessee shall have the right to terminate this Lease upon thirty (30) days
written notice to Lessor.
Page 3
<PAGE>
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised
by Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use, (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relates to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that: (a)
Broker has made no representations, promises or warranties concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises, and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease (including but not limited to the obligations to pay Real Property Taxes
and insurance premiums and to maintain the Premises) shall, however, be in
effect during such period. Any such early possession shall not affect the
Expiration Date.
3.3 Delay in Possession. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing within ten (10) days after the end of such sixty (60) day period, cancel
this Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten
(10) day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period
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equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts or omissions of Lessee. If possession
of the Premises is not delivered within four (4) months after the Commencement
Date, this Lease shall terminate unless other agreements are reached between
Lessor and Lessee, in writing.
3.4 Lessee Compliance. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence,
Lessee shall be required to perform all of its obligations under this Lease from
and after the Start Date, including the payment of Rent, notwithstanding
Lessor's election to withhold possession pending receipt of such evidence of
insurance. Further, if Lessee is required to perform any other conditions prior
to or concurrent with the Start Date, the Start Date shall occur but Lessor may
elect to withhold possession until such conditions are satisfied.
4. Rent.
4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("Rent").
4.2 Payment. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent for any period during the term hereof which is for less than one (1) full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. [If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, Lessor may use, apply or retain all or any portion of
said Security Deposit for the payment of any amount due Lessor or to reimburse
or compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof.] If Lessor uses or applies all or any
portion of said Security Deposit, Lessee shall within ten (10) days after
written request therefor deposit monies with Lessor sufficient to restore said
Security Deposit to the full amount required by this Lease. [If the Base Rent
increases during the term of this Lease, Lessee shall, upon written request from
Lessor, deposit additional monies with Lessor so that the total amount of the
Security Deposit shall at all times bear the same proportion to the Increased
Base Rent as the Initial Security Deposit bore to the Initial Base Rent.]
Should the Agreed Use be amended to accommodate a material change in the
business of Lessee or to accommodate a sublessee or assignee, Lessor shall have
the right to increase the Security Deposit to the extent necessary, in Lessor's
reasonable judgment, to account for any increased wear and tear that the
Premises may suffer as a result thereof. If a change in control of Lessee
occurs during this Lease and following such change the financial condition of
Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall
deposit such additional monies with Lessor as shall be
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sufficient to cause the Security Deposit to be at a commercially reasonable
level based on said change in financial condition.] Lessor shall not be required
to keep the Security Deposit separate from its general accounts. Within fourteen
(14) days after the expiration or termination of this Lease, if Lessor elects to
apply the Security Deposit only to unpaid Rent, and otherwise within thirty (30)
days after the Premises have been vacated pursuant to Paragraph 7.4(c) below,
Lessor shall return that portion of the Security Deposit not used or applied by
Lessor. No part of the Security Deposit shall be considered to be held in trust,
to bear interest or to be prepayment for any monies to be paid by Lessee under
this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the Agreed
Use, or any other legal use which is reasonably comparable thereto, and for no
other purpose. Lessee shall not use or permit the use of the Premises in a
manner that is unlawful, creates damage, waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to neighboring properties. Lessor
shall not unreasonably withhold or delay its consent to any written request for
a modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products
or fractions thereof. Lessee shall not engage in any activity in or on the
Premises which constitutes a Reportable Use of Hazardous Substances without the
express prior written consent of Lessor and timely compliance (at Lessee's
expense) with all Applicable Requirements. "Reportable Use" shall mean (i) the
installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a Hazardous
Substance that requires a permit from, or with respect to which a report,
notice, registration or business plan is required to be filed with, any
governmental authority, and/or (iii) the presence at the Premises of a Hazardous
Substance with respect to which any Applicable Requirements requires that a
notice be given to persons entering or occupying the Premises or neighboring
properties. Notwithstanding the foregoing, Lessee may use any ordinary and
customary materials reasonably required to be used in the normal course of the
Agreed Use, so long as such use is in compliance with all Applicable
Requirements, is not a Reportable Use, and does not expose the Premises of
neighboring property to any meaningful risk of
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contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may condition its consent to any Reportable Use upon receiving such
additional assurances as Lessor reasonably deems necessary to protect itself,
the public, the Premises and/or the environment against damage, contamination,
injury and/or liability, but not limited to, the installation (and removal on or
before Lease expiration or termination) of protective modifications (such as
concrete encasements) and/or increasing the Security Deposit.
(b) Duty to Inform Lessor. If Lessor knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) Lessee Remediation. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any Hazardous
Substance brought onto the Premises during the term of this Lease, by or for
Lessee, or any third party.
(d) Lessee Indemnification. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all loss of rents and/or damages, liabilities, judgments,
claims, expenses, penalties, and attorneys' and consultants' fees arising out of
or involving any Hazardous Substance brought onto the Premises by or for Lessee,
of any third party (provided, however, that Lessee shall have no liability under
this Lease with respect to underground migration of any Hazardous Substance
under the Premises from adjacent properties). Lessee's obligations shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation, removal, remediation, restoration and/or abatement, and shall
survive the expiration or termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.
(e) Lessor Indemnification. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and lenders,
harmless from and against any and all environmental damages, including the cost
of remediation, which existed as a result of Hazardous Substances on the
Premises prior to the Start Date or which are caused by the gross negligence or
willful misconduct of Lessor, its agents or employees. Lessor's obligations, as
and when required by the Applicable Requirements, shall include, but not be
limited to, the cost of investigation, removal, remediation, restoration and/or
abatement, and shall survive the expiration or termination of this Lease.
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(f) Investigations and Remediations. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's use (including
"Alterations", as defined in Paragraph 7.3(a) below) of the Premises, in which
event Lessee shall be responsible for such payment. Lessee shall cooperate
fully in any such activities at the request of Lessor, including allowing Lessor
and Lessor's agents to have reasonable access to the Premises at reasonable
times in order to carry out Lessor's investigative and remedial
responsibilities.
(g) Lessor Termination Option. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) if the estimated cost to remediate such condition
exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is
greater, given written notice to Lessee, within thirty (30) days after receipt
by Lessor knowledge of the occurrence of such Hazardous Substance Condition, of
Lessor's desire to terminate this Lease as of the date sixty (60) days following
the date of such notice. In the event Lessor elects to give a termination
notice, Lessee may, within ten (10) days thereafter, give written notice to
Lessor of Lessee's commitment to pay the amount by which the cost of the
remediation of such Hazardous Substance Condition exceeds an amount equal to
twelve (12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with said funds or satisfactory assurance thereof
within thirty (30) days following such commitment. In such event, this Lease
shall continue in full force and effect, and Lessor shall proceed to make such
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds
or assurance thereof within the time provided, this Lease shall terminate as of
the date specified in Lessor's notice of termination.
6.3 Lessee's Compliance with Applicable Requirements. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, and the recommendations of Lessor's engineers and/or consultants
which relate in any manner to the Premises, without regard to whether said
requirements are now in effect or become effective after the Start Date. Lessee
shall, within ten (10) days after receipt of Lessor's written request, provide
Lessor with copies of all permits and other documents, and other information
evidencing Lessee's compliance with any Applicable Requirements specified by
Lessor, and shall immediately upon receipt, notify Lessor in writing (with
copies of any documents involved) of any threatened or actual claim, notice,
citation, warning, complaint or report pertaining to or involving the failure of
Lessee or the Premises to comply with any Applicable Requirements.
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6.4 Inspection; Compliance. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into Premises
at any time, in the case of an emergency, and otherwise at reasonable times, for
the purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease. The cost of any such inspections shall be
paid by Lessor, unless a violation of Applicable Requirements, or a
contamination is found to exist or be imminent, or the inspection is requested
or ordered by a governmental authority. In such case, Lessee shall upon request
reimburse Lessor for the cost of such inspections, so long as such inspection is
reasonably related to the violation or contamination.
7. Maintenance; Repairs, Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) In General. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable
Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14
(Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises,
Utility Installations and Alterations in good order, condition and repair
(whether or not the portion of the Premises requiring repairs, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including, but
not limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air conditioning, electrical, lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, or adjacent to the Premises, Lessee, in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices, specifically including the procurement and
maintenance of the service contracts required by Paragraph 7.1(b) below.
Lessee's obligations shall include restorations, replacements or renewals when
necessary to keep the Premises and all Improvements thereon or a part thereof in
good order, condition and state of repair. Lessee shall, during the term of
this Lease, keep the exterior appearance of the Building in a first-class
condition consistent with the exterior appearance of other similar facilities of
comparable age and size in the vicinity, including, when necessary, the exterior
repainting of the Building.
(b) Service Contracts. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements, if any, if and when
installed on the Premises; (i) HVAC equipment, (ii) boiler and pressure
vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke
detection, (iv) landscaping and irrigation systems, (v) roof covering and
drains, (vi) driveways and parking lots, (vii) clarifiers, (viii) basic utility
feed to the perimeter of the Building, and (ix) any other equipment, if
reasonably required by Lessor.
(c) Replacement. Subject to Lessor's indemnification of Lessor as set
forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in
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Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of
50% of the cost of replacing such Basic Elements, then such Basic Elements shall
be replaced by Lessor, and the cost thereof shall be prorated between the
Parties and Lessee shall only be obligated to pay, each month during the
remainder of the term of this Lease, on the date on which Base Rent is due, an
amount equal to the product of multiplying the cost of such replacement by a
fraction, the numerator of which is one, and the denominator of which is the
number of months of the useful life of such replacement as such useful life is
specified pursuant to Federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized balance as is then
commercially reasonable in the judgment of Lessor's accountants), with Lessee
reserving the right to prepay its obligation at any time.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance), 9 (Damages or Destruction) and 14 (Condemnation),
it is intended by the Parties hereto that Lessor have no obligation, in any
manner whatsoever, to repair and maintain the Premises, or the equipment
therein, all of which obligations are intended to be that of the Lessee. It is
the intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises, and
they expressly waive the benefit of any statute now or hereafter in effect to
the extent it is inconsistent with the terms of this Lease.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems, communication systems,
lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises.
The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can
be removed without doing material damage to the Premises. The term
"Alterations" shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures; whether by addition or deletion.
"Lessee Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations
or Utility Installations to the Premises without Lessor's prior written consent.
Lessee may, however, make non-structural Utility Installations to the interior
of the Premises (excluding the roof) without such consent but upon notice to
Lessor, as long as they are not visible from the outside, do not involve
puncturing, relocating or removing the roof or any existing walls, and the
cumulative cost thereof during this Lease as extended does not exceed $50,000 in
the aggregate or $10,000 in any one year.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be
deemed conditioned upon Lessee's: (i) acquiring all applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and the plans
and specifications prior to commencement of the work, and (iii) compliance with
all conditions of said permits and other Applicable Requirements in a prompt and
expeditious manner. Any Alterations or Utility Installations shall be performed
in a workmanlike manner with good and sufficient materials. Lessee shall
promptly upon completion furnish Lessor with as-built plans and specifications.
For
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work which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor.
(c) Indemnification. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notice of non-responsibility. If Lessee shall contest the validity of any such
lien, claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof. If Lessor shall require, Lessee shall furnish a surety bond in an
amount equal to one and one-half times the amount of such contest lien, claim or
demand, indemnifying Lessor against liability for the same. If Lessor elects to
participate in any such action, Lessee shall pay Lessor's attorneys' fees and
costs.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrendered by Lessee with the
Premises.
(b) Removal. By delivery to Lessee of written notice from Lessor not
earlier than ninety (90) and not later than thirty (30) days prior to the end of
the term of this Lease, Lessor may require that any or all Lessee Owned
Alterations or Utility Installations be removed by the expiration or termination
of this Lease. Lessor may require the removal at any time of all or any part of
any Lessee Owned Alterations or Utility Installations made without the required
consent.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
Expiration Date or any earlier termination date, with all of the improvements,
parts and surfaces thereof broom clean and free of debris, and in good operating
order, condition and state of repair, ordinary wear and tear excepted.
"Ordinary wear and tear" shall include any damage or deterioration that would
have been prevented by good maintenance practice. Lessee shall repair any
damage occasioned by the installation, maintenance or removal of Trade Fixtures,
Lessee Owned Alterations and/or Utility Installations, furnishings, and
equipment as well as the removal of any storage tank installed by or for Lessee,
and the removal, replacement, or remediation of any soil, material or
groundwater contaminated by Lessee. Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate
the Premises pursuant to
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this Paragraph 7.4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below.
8. Insurance; Indemnity.
8.1 Payment for Insurance. Lessee shall pay for all insurance required
under Paragraph 8 except to the extent of the cost attributable to liability
insurance carried by Lessor under Paragraph 8.1(b) in excess of $2,000,000 per
occurrence. Premiums for policy periods commencing prior to or extending beyond
the Lease term shall be prorated to correspond to the Lease term. Payment shall
be made by Lessee to Lessor within ten (10) days following receipt of an
invoice.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "Additional Insured Managers or Lessors of Premises
Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) Carried by Lessor. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 Property Insurance - Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable to
Lessor, any groundlessor, and to any Lender(s) Insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lenders, but in no event more than the commercially reasonable
and available insurable value thereof. If Lessor is the Insuring Party,
however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and
Lessee's personal property shall be insured by Lessee under Paragraph 8.4 rather
than by Lessor. If the coverage is available and commercially appropriate, such
policy or policies shall insure against all risks of direct physical loss or
damage (except the perils of flood and/or earthquake unless required by a
Lender), including coverage for debris removal and the enforcement of any
Applicable Requirements requiring the upgrading,
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demolition, reconstruction or replacement of any portion of the Premises as the
result of a covered loss. Said policy or policies shall contain an agreed
valuation provision in lieu of any coinsurance clause, waiver of subrogation,
and inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor or not less than the adjusted U.S.
Department of Labor Consumer Price Index for All Urban Consumers for the city
nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss.
(b) Rental Value. The Insuring Party shall obtain and keep in force a
policy or policies in the name of Lessor with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee
shall be liable for any deductible amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger building,
or of a group of buildings owned by Lessor which are adjacent to the Premises,
the Lessee shall pay any increase in the premiums for the property insurance of
such building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
8.4 Lessee's Property/Business Interruption Insurance.
(a) Property Damage. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) Business Interruption. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) No Representation of Adequate Coverage. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 Insurance Policies. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy form a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue
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of "Best's Insurance Guide", or such other rating as may be required by a
Lender. Lessee shall not do or permit to be done anything which invalidates the
required insurance policies. Lessee shall, prior to the Start Date, deliver to
Lessor certified copies of policies of such insurance or certificates evidencing
the existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages against the other, for loss of or damage
to its property arising out of or incident to the perils required to be insured
against herein. The effect of such releases and waivers is not limited by the
amount of insurance carried or required, or by any deductibles applicable
hereto. The Parties agree to have their respective property damage insurance
carriers waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 Indemnity. Except for Lessor's gross negligence or willful
misconduct, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agent, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the use and/or
occupancy of the Premises by Lessee. If any action or proceeding is brought
against Lessor by reason of any of the foregoing matters, Lessee shall upon
notice defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be defended or indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person of goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
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9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which can reasonably be repaired in six (6) months or less from
the date of the damage or destruction. Lessor shall notify Lessee in writing
within thirty (30) days from the date of the damage or destruction as to whether
or not the damage is Partial or Total.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which cannot reasonably be repaired in six (6) months or less
from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence of
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds (except as to
the deductible which is Lessee's responsibility) as and when required to
complete said repairs. In the event, however, such shortage was due to the fact
that, by reason of the unique nature of the improvements, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor
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receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
such funds or assurance are not received, Lessor may nevertheless elect by
written notice to Lessee within ten (10) days thereafter to: (i) make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall
not be entitled to reimbursement of any funds contributed by Lessee to repair
any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be
some insurance coverage, but the net proceeds of any such insurance shall be
made available for the repairs if made by either Party.
9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
damage. Such termination shall be effective sixty (60) days following the date
of such notice. In the event Lessor elects to terminate this Lease, Lessee
shall have the right within ten (10) days after receipt of the termination
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage without reimbursement from Lessor. Lessee shall provide
Lessor with said funds or satisfactory assurance thereof within thirty (30) days
after making such commitment. In such event this Lease shall continue in full
force and effect, and Lessor shall proceed to make such repairs as soon as
reasonably possible after the required funds are available. If Lessee does not
make the required commitment, this Lease shall terminate as of the date
specified in the termination notice.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs, this Lease shall terminate sixty (60) days
following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) months' Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten days after Lessee's receipt of Lessor's written notice
purporting to terminate this Lease, or (ii) the day prior to the date upon which
such option expires. If Lessee duly exercises such option during such period
and provides Lessor with funds (or adequate assurance thereof) to cover any
shortage in insurance proceeds, Lessor shall, at Lessor's commercially
reasonable expense, repair such damage as soon as reasonably possible and this
Lease shall continue in full force and
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effect. If Lessee fails to exercise such option and provide such funds or
assurance during such period, then this Lease shall terminate on the date
specified in the termination notice and Lessee's option shall be extinguished.
9.6 Abatement of Rent; Lessee's Remedies.
(a) Abatement. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired, but
not to exceed the proceeds received from the Rental Value insurance. All other
obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall
have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(b) Remedies. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within ninety (90) days after such obligation shall accrue,
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice, of Lessee's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such notice. If Lessee gives such
notice and such repair or restoration is not commenced within thirty (30) days
thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced within said thirty (30) days, this
Lease shall continue in full force and effect. "Commence" shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs.
9.7 Termination-Advance Payments. Upon termination of this Lease pursuant
to Paragraph 6.2(g) or Paragraph 8, an equitable adjustment shall be made
concerning advance Base Rent and any other advance payments made by Lessee to
Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor.
9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form or assessment; real estate, general,
special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference
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to the Building address and where the proceeds so generated are to be applied by
the city, county or other local taxing authority of a jurisdiction within which
the Premises are located. The term "Real Property Taxes" shall also include any
tax, fee, levy, assessment or charge, or any increase therein, imposed by reason
of events occurring during the term of this Lease, including but not limited to,
a change in the ownership of the Premises.
10.2
(a) Payment of Taxes. Lessee shall pay the Real Property Taxes
applicable to the Premises during the term of this Lease. Subject to Paragraph
10.2(b), all such payments shall be made at least ten (10) days prior to any
delinquency date. Lessee shall promptly furnish Lessor with satisfactory
evidence that such taxes have been paid. If any such taxes shall cover any
period of time prior to or after the expiration or termination of this Lease,
Lessee's share of such taxes shall be prorated to cover only that portion of the
tax bill applicable to the period that this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment. If Lessee shall fail to pay any required
Real Property Taxes, Lessor shall have the right to pay the same, and Lessee
shall reimburse Lessor therefor upon demand.
(b) Advance Payment. In the event Lessee incurs a late charge on any
Rent payment, Lessor may, at Lessor's option, estimate the current Real Property
Taxes, and require that such taxes be paid in advance to Lessor by Lessee,
either: (i) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance
with the payment of the Base Rent. If Lessor elects to require payment monthly
in advance, the monthly payment shall be an amount equal to the amount of the
estimated installment of taxes
<PAGE>
divided by the number of months remaining before the month in which said
installment becomes delinquent. When the actual amount of the applicable tax
bill is known, the amount of such equal monthly advance payments shall be
adjusted as required to provide the funds needed to pay the applicable taxes. If
the amount collected by Lessor is insufficient to pay such Real Property Taxes
when due, Lessee shall pay Lessor, upon demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of its
obligations under this Lease, then any balance of funds paid to Lessor under the
provisions of this Paragraph may at the option of Lessor, be treated as an
additional Security Deposit.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work or such other information as may be
reasonably available.
10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency, all
taxes assessed against and levied upon Lessee Owned Alterations. Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee. When possible, Lessee shall cause such property to be assessed and
billed separately from the real property of Lessor. If any of Lessee's said
personal property shall be assessed with Lessor's real property, Lessee shall
pay Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of twenty-five percent
(25%) or more of the voting control of Lessee shall constitute a change in
control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of this Lease or at the time of the most recent assignment to
which Lessor has consented, or as it exists immediately prior to said
transaction or transactions constituting such reduction, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "Net Worth of Lessee" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period. If Lessor elects
to treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may either: (i) terminate this Lease, or (ii) upon thirty (30) days written
notice, increase the monthly Base Rent to one hundred ten percent (110%) of the
Base Rent then in effect. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect, and (ii) all fixed and non-fixed
rental adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
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12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee
or subleases of the obligations of Lessee under this Lease, (ii) release Lessee
of any obligations hereunder, or (ii) alter the primary liability of Lessee for
the payment of Rent or for the performance of any other obligations to be
performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of Rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or subleases, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a fee of $1,000 or
ten percent (10%) of the current monthly Base Rent applicable to the portion of
the Premises which is the subject of the proposed assignment or sublease,
whichever is greater, as consideration for Lessor's considering and processing
said request. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested.
(f) Any assignee of, or subleases under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed to have
assumed and agreed to conform and comply with each and every term, covenant,
condition and obligation herein to be observed or performed by Lessee during the
term of said assignment or sublease, other than such obligations as are contrary
to or inconsistent with provisions of an assignment or sublease to which Lessor
has specifically consented to in writing.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's
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obligations under this Lease; provided, however, that until a Breach shall occur
in the performance of Lessee's obligations, Lessee may collect said Rent. Lessor
shall not, by reason of the foregoing or any assignment of such sublease, nor by
reason of the collection of Rent, be deemed liable to the sublessee for any
failure of Lessee to perform and comply with any of Lessee's obligations to such
sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor starting that a Breach exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor all
Rent due and to become due under the sublease. Sublessee shall rely upon any
such notice from Lessor and shall pay all Rents to Lessor without any obligation
or right to inquire as to whether such Breach exists, notwithstanding any claim
from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Beaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a sublease
shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. A "Default" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "Breach" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security, or where the
coverage of the property insurance described in Paragraph 8.3 is jeopardized as
a result thereof, or without providing reasonable assurances to minimize
potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any Security
Deposit required to be made by Lessee hereunder, whether to Lessor or to a third
party, when due, to provide reasonable evidence of insurance or surety bond, or
to fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) business days
following written notice to Lessee.
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(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (ii) the
rescission of an unauthorized assignment of subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "debtor" as defined in 11 U.S.C. (S) 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days; (iii) the appointment of a trustee or receiver
to take possession of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where possession is not restored
to Lessee within thirty (30) days; or (iv) the attachment, execution or other
judicial seizure of substantially all of Lessee's assets located at the Premises
or of Lessee's interest in this Lease, where such seizure is not discharged
within thirty (30) days; provided, however, in the event that any provision of
this subparagraph (e) is contrary to any applicable law, such provision shall be
of no force or effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within sixty (60) days following written notice of any such
event, to provide written alternative assurance or security, which, when coupled
with the then existing resources of Lessee, equals or exceeds the combined
financial resources of Lessee and the Guarantors that existed at the time of
execution of this Lease.
13.2 Remedies. If Lessee fails to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or
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approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessees shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of the District within which the Premises are located
at the time of award plus one percent (1%). Efforts by Lessor to mitigate
damages caused by Lessee's Breach of this Lease shall not waive Lessor's right
to recover damages under Paragraph 12. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding any unpaid Rent and damages as are recoverable
therein, or Lessor may reserve the right to recover all or any part thereof in a
separate suit. If a notice and grace period required under Paragraph 13.1 was
not previously given, a notice to pay rent or quit, or to perform or quit given
to Lessee under the unlawful detainer statute shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws
or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under
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any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture. Any agreement for free or abated rent or other
charges, or for the giving or paying by Lessor to or for Lessee of any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease,
all of which concessions are hereinafter referred to as "Inducement Provisions,"
shall be deemed conditioned upon Lessee's full and faithful performance of all
of the terms, covenants and conditions of this Lease. Upon Breach of this Lease
by Lessee, any such inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other charge,
bonus, inducement or consideration theretofore abated, given or paid by Lessor
under such an Inducement Provision shall be immediately due and payable by
Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.
The acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this paragraph shall not be deemed a waiver by Lessor of the
provisions of this paragraph unless specifically so stated in writing by Lessor
at the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
of Rent will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any
Rent shall not be received by Lessor within five (5) days after such amount
shall be due, then, without any requirement for notice to Lessee, Lessee shall
pay to Lessor a one-time charge equal to five percent (5%) of each such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of such late
payment. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent the exercise of any of the other rights and remedies granted hereunder.
In the event that a late charge is payable hereunder, whether or not collected,
for three (3) consecutive installments of Base Rent, then notwithstanding any
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 Interest. Any monetary payment due Lessor hereunder, other than late
charges, not received by Lessor, when due as to scheduled payments (such as Base
Rent) or within thirty (30) days following the date on which it was due for non-
scheduled payment, shall bear interest from the date when due, as to scheduled
payments, or the thirty-first (31/st/) day after it was due as to non-scheduled
payments. The interest ("Interest") charged shall be equal to the prime rate
reported in the Wall Street Journal as published closest prior to the date when
due plus four percent (4%), but shall not exceed the maximum rate allowed by
law. Interest is payable in addition to the potential late charge provided for
in Paragraph 13.4.
13.6 Breach by Lessor.
(a) Notice of Breach. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a
reasonable time shall in no event be less than thirty (30) days after
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receipt by Lessor, and any Lender whose name and address shall have been
furnished Lessee in writing for such purpose of written notice specifying
wherein such obligation of Lessor has not been performed; provided, however,
that if the nature of Lessor's obligation is such that more than thirty (30)
days are reasonably required for its performance, then Lessor shall not be in
breach if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
(b) Performance by Lessee on Behalf of Lessor. In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said notice, or it having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent an amount equal to the greater of one month's Base
Rent or the Security Deposit, and to pay an excess of such expense under
protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall
document the cost of said cure and supply said documentation to Lessor.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(collectively "Condemnation"), this Lease shall terminate as to the part taken
as of the date the condemning authority takes title or possession, whichever
first occurs. If more than ten percent (10%) of any building portion of the
premises, or more than twenty-five percent (25%) of the land area portion of the
premises not occupied by any building, is taken by Condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in proportion
to the reduction in utility of the Premises caused by such Condemnation.
Condemnation awards and/or payments shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold, the value of the part taken, or for severance damages; provided,
however, that Lessee shall be entitled to any compensation for Lessee's
relocation expenses, loss of business goodwill and/or Trade Fixtures, without
regard to whether or not this Lease is terminated pursuant to the provisions of
this Paragraph. All Alterations and Utility Installations made to the Premises
by Lessee, for purposes of Condemnation only, shall be considered the property
of the Lessee and Lessee shall be entitled to any and all compensation which is
payable therefor. In the event that this Lease is not terminated by reason of
the Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15. Brokers' Fee.
15.1 Additional Commission. In addition to the payments owned pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee
acquires any rights to the Premises or other premises owned by Lessor and
located within the same Project, if any, within which the Premises is
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located, (c) if Lessee remains in possession of the Premises, with the consent
of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased,
whether by agreement or operation of an escalation clause herein, then, Lessor
shall pay Brokers a fee in accordance with the schedule of said Brokers in
effect at the time of the execution of this Lease.
15.2 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 Representations and Indemnities of Broker Relationships. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, project, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the Indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
16. Estoppel Certificates.
(a) Each Party (as "Responding Party") shall within ten (10) days
after written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Estoppel Certificate" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party, (ii) there are no uncured defaults in the Requesting Party's performance,
and (iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance. Prospective purchasers and encumbrances may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises, or
any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by
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Lessor such financial statements as may be reasonably required by such lender or
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. All such financial statements shall be received by Lessor
and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
17. Definition of Lessor. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor. Except as provided in Paragraph 15,
upon such transfer or assignment and delivery of the Security Deposit, as
aforesaid, the prior Lessor shall be relieved of all liability with respect to
the obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined. Notwithstanding the above, and subject to the provisions
of Paragraph 20 below, the original Lessor under this Lease, and all subsequent
holders of the Lessor's interest in this Lease shall remain liable and
responsible with regard to the potential duties and liabilities of Lessor
pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Days. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. Limitation on Liability. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to
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an amount up to the fee received by such Broker pursuant to this Lease;
provided, however, that the foregoing limitation on each Broker's liability
shall not be applicable to any gross negligence of willful misconduct of such
Broker.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by courier) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery of mailing of notices. Either Party may by written
notice to the other specify a different address for notice, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for notice. A copy of all notices to Lessor shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If
sent by regular mail the notice shall be deemed given forty-eight (48) hours
after the same is addressed as required herein and marked with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantee next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the Postal Service or courier. Notices transmitted by
facsimile transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of moneys or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
<PAGE>
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred fifty percent (150%) of the Base Rent applicable during the month
immediately proceeding the expiration or termination. Nothing contained herein
shall be construed as consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions; Construction of Agreement. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
parties, but rather according to its fair meaning as a whole, as if both parties
had prepared it.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and
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this Lease, including any options to extend the term hereof, will not be
disturbed so long as Lessee is not in Breach hereof and attorns to the record
owner of the Premises. Further, within sixty (60) days after the execution of
this Lease, Lessor shall use its commercially reasonable efforts to obtain a
Non-Disturbance Agreement from the holder of any pre-existing Security Device
which is secured by the Premises, in the event that Lessor is unable to provide
the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at
Lessee's option, directly contact Lessor's lender and attempt to negotiate for
the execution and delivery of a Non-Disturbance Agreement.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees.
Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to decision or judgment.
The term, "Prevailing Party" shall include, without limitation, a Party or
Broker who substantially obtains or defeats the relief sought, as the case may
be, whether by compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorneys' fees award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor
shall be entitled to attorneys' fees, costs and expenses incurred in the
preparation and service of notices of Default and consultations in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "For Sale" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "For Lease" signs. Lessee may at any time place on or
about the Premises any ordinary "For Sublease" sign.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. Signs. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
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35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. Consents. Except as otherwise provided herein, wherever in this Lease the
consent of a party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including but not limited to architects', attorneys', engineers'
and other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an Invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgement that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requires the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within ten (10) business days following such request.
37. Guarantor.
37.1 Execution. The Guarantors, if any, shall each execute a guaranty in
the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 Default. It shall constitute a Default of the Lessee if any Guarantor
fails or refuses, upon request to provide: (a) evidence of the execution of the
guaranty, including the authority of the party signing on Guarantor's behalf to
obligate Guarantor, and in the case of a corporate Guarantor, a certified copy
of a resolution of its board of directors authorizing the making of such
guaranty, (b) current financial statements, (c) a Tenancy Statement, or (d)
written confirmation that the guaranty is still in effect.
38. Quiet Possession. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
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39. Options.
39.1 Definition. "Option" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured, (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee), (iii) during the
time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option, if, after such
exercise and prior to the commencement of the extended term, (i) Lessee fails to
pay Rent for a period of thirty (30) days after such Rent becomes due (without
any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee
three (3) or more notices of separate Default during any twelve (12) month
period, whether or not the Defaults are cured, or (iii) if Lessee commits a
Breach of this Lease.
40. Multiple Buildings. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall
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have no obligation whatsoever to provide same. Lessee assumes all responsibility
for the protection of the Premises, Lessee, its agents and invitees and their
property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay.
44. Authority. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each party
shall, within thirty (30) days after request, deliver to the other party
satisfactory evidence of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. Multiple Parties. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. Mediation and Arbitration of Disputes. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease is is not attached to this Lease.
Page 33
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY
- ---------
ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO
WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES, SAID INVESTIGATION
SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES,
THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES
FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO
- -------
BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.
- -------------------------------------------------------------------------------------------------------------------
The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.
Executed at: San Francisco, California Executed at: San Francisco, California
-------------------------------- ---------------------------------------------
on: June 17, 1999 on: June 17, 1999
----------------------------------------- ------------------------------------------------------
By LESSOR: By LESSEE:
611 MISSION LLC, PATRICK & CO.,
- ---------------------------------------------- -----------------------------------------------------
a California limited liability company a California corporation
- ---------------------------------------------- -----------------------------------------------------
By: BEI Management LLC,
a California limited liability company By:
----------------------------------------- -------------------------------------------------------
Name Printed: its Manager, Name Printed:
------------------------------- ---------------------------------------------
Title: Brennan Enterprises LLC
--------------------------------------
a California limited liability company Title:
-------------------------------------- -----------------------------------------------------
By: /s/ David Zeff By: /s/ Jamie T. Patrick
--------------------------------------- ------------------------------------------------------
Name Printed: David Zeff Name Printed: Jamie T. Patrick
------------------------------- ---------------------------------------------
Title: VP Title: President
-------------------------------------- ----------------------------------------------------
Address: Address:
-------------------------------------- -------------------------------------------------
- ---------------------------------------------- ----------------------------------------------------------
Telephone: ( ) Telephone: ( )
-------------------------- -------------------------------------
Facsimile: ( ) Facsimile: ( )
-------------------------- -------------------------------------
Federal ID No. Federal ID No.
-------------------------------- -------------------------------------------
NOTE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to
make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE.
</TABLE>
Page 33
<PAGE>
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213) 667-8777.
Fax No. (213) 687-8616.
Page 35
<PAGE>
ADDENDUM
TO
AMENDED AND RESTATED STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE-NET
THIS ADDENDUM TO RESTATED STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT
LEASE-NET (this "Addendum") shall constitute part of that Restated Standard
Industrial/Commercial Single-Tenant Lease-Net, dated as of June 17, 1999 (the
"Restated Lease"), by and between 611 Mission LLC, a California limited
liability company ("Lessor"), and Patrick & Co., a California corporation
("Lessee"). The Restated Lease and this Addendum are sometimes hereinafter
referred to as the "Lease."
RECITALS
A. Lessor and Lessee are parties to that certain Standard
Industrial/Commercial Single-Tenant Lease-Net, executed on or about September
30, 1998 (the "Office Lease"), as amended by that certain Addendum to Lease of
even date therewith ("Original Addendum"), as amended by that certain Amendment
No. 1 to Standard Industrial/Commercial Single-Tenant Lease-Net, dated as of
March 15, 1999 ("Amendment No. 1"), with respect to certain premises commonly
known as 611 Mission Street, San Francisco, California. The Office Lease, the
Original Addendum and Amendment No. 1 are hereinafter cumulatively referred to
as the "Original Lease."
B. Lessor and Lessee desire to amend and restate the Original Lease upon
the terms and conditions hereinafter set forth. All terms used herein and not
otherwise defined herein shall have the meanings set forth in the Lease.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Lease.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, receipt and
sufficiency of which are hereby acknowledged, Lessor and Lessee agree as
follows:
1. Amendment and Restatement. The Original Lease is hereby amended and
-------------------------
restated in its entirety by the Lease, and the Lease shall supersede and replace
the Original Lease.
2. Amendment to Paragraph 1.2 of the Restated Lease - Definition of
----------------------------------------------------------------
Premises. Paragraph 1.2 of the Restated Lease is hereby amended to add the
- --------
following at the end of Paragraph 1.2:
"The Premises shall include the entire improvements, including the
building, on that certain land described in the legal description attached
hereto as Exhibit A, together with the improvements to be made by Lessor on
behalf of Lessee pursuant to the Work Letter attached hereto as Exhibit B
(the "Work Letter"). The exact boundaries of the Premises
<PAGE>
shall extend to six floors of the building, the basement and mezzanine area
of the building, the exterior windows, the building perimeter walls, the
unfinished surface of the floor forming the basement and the roof of the
building, including any and all tenant improvements to be made after the
date of this Lease, the heating, ventilation and air conditioning systems,
and the electrical, plumbing, sewer, and other building systems servicing
the Premises (whether those systems are within the boundaries of the
Premises or outside the boundaries of the Premises), telephone facilities,
equipment, machinery, connections, pipes, ducts, conduits and wires leading
through the Premises. Notwithstanding anything to the contrary contained in
this Paragraph 1.2, the Premises shall not include the exterior portions of
the roof of the building and the structural elements of the building."
3. Amendment to Paragraph 1.3 of the Restated Lease - Commencement Date.
--------------------------------------------------------------------
Paragraph 1.3 of the Restated Lease is hereby amended to read as follows:
"The term of this Lease shall commence on the date (the "Commencement
Date") which is the date of Substantial Completion of the Work (as those
terms are defined the Work Letter). Unless sooner terminated as
hereinafter provided, the term of this Lease shall end on the date which is
240 months after the Commencement Date. Lessor shall not be liable to
Lessee for any loss or damage resulting from or arising out of any failure
or delay in the delivery of the Premises to Lessee for any reason
whatsoever, including, without limitation, Lessor's failure or inability to
complete the Work by July 31, 2000. Within thirty (30) days after the
Commencement Date, Lessor and Lessee shall, upon the date of Substantial
Completion of the Work, execute an amendment to this Lease setting forth
the actual Commencement Date and the actual Expiration Date and such other
information reasonably requested by Lessor. Failure to execute such
amendment shall not affect the actual Commencement Date and the Expiration
Date of the Lease."
4. Amendment to Paragraph 1.5 of the Restated Lease - Base Rent.
------------------------------------------------------------
Paragraph 1.5 of the Restated Lease is hereby amended to read as follows:
"1.5 Base Rent and Additional Base Rent. Lessee shall pay to Lessor
as rental for the Premises, at the times and in the manner hereinafter
provided, the following sums of money:
1.5.1. Base Rent. Base Rent shall be $38,333.33 per month (the
"Base Rent"), payable in advance on the Commencement Date and on or before
the first day of each and every successive calendar month during the term
hereof. If the term commences on other than the first day of a calendar
month, the first payment of minimum rent shall be appropriately prorated on
the basis of a 30-day month.
1.5.2. CPI Adjustment.
(a) On the first day of the fifth, tenth, and fifteenth
anniversary of the Lease (each such day being the "Adjustment Date"), the
Base Rent shall be the sum of: (i) the then Base Rent for the month
immediately preceding the Adjustment Date, plus (ii) the
-2-
<PAGE>
product obtained by multiplying said Base Rent by the percentage increase
in the Index (as hereinafter defined) which is measured from (A) the Index
published for the month which is sixty (60) months (not including the month
of the Adjustment Date) immediately preceding the Adjustment Date to (B)
the Index published for the month immediately preceding the Adjustment
Date. Notwithstanding anything to the contrary contained in this paragraph
1.5.2, the adjusted Base Rent shall not be more than fifteen percent (15%)
of the Base Rent for the month immediately preceding the Adjustment Date
and not less than the Base Rent immediately preceding the Adjustment Date.
The Base Rent payable following an adjustment under the terms of this
paragraph 1.5.2 shall continue at the adjusted level until the next
Adjustment Date. Once determined, Lessor shall give Lessee written notice
of the Base Rent adjusted pursuant to this paragraph 1.5.2, subject to
retroactive adjustment to account for the adjusted Base Rent due for the
period between the Adjustment Date and the date notice is given by Lessor
to Lessee. Notwithstanding anything contained in this Lease to the
contrary, only the Base Rent shall be adjusted pursuant to this paragraph
1.5.2 and there shall be no adjustment to the Additional Base Rent (defined
hereinafter).
(b) For purposes herein, "Index" shall be the "Consumer Price
Indexes, Pacific Cities and U.S. City Average All Items Indexes, 1982-
1984=100, San Francisco-Oakland-San Jose," as published by the United
States Department of Labor's Bureau of Labor Statistics. In the event the
Index for the month immediately preceding the Adjustment Date, is not
available on the Adjustment Date, the adjustment shall be made retroactive
to the Adjustment Date as soon as it is available. Should the Bureau of
Labor Statistics discontinue the publication of the above Index, or publish
same less frequently, or alter same in some manner, then Lessor shall adopt
a substitute Index or substitute procedure which reasonably reflects and
monitors consumer prices, without necessity for amendment of this Lease.
1.5.3. Additional Base Rent. In addition to the Base Rent payable
hereunder, Lessee shall pay to Lessor as additional rent the amount of
$30,285.61 per month (the "Additional Base Rent") in the same manner as the
payment of Base Rent. Lessor and Lessee acknowledge and agree that the
Additional Base Rent represents a reasonable approximation of the total
Cost of the Work as of the date hereof (including, without limitation, the
Lessor's construction management/supervisory fee payable under paragraph 7
of the Work Letter) and amortized over a period of two hundred forty (240)
months and using an interest rate of eight and one-quarter of one percent
(8.25%) per annum. Pursuant to the Work Letter and subject to the terms and
conditions contained therein, the Additional Base Rent may be adjusted to
account for the actual Cost of the Work only in the event the actual Cost
of the Work is less than the Construction Cost Limitation, and for the
amounts of the disbursed Improvement Allowance (as all those terms are
defined in the Work Letter). The Additional Base Rent shall be the sum of
(a) $30,285.61 (or such adjusted amount in the event the actual Cost of the
Work is less than the Construction Cost Limitation), plus (b) the amount of
the disbursed Improvement Allowance amortized over a period of two hundred
forty (240) months and using an interest rate of eight and one-quarter of
one percent (8.25%) per annum.
-3-
<PAGE>
By way of example only, if the total disbursed Improvement Allowance is
$1,200,000.00, the Additional Base Rent shall be $40,510.40 being the sum
of (i) $30,285.61, plus $10,224.79 ($1,200,000.00 amortized over 240 months
and using an interest rate of 8.25%).
Within thirty (30) days after the Commencement Date, Lessor shall deliver
to Lessee a statement calculating the final Additional Base Rent, the
actual, total Cost of the Work, and the amount of the disbursed Improvement
Allowance. Lessee shall pay the Additional Base Rent when due based on
Lessor's determination of the Additional Rent as indicated in Lessor's
notice, subject to retroactive adjustment. If Lessee in good faith
disputes Lessor's determination of Additional Base Rent as indicated in the
notice given by Lessor, Lessee shall so notify Lessor within ten (10) days
after Lessee receives Lessor's determination of Additional Base Rent, and
if such dispute is not resolved by negotiation between the parties within
thirty (30) days after Lessee's notice is given, the Additional Base Rent
shall be determined pursuant to paragraph 12 of this Addendum. Once so
determined, Lessor and Lessee shall execute an amendment to this Lease
setting forth the actual Additional Base Rent. Once determined, the
Additional Base Rent shall be a monthly constant payment to Lessor and
shall not be subject to rental adjustments under Paragraph 1.5.2. of this
Lease.
1.5.4. Payment of Rent. All payments due from Lessee to Lessor
hereunder shall be paid to Lessor, without deduction, recoupment, offset or
counterclaim, and without relief from any valuation or appraisement laws,
and in lawful money of the United States of America at Lessor's address for
notices hereunder, or to such other person or at such other place as Lessor
may from time to time designate in writing to Lessee."
5. Amendment to Paragraph 12.1 of the Restated Lease -- Assignment and
-------------------------------------------------------------------
Subletting.
- ----------
a. Paragraph 12.1 of the Restated Lease is hereby amended to read as
follows:
"12.1 Right of Lessee to Assign or Sublet. Notwithstanding anything
-----------------------------------
to the contrary in this Paragraph 12.1, Lessee may assign this Lease or
sublet the Premises, without the consent of Lessor, provided: (a) Lessee
gives Lessor written notice of such assignment at least 20 days prior to
the effective date of such assignment; (b) such assignment will not result
in a change of use of the Premises; (c) at no cost to Lessor and Lessor
shall have no obligation to improve, or provide Lessee with allowance for
improvement of, the Premises; (d) any such assignment shall not waive any
breach of the Lease or any of the rights of Lessor thereunder, or enlarge
Lessor's obligations under the Lease; (e) the assumption by Lessee's
assignee of the Lease will not release or discharge Lessee from any
liability under the Lease, including, without limitation, the payment of
rent and other amounts when due under the Lease; (f) Lessee will remain
liable and responsible for the full performance and observance of all the
provisions, covenants, and conditions in the Lease to be performed and
observed by Lessee; and (g) Lessee and such assignee shall indemnify,
defend and hold Lessor harmless from any and all claims, demands,
proceedings, actions, liens, orders or judgments arising out of or relating
to such assignment."
-4-
<PAGE>
b. Paragraphs 12.2 (Terms and Conditions Applicable to Assignment
and Subletting) and 12.3 (Additional Terms and Conditions Applicable to
Subletting) of the Restated Lease are hereby deleted.
6. Amendment to Paragraph 15.2 -- Assumption of Obligation. Paragraph
-------------------------------------------------------
15.2 of the Restated Lease is hereby amended to add at the end of Paragraph 15.2
the following:
"Notwithstanding anything to the contrary contained in this Paragraph 15.2,
in the event Lessee exercises the option to purchase the Property in the
manner provided herein, Lessee shall have no obligation to assume Lessor's
obligation to pay any real estate commission payable hereunder."
7. Amendment to Paragraph 34 of the Restated Lease -- Signs. Paragraph
--------------------------------------------------------
34 of the Restated Lease is hereby amended to add the following sentence at the
end of paragraph 34:
"Subject to the preceding sentences, Lessee shall have exclusive signage
rights on the exterior of the building of the Premises, provided: (a)
Lessee shall at its sole cost and expense install, repair, maintain and
remove any such signs and, if applicable, restore the building and repair
any damage caused by the removal of the sign and (b) Lessee indemnify,
defend, and hold Lessor harmless from any and all claims, demands,
proceedings, actions, liens, orders or judgments arising out of or relating
to any such signs."
8. Amendment to Paragraph 39 of the Restated Lease -- Options. Paragraph
----------------------------------------------------------
39 of the Restated Lease is hereby amended to read as follows:
"39. Options to Extend.
39.1. Lessee shall have the option to extend the term of the Lease
for 2 successive periods of 5 years after the expiration of the initial 20-
year term (each such period is hereafter referred to as an "Extension
Term"), subject to the following conditions:
a. Each option to extend shall only be exercised by written
notice of exercise given to Lessor not sooner than 9 months and not later
than 6 months prior to the expiration of the applicable Extension Term.
The option of the second Extension Term shall be of no force or effect if
Lessee has not validly exercised the option for the first Extension Term.
b. At the time the option to extend is exercised and at the
commencement of the applicable Extension Term, the Lease shall be in full
force and effect, and Lessee shall not then be in default under the Lease,
or would be in default but for any applicable cure or grace periods; and
c. Lessee has not assigned this Lease.
-5-
<PAGE>
If Lessee fails to exercise an option to extend in the manner set forth
hereunder, any purported exercise shall be null and void and of no force or
effect, and the option to extend shall terminate and be deemed waived by
Lessee.
39.2. In the event the option to extend is timely exercised by
Lessee, the term of the Lease shall be extended 5 years after the
expiration of the initial term of the Lease, in the case of the exercise of
the option to extend for the first Extension Term, and 5 years after the
expiration of the first Extension Term, in the case of the exercise of the
option to extend for the second Extension Term, upon all of the terms and
conditions of the Lease, provided that (1) there shall be no further option
to extend the term of the Lease in the event Lessee has validly exercised
the option to extend for the first Extension Term and the second Extension
Term; (2) the Base Rent for each Extension Term shall be the Base Rent for
the month immediately preceding the applicable Extension Term, plus (ii)
the product obtained by multiplying said Base Rent by the percentage
increase in the Index (as hereinafter defined) which is measured from (A)
the Index published for the month which is sixty (60) months (not including
the month of the commencement of the applicable Extension Term) immediately
preceding the commencement of the applicable Extension Term to (B) the
Index published for the month immediately preceding the commencement of the
applicable Extension Term; (3) Lessor shall have no obligation to improve,
or provide Lessee with allowances for improvement of, the Premises; and (4)
Lessee shall have no obligation to pay the Additional Base Rent during any
Extension Term."
9. Net Lease.
---------
a. The term "Operating Expenses" shall mean all costs of management,
operation and maintenance of the Premises, including, without limitation,
janitorial, maintenance, guard and other services; rent or rental value of any
management office of the Premises; power, water, sewer, garbage, waste disposal
and all other utilities; materials and supplies; maintenance and repairs;
license, permit and inspection fees; compliance with laws and governmental
regulations; insurance premiums and the deductible portion of any insured loss
under Lessor's insurance, such insurance may include, without limitation,
casualty (including, without limitation, extended and broad form coverage risks,
flood and earthquake), public liability, worker's compensation, and rental loss
insurance; supplies, tools, equipment and fixtures used in the management,
operation and maintenance of the Premises, including, without limitation,
furniture and artwork provided by Lessor; all costs and expenses, including,
without limitation, attorneys' fees (except as expressly excluded below) of
contesting by appropriate legal proceedings any matter concerning operating or
managing the Premises or the amount or validity of any Real Property Taxes;
provided, however, in no event shall Lessee be responsible for the payment of
property management fees so long as Lessee directly contracts with service
providers to the Premises and is solely responsible for the day-to-day
management of the Premises.
b. It is the intent of Lessor and Lessee to have Lessee pay for all
expenses of Lessee's use and occupancy of the Premises. Accordingly, Lessee
shall pay Lessor as additional rent all Operating Expenses. From time to time,
Lessor may deliver to Lessee a statement of the
-6-
<PAGE>
Operating Expenses incurred by Lessor. Lessee shall pay to Lessor in the same
manner as Base Rent is payable under the Lease the amount due under such
statement of Operating Expenses within fifteen (15) days after Lessor delivers
to Lessee such statement of Operating Expenses. Under no circumstances, whether
now existing or hereafter arising, and whether or not beyond the present
contemplation of the parties, shall Lessor be expected or required to make any
payment of any kind whatsoever with respect to Lessee's use or occupancy of the
Premises or this Lease, except as may otherwise be expressly set forth herein.
10. Option to Purchase.
------------------
a. Lessee shall have the option to purchase (the "Option to
Purchase") the real property of which the Premises are a part (the "Property"),
subject to the following conditions:
i. The Option to Purchase shall only be exercised by written
notice of exercise given to Lessor after the date of the Lease, but not later
than the last day of the fifth anniversary year of the Lease (the "Option
Period").
ii. At the time the Option to Purchase is exercised, the Lease
shall be in full force and effect, and Lessee shall not then be in default under
Paragraph 13.1, subdivisions (a), (b) or (e) of the Lease; and
iii. Lessee has not assigned this Lease.
b. In the event the Option to Purchase is timely exercised by
Lessee, Lessor shall, within 10 days after the date of the Option to Purchase is
exercised by Lessee, deliver to Lessee a Purchase and Sale Agreement prepared by
Lessor's counsel, which Purchase and Sale Agreement shall provide:
i. the closing date shall be no later than 60 days after the
date of Lessee's exercise of the option to purchase;
ii. the purchase price shall be the sum of (A) (1) if the Option
to Purchase is exercised after the Commencement Date but before the last day of
the first anniversary year of the Lease, $5,075,000.00, (2) if before the last
day of the second anniversary year of the Lease, $5,175,000.00, (3) if before
the last day of the third anniversary year of the Lease, $5,475,000.00, (4) if
before the last day of the fourth anniversary year of the Lease, $5,675,000.00,
and (5) if before the last day of the fifth anniversary year of the Lease,
$5,875,000.00, plus (B) the unamortized balance as of the closing date of the
Cost of Work and the disbursed Improvement Allowance, as those terms are defined
in the Work Letter. Lessor shall deliver to Lessee within ten (10) days after
receipt of Lessee's notice of exercise of the Option to Purchase its calculation
of the purchase price of the Property. If Lessee in good faith disputes
Lessor's calculation of the purchase price, Lessee shall so notify Lessor within
ten (10) days after Lessee receives Lessor's calculation, and if such dispute is
not resolved by negotiation between the parties within thirty (30) days after
Lessee's notice is given, the purchase price shall be determined pursuant to
paragraph 12 of this Addendum. Once so determined, Lessor and Lessee shall
execute an amendment to the purchase and sale
-7-
<PAGE>
agreement setting forth the purchase price for the Property. For purposes of
this paragraph 12(b)(ii), the first anniversary year of the Lease shall be the
12-month period after the Commencement Date. By way of example and for
illustrative purposes only:
Example 1: If the Option to Purchase is exercised on the Commencement
---------
Date, the Cost of the Work is $3,500,000.00, the interest rate is 8.25%,
the disbursed Improvement Allowance is $1,200,000.00, then the Purchase
Price will be calculated as follows:
<TABLE>
<S> <C>
Cost of Work $3,500,000.00
Improvement Allowance $1,200,000.00
Property Price $5,075,000.00
-------------
Purchase Price $9,775,000.00
=============
</TABLE>
Example 2: If the Option to Purchase is exercised on the twenty fifth
---------
(25th) month, the Cost of the Work is $3,300,000.00, the interest rate is
8.25%, the disbursed Improvement Allowance is $1,000,000.00, then the
Purchase Price will be calculated as follows:
<TABLE>
<S> <C>
Unamortized balance of $3,152,419.00
Cost of Work
(Cost of Work $3,300,000.00
less portion
of amortized principal
$147,581.00)
Unamortized balance of
Improvement $ 955,279.00
Allowance (Improvement
Allowance of
$1,000,000, less portion of
amortized
principal $44,721.00)
Property Price $5,475,000.00
-------------
Purchase Price $9,582,698.00
=============
</TABLE>
iii. the sale of the Property shall be on an "As Is and With All
Faults" basis and Lessor shall not be required to make any representations or
warranties with respect to the Property and Lessee shall release Lessor from any
and all claims arising out of the Property upon the closing; and
iv. Lessee and Lessor shall reasonably cooperate with each other on
causing the sale of the Property to qualify as a tax-deferred exchange under
Section 1031 of the Internal Revenue Code; provided, however, that (a) either
party shall not be required to expend any sums or otherwise incur any liability
in connection with the exchange for the benefit of the other party; (b) the
closing shall in no event be delayed because of such exchange; and (c) each
party agrees to defend, indemnify and hold harmless the other party from and
against any and all costs, damages, claims, liabilities or expenses (including,
without limitation, attorney's fees and costs) arising out of or relating to any
aspect of such tax-deferred exchange for the benefit of the other party.
-8-
<PAGE>
c. Lessor and Lessee acknowledge and agree that the purchase price
provided in this paragraph 12 was determined as consideration for Lessee
entering into the Lease and not as the parties' agreement as to the fair market
value of the Property. The fair market value of the Property, however
determined, may be more than the purchase price provided in this paragraph 12
and the purchase price shall not be a conclusive determination of the fair
market value of the Property upon either party.
d. Lessor and Lessee agree that in the event Lessee exercises the
Option to Purchase, the proceeds payable to Lessor shall be applied first to the
repayment of any indebtedness owed by Lessor to Golden Gate Bank, Mid-Peninsula
Bank, or their assigns, as beneficiary, which indebtedness is secured by a deed
of trust executed by Lessor and recorded against the Property, or to any
indebtedness of any lender making a loan, the proceeds of which are used in
whole or in part to refinance such indebtedness.
11. Lessor's Financing.
------------------
a. Lessor intends to obtain further financing for the building,
portions thereof, and the operation thereof, secured by mortgages or deeds of
trust encumbering the building. If any mortgage lender should require, as a
condition to such financing, or pursuant to rights of approval set forth in the
mortgage or deed of trust encumbering the building, any modification of the
terms or conditions of this Lease, Lessee agrees to execute such modification or
amendment, provided that, such modification or amendment (a) shall not increase
the rental or Lessee's share of any costs in addition to Base Rent, and (b)
shall not materially interfere with Lessee's use or occupancy of the Premises.
b. Lessor and Lessee acknowledge and agree that Lessor will obtain
further financing for the Property in order to facilitate the construction of
tenant improvements. In connection therewith, Lessor is obtaining a loan from
Golden Gate Bank and/or Mid-Peninsula Bank in a principal amount of
approximately $6,225,000.00, which will be secured by a deed of trust recorded
against the Property. Lessee agrees to cooperate with Lessor's efforts to
obtain such loan.
12. Mediation and Arbitration.
-------------------------
a. In the event Lessee disputes Lessor's determination of Additional
Base Rent or of the purchase price of the Property pursuant to paragraph 10
hereof, and the parties are unable to resolve such dispute within thirty (30)
days after Lessor's notice of such determination, such dispute shall be resolved
by final and binding arbitration administered by and in accordance with the
rules and procedures of JAMS/Endispute, and each party irrevocably and
unconditionally waives any rights it may have to have the dispute litigated in a
court or jury trial. Judgment upon any award rendered by the arbitrator may be
entered by any state or federal court haying jurisdiction thereof. The
arbitration proceedings shall be conducted in San Francisco, California. The
provisions of California Code of Civil Procedure Section 1283.05 or its
successor section shall be incorporated and made a part hereof. Before and
during arbitration, the parties shall equally share in the expenses of the
arbitration, including administrative expenses and the arbitrator's fee.
-9-
<PAGE>
b. The arbitrator shall, at the time of rendering an award, make an
award under paragraph 31 of the Restated Lease hereof, including, but not
limited to, attorneys' fees, costs and reimbursement to the prevailing party of
the expenses shared for arbitration under this paragraph 12, and assess such
expenses as the arbitrator deems appropriate.
13. Construction. In the event of a conflict between the Restated Lease,
------------
the Work Letter and this Addendum, the terms and conditions of this Addendum
shall prevail.
14. No Default. Each party hereby certifies and confirms that, to its
----------
knowledge, the other party is not in default as of the date of execution hereof
in the performance of any obligation to be performed by the other party to date
under the Lease.
15. Integration. The Restated Lease and this Addendum set forth the
-----------
entire agreement and understanding of the parties with respect to the subject
matter hereof and supersedes any other oral or written agreements or
undertakings by and between the parties reached or made prior to the date hereof
with respect to the subject matter hereof.
16. Attornment. Paragraph 30.2 of the Restated Lease is hereby deleted,
----------
and replaced in its entirety by the following provision:
"30.2. Attornment. Subject to the non-disturbance provisions of
Paragraph 30.3, if the Lessor's interest is transferred to or acquired by
and owned by a Lender or any successor of the Lender or other party
("Acquiring Party") because of foreclosure of a Security Device, sale under
a private power from a deed of trust, other proceedings brought by Lender,
or by any other manner, and Acquiring Party succeeds to Lessor's interest
under the Lease, Lessee shall be bound to the Acquiring Party and Acquiring
Party shall be bound to Lessee under all of the terms, covenants, and
conditions of the Lease for the balance of the remaining term, including
any extensions or renewals, with the same effect as if Acquiring Party were
Lessor under the Lease. Lessee agrees to attorn to Acquiring Party as the
Lessor, with the attornment being effective and self-operable immediately
upon Acquiring Party succeeding to the interest of Lessor under the Lease,
all without the execution by the parties of any further instruments.
However, Acquiring Party shall not: (i) be liable for any act or omission
of any prior lessor or with respect to events occurring prior to
acquisition of ownership; (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor; or (iii) be bound by prepayment
of more than one (1) month's rent."
17. Ratification and Confirmation. Except as amended or modified hereby,
-----------------------------
all terms, covenants and conditions of the Lease as heretofore in effect shall
remain in full force and effect and are hereby ratified and confirmed in all
respects.
18. Counterparts. This Addendum may be executed in two or more
------------
counterparts and/or by facsimile, and will become effective and binding upon the
parties at such time as all of the signatories hereto have signed a counterpart
hereof. All counterparts so executed shall constitute one agreement binding on
all parties to this Addendum, notwithstanding that all parties are not
signatories to the original or the same counterpart. Each of the parties hereto
shall sign a sufficient number of counterparts so that each party shall receive
a fully executed original of this Addendum.
-10-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Addendum as
of the day and year first above written.
LESSEE: LESSOR:
PATRICK & CO., 611 MISSION LLC,
a California corporation a California limited liability company,
By: /s/ Jamie T. Patrick By: BEI Management LLC,
-------------------- a California limited liability company,
its Manager
Its: President
---------
By: Brennan Enterprises LLC,
a California limited liability
company,
its Manager,
By: /s/ David Zeff
-------------------------
Its: VP
------------------------
-11-
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
-----------------
Beginning at a point on the southeasterly line of Mission Street, distant
thereon 99.167 feet northeasterly from the northeasterly line of New Montgomery
Street; thence northeasterly along said line of Mission Street 41.083 feet to
point distant thereon 76.833 feet southwesterly from the southwesterly line of
Second Street; thence southwesterly at a right angle to said line of Mission
Street 40 feet; thence at a right angle southwesterly 0.667 feet; thence at
right angle southeasterly 120.167 feet to the northwesterly line of Minna
Street; thence at a right angle southwesterly along said line of Minna Street
40.166 feet to a point distant thereon 99.417 feet northeasterly from the
northeasterly line of New Montgomery Street, said point being the southeast
corner of Lot 73, as said Lot is described in that certain grant deeded recorded
July 1, 1998, in Book H166, Page 747, Official Records of the City and County of
San Francisco; thence along the northeasterly line of said Lot 73, as said Lot
is described in said grant deed the following courses and distances;
northwesterly at a right angle to said line of Minna Street 81 feet; thence at a
right angle southwesterly 0.25 feet; thence at a right angle northwesterly
79.167 feet to the point of beginning.
<PAGE>
EXHIBIT B
AMENDED AND RESTATED WORK LETTER
--------------------------------
This Amended and Restated Work Letter (this "Work Letter") is executed
simultaneously with that certain Addendum to Amended and Restated Standard
Industrial/Commercial Single-Tenant Lease-Net, dated as of June 17,1999 (the
"Lease"), between Patrick & Co., a California corporation, as "Lessee," and 611
Mission LLC, a California limited liability company, as "Lessor," relating to
demised premises ("Premises") at the building located at the street address as
611 Mission Street, San Francisco, California (the "Building"), which Premises
are more fully identified in the Lease. Capitalized terms used herein, unless
otherwise defined in this Work Letter, shall have the respective meanings
ascribed to them in the Lease.
For and in consideration of the agreement to lease the Premises and the
mutual covenants contained herein and in the Lease, Lessor and Lessee hereby
agree as follows:
1. Lessee's Plans; the Work. Lessee desires Lessor to perform certain
------------------------
leasehold improvement work in the Premises in substantial accordance with the
plans, working drawings, and other specifications and details (collectively, the
"Plans"), more particularly described in Schedule 1 attached to this Work Letter
----------
and made a part hereof. Such work, as shown in the Plans shall be hereinafter
referred to as the "Work." Neither the approval by Lessor of the Work or the
Plans or, any other plans, drawings, specifications or other items associated
with the Work nor Lessors performance, supervision or monitoring of the Work
shall constitute any warranty by Lessor to Lessee of the adequacy of the design
for Lessee's intended use of the Premises.
2. Performance of the Work; Allowance. Except as hereinafter provided to
----------------------------------
the contrary, Lessor shall cause the Work to be constructed and completed.
Lessor shall pay for the "Cost of the Work" (as defined below) in an amount not
to exceed $3,554,375.00 (the "Construction Cost Limitation"). Lessee shall not
be entitled to any credit, abatement or payment from Lessor in the event that
the amount of Construction Cost Limitation specified above exceeds the Cost of
the Work. For purposes of this Work Letter, the term "Cost of the Work" shall
mean and include (a) any and all cost or expense arising out of or relating to
the Work or the construction thereof, (b) all fixtures or furnishings or other
items of personal property purchased for the benefit of Lessee, (c) such other
costs and expenses incurred by Lessor as necessary to adapt the Building or the
Premises for Lessee's use, including without limitation, permit fees, fees and
costs of architects and engineers, Lessor's construction management and
supervision fee as provided in Paragraph 7 hereof, and (d) any and all cost or
expense arising out of or relating to any financing expenses or other charges
(including, without limitation, points, loan fees, appraisal fees and such other
financing costs) incurred by Lessor in connection with a loan (the "Improvement
Loan") for the construction or effecting of any improvements made to the
Building or the Premises in an amount not to exceed $5,750,000.00. In the event
the Cost of Work exceeds Construction Cost Limitation, the provisions of
Paragraph 6 shall apply. Upon substantial completion of the Work, Lessor shall
have no further obligation to improve, or provide Lessee with allowances for
improvement of, the Premises, except those punch list items as provided in
Paragraph 4 hereof.
<PAGE>
3. Payment. Prior to commencing the Work, Lessor shall submit to Lessee
-------
a written statement of the total Cost of the Work (which shall include the
amount of any overtime projected as necessary to substantially complete the Work
by the Commencement Date specified in the Lease) as then known by Lessor.
Lessee agrees, within three (3) days after submission to it of such statement,
to execute and deliver to Lessor, in the form then in use by Lessor, an
authorization to proceed with the Work. No Work shall be commenced until Lessee
has fully complied with the preceding provision of this Paragraph 3. In the
event, and each time, that any change order by Lessee, unknown field condition,
delay caused by acts beyond Lessor's control or other event or circumstance
causes the Cost of the Work to be increased after the time that Lessor delivers
to Lessee the aforesaid initial statement of the Cost of the Work, Lessor shall
deliver to Lessee a revised statement of the total Cost of the Work, indicating
the revised calculation of the excess costs, if any. Within three (3) days
after submission to Lessee of any such revised statement, Lessor shall not be
required to proceed further with the Work until Lessee has authorized Lessor to
proceed with the Work and Lessor and Lessee have entered into a written
agreement with respect to the payment of such excess costs.
4. Substantial Completion. Lessor shall cause the Work to be
----------------------
"substantially completed," subject to delays caused by strikes, lockouts,
boycotts or other labor problems, casualties, discontinuance of any utility or
other service required for performance of the Work, unavailability or shortages
of materials or other problems in obtaining materials necessary for performance
of the Work or any other matter beyond the control of Lessor (or beyond the
control of Lessor's contractors or subcontractors performing the Work). The
Work shall be deemed to be "substantially completed" (the "Substantial
Completion of the Work") for all purposes under this Work Letter and the Lease
if and when Lessor's architect issues a written certificate to Lessor and
Lessee, certifying that the Work has been substantially completed (i.e.,
completed except for "punchlist" items listed in such architect's certificate)
in substantial compliance with the Plans, or when Lessee first takes occupancy
of the Premises, whichever first occurs. Subject to the excusable delays
described in the first sentence of this paragraph, the Work shall be
substantially completed no later than July 31, 2000.
5. Additional Work. Upon Lessee's request and submission by Lessee (at
---------------
Lessee's sole cost and expense) of the necessary information and/or plans and
specifications for work other than the Work described in the Plans (the
"Additional Work") and the approval by Lessor of such Additional Work, which
approval Lessor agrees shall not be unreasonably withheld, Lessor shall perform
such Additional Work, subject, however, to the following provisions of this
Paragraph 5 and Paragraph 6. Prior to commencing any Additional Work requested
by Lessee, Lessor shall submit to Lessee a written statement of the cost of such
Additional Work, which cost shall include a fee payable to Lessor in the amount
of 7.00% of the total cost of such Additional Work as compensation to Lessor for
monitoring the Additional Work and for administration, overhead and field
supervision associated with the Additional Work (such fee being hereinafter
referred to as "Lessor's Additional Compensation"), and, concurrently with such
statement of cost, Lessor shall also submit to Lessee a proposed Lessee extra
order (the "TEO") for the Additional Work in the standard form then in use by
Lessor. Lessee shall execute and deliver to Lessor such TEO, within five (5)
days after Lessor's submission of such statement and TEO to Lessee. If Lessee
fails to execute or deliver such TEO,
-2-
<PAGE>
then Lessor shall not be obligated to do any of the Additional Work and may
proceed to do only the Work, as specified in the Plans. Notwithstanding anything
contained herein to the contrary and in the event the sum of the Lessor's
Additional Compensation, the cost of the Additional Work, plus the cost of the
Work exceed Construction Cost Limitation, then the provisions of Paragraph 6
shall apply. Lessor shall not be deemed to have acted unreasonably if it
withholds its approval of any Additional Work because, in Lessor's reasonable
opinion the Additional Work, as the case may be: (a) is likely to adversely
affect Building systems, the structure of the Building or the safety of the
Building and/or its occupants; (b) might impair Lessor's ability to furnish
services to Lessee; (c) would increase the cost of operating the Building; (d)
would violate any governmental laws, rules or ordinances (or interpretations
thereof); (e) contains or uses hazardous or toxic materials or substances; (f)
would adversely affect the appearance of the Building; (g) is prohibited by any
mortgage, trust deed or other instrument encumbering the Building; or (h) is
likely to be substantially delayed because of unavailability or shortage of
labor or materials necessary to perform such work or the difficulties or unusual
nature of such work. The foregoing reasons, however, shall not be the only
reasons for which Lessor may withhold its approval, whether or not such other
reasons are similar or dissimilar to the foregoing.
6. Costs Exceeding Allowance. In the event either (a) the Cost of the
-------------------------
Work, for whatever reason and at any time prior to substantial completion of the
Work, exceeds Construction Cost Limitation or (b) the Cost of the Work, the cost
of the Additional Work, plus the Lessor's Additional Compensation exceed the
Construction Cost Limitation (such costs exceeding Construction Cost Limitation
shall hereinafter be referred to as the "Excess Costs"), then Lessee will pay
Lessor the Excess Costs within twenty (20) days after written demand therefor by
Lessor.
7. Charges and Fees. Lessee shall pay Lessor a construction
----------------
management/supervisory fee in an amount equal to seven percent (7.00%) of the
Cost of the Work (and all change orders with respect thereto) to defray Lessor's
administrative and overhead expenses incurred to review the Plans and coordinate
with architects, engineers, general contractors and, if necessary, the Lessee's
on-site project manager regarding the staging and progression of the Work. The
charges and fees payable under this Paragraph 7 is included within the
calculation of the Additional Rent (as defined in the Restated Lease) and shall
be a part of the Construction Cost Limitation. Unless Lessee requests the
construction services of Lessor, Brennan Enterprises LLC, a California limited
liability company, or its affiliates, Lessor shall not charge Lessee a
construction management/supervision fee for the further alterations contemplated
by Lessee pursuant to Paragraph 8 below.
8. Lessee Improvement Allowance. In order to make portions of the
----------------------------
Premises suitable for subtenants of Lessee, Lessor and Lessee acknowledge that,
prior to May 1, 2001, Lessee intends to effect further Alterations to the
Premises, in accordance with and subject to the provisions of Paragraph 7.3 of
the Lease. During the period specified in this paragraph, Lessor shall make
available to Lessee up to, but not in excess of, One Million Two Hundred
Thousand Dollars ($1,200,000.00) (the "Improvement Allowance") for use in
connection with Lessee's alterations to the Premises. The "Improvement
Allowance" may not be used by Lessee to purchase machines, equipment, furniture,
inventory, or other movable personal property. From time to time on Lessee's
request after October 1, 1999, but not more frequently than once per month,
Lessor shall pay to
-3-
<PAGE>
Lessee the cost of the Alterations then constructed or installed in the
Premises, but not to exceed the Improvement Allowance, provided that Lessee
shall have first furnished to Lessor evidence reasonably satisfactory to Lessor,
including mechanics' lien releases, that all of the Alterations covered by each
payment request have been completed and have been or will as a result of
Lessor's payment be paid for in full by Lessee. The amount paid by Lessor
pursuant to this paragraph shall be added to and be a part of the Additional
Rent. Notwithstanding anything to the contrary contained herein, Lessor shall
not be obligated to make any payment for so long as any default of Lessee under
the Lease remains uncured. Any request for payment by Lessor to Lessee under
this paragraph must be made no later than July 31, 2000.
9. Lease Provisions. In the event of any conflict between this Work
----------------
Letter and the Lease, the terms and conditions of the Lease shall prevail. All
amounts payable by Lessee to Lessor hereunder shall be deemed to be additional
rent under the Lease and, upon any default in the payment of same, Lessor shall
have all of the rights and remedies provided for in the Lease.
10. Exculpation of Lessor. Notwithstanding anything to the contrary
---------------------
contained in this Lease or in any exhibits or addenda hereto attached
(collectively, the "Lease Documents"), it is expressly understood and agreed by
and between the parties hereto that: (a) the recourse of Lessee or its
successors or assigns against Lessor with respect to the alleged breach by or on
the part of Lessor of any representation, warranty, covenant, undertaking or
agreement contained in any of the Lease documents or otherwise arising out of
Lessee's use of the Premises or the Building (collectively, "Lessor's Lease
Undertaking"') shall extend only to Lessor's interest in the real estate of
which the Premises demised under the Lease Documents are a part ("Lessor's Real
Estate") and not to any other assets of Lessor or its beneficiaries; and (b) no
personal liability or personal responsibility of any sort with respect to any of
Lessor's Lease Undertakings or any alleged breach thereof is assumed by, or
shall at any time be asserted or enforceable against Lessor or against any of
their respective directors, officers, employees, agents, constituent partners,
beneficiaries, trustees or representatives.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of June 17,
1999.
LESSEE: LESSOR:
PATRICK & CO., 611 MISSION LLC,
a California corporation a California limited liability company,
By: /s/ Jamie T. Patrick By: BEI MANAGEMENT LLC,
-------------------- a California limited liability
company,
Its: President its Manager,
-------------------
By: Brennan Enterprises LLC,
a California limited liability
company,
its Manager,
By: /s/ David Zeff
------------------------------
David Zeff
VP
-4-
<PAGE>
SCHEDULE 1
TO
AMENDED AND RESTATED WORK LETTER
Structural Drawings:
Sheet #'s: S-1, S-2, S-3, S-4, S-5, S-6, S-7, S-8, S-9 Dated 2/2/99
Sheet #'s: S-10, S-11, S-12, S-13 Dated 3/26/99
T1 Drawings:
Sheet #'s: OA-0.0, OA-0.1, OA-2.0, OA-3.0, 1A-0.0., 1A-2.0, 1A-3.0, 1A-4.0, 2A-
0.0, 2A-2.0, 2A-3.0, 2A-4.0, 2A-5.0 Dated 2/24/99
Base Building Drawings:
Sheet #'s: A-O.O, A-0.1, A-0.2, 0A-1.0, 1A-1.0, 2A-1.0. 3A-1.0, 4A-1.0, 5A-1.0,
6A-1.0, 7A-1.0, 8A-1.0, A-2.0, A-2.2, A-3.0, A-4.0, A-5.0, A-6.0, A-7.0, REF-1
Dated 4/2/99
<PAGE>
EXHIBIT C
WORK LETTER AND CONSTRUCTION AGREEMENT FOR SUBTENANT
IMPROVEMENTS 611 MISSION STREET, SUITE 300 THROUGH 700
This Work Letter and Construction Agreement for Initial Improvement of the
Premises ("Work Letter") is attached to and incorporated within that certain
Sublease ("Sublease") between Patrick & Co., Inc., a California corporation
("Sublandlord"), and Andromedia, Inc., a California corporation ("Subtenant").
RECITALS
WHEREAS, the undersigned Sublandlord and Subtenant have executed and
delivered the Sublease to which this Work Letter is attached, and into which
this Work Letter is fully incorporated by reference;
WHEREAS, the Sublease provides for the leasing of space (the "Premises")
within 611 Mission Street, San Francisco, California (hereinafter referred to as
the "Building");
WHEREAS, Sublandlord and Subtenant desire to set forth herein their
respective agreements regarding the improvement of the Premises;
NOW, THEREFORE, in consideration of the foregoing recitals, the execution
and delivery of the Sublease by the parties hereto, the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Sublandlord and Subtenant,
intending to be legally bound, hereby agree as follows:
Section 1. DEFINITIONS.
1.1. Defined Terms. Capitalized terms used in the Sublease and this Work
-------------
Letter shall have the same meanings ascribed to them in the Sublease. Otherwise,
the capitalized terms used in this Work Letter shall have the meaning ascribed
to them at the point where defined.
1.2. "Base Building Improvements" shall mean the improvements to the
--------------------------
Building provided by Sublandlord, shown in the Base Building Plans.
1.3 "Base Building Plans" shall mean the improvements plan approved by
-------------------
Sublandlord and Subtenant and attached hereto as Exhibit C-1 for the
construction and installation of the Base Building Improvements for the
Building.
1.4 "Subtenant Improvements" shall mean the improvements constructed and
----------------------
installed in the Premises by Sublandlord in accordance with the Subtenant
Improvement Working Drawings.
1.5 "Subtenant Improvement Plan" shall mean the space plan for the
--------------------------
Subtenant Improvements attached hereto as Exhibit C-2.
<PAGE>
1.6 "Improvements" shall mean the combined Base Building Improvements and
------------
the Subtenant Improvements.
1.7 "Punch List Items" shall mean minor details of construction or
----------------
decoration or mechanical adjustments that do not materially interfere with
Subtenant's occupancy of the Premises for the use of the Premises as provided in
the Sublease.
1.8 "Contractor" shall mean IN:SITE Design Build Associates.
----------
1.9 "Architect" shall mean IN:SITE Design Build Associates.
---------
1.10 "Sublandlord's Allowance" shall mean the up to Twenty-five dollar
-----------------------
($25) per rentable square foot amount set forth in Section 19 of the Sublease.
1.11 "Sublandlord's Additional Allowance" shall mean the up to Fifteen
----------------------------------
dollar ($15) amount set forth in Section 19 of the Sublease to be repaid by
Subtenant monthly, as additional rent, in an amount calculated by fully
amortizing the Sublandlord's Additional Allowance over the remaining Sublease
Term with interest at ten percent (10%) per annum. If additional rent is due by
Subtenant's use of the Sublandlord's Additional Allowance, the parties will
execute an amendment to the Sublease to set forth the increased amount.
1.12 "Allowance" shall mean the combined Sublandlord's Allowance and
---------
Sublandlord's Additional Allowance representing Sublandlord's contribution
(subject to reimbursement of the Additional Allowance as set forth in Section 19
of the Sublease) toward the construction of the Subtenant Improvements to be
applied toward all expenses associated with the construction, space planning,
engineering, construction drawings, construction management, signage and other
necessary permits directly associated with the Subtenant Improvements. Under no
circumstances shall the Allowance be used for Subtenant's due diligence review
of the Premises (or this Sublease) nor the design, acquisition or planning costs
of Subtenant's personal property, furniture, trade fixtures or equipment.
1.13 "Subtenant Improvement Costs" shall mean the total cost of (i) the
---------------------------
preparation of the Subtenant Improvement Working Drawings, (ii) the construction
and installation of the Subtenant Improvements, (iii) payment to Sublandlord of
a fee equal to three percent (3%) times the total amount of the foregoing items,
for services in supervising and administering the construction and installation
of the Subtenant Improvements and (iv) all other construction costs associated
improving the Premises for Subtenant's occupancy excluding the Base Building
Improvements.
1.14 "Subtenant Costs" shall mean the excess, if any, between the approved
---------------
Subtenant Improvement Cost Estimate (as defined in 2.2) as the same may be
adjusted by Change Orders to the Improvements requested or approved by
Subtenant, over the Allowance.
1.15 "Substantial Completion of the Improvements in the Premises" shall
----------------------------------------------------------
mean when Architect has furnished Sublandlord with a certificate that the
Improvements work to be done by Contractor in the Premises has been
substantially completed for Subtenant's occupancy of the
-2-
<PAGE>
Premises except for Punch List Work and Sublandlord has obtained such
governmental permits and approvals as may be required for Subtenant's occupancy
of the Premises.
Section 2. DRAWINGS AND SPECIFICATIONS
2.1 Approval of Base Building Plans. The Base Building Plans attached
-------------------------------
hereto are hereby approved by the parties for construction.
2.2 Subtenant Improvement Working Drawings. The Subtenant Improvement
--------------------------------------
Plans attached to this Work Letter as Exhibit C-1 are preliminary plans and
specifications for the construction of the Subtenant Improvements. These
Subtenant Improvement Plans are hereby approved by Sublandlord and Subtenant.
Sublandlord will cause to be prepared and delivered to Subtenant within ten (10)
days of the final execution of this Work Letter, or as soon as reasonably
possible thereafter, final plans and specifications and working drawings for the
construction of the Subtenant Improvements that will include structural, fire
protection, mechanical and electrical working drawings, and final architectural
drawings for the Subtenant Improvements (collectively, "Subtenant Improvement
Working Drawings"). The Subtenant Improvement Working Drawings will
substantially conform to the Subtenant Improvement Plans. No later than five
(5) business days following Subtenant's receipt thereof, Subtenant must either
approve the Subtenant Improvement Working Drawings or set forth in writing with
particularity any changes necessary to bring the Subtenant Improvement Working
Drawings into substantial conformity with the Subtenant Improvement Plans.
However, Subtenant will not object to any logical development or refinement of
the Subtenant Improvement Plans or any changes necessitated by applicable law.
Failure of Subtenant to deliver to Sublandlord written notice of disapproval and
the required changes within said five business day period will constitute and be
deemed approval of the Subtenant Improvement Working Drawings. Sublandlord
shall resubmit any disapproved plan to Subtenant for approval within three (3)
business days. The above process will be repeated until the Subtenant
Improvement Working Drawings are approved by Subtenant. Upon approval, actual
or deemed, of the Subtenant Improvement Working Drawings by Sublandlord and
Subtenant, the final drawings and specifications will be referred to as the
Approved Working Drawings.
2.3 Determination of Subtenant Improvement Costs. Within ten (10) days
--------------------------------------------
from approval of the Approved Working Drawings, Sublandlord shall obtain from
the Contractor the estimated amount of the Subtenant Improvement Costs which
shall include all Contractor's fees and overhead ("Subtenant Improvement Cost
Estimate") and shall submit the amount to Subtenant for Subtenant's approval.
If Subtenant fails to notify Sublandlord of its disapproval within three (3)
business days after submission by Sublandlord to Subtenant of the amount of the
Subtenant Improvement Cost Estimate, Subtenant shall be deemed to have given
Subtenant's approval thereto. If Subtenant disapproves the Subtenant
Improvement Cost Estimate, Subtenant shall work diligently with the Architect
and Contractor, and within ten (10) business days after submission by
Sublandlord to Subtenant of the Subtenant Improvement Cost Estimate, shall cause
the Approved Working Drawings to be revised as necessary to cause the Subtenant
Improvement Cost Estimate to be approved by Subtenant. The cost of any such
modifications to the Working Drawings and any modifications to the Base Building
Improvements resulting from such changes shall be included in
-3-
<PAGE>
Subtenant Improvement Costs. Upon approval by Subtenant of the amount of the
Subtenant Improvement Cost Estimate, and approval by Sublandlord of any
revisions to the Approved Working Drawings made to cause the amount of the
Subtenant Improvement Cost Estimate to be approved by Subtenant, Sublandlord
shall be deemed to have been authorized to proceed through Contractor with the
work of constructing and installing the Subtenant Improvements in accordance
with the Working Drawings and to disburse the Allowance and Subtenant Additional
Allowance in accordance with Section 3 below for all Subtenant Improvement
Costs. Sublandlord intends to execute a guaranteed maximum price construction
contract in the amount of the Subtenant Improvement Cost Estimate with
Contractor relating to construction of the Improvements.
2.4 Revisions to Approved Working Drawings. If at any time after the
--------------------------------------
Subtenant Improvement Cost Estimate is determined and approved by Subtenant,
Subtenant desires to make revisions to the Working Drawings, Subtenant shall
submit such changes to Architect who shall, at Subtenant's cost, promptly
prepare proposed working drawings and specifications containing all such desired
revisions, as a Subtenant requested Change Order. Sublandlord shall promptly
review such drawings and specifications and shall notify Subtenant of any
comments thereon or proposed revisions thereto within ten (10) days after
receiving such drawings and specifications. Subtenant shall resubmit to
Architect any such requested changes which are not approved by Sublandlord
within five (5) days after Sublandlord's disapproval, with accommodation of the
revisions requested by Sublandlord. Upon Sublandlord approval of the drawings
and specifications, such drawings and specifications shall constitute the
Approved Working Drawings. Upon approval by Sublandlord of any such revisions,
Sublandlord shall obtain promptly from Contractor the amount of any adjustment
in the Subtenant Improvement Cost Estimate resulting from such revisions, as
well as any Commencement Date Rent delay costs (or savings) resulting from such
Change Order, and submit the amount thereof to Subtenant for Subtenant's
approval. The procedure for approving any such adjustment and its related cost
shall be the same as approving the Subtenant Improvement Cost Estimate. Once
any adjustment and its related cost have been approved by Subtenant, Subtenant
shall be deemed to have given full authorization to Sublandlord, through its
contract with Contractor, to proceed with the work of constructing and
installing the Subtenant Improvements in accordance with the Approved Working
Drawings, as revised.
Section 3. PAYMENT OF COSTS
3.1 Sublandlord's Costs. Sublandlord shall pay all the Subtenant
-------------------
Improvement Costs up to, but not exceeding: the Sublandlord's Allowance; the
Sublandlord's Additional Allowance (subject to reimbursement as set forth above
and Section 3.2); provided Sublandlord's Costs shall include any Change Order
requested and approved by Sublandlord. Architect and Contractor shall submit
duplicate invoices to Sublandlord and Subtenant. Sublandlord shall disburse the
Allowance and any Subtenant's Costs amounts to pay the Subtenant Improvement
Costs, as and when the same become due and payable based upon such invoices and
fee statements. Sublandlord shall be entitled to rely on the accuracy of all
invoices and fee statements for labor performed or materials furnished in
connection with the Subtenant Improvements and to rely on any certification as
to the Subtenant Improvement Costs submitted by Contractor or Architect. The
obligation of Sublandlord to make any one or more payments pursuant to this Work
Letter or to proceed with the construction of the
-4-
<PAGE>
Improvements shall be suspended without further act of the parties during any
such time as there exists any event of Default or Breach under the Sublease or
any event or condition which, with the passage of time or the giving of notice
or both would constitute such a Default. Nothing in this Work Letter shall
affect the obligations of Subtenant under the Sublease with respect to any
alterations, additions and improvements within the Premises, including, without
limitation, any obligation to obtain the prior written consent of Sublandlord
thereto.
3.2 Subtenant's Costs. Subtenant shall pay Subtenant's Costs within ten
-----------------
(10) days after Subtenant's receipt of Sublandlord's invoice upon Substantial
Completion of the Subtenant Improvements and Sublandlord's delivery of
Possession of the Premises to Subtenant. Sublandlord's final invoice shall
include a final and detailed accounting of all Subtenant Costs paid by
Sublandlord. For a period of thirty days following delivery of such invoice,
Subtenant may review the books, records and supporting documents of Sublandlord
with respect to the Subtenant Improvement Costs to the extent necessary to
satisfy Subtenant as to the accuracy of such accounting, during normal business
hours after giving Sublandlord at least forty-eight (48) hours written notice.
3.3 Failure to Pay Subtenant's Costs. Failure by Subtenant to pay
--------------------------------
Subtenant's Costs in accordance with this Work Letter within ten (10) days of
Sublandlord's invoice will constitute a failure by Subtenant to pay Rent when
due under the Lease and shall therefore constitute a Default by Subtenant under
the Lease, and Sublandlord shall have all of the remedies available to it under
this Lease for nonpayment of rent.
Section 4. CONSTRUCTION
4.1 Construction of Improvements. Promptly following finalization and
----------------------------
approval of the Subtenant Improvement Cost Estimate, Sublandlord will apply for
and use diligent efforts to obtain the necessary permits and approvals to allow
construction of the Improvements ("Permits"). Sublandlord shall execute a
construction contract with Contractor who will diligently construct and complete
the Improvements substantially in accordance with Approved Working Drawings.
Sublandlord specifically reserves the right to make at any time and from time to
time during the construction of the Improvements, any changes to the Approved
Working Drawings necessary to obtain any Permit or to comply with all applicable
regulations, laws, ordinances, codes and rules or to achieve the compatibility,
as reasonably determined by Sublandlord, of the Approved Working Drawings with
the shell and the core and the mechanical, plumbing and electrical systems of
the Building, the Base Building Improvements, and any third-party warranties.
4.2 Condition of Improvements. Contractor's construction contract shall
-------------------------
provide that all work performed by Contractor will be performed in a good and
proper manner, will be of good quality and free from defects in materials and
workmanship, and will be completed in substantial compliance with the Approved
Working Drawings, as the same may have been modified by approved changes or
other revisions, alterations or additions approved hereunder. Subtenant and its
representatives shall have the right to inspect the work in progress, provided
that Subtenant does not interfere with the progress of the work.
-5-
<PAGE>
4.3 Punch List Work. Substantial Completion will have occurred
---------------
notwithstanding Architect's submission of a punch list to Contractor. Subtenant
may add items to the punch list at any time within thirty (30) days after the
Commencement Date. Sublandlord will cause Contractor to diligently complete any
Punch List Items no later than thirty (30) days after the Premises are
Substantially Complete, or thirty (30) days after Subtenant's notice as the case
may be, except for those items which would reasonably require in excess of
thirty (30) days to complete which items Contractor shall commence to complete
during said thirty day period and shall diligently prosecute to completion.
4.4 Warranties. Sublandlord shall obtain from Architect and Contractor
----------
and appropriate subcontractors commercially reasonable warranties of all work on
the Improvements that may be assigned in whole or in part to Subtenant that the
Improvements are in conformance with Applicable Requirements and free from
defects in workmanship or materials for a period of no less than one year from
the date of Substantial Completion thereof. Sublandlord shall assign all
Contractor and equipment vendor warranties to Subtenant as of the Substantial
Completion of such Improvements.
4.5 Subtenant's Work. All work in or about the Premises which is not
----------------
within the scope of the work necessary to construct and install the
Improvements, such as delivering and installing furniture, telephone equipment,
trade fixtures, wiring and office equipment, shall be furnished and installed by
Subtenant at Subtenant's cost and expense and shall be governed by Section 7.3
of the Master Lease (as incorporated into the Sublease). Subtenant shall adopt
a schedule, approved in advance by Sublandlord, for performing such additional
work consistent with the schedule of Contractor and shall see that such work is
conducted in such a manner as to maintain harmonious labor relations (including
the use of union labor) and as not to interfere unreasonably with or to delay
the work of constructing or installing the Subtenant Improvements. Sublandlord
shall give access and entry to the Premises to Subtenant and its contractors
performing such additional work and shall give reasonable opportunity and time
to enable Subtenant and such contractors to perform and complete such work.
Upon and following any entry into the Premises by Subtenant prior to the
Commencement Date of the Lease Term, Subtenant shall perform all of the
obligations pertaining to insurance, indemnity, compliance with laws and
hazardous materials and Utility Installation, Trade Fixtures and Alterations.
In addition to the indemnity obligations under the Lease, and except to the
extent caused by the active or gross negligence or willful misconduct of
Sublandlord or any of its agents, employers or contractors, Subtenant shall
indemnify, defend and protect Sublandlord and hold Sublandlord harmless from any
and all claims, proceedings, loss cost, damage death of persons or damage to
property occurring or resulting directly from the presence in the Premises or
the Building of Subtenant or its representatives in or about the Premises or
Building during the construction period, such indemnity to include without
limitation the obligation to provide all costs of defense against any such
claims, but shall be subject to the waiver of subrogation provisions of the
Master Lease as incorporated into the Sublease. All such additional work and
Subtenant's use of the Premises for such purposes shall be performed in
accordance with the Lease.
-6-
<PAGE>
Section 5. DELIVERY OF POSSESSION OF THE PREMISES
5.1 Delivery of Possession. Sublandlord shall be deemed to have delivered
----------------------
Possession of the Premises to Subtenant on the date on which (i) the Substantial
Completion of the Improvements in the Premises has been certified by Architect
subject only to completion of Punch List Items, (ii) Tenant has direct access
from the street to the Premises; and (iii) Building services are ready to be
furnished to the Premises.
5.2 Delays in Delivery of Possession. Sublandlord shall exercise due
--------------------------------
diligence to cause Sublandlord's Contractor to cause Substantial Completion of
the Improvements in the Premises to occur on the Estimated Commencement Date.
If, for any reasons whatsoever, Possession has not occurred by the Estimated
Commencement Date, this Sublease shall not be void or voidable, nor shall
Sublandlord be liable for any loss or damages suffered by Subtenant; provided
however, that Rent shall be abated until the Commencement Date and, provided
further, that if Possession of the Premises has not been delivered to Subtenant
on or before May 1, 2000, Subtenant may, at any time thereafter but prior to the
delivery of Possession, terminate the Sublease in accordance with Section 3 of
the Sublease.
5.3 Approvals by Sublandlord or Subtenant. Any approval by Sublandlord or
-------------------------------------
Subtenant of or consent by Sublandlord or Subtenant to any plans, specifications
or other items to be submitted to and/or reviewed by Sublandlord or Subtenant
for the Subtenant Improvements pursuant to this Sublease shall be deemed to be
strictly limited to an acknowledgment of approval or consent by Sublandlord or
Subtenant thereto and such approval or consent shall not constitute the
assumption by Sublandlord or Subtenant of any responsibility for the accuracy,
sufficiency or feasibility of any plans, specifications or other such items and
shall not imply acknowledgment, representation or warranty by Sublandlord or
Subtenant that the design is safe, feasible, structurally sound or will comply
with any legal or any governmental requirements.
5.4. Subtenant's Delay. Intentionally Deleted.
-----------------
Section 6. MISCELLANEOUS.
6.1 Subtenant's Representative. Subtenant hereby designates Mona Keast as
--------------------------
its sole representative with respect to the matters set forth in this Work
Letter, who shall have full authority and responsibility to act on behalf of the
Subtenant as required in this Work Letter, and Sublandlord shall be entitled to
rely upon the decisions and agreements made by such representative as binding
upon Subtenant.
6.2 Sublandlord's Representative. Sublandlord hereby designates Jim
----------------------------
Patrick as its sole representatives with respect to the matters set forth in
this Work Letter, who, until further notice to Subtenant, shall have full
authority and responsibility to act on behalf of the Sublandlord as required in
this Work Letter.
6.3 Subtenant's Sublease Default. Notwithstanding any provision to the
----------------------------
contrary contained in this Sublease, if a Default or Breach as described in the
Sublease or a Default by
-7-
<PAGE>
Subtenant under this Work Letter has occurred at any time on or before the
Commencement Date, then until such time as such Default or Breach is cured
pursuant to the terms of this Sublease (during which time Subtenant shall be
responsible for any delay in the Commencement Date caused by such inaction by
Sublandlord): (i) in addition to all other rights and remedies granted to
Sublandlord pursuant to the Sublease, Sublandlord shall have the right to
suspend construction of the Improvements and withhold payment of all or any
portion of the Sublandlord's Allowance, and (ii) all other obligations of
Sublandlord under the terms of this Work Letter shall be suspended.
6.4 Merger. The provisions of this Work Letter are deemed incorporated
------
into the Sublease and together shall be interpreted as one document; provided,
however, that if there is any conflict between the terms and provisions of this
Work Letter and the remainder of the Sublease, the terms and provisions of this
Work Letter shall control. Except as expressly set forth in this Work Letter,
Sublandlord has no other agreement with Subtenant and has no other obligation to
do any work or pay any amounts with respect to the Premises. Any other work in
the Premises which may be permitted by Sublandlord pursuant to the terms and
conditions of the Sublease shall be done at Subtenant's sole cost and expense
and in accordance with the terms and conditions of the Sublease.
6.5 Applicability of Work Letter. This Work Letter shall not be deemed
----------------------------
applicable to any additional space added to the original Premises at any time or
from time to time, whether by any options under the Sublease or otherwise, or to
any portion of the original Premises or any additions thereto in the event of
damage or destruction of the Premises, condemnation of the Premises, or renewal
or extension of the initial term of the Sublease, whether by any options under
the Sublease or otherwise, unless expressly so provided in the Sublease or any
amendment or supplement thereto.
6.6 Completion of Building. The Premises may be deemed Substantially
----------------------
Complete even though improvements in certain portions of the Building have not
been fully completed (so long as such does not interfere with Tenant's efficient
conduct of its business), and even though Tenant's personal property may have
not been installed.
IN WITNESS WHEREOF, the parties have executed this Work Letter as of the
date of the Sublease.
"Sublandlord": Patrick & Co., Inc., "Subtenant": Andromedia, Inc.,
a California corporation a California corporation
/s/ Jamie T. Patrick /s/ Stephen Ghiglieri
- -------------------- ---------------------
Jamie T. Patrick Stephen Ghiglieri, Chief Financial
Date: August 16, 1999 Officer
Date: August 16, 1999
-8-
<PAGE>
EXHIBIT C-1
The following drawings prepared by IN:SITE Design Build Associates are
hereby incorporated herein by reference as the Base Building Plans:
A-0.0 dated 5/25/99. Prepared by IN:SITE Design Build Associates.
A-0.1, A-0.2, 0A-1.0, 1A-1.0, 2A-1.0, 3A-1.0, 4A-1.0, 5A-1.0, 6A-1.0, 7A-1.0,
8A-1.0, A-2.0, A-2.2, A-3.0, A-4.0, A-5.0, A-6.0, A-7.0 dated 4/2/99. Prepared
by IN:SITE Design Build Associates.
M-1.0, M-1.1, M-2, M-3 dated 5/6/99. Prepared by Laws & Associates, Inc.
S-14 dated 5/6/99. Prepared by Vahdani & Associates Inc. E-0, E-1, E-2, E-3, E-
4, E-5, E-6 dated 4/29/99. Prepared by Randall Lamb & Associates.
<PAGE>
EXHIBIT C-2
The following drawings prepared by IN:SITE Design Build Associates are
hereby incorporated herein by reference as the Tenant Improvement Plans:
3A-0.0, 3A-1.0, 3A-2.0, 3A-3.0, 3A-4.0,4A-0.0, 4A-1.0, 4A-2.0, 4A-3.0, 4A-4.0,
5A-0.0, 5A-1.0, 5A-2.0, 5A-3.0, SA-4.0, 6A-0.0, 6A-1.0, 6A-2.0, 6A-3.0, 6A-4.0,
7A-0.0, 7A-1.0, 7A-2.0, 7A-3.0, 7A-4.0 All dated July 20, 1999 and prepared by
IN:SITE Design Build Associates.
<PAGE>
Commencement Date Memorandum -- Exhibit D
[Date]
Patrick & Co., Inc.
563 Mission Street
San Francisco, CA 94105
Attn: James Patrick
Re: Sublease Dated August 12, 1999 ("Sublease") Between Patrick & Co.,
Inc. ("Sublandlord") and Andromedia, Inc. ("Subtenant")
Dear Mr. Patrick:
With respect to the sublease ("Sublease") between Andromedia, Inc.,
("Subtenant") and Patrick & Co., Inc. ("Sublandlord") by which Sublandlord
leased to Subtenant and Subtenant leased from Sublandlord approximately 27,500
rentable square feet of the building located at 611 Mission Street, San
Francisco, CA ("Premises") in accordance with a Sublease dated August 12, 1999,
Subtenant acknowledges and certifies to Sublandlord as follows:
(1) The Sublease commenced on _____________ [date of commencement]
("Commencement Date");
(2) Subtenant has accepted and is currently in possession of the Premises.
(3) The Rentable Area is ___________________.
(4) [Based on the (increase/decrease) of the Rentable Area, the Minimum
Rent, Security Deposit, Subtenant's Share, Subtenant Improvement Allowance, etc.
are as follows:]
In Witness Whereof, this Commencement Date Memorandum is executed on
____________ [date].
"Subtenant" Andromedia, Inc.,
a California corporation
- --------------------------------------------
Stephen Ghiglieri, Chief Financial Officer
<PAGE>
NEITHER THIS SECURITY NOR THE UNDERLYING SECURITIES HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND NEITHER MAY BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER
THE ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE FOR SUCH OFFER, SALE, OR TRANSFER, PLEDGE OR HYPOTHECATION IN THE
OPINION OF LEGAL COUNSEL REASONABLY SATISFACTORY TO THE COMPANY.
WARRANT
To Purchase Shares of Common Stock of
ANDROMEDIA, INC.
(July __, 1999)
THIS CERTIFIES that, for value received, _____________________ (the
"Registered Holder"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe for and purchase from Andromedia, Inc., a
California corporation (the "Company"), shares of the Company's common stock as
follows: This Warrant will be exercisable for a total of 30,000 shares of
Common Stock at a price per share equal to $15.00 (the "Exercise Price"),
subject to the provisions and upon the terms and conditions hereinafter set
forth. This Warrant expires, if not exercised earlier, at 5:00 P.M. (PST) on
July ___, 2001 (the "Expiration Date").
1. Title of Warrant. Prior to the Expiration Date and subject to
----------------
compliance with applicable laws, this Warrant and all right hereunder are
transferable, in whole or in part, at the office of the Company or its transfer
agent by the bolder hereof in person or by duly authorized attorney, upon
surrender of this Warrant and the execution and delivery of such other documents
by the transferor and transferee as may be required by the terms and conditions
hereinafter set forth.
2. Method of Exercise; Payment.
---------------------------
(a) Cash Exercise. The purchase rights represented by this Warrant
-------------
may be exercised prior to the Expiration Date by the Registered Holder, in whole
or in part, by the surrender of this Warrant (with the notice of exercise form
(the "Notice of Exercise") attached hereto as Exhibit A duly executed) at the
---------
principal office of the Company, and by the payment to the Company of an amount
of cash (U.S. Dollars) equal to the Exercise Price multiplied by the number of
shares of Common Stock being purchased, which amount may be paid, at the
election of the Registered Holder, by wire transfer or certified check payable
to the order of the Company. The person or persons in whose name(s) any
certificate(s) representing Common Stock issuable upon exercise of this Warrant
shall be deemed to have become the holder(s) of record of, and shall be
<PAGE>
treated for all purposes as the record holder(s) of, the Common Stock
represented thereby (and such Common Stock shall be deemed to have been issued)
immediately prior to the close of business on the date or dates upon which this
Warrant is exercised.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant
------------------
to Section 2(a) hereof, the Registered Holder may elect to receive Common Stock
in an amount equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with the Notice of Exercise in which alternative
No. 1 is initialed by the Registered Holder. In such event, the Company shall
issue to the Holder a number of shares of Common Stock computed using the
following formula:
Y(A-B)
X = -----
A
Where X = the number of shares of Common Stock to be issued to the
Registered Holder.
Y = the aggregate number of shares of Common Stock requested to be
exercised under this Warrant and thereafter canceled.
A = the fair market value of one share of the Company's Common Stock
(at the date of such exercise).
B = The Exercise Price (as adjusted to the date of such calculation).
For the purposes of the above calculation, the fair market value shall mean
with respect to each share of the Company's Common Stock:
(i) the average of the closing bid and asked prices of the
Company's Common Stock quoted in the over-the-counter market summary or the
closing price quoted on any exchange on which the Common Stock is listed,
whichever is applicable, as published in the Western Edition of the Wall Street
-----------
Journal for the ten (10) trading days immediately prior to but not including the
- -------
date of determination of the fair market value; or
(ii) if the Company's common stock is not traded over-the-counter
or on an exchange, the fair market value shall be determined in good faith by
the Company's Board of Directors. Receipt and acknowledgment of this Warrant by
the Registered Holder shall be deemed to be an acknowledgment and acceptance of
any such fair market value determination by the Company's Board of Directors as
the final and binding determination of such value for purposes of this Warrant.
(c) Stock Certificates. In the event of any exercise of the rights
------------------
represented by this Warrant, certificates for the shares of Common Stock so
purchased shall be delivered to the Registered Holder within a reasonable time
and, unless this Warrant has been fully exercised or has expired, a new Warrant
representing the shares with respect to which this Warrant shall not have been
exercised shall also be issued to the Registered Holder within such time. The
Company
-2-
<PAGE>
covenants that all shares of stock which may be issued upon the exercise of
rights represented by this Warrant will, upon exercise of the rights represented
by this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (other than taxes with respect to any transfer occurring
contemporaneously with such issue).
3. No Fractional Shares or Scrip. No fractional shares or scrip
-----------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant.
4. Charges, Taxes and Expenses. Issuance of certificates for shares of
---------------------------
Common Stock upon the exercise of this Warrant shall be made without charge to
the Registered Holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the Registered Holder of this Warrant or in such name or names as
may be directed by the Registered Holder of this Warrant; provided, however,
that upon any transfer involved in the issuance or delivery of any certificates
for shares of Common Stock, the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax payable in
connection therewith.
5. No Rights as Shareholders. This Warrant does not entitle the
-------------------------
Registered Holder hereof to any voting rights or other rights as a shareholder
of the Company prior to the exercise hereof.
6. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
--------------------------------
the surrender hereof by the Registered Holder at the above-mentioned office of
the Company or its transfer agent, for a new Warrant of like tenor and dated as
of such exchange. The Company shall maintain at the above-mentioned office or
agency a registry showing the name and address of the Registered Holder. This
Warrant may be surrendered for exchange, transfer or exercise, in accordance
with its terms, at such office or agency of the Company, and the Company shall
be entitled to rely in all respects, prior to written notice to the contrary,
upon such registry.
7. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
-------------------------------------------------
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
8. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
---------------------------------
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
-3-
<PAGE>
9. Adjustment of Exercise Price and Number of Exercise Shares. The
----------------------------------------------------------
number of shares of Common Stock for which this Warrant is exercisable and the
Exercise Price are subject to adjustment from time to time upon the occurrence
of certain events, as follows:
(a) Reclassification; Consolidation or Merger. In case of any
-----------------------------------------
reclassification, reorganization, consolidation or merger of the Company with or
into another entity or the sale of all or substantially all of the Company's
assets (whereby the shareholders of the Company immediately prior to such
transaction or series of related transactions own less than 50% of the voting
power of the successor or purchasing entity immediately following such
transaction or series of related transactions), the Company, or such successor
or purchasing corporation as the case may be, shall execute a new Warrant,
providing that the holder of this Warrant shall have the right to exercise such
new Warrant, and procure upon such exercise and payment of the same aggregate
Exercise Price, in lieu of the Shares of Common Stock theretofore issuable upon
exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification,
reorganization, consolidation, merger or asset sale by a holder of an equivalent
number of shares of Common Stock. Such new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section 9. The provisions of this Section 9(a) shall
similarly apply to successive reclassifications, reorganizations,
consolidations, mergers or asset sales.
(b) Subdivision or Combination of Shares. If the Company at any time
------------------------------------
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Common Stock, the Exercise Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination.
(c) Stock Dividends. If the Company at any time while this Warrant is
---------------
outstanding and unexpired shall pay a dividend with respect to Common Stock
payable in, or make any other distribution with respect to, Common Stock (except
any distribution specifically provided for in the foregoing Sections 9(a) or
9(b)), then the Exercise Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Exercise Price in effect immediately
prior to such date of determination by a fraction (1) the numerator of which
shall be the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution, and (2) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately after such
dividend or distribution.
(d) Adjustment of Number of Shares. Upon each adjustment in the
------------------------------
Exercise Price pursuant to Sections 9(a)-(c) hereof, the number of shares of
Common Stock purchasable hereunder shall be adjusted, to the nearest whole
share, to the product obtained by multiplying the number of shares of Common
Stock purchasable hereunder immediately prior to such adjustment in the Exercise
Price by a fraction, the numerator of which shall be the Exercise Price
immediately prior to such adjustment and the denominator of which shall be the
Exercise Price immediately thereafter.
(e) Certificate as to Adjustment. In each case of any adjustment in
----------------------------
either the Exercise Price or in the number of shares of Common Stock, or other
stock, securities or property
-4-
<PAGE>
receivable on the exercise of this Warrant, the Chief Financial Officer of the
Company shall compute such adjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment and showing in
detail the facts upon which such adjustment is based, including a statement of
the adjusted Exercise Price and the adjusted number of shares of Common Stock
subject to this Warrant. The Company will cause copies of such certificate to be
mailed (by first class mail, postage prepaid) to the Registered Holder.
10. Representations and Warranties; Restrictions on Transfer; Market
----------------------------------------------------------------
Stand-Off.
- ---------
a) Representations and Warranties of Registered Holder. The
---------------------------------------------------
Registered Holder understands that neither this Warrant nor the shares of Common
Stock issuable hereunder have been registered under the Securities Act of 1933
(the "Securities Act") or any state securities laws. As a condition to the
issuance of this Warrant and to its exercise, the Registered Holder hereby
represents and warrants to the Company that:
(i) The Warrant and, if applicable, the shares of Common Stock
(collectively, the "Securities") have been acquired by the Registered Holder for
investment and not with a view to the sale or other distribution thereof or
within the meaning of the Securities Act and the Registered Holder has no
present intention of selling or otherwise disposing all or any portion of the
Securities.
(ii) The Registered Holder has acquired the Securities for the
Registered Holder's own account only and no one else has any beneficial
ownership in the Securities.
(iii) The Registered Holder is capable of evaluating the merits
and risks of any investment in the Securities, is financially capable of bearing
a total loss of this investment and has either: (i) a preexisting personal or
business relationship with the Company or its principals or (ii) by reason of
the Registered Holder's business or financial experience, has the capacity to
protect his or its own interests in connection with this investment.
(iv) The Registered Holder has had access to all information
regarding the Company, its present and prospective business, assets, liabilities
and financial condition that the Registered Holder considers important to making
the decision to acquire the Securities and has had ample opportunity to ask
questions of and receive answers from the Company's representatives concerning
an investment in the Securities and to obtain any and all documents requested in
order to supplement or verify any of the information supplied.
(v) The Registered Holder understands that the Securities shall
be deemed restricted securities under the Securities Act and may not be resold
unless they are registered under the Securities Act and any applicable state
securities law, or in the opinion of counsel in form and substance satisfactory
to the Company, an exemption from such registration is available.
(vi) The Registered Holder is aware of Rule 144, as amended,
promulgated under the Securities Act which currently provides, in substance,
that: (i) after one year from the date restricted securities have been
purchased and fully paid for, a holder may transfer restricted
-5-
<PAGE>
securities provided certain conditions are met (e.g., certain public information
is available about the Company), and specific limitations on the amount of
shares which can be sold within certain periods and the manner in which such
shares must be sold are complied with; and (ii) after two years from the date
the securities have been purchased and fully paid for, holders who are not
"affiliates" of the Company may sell restricted securities without satisfying
such conditions.
(vii) The Registered Holder further understands that if the
requirements of Rule 144 are not met, registration under the Securities Act,
compliance with Regulation A, or some other registration exemption will be
required for any disposition of the Securities; and that, although Rule 144 is
not exclusive, the Securities and Exchange Commission ("SEC") has expressed its
opinion that persons proposing to sell restricted securities other than in a
registered offering or other than pursuant to Rule 144 will have a substantial
burden of proof in establishing that an exemption from registration is available
for such offers or sales and such persons and the brokers who participate in the
transactions do so at their own risk.
(b) Restrictions on Transfer. The Registered Holder, by acceptance
------------------------
hereof, agrees that, absent an effective registration statement filed with the
SEC under the Securities Act, covering the disposition or sale of this Warrant
or the Common Stock issued or issuable upon exercise hereof, such Registered
Holder will not sell or transfer any or all of such Common Stock without first
providing the Company with an opinion of counsel satisfactory to the Company to
the effect that such sale or transfer will be exempt from the registration and
prospectus delivery requirements of the Securities Act, and such Registered
Holder consents to the Company making a notation in its records, or giving
instructions to any transfer agent of this Warrant, or such Common Stock, in
order to implement such restriction on transfer. The shares issued upon
exercise of this Warrant shall bear legends referring to the restrictions on
transfer set forth in this Section 10. As a condition to the transfer of this
Warrant or transfer of the shares issuable on exercise hereof, any permitted
transferee must execute and deliver to the Company representations and
warranties similar to these set forth in this Section 10 and agree in writing to
accept and be bound by all the terms and conditions of this Warrant including
but not limited to Section 10(c) below.
(c) Market Stand-Off. The Registered Holder agrees that, if, in connection
----------------
with Company's first registered public offering of its securities under the
Securities Act (other than in a Rule 145 transaction or a registration relating
solely to employee benefit plans of the Company), the Company or the
underwriters managing the offering so request, the Registered Holder shall not
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any shares of Common Stock of the Company issued or
issuable upon exercise of this Warrant without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time not to
exceed 180 days from the effective date of such registration. The Registered
Holder further agrees to execute any lock-up agreement in furtherance of the
foregoing as the underwriters managing the offering may so request.
11. Miscellaneous.
-------------
(a) Issue Date. The provisions of this Warrant shall be construed and
----------
shall be given effect in all respects as if it had been issued and delivered by
the Company on the date hereof.
-6-
<PAGE>
(b) Authorized Shares. The Company covenants that during the period
-----------------
the Warrant is exercisable, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of Common
Stock upon the exercise of any purchase rights under this Warrant, including
taking all actions necessary to increase the authorized number of shares of
Common Stock by a sufficient number of shares in the event this Warrant is
exercisable for shares of Common Stock and the Company does not have a
sufficient number of authorized shares of Common Stock. The Company further
covenants that its issuance of this Warrant shall constitute full authority to
its officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of the Company's Common
Stock upon the exercise of the purchase rights under this Warrant.
(c) No Impairment. The Company will not, by amendment of its
-------------
Certificate of Incorporation or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder hereof against impairment.
(d) Notices of Record Date. In case:
----------------------
(i) the Company shall take a record of the holders of its
Common Stock for the purposes of entitling them to receive any dividend (other
than a cash dividend) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares or stock of any class or any other
securities or property, or to receive any other right; or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation; or
(iii) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in each such case, the Company will mail or cause to be mailed to
the holder of this Warrant a notice specifying, as the case may be, (i) the date
on which a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend, distribution or
right, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up. Such notice shall be mailed at least thirty (30) days prior to the
date therein specified.
12. Attorneys' Fees. In the event any party is required to engage the
---------------
services of attorneys for the purpose of enforcing this Warrant or any provision
thereof, the prevailing party shall be entitled to recover its reasonable
attorneys' fees and any other related cost or expenses.
-7-
<PAGE>
13. Headings. The headings in this Warrant are for purposes of
--------
convenience only, and shall not be deemed to constitute a part hereof.
14. Governing Law. This Warrant shall constitute a contract under the
-------------
laws of the State of California and shall be construed and enforced in
accordance with, and governed by, the internal laws of the State of California,
excluding that body of law applicable to conflicts of laws.
15. Terms Binding. This Warrant shall be binding upon any successors or
-------------
assigns of the Company. By acceptance of this Warrant, the Registered Holder
(and each subsequent assignee, transferee or Registered Holder) accepts and
agrees to be bound by all the terms and conditions of this Warrant.
[Execution Page Follows]
-8-
<PAGE>
IN WITNESS WHEREOF, Andromedia, Inc. has caused this Warrant to be executed
by the duly authorized officer below.
Dated: July __, 1999
ANDROMEDIA, INC.,
a California corporation
By:_____________________________
Name:___________________________
Title:__________________________
<PAGE>
Re: Notice and Consent of Assignment
--------------------------------
Ladies and Gentlemen:
Reference is hereby made to that certain Sublease Agreement, dated August
17, 1999 by and between Andromedia, Inc. and Patrick & Company (the "Sublease").
As you may know, Andromedia, Inc., a California corporation, has decided to
reincorporate under the laws of the State of Delaware (the "Reincorporation").
Although the Reincorporation does not constitute a change in control of the
business of, or the beneficial ownership interest in, Andromedia, as a matter of
law, all rights and obligations of Andromedia, Inc., a California corporation
("Andromedia California"), will be assigned to Andromedia, Inc., a Delaware
corporation ("Andromedia Delaware"). Andromedia Delaware will continue to
operate as Andromedia did before the Reincorporation and will honor all of its
contracts and obligations entered into before the Reincorporation. Andromedia
hereby provides you with notice of the Reincorporation.
The undersigned, as a duly authorized officer of Andromedia Delaware and
Andromedia California, hereby confirms for purposes of Section 10(f) of the
Sublease, that Andromedia Delaware expressly assumes all obligations of
Andromedia California under the Sublease. In addition, please be advised that
the Reincorporation constitutes a Permitted Transfer as defined in Section 10(a)
of the Sublease.
The Reincorporation is expected to become effective immediately prior to
completion of the Company's initial public offering. To acknowledge receipt of
this notice and your consent to the assignment of your contract, by operation of
law, resulting from the Reincorporation, please sign in the space provided below
and return this notice in the pre-paid envelope provided. You may retain the
duplicate of this notice for your records.
If you have any questions, please contact the undersigned representative of
Andromedia at 415-365-6515.
Very truly yours,
Andromedia, Inc.
/s/ Stephen F. Ghiglieri
Stephen F. Ghiglieri
Vice President and Chief Financial Officer
ACCEPTED AND ACKNOWLEDGED:
By: /s/Jamie T. Path
-------------------------
Authorized Representative
Name: Jamie T. Path
-----------------------
Title:
-2-
<PAGE>
EXHIBIT 10.8
OBJECT DESIGN, INC.
VALUE ADDED RESELLER AGREEMENT
------------------------------
Agreement Number: AND032896-01V
--------------------------------
This Agreement is made as of the 29th day of April, 1996 by and
between OBJECT DESIGN, INC., a Delaware corporation ("ODI") and ANDROMEDIA,
INC., a ____________ corporation ("VAR") whereby the parties agree as follows:
1. DEFINITIONS
1.1 "Application Programs" shall mean the software programs that VAR
develops using the Programs in accordance with the Documentation.
1.2 "Current Release" shall mean a new version of a Program which is
made generally available to ODI's customers.
1.3 "Customer" shall mean a sublicensee of one or more Application
Programs.
1.4 "Development Tools" shall mean the Program(s) that assist VAR in
the development of Application Program(s) hereunder.
1.5 "Documentation" shall mean the instructional and operational
manuals generally provided with the software Programs and specified in ODI's
Price List.
1.6 "Guaranteed Fees" shall have the meaning set forth in Schedule 2.
----------
1.7 "Programs" shall mean computer software identified in the Order
Supplement attached hereto as Schedule 1 in machine readable object code, plus
----------
Documentation, and all Current Releases and Updates thereof furnished to VAR.
Additional software programs may be made available from time to time at ODI's
discretion. Such additional software programs will be deemed "Programs" subject
to the terms and conditions of this Agreement upon ODI's acceptance of an Order
Supplement identifying such software programs. "Programs" shall include all
Runtime Programs and Development Tools.
1.8 "Proprietary Material" shall mean the Programs, related
documentation, and all parts, copies and modifications thereof, and any other
information, in whatever form, received by one party from the other which is
identified as being proprietary or confidential; provided, however, such
information shall not be deemed Proprietary Material if it (a) is or becomes a
part of the public domain through no act or omission of the other party; or (b)
was in the other party's lawful possession prior to the disclosure and had not
been obtained by die other party from the disclosing party; or (c) is lawfully
disclosed to the other party by a third party without restriction on disclosure;
or (d) is independently developed by the other party.
1.9 "Runtime Programs" shall mean the Programs or portions of
Programs that are accessible by operation of the Application Programs. Runtime
Programs shall not include (i) and
<PAGE>
portion of the Development Tools, and (ii) any features of the Programs which
permit the development of Application Programs.
1.10 "Sub-Distributor' shall refer to a party which has an agreement
with VAR to distribute Application Programs to Customers in accordance with the
terms of this Agreement.
1.11 "Territory" shall mean the geographic area, subject matter, or
other field of use limitation which VAR has been licensed to use the Programs,
as set forth in the Order Supplement.
1.12 Updates" shall mean error corrections, modifications, and
updates to the Programs that ODI furnishes to its technical support customers.
2. GRANT OF LICENSES
2.1 ODI hereby grants to VAR, and VAR hereby accepts, the following
non-exclusive and non-transferable licenses, subject to the terms and
conditions. of this Agreement:
(a) A license to operate the Programs in the Territory, in
accordance with the Documentation for the purposes of VAR's development and
internal use of Application Programs, and provision of support services to
Customers.
(b) A license to market, distribute and sublicense the Runtime
Programs identified in Schedule 2, as part of and embedded in Application
----------
Programs, on all ODI then-currently supported hardware platforms, provided that,
prior to or upon delivery of an Application Program to a Customer, VAR shall
enter into a binding license agreement with the Customer, which agreement shall
substantially conform to the provisions set forth in Schedule 3.
----------
Notwithstanding the foregoing, VAR and Sub-Distributors may sublicense the
Runtime Programs to Customers under a shrink-wrap form of agreement which
incorporates substantially similar terms set forth in. Schedule 3 provided VAR
-----------
indemnify and hold harmless ODI from all claims, demands, costs and liabilities
arising out of or related to the unenforceability of such agreements.
(c) A license to copy the Runtime Programs and related portions
of the Documentation in conjunction with copying Application Programs for the
purposes of distributing and sublicensing the Application Programs pursuant to
2.1 (b), above.
(d) A license to operate the Runtime Programs for the purpose of
demonstrating the operation and capabilities of the Application Programs to
prospective Sub-Distributors and Customers.
(e) VAR may grant to a Customer an Application Program temporary
trial sublicense at no charge, provided that: (i) the Customer enters into a
sublicense agreement in accordance with Section 2.1(b) hereof; (ii) at any one
time, the total trial sublicenses shall not exceed 50; (iii) each trial
sublicense shall be for a period not to exceed sixty days; and (iv) VAR shall
pay to ODI a sublicense fee as described in Schedule 2 hereto for each copy of
----------
an Application Program that a trial sublicense Customer retains for longer than
sixty days.
<PAGE>
2.2 If VAR grants an Application Program license to the United States
Government or an agency thereof, VAR shall comply with the provisions of
Schedule 4 hereto.
- ----------
2.3 The licenses granted herein do not include the right to
distribute or sublicense Runtime Programs separate or apart from Application
Programs, to modify, enhance, translate or create any works derivative of the
Programs other than Application Programs, or to permit any other person to have
access to the Programs by any means other than sublicensing Application Programs
in accordance with Sections 21(b) and 2.4 hereof.
2.4 Subject to the terms and conditions of this Agreement, VAR may
appoint Sub-Distributors for the sublicense of the Application Programs pursuant
to the terms of Section. 2. 1 (b) hereof, provided that each Sub-Distributor
shall be bound by agreement with VAR that (i) protects the confidentiality of,
and ODI's proprietary rights in, the Proprietary Material to the same extent as
provided herein and (ii) limits the liability of ODI to the same extent as
provided herein. VAR shall remain directly liable to ODI for any breach by a
Sub-Distributor of such agreement.
3. VAR's OBLIGATIONS
3.1 VAR shall, at its own expense, promote, publicize and market the
Application Programs.
3.2 When delivery by VAR of a copy of a Runtime Program to a Sub-
Distributor. or Customer is authorized hereunder, VAR may copy. the Runtime
Program as part of the Application Program, provided that VAR shall (i) include
on each copy of the Application Program and on each copy of its related
documentation provided to a Sub-Distributor or Customer, a copyright notice
appropriate to each country where it distributes the Application Program, and
(ii) not remove from any such copy of the Runtime Programs any ODI copyright and
proprietary rights notices.
3.3 VAR shall enforce the obligations of each Sub-Distributor under
the agreement described in Section 2.4 hereof and each Customer under the
agreement described in Section 2.1(b) hereof, and shall promptly report to ODI
any breach of such a Sub-Distributor or Customer agreement that arises out of or
relates to the confidentiality of, or ODI's proprietary rights in, the
Proprietary Materials or the limitation of ODI's liability.
3.4 Beginning at the end of the first quarter of this Agreement,
within thirty (30) days of the end of each calendar quarter, VAR will report to
ODI the number of copies of royalty bearing Application Programs made by VAR and
distributed during such quarter by either itself or a SubDistributor who shall
be identified by name and address, the aggregate Sublicense Fees owing thereon,
and the amount of pre-paid Sublicense Fees credited against this amount.
3.5 For the term of this Agreement and one year thereafter, ODI shall
have the right, at its own expense and under reasonable conditions of time and
place, to from time to time, but not more than two (2) times on an annual basis,
have a mutually agreed to independent auditor audit and copy all records of VAR
and its Sub-Distributors relating to any of VAR's obligations under this
Agreement. In the event any such audit discloses any breach of this Agreement by
VAR or its
<PAGE>
Sub-Distributors, employees or agents, and/or any failure by VAR to pay license
fees which aggregate five (5) percent or more for the relevant period, VAR
shall, in addition to such other rights and remedies as may be available to ODI
as the result of such breach, pay to ODI the full cost of such audit and
copying. ODI shall use such information only to verify and enforce VAR's
compliance with the terms of this Agreement, to comply with any governmental
reporting requirement or for such other purposes as required by law.
4. ODI'S OBLIGATIONS
4.1 ODI shall provide to VAR the number of copies of Programs
indicated in Schedule 1 in object code form for use by VAR in accordance with
----------
Section 21(a) hereof. In lieu of delivering the number of copies of any Program
designated in the relevant Order Supplement, ODI authorizes VAR to perform its
own replication of -such designated number of copies of such Program, provided
all copyright and other proprietary rights notices are properly reproduced on
such copies of the Program.
4.2 ODI will provide VAR with any level of technical support that ODI
generally offers pursuant to its then-current standard Support Policies and
applicable price list. Such support may include different combinations of hot
line telephone and electronic support to VAR's primary support, Updates,
extended hour support, and runtime database administration.
4.3 ODI will provide training in the installation, use and
application of each Program, either at ODI's premises or at VAR's premises, as
the parties shall agree, and in accordance with ODI's then-current price list.
Additional training may be obtained and will be provided by ODI at a daily
charge to VAR based on ODI's then current training rates. Training Units
provided for Supported Programs pursuant to ODI's then-current price list and
reflected in the relevant Order Supplement, are valid for one year from the
Commencement Date.
4.4 ODI will provide consulting services ordered by VAR in accordance
with ODI's then-current price list.
4.5 ODI may from time to tine and in its sole discretion release a
Current Release. ODI may cease to provide Updates or otherwise maintain or
service the prior version 365 days after such release, in accordance with ODI's
then-current Software Support Policy.
5. PAYMENT OF FEES
5.1 License Fees: VAR shall pay to ODI a nonrefundable license fee
------------
and maintenance fee as set forth in Schedule 1 hereto for the license granted in
--------
Section 2.1(a) hereof. These fees are due and payable within thirty days after
execution of this Agreement. Thereafter, maintenance fees for the Programs
subject to the license granted in Section 2.1(a) will be invoiced by ODI
annually and such maintenance fees shall be due and payable within thirty days
after the date of ODI's invoice.
5.2 Sublicense Fees: (a) VAR shall pay to ODI the Guaranteed Fees and
---------------
thereafter, the applicable sublicense fees for each copy of an Application
Program delivered to a
<PAGE>
Sub-Distributor or a Customer pursuant to the license granted in Section 2.1(b),
as set forth in Schedule 2, provided that VAR shall not be obligated to pay a
----------
sublicense fee for:
(i) A copy of an Application Program delivered to a
Customer as an update to a prior release of the Application Program for which
VAR has paid a sublicense fee to ODI;
(ii) A copy of an Application Program delivered pursuant to
a trial license, unless payment of a fee is required by Section 3.1(e) hereof;
or
(iii) A copy of an Application Program delivered for back-up
or archival purposes to a Customer, provided that the Customer is charged no
more than a nominal amount in excess of the cost of the media, packaging.
shipping and handling for such copy and VAR has paid the applicable fees for all
other copies of the Application Program delivered to such Customer.
(b) VAR shall also pay to ODI nonrefundable annual maintenance
fees as set forth in Schedule 2 hereto for Application Programs delivered to
----------
Sub-Distributors and Customers. These fees will be invoiced by ODI annually and
shall be due and payable within thirty days after the date of ODI's invoice.
5.3 ODI shall have no obligation to refund to VAR any fees for
Programs, except for fees for Programs returned by VAR in accordance with
Section 6 hereof.
5.4 Payment for on-site installation of the Programs, training, and
consulting is payable within thirty days after the date of ODI's invoice. VAR
shall reimburse ODI for reasonable food, lodging. travel, and incidental
expenses incurred by ODI's employees in conjunction with any on-site services
ordered by VAR. If such services are performed at ODI's premises, such expenses
incurred by VAR's employees shall be borne by VAR.
5.5 VAR shall, and shall cause its Sub-Distributors to, pay all
import duties, levies or imposts, and all sales, use, value added, foreign
withholding, or other taxes assessed upon any Programs, Application Programs or
other products or services ordered by VAR from ODI and sublicensed by VAR or its
Sub-Distributors, excluding taxes based on ODI's net income, so that ODI shall
receive all amounts due hereunder without deduction.
5.6 At ODI's option, VAR shall pay to ODI interest on any amount
payable to ODI hereunder which is not paid when due at a rate of one percent
(1%) compounded monthly. All payments to ODI hereunder shall be paid in U.S.
dollars. All shipments to VAR hereunder shall be F.O.B. ODI's facility and all
costs for shipping and insurance shall be paid for by VAR.
6. WARRANTY
6.1 Subject to the other provisions of this Section 6, ODI warrants
that (a) for a period of one year from delivery of the Programs other than the
Development Tools, such Programs will function substantially in the manner
described in the applicable Documentation; and (b) for a
<PAGE>
period of ninety days from delivery of the Development Tools, the Development
Tools will function substantially in the manner described in the applicable
Documentation.
VAR's sole remedy under this warranty shall be, at ODI's option in
each case,
(a) to use reasonable efforts to correct any substantial non-
conformity to such specifications in the Program; or
(b) to return the license fee paid by VAR for the applicable copy
of the Program, which shall terminate the license granted for such copy and
obligate the Customer to return or destroy such copy.
6.2 ODI shall have no liability under the foregoing warranty to
anyone other than VAR or to the extent that
(a) VAR has failed to report in writing any defect claimed to be
a breach of warranty within the warranty period;
(b) the Program has been misused or exposed to environmental or
operating conditions other than those specified by ODI;
(c) the Program has been damaged, altered by accident, neglect,
misuse or other abuse;
(d) the claimed defect has been caused, in whole or in part, by
a person or persons other than ODI, or by the Application Program developed by
VAR or other products or equipment not manufactured or developed by ODI; or
(e) the claimed defect is in a version of the Program which has
been superseded and which does not appear in the Current Release.
6.3 Portions of the Programs are derived from third-party software
and no such third party warrants the Programs, assumes any liability regarding
the use of the Programs, or undertakes to furnish any support or information
relating to the Programs.
6.4 ODI warrants the tapes, diskettes or other media to be free of
defects in materials and workmanship under normal use for ninety days from the
effective date of this Agreement. During the ninety-day period, VAR may return
defective media to ODI and it will be replaced without charge. Replacement of
media shall be VAR's sole remedy in the event of a media defect.
6.5 ODI warrants that its Technical Support and consulting services
will be performed in a workmanlike manner. This warranty shall be valid for
ninety-days from completion of service. If ODI is unable to perform the services
as warranted, VAR shall be entitled to reperformance of services subject only to
reasonable travel and living expenses. Re-performance of services shall be VAR's
sole remedies in the event of a defect.
<PAGE>
6.6 THE EXPRESS WARRANTIES SET FORTH IN THIS SECTION 6 ARE THE ONLY
WARRANTIES MADE BY ODI WITH RESPECT TO THE PROGRAMS AND ANY SERVICES PROVIDED BY
ODI. ODI MAKES NO OTHER WARRANTIES, EXPRESS, IMPLIED OR ARISING BY CUSTOM OR
TRADE USAGE, AND, SPECIFICALLY, MAKES NO WARRANTY OF MERCHANTABILITY OR FITNESS
FOR ANY PARTICULAR PURPOSE. ODI'S EXPRESS WARRANTIES SHALL NOT BE ENLARGED,
DIMINISHED OR AFFECTED BY, AND NO OTHER OBLIGATION OR LIABILITY SHALL ARISE OUT
OF, ODI RENDERING TECHNICAL OR OTHER ADVICE OR SERVICE IN CONNECTION WITH THE
PROGRAMS.
6.7 VAR and its Sub-Distributors shall make no representation or
warranty concerning the quality, performance or other characteristics of the
Runtime Programs as embedded in the Application Programs other than those which
are consistent in all respects with, and do not expand the scope of, the
warranties of ODI set forth in this Agreement.
7. LIMITATION OF LIABILITY
7.1 ODI's and its licensors' collective liability, whether in
contract, tort, or otherwise, arising out of or in connection with the Programs
or this Agreement shall not exceed the amounts paid to ODI by VAR for the
applicable copy of the Program that gave rise to any claim. ODI's licensors are
intended beneficiaries of this limitation. In no event shall ODI be liable for
VAR's use of ODI's trademarks.
The foregoing limitation of liability under this Section 7.1 shall not apply to
a breach of ODI's obligations as set forth in Section 8.
7.2 IN NO EVENT SHALL EITHER PARTY OR ITS LICENSORS BE LIABLE FOR
SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR TORT DAMAGES, INCLUDING, WITHOUT
LIMITATION, ANY DAMAGES RESULTING FROM LOSS OF USE, LOSS OF DATA, LOSS OF
PROFITS OR LOSS OF BUSINESS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT.
THE PERFORMANCE OF THE PROGRAMS OR ODI'S PERFORMANCE OF SERVICES OR OF ANY OTHER
OBLIGATIONS RELATING TO THIS AGREEMENT OR THE PROGRAMS, WHETHER OR NOT ODI HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
The foregoing limitation of liability under this Section 7.2 shall not apply to
a breach of the parties' obligations as set forth in Sections 2, 3.2, 3.3, 4.1,
6.7, 8, 9 and 13.6 of this Agreement.
8. PATENT, COPYRIGHT AND TRADE SECRET INDEMNITY
8.1 ODI shall defend or, at its option, settle, any claim, action or
proceeding brought against VAR on grounds (a) that any Program infringes a
patent, copyright or trade secret or (b) that ODI does not have the right to
grant the licenses granted herein, and shall indemnify VAR against all damages
and costs finally awarded against VAR in any such action or proceeding which
results from any such claim. ODI shall have no liability under this Section 8
unless VAR (c) promptly notifies ODI in writing of the claim, (d) gives ODI full
authority, information and
<PAGE>
assistance to defend such claim and (e) gives ODI sole control of the defense of
such claim and all negotiations for the compromise or settlement thereof. If a
Program or any part thereof becomes, or in ODI's opinion is likely to become,
the subject of a valid claim of infringement or the like under any patent
copyright or trade secret law, ODI shall have the right, at its option and
expense, either to obtain for VAR a license permitting the continued use of the
Program or such part, to replace or modify it so that it becomes non-infringing,
or to refund an amount equal to the depreciated license fee paid by VAR for the
Program (calculated on a straight line basis over a five-year life) and to
terminate the license therefor. ODI shall have no liability hereunder for any.
costs incurred or settlement entered into without its prior written consent. ODI
shall have no - liability hereunder with respect to any claim based upon (f) the
operation of an Application Program or the combination of the Program with other
products not furnished by ODI (g) any addition to or modification to the Program
by any person or entity other dm ODI (h) the use of other than a Current
Release, or (i) ODI furnishing to VAR any information, data, service and
applications assistance, other than the Programs and the printed manuals
relating thereto.
8.2 THE PROVISIONS OF THIS SECTION 8 STATE THE EXCLUSIVE LIABILITY OF
ODI AND THE EXCLUSIVE REMEDY OF VAR WITH RESPECT TO ANY CLAIM OF PATENT,
COPYRIGHT OR TRADE SECRET INFRINGEMENT BY THE PROGRAMS OR CLAIM THAT ODI LACKS
THE RIGHT TO GRANT THE LICENSES GRANTED HEREIN, ANY PART THEREOF OR THE USE
THEREOF, AND ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
THE IMPLIED WARRANTY OF NON-INFRINGEMENT, AND INDEMNITIES WITH RESPECT THERETO.
9. PROPRIETARY RIGHTS AND PROTECTION OF LICENSED PROGRAMS
9.1 The parties agree, both during the term of this Agreement and for
a period of three years after termination of this Agreement and of all licenses
granted hereunder, to hold each other's Proprietary Material in confidence and
utilize it only in accordance with the terms of this Agreement. Except as
expressly permitted by this Agreement, each party shall limit the use of, and
access to, all Proprietary Material of the other party to its employees or
agents whose use of or access to is necessary to fulfill the objectives of this
Agreement. Each party shall, by all appropriate means, prevent unauthorized
disclosure, publication, display or use of any Proprietary Material of the other
party. Neither party shall copy any Proprietary Material of the other party
without the prior written permission of the other party, and shall reproduce all
such notices on. any copies of Proprietary Material which such party is
authorized to make. Neither party shall remove any copyright, proprietary rights
or confidentiality notice included in or affixed to any Proprietary Material of
the other party. Results of benchmark tests run by VAR or Sub-Distributor may
not be disclosed unless ODI consents to such disclosure in writing. ODI shall
have the right to disclose through publication or otherwise, the existence and
general nature of this Agreement.
9.2 VAR agrees that the Programs are a valuable asset of ODI and its
licensors and that ODI and its licensors shall retain all title, copyright,
patent and other proprietary rights to all Programs and to all copies thereof.
9.3 Except as specifically permitted in Section 2.1(b), this Section
9.3, and under Section 4.1, VAR shall not copy any of the Programs without the
prior written permission of ODI.
<PAGE>
VAR shall have the right to make copies of the object code of the Programs for
archive purposes, to replace a defective copy or for program error verification.
For each copy of a Program in its possession, VAR shall maintain records
identifying the location and specific media and make such records available to
ODI during regular business hours upon reasonable notice.
9.4 VAR shall not alter, modify, adapt or reverse engineer any
Program including, without limitation, related documentation, whether by
converting, translating, de-compiling, disassembling, creating derivative works,
or merging the Program or any part thereof with any other software except as
specifically permitted in Section 2.1(a) hereof.
9.5 VAR shall not affix ODI's trademarks to the Application Programs
or other products, and shall not use or adopt ODI's marks or any confusingly
similar marks for any other purpose other than to accurately refer to ODI's
products.
9.6 Within five days after the termination or expiration of this
Agreement for any reason, each party shall return all Proprietary Material of
the other party provided to it hereunder, and all copies thereof in its
possession, custody or control, and shall destroy or render unusable all other
Proprietary Material of the other party and copies thereof which for any reason
cannot be delivered. In such event, an executive officer of such party shall
certify in writing to the other that all Proprietary Material of the other party
has been returned or destroyed, and VAR shall certify that use of the Programs
has been discontinued by VAR. In no event, shall VAR be entitled to any refund
or credit against any portion of the license fees by reason of the return or
destruction of Programs pursuant to this Section 9.6.
10. TERM AND TERMINATION
10.1 This Agreement shall be effective from the date hereof and shall
remain in effect for an initial two year period from the first product shipment
date of an Application Program for which VAR receives revenue, but no more than
six (6) months after the first shipment date, and unless earlier terminated as
provided herein. This Agreement may be renewed for an additional one year
period, provided that VAR has met the Guaranteed Fees requirements set forth in
Schedule 2 and the parties first agree in writing to the sublicense fee rate and
- ----------
Guaranteed Fees requirements for such renewal period.
10.2 If VAR shall
(a) disclose, publish, display or otherwise make available any
Proprietary Material to any person in violation of Section 9 hereof, or
(b) materially fail to perform, or be in material breach of, any
other of its obligations hereunder and fail to remedy such failure or breach
within thirty (30) days after receipt of notice from ODI with respect thereto,
then ODI may terminate this Agreement and the licenses granted to VAR and its
Sub-Distributors hereunder by giving written notice of termination to VAR,
effective immediately upon its sending without need of intervention of any court
or other authority.
<PAGE>
10.3 This Agreement shall terminate automatically if VAR is
liquidated or dissolved, or suffers a receiver or trustee to be appointed for
it, or makes a general assignment for the benefit of its creditors or institutes
or has instituted against it any proceedings under any law relating to
bankruptcy or relief of debtors.
10.4 Expiration or termination of this Agreement (a) shall not-
relieve either party of any obligation to pay amounts due as a result of
transactions occurring prior to such expiration or termination and (b) shall not
terminate the Application Program licenses previously granted to Customers in
accordance with this Agreement. Following any termination or expiration of this
Agreement, VAR shall supply ODI with a complete listing of all Sub-Distributors
who have copies of the Runtime Programs. Such listing shall include each Sub-
Distributor's name, address, telephone number, customer contact, and the
Program, platform operating system and host identification number for each
Application Program licensed to each such Sub-Distributor.
10.5 The parties acknowledge that this Agreement is for a limited
period only. The expiration or termination of this Agreement at the end of the
original term or any renewal term shall not give rise to the payment of any
indemnity, compensation or damages whatsoever by either party to the other.
10.6 Following expiration of this Agreement, but not termination
pursuant to Sections 10.2 or 10.3 hereof, ODI shall grant to VAR a license to
use the Programs for internal use and to provide Application Program maintenance
services to VAR's Customers, provided that (a) such license shall be subject to
the terms and conditions of ODI's then-standard written license agreement for
such Programs, (b) VAR shall enter into and execute such agreement, (c) VAR
shall pay ODI maintenance fees in accordance with ODI's then-current price list
and (d) VAR shall comply with all the other terms of Section 10 hereof.
11. INDEMNITY
VAR agrees to indemnify and hold harmless ODI and its officers,
directors, employees and agents, from and against any and all third party
claims, demands, costs and liabilities (including all reasonable attorneys'
fees) arising out of or related to any representation, action or omission by VAR
or a Sub-Distributor inconsistent with the terms of this Agreement, provided
that (a) ODI shall notify VAR in writing of such a claim and (b) ODI shall, to
the extent reasonable, cooperate with VAR in the defense or settlement of such
claim.
12. EQUITABLE RELIEF
The covenants and agreements of VAR in Sections 2.1, 2.4, 3.3 and 9
hereof are of a special and unique character, and VAR acknowledges that money
damages alone will not reasonably or -adequately compensate ODI for any breach
of such covenants and agreements. Therefore, ODI and VAR expressly agree that in
the event of the breach or threatened breach of any such covenants or
agreements, in addition to other rights or remedies which ODI may have, at law.
in equity, or otherwise, ODI shall be entitled to injunctive or other equitable
relief compelling specific performance of, and other compliance with, the terms
of such Sections.
<PAGE>
13. GENERAL PROVISIONS.
13.1 Entire Agreement: This Agreement, including Schedules 1. 2, 3,
and 4 attached hereto, sets forth the entire agreement and understanding of the
parties with respect to the subject matter hereof, and supersedes all prior oral
and written agreements and understandings relating thereto.
13.2 Non-Waiver and Amendment. No waiver, alteration, modification,
or cancellation of any of the provisions of this Agreement shall be binding
unless made in writing and signed by both ODI and VAR. The failure of either ODI
or VAR at any time or times to require performance of any provision hereof shall
in no manner affect the right at a later time to enforce such provision. No
remedy referred to in this Agreement is intended to be exclusive, but each shall
be cumulative and in addition to any other remedy referred to herein or
otherwise available at law, in equity or otherwise.
13.3 Notices: All notices to be given in connection with this
Agreement shall be effective upon receipt, shall be made in writing and shall be
sufficiently given if personally delivered or if sent by courier or other
express mail service, postage prepaid, addressed to the party entitled or
required to receive such notice at the address for such party set forth on the
signature page hereof. Either party may by such notice to the other change such
address.
13.4 Assignment: This Agreement shall be binding upon, and inure to
the benefit of, ODI and VAR and their respective legal representatives,
successors and permitted assigns. VAR shall not assign, sublicense or otherwise
transfer any of its rights, or delegate any of its duties, hereunder, in whole
or in part, except to an entity which has acquired or succeeded to a substantial
part of VAR's business and which undertakes in writing to fully perform and
discharge VAR's obligations and liabilities hereunder. ODI may assign any of its
rights under this Agreement to any person and delegate any of its duties under
this Agreement to any person or entity which shall acquire or succeed to any
substantial part of ODI's business.
13.5 Conflict with Statute or Law: In the event that any provisions
contained in this Agreement or any part thereof shall for any reason be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, to such extent such provision shall be deemed null and void and
severed from this Agreement, and the remainder of this Agreement shall remain in
full force and effect. The headings appearing at the beginning of the several
sections contained in this Agreement have been inserted for identification and
reference purposes only and shall not be used in the construction and
interpretation of this Agreement.
13.6 Compliance with Laws: (a) VAR shall comply with all applicable
laws, including export controls imposed by the United States Government without
limiting the generality of the foregoing, VAR agrees that it shall not export or
re-export any Programs or the direct product thereof to any country without
first obtaining all necessary and required licenses, consents and approvals. VAR
acknowledges that shipments of the Programs are subject to export laws and that
such laws could delay or preclude delivery of Programs in the future. VAR shall
also comply with the United States Foreign Corrupt Practices Act, and shall
indemnify ODI from any failure to
<PAGE>
comply or violation of such Act. VAR shall, at its sole cost and expense, obtain
and maintain in effect all permits, licenses and other consents necessary to the
conduct of its activities hereunder.
(b) If any government approvals or filings of this Agreement or other
materials are required to make it effective or to make Odor's rights hereunder
enforceable or otherwise to protect ODI's proprietary rights hereunder, or to
comply with exchange regulations or other requirements so as to allow payments
to ODI in connection with tic licensing of the Application Programs, VAR shall
immediately notify ODI and cooperate with ODI to accomplish such required
actions. ODI shall have no obligation to export Programs to any country until
all such required actions have been accomplished.
13.7 No Partnership or Agency: The parties agrees that they, and each
VAR Sub-Distributor, is an independent contractor and that this Agreement and
the relations between ODI and VAR hereby established do not constitute a
partnership, joint venture, agency or contract of employment between them, or
any other similar relationship.
13.8 Force Majeure: Neither party shall be liable for any delays in
the performance of any of its obligations hereunder due to causes beyond its
reasonable control.
13.9 Survival: The provisions of Sections 4.5, 5, 6, 7, 8, 9, 10, 11,
12, and 13 shall survive the expiration or earlier termination of this Agreement
for any reason.
13.10 Applicable Law: This Agreement shall be governed by, and
construed and enforced in accordance with, the substantive laws of The
Commonwealth of Massachusetts, USA without regard to its principles of conflicts
of laws or the United Nations Convention on the International Sale of Goods. The
English language version of this Agreement shall be the official text hereof,
despite translations or interpretation of this Agreement in other languages.
IN WITNESS WHEREOF, the parties hereto executed this Agreement as of
the date first above written.
ODI:
OBJECT DESIGN, INC.
25 Mall Road
Burlington, MA 01803
By: /s/ Keven F. Colliton
---------------------
Title: Controller
----------
VAR:
ANDROMEDIA, INC.
By: Kent Godfrey
------------
Title: President and CEO
-----------------
<PAGE>
SCHEDULE 1:
Order Supplement
Object Design, Inc. Order Supplement
25 Mall Road
Burlington, MA 61803
TEL. (617) 674-5391 FAX (617) 674-5491 EMAIL ________.com
<TABLE>
<S> <C>
Bill-to Address: Ship-to Address:
Andromedia Andromedia
1756 Lacassie Avenue 1756 Lacassie Avenue
Suite 101 Suite 101
Walnut Creek, California 945594 Walnut Creek, California 94594
Contact Name: Account Payable Contact Name: Kent Godfrey
TELE: TELE:
FAX: FAX: 510-256-1312
Country: EMAIL:
Taxable? Y N (Circle one) Sales Agent: 0099A/Marsano
(Attach tax exempt certificate) Territory: 3-NCA
Agreement #: SHRINK WRAP Sales Admin:
Quote Issue Date: 29-Mar-96 Host ID:
Quote Exp. Date: 29-Mar-96 Customer PO #:
</TABLE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION QTY LIST EXTENDED
PRICE
<S> <C> <C> <C> <C>
PREPAIDROY ObjectStore Runtime Licenses 1 $100,000.00 $100,000.00
OS1000PF ObjectStore Performance Expert 1 $ 6,000.00 $ 6,000.00
MNSID ObjectStore Standard Maintenance 1 $ 7,649.25 $ 7,649.25
Includes Hotline Support and Updates for
1 Year
ED120 C++ Programming with ObjectStore (4 days) 1 $ 1,495.00 $ 0.00
$113,649.25
</TABLE>
Special Instructions: Special payment terms: $32,910.25 payable April 29, 1996;
---------------------------------
$26,913.00 payable July 19, 1996; $26,913.00 payable October 29, 1996;
- --------------------------------------------------------------------------------
$26,913.00 payable January 29, 1997. Prepaid Royalties contingent upon execution
- --------------------------------------------------------------------------------
of VAR Agreement # AND032896-01V.
- --------------------------------------------------------------------------------
Object Design and the Customer agree that the products listed above are provided
by Object Design to the Customer
subject to the terms and conditions of the above-referenced Agreement.
Customer Acceptance Object Design Acceptance
Signature Signature
--------------------- ---------------------
<PAGE>
Name Kent Godfrey Name Kevin F. Colliton
--------------------- ---------------------
Title President/CEO Title Corporate Controller
--------------------- ---------------------
Date 3/29/96 Date 3/29/96
--------------------- ---------------------
-2-
<PAGE>
SCHEDULE 2
Deployment & Services Fees
A. VAR's Guaranteed Fees
As used in this Schedule 2, the term "sublicense fee" shall mean the
royalty payable to ODI for an Application Program licensed to a Customer, the
term "development fee shall mean the fee payable to ODI for the license granted
under Section 2. 1 (a) and described in Schedule I of this Agreement, and the
term "Guaranteed Fees" shall mean total fees (development and sublicense fees)
which VAR commits to pay to 0131 hereunder.
VAR's Guaranteed Fees for the initial one year term are set at $113,649.25,
of which $100,000.00 represents prepaid royalties, and are payable as follows:
$32,910.25 payable April 29, 1996
$26,913.00 payable July 29, 1996
$26,913.00 payable October 29, 1996
$26,913.00 payable January 29, 1997
One-year Guaranteed Fees are billed annually in advance. For the first
commitment year, the first day is the first product shipment date of an
Application Program for which VAR receives revenue, but no more than six (6)
months after the first shipment date. Guaranteed Fees are non cancelable and the
------------------------------------------
amount paid is non refundable.
- ------------------------------
VAR shall receive a credit equivalent to that portion of the Guaranteed
Fees which constitutes the prepaid sublicense fees. The sublicense fees owing to
ODI will be taken down quarterly against the prepaid sublicense fees, after
which point additional sublicense fees will be due. Accordingly, VAR shall
include payment for quarterly sublicense fees due beyond the pre-paid sublicense
fees, with each quarterly report of sublicense fees owing for such quarter. In
the event VAR has an inventory of pre-paid sublicenses at the end of the initial
term of the Agreement, VAR may continue to distribute those. sublicenses in the
renewal period without having to pay any further sublicense fees therefor.
B. Renewal of Guaranteed Fees
At the conclusion of the initial term of this Agreement, the VAR may renew
this Agreement in accordance with Section 10.1 if the VAR commits to the
Company's then-current sublicense fees commitment schedule. As a minimum, the
annual commitment must be $100,000 with a sublicense fee rate of 7.5%. Upon
----
commencement of the commitment year, the annual Guaranteed Fees commitment may
- ------------------------------------------------------------------------------
not be changes.
- --------------
<PAGE>
C. Sublicense Fee Rate
The sublicense fee rate used to calculate sublicense fees under Section 6.2
shall be determined under the sublicense fee schedule below.
<TABLE>
<CAPTION>
Sublicense Fee Schedule
Sublicense Annual Sublicense
Fee Rate Commitment
---------------- ------------------
<S> <C>
15.00% $ 50,000
7.50% $ 100,000
6.50% $ 200,000
5.50% $ 375,000
4.50% $ 600,000
3.50% $1,000,000
2.50% $1,500,000
</TABLE>
The sublicense fee is calculated by multiplying the fees received by VAR
(less taxes, duties and tie like), for the licenses (granted Customers by either
the VAR or the Sub-Distributors, or both) for the Application Program, times the
applicable sublicense fee rate given above. Sublicense fees charged for the
Application Program shall be based upon the VAR's attached price list for the
Application Program or the VAR's list price at the VAWs first product shipment
date of an Application Program for which VAR receives revenue, but no more than
six (6) months after the first shipment date. In establishing the Application
Program products and its price list, the VAR shall fairly allocate prices for
the Application Program. At no time will the minimum sublicense fee on a per
Customer basis be less than $10.00 for the initial two year term of this
Agreement. Upon renewal of this Agreement the parties shall mutually agree, in
good faith, on a new minimum sublicense fee on a per Customer basis.
For the initial commitment, the Sublicense fee rate used to calculate
Sublicense fees under section 5.2 shall be 7.5% for a period of one year
commencing upon VAR's first product shipment date of an Application Program for
which VAR receives revenue, but no more than six (6) months after the first
shipment date of an Application Program.
In the event VAR charges no fee to a Customer for the Andromedia Activity
Accounting Server, ODI shall not charge any royalty for Runtime Programs for
such free-of-charge Application Program for such Customer.
D. Sublicense Fee Rate Adjustment
If the fees paid by the VAR exceed the Guaranteed Fees in a given year and
raise to the level of the next annual sublicense commitment, the sublicense fee
rate will be lowered to the next sublicense fee rate level for subsequent sales
in that year. For example, if VAR commits to fees in year 1 of $200,000 and has
paid $375,000 in fees in that year, the sublicense fee rate wilt drop from 6.5%
to 5.5% for subsequent sales in that year.
-2-
<PAGE>
E. Maintenance Fees for Runtime Programs
VAR shall pay ODI maintenance royalties on the Runtime Programs embedded in
each copy of an Application Program. Maintenance fees shall be due as follows:
Year one maintenance fees shall be calculated based upon the sublicense
fees owing, not including the pre-paid sublicense fees, for year one times the
maintenance rate of 15% for those customers who subscribe to VAR's maintenance
service and have paid maintenance fees.
Maintenance fees for year one and each subsequent year shall be due within dirty
days of the anniversary date of the first product shipment date of an
Application Program for which VAR receives revenue, but no more than six (6)
months after the first shipment date. The maintenance fees for the second and
each consecutive year shall be determined by multiplying cumulative sublicense
fee royalties paid from the effective date of this Agreement times the
maintenance rate of 15% for those customers who subscribe to VAR's maintenance
service and have paid maintenance fees.
For example, assuming cumulative royalties paid for sales of the
Application Packages to customers who have paid for maintenance are $150,000;
maintenance royalties due ODI would be 15% times $150,000, the VAR would owe ODI
a maintenance royalty of (15% X $150,000) $22,500 for the following year.
-3-
<PAGE>
SCHEDULE 3:
SUBLICENSING TERMS AND CONDITIONS
Prior to or upon delivery of an Application Program to a Customer, VAR or a
Sub-Distributor shall enter into a binding agreement with the Customer to
sublicense the Runtime Program embedded in the Application Program which is
substantially based upon the following terms:
(i) the sublicense shall be non-exclusive, personal and nontransferable;
(ii) each sublicense of the Runtime Program shall be for use on a single
designated CPU or CPUs in the event that Customer purchases a concurrent use
license whereby the total number of CPUs may not exceed the number of authorized
simultaneous users for which the Customer has paid a license fee and shall only
be used for the Customer's own internal business purposes;
(iii) the Customer shall not make copies of die Runtime Program except for
use on the designated CPU or CPUs in accordance with (ii), above, or for backup
or archival purposes which shall be subject to the provisions of the sublicense,
and all titles, trademarks, and copyright and restricted rights notices shall be
reproduced in such copies;
(iv) the Customer shall not transfer the Runtime Program to, or access
the Runtime Program from, a CPU other than the designated CPU or CPUs in
accordance with (ii); or transfer the Runtime Program to anyone other than an
authorized licensee of the Application;
(v) the Customer shall not disclose the Runtime Program to other persons
or permit other persons to have access to the Runtime Program;
(vi) the Customer shall not modify, enhance or create works derivative of
the Runtime Program or decompile, disassemble or otherwise attempt to access die
source code of the Program; provided, however, that if the Customer is located
in a member nation of the European Community, the agreement with the Customer
may permit limited reverse-engineering, but only to the extent required by the
EC Software Directive;
(vii) ODI's liability shall be limited at least to the extent provided in
this Agreement;
(viii) The Application Program is derived from third-party software and no
such third party warrants the Application Program, assumes any liability
regarding use of the Application Program or undertakes to furnish to the
Customer any support or information relating to the Application Program;
(ix) the Runtime Program is confidential and proprietary to VAR and its
licensors, and VAR and its licensors retain all tide, copyrights, patent rights
and other proprietary rights to the Runtime Program and all copies thereof,
<PAGE>
(x) in the event the sublicense of the Runtime Program is terminated for
whatever reason or expires, Customer must cease use and return to VAR or destroy
the Runtime Programs and any copies thereof;
(xi) the Customer shall not export the Application or the direct product
thereof without first obtaining the appropriate US or other governmental
licenses and approvals; and
(xii) the sublicense agreement is entered into for the benefit of VAR and
its licensors, and all rights granted to VAR and all obligations owed to VAR
thereunder, to the extent they involve the rights of VAR's licensors, shall be
enforceable by such licensors.
-2-
<PAGE>
SCHEDULE 4:
FEDERAL GOVERNMENT SUBLICENSES
1. Each Runtime Program sublicense VAR grants to the United States
government or an agency thereof on or before January 1, 1996, must be subject to
a written agreement that includes a provision that is substantially identical to
the following: "If you are an entity of the U.S. Government you agree that the
Programs are Commercial Computer Software, as defined in the Federal Acquisition
Regulations and Department of Defense FAR Supplement, and is delivered with only
those rights set forth in this Agreement."
2A. Each Runtime Program sublicense VAR grants to the United States
government or an agency thereof under a government contract which includes FAR
52.227-4, DFARS 252.227-7013, or NASA FAR Supplement clause 18-52.22-86, must be
subject to a written agreement that includes a provision that is substantially
identical to the following:
(i) Customer hereby acknowledges that (a) the Runtime Program was
developed exclusively at private expense, (b) the Runtime Program in all
respects is proprietary data belonging solely to Object Design, Inc., (c) the
Runtime Program is not in the public domain, and (iv) the Runtime Program is
"commercial computer software" as defined in DFAR 252.227-7013 and "restricted
computer software" as defined in FAR 52.227-19.
(ii) If Customer is a unit of the Department of Defense, Customer
hereby acknowledges that the Runtime Program is provided to the Customer with
only those minimum "Restricted Rights" set forth at DFAR 252.227-
7013(c)(l)(ii)(48 CFR) and that all other technical data, including without
limitation documentation, are provided to Customer subject to "Limited Rights"
as defined. in DFAR 252.227-7013 (48 CFR).
(iii) If Customer is a unit of a government agency other than the
Department of Defense, Customer hereby acknowledges that the Runtime Program and
all related documentation are provided to the Customer with the rights
applicable to restricted computer software as set forth in subparagraphs (c)(1)
& (2) of the Commercial Computer Software - Restricted Rights clause at FAR
52.227-19 (48 CFR).
(iv) Customer agrees that it will not remove or permit to be removed
the following legend, which is printed on the Runtime Program and documentation:
RESTRICTED RIGHTS LEGEND - Use, duplication, or disclosure by the
Government. is subject to restrictions as set forth in subparagraphs (c)(1)(ii)
of the Rights in Technical Data and Computer Software clause at 252.227-7013 (48
CFR).
Contractor/Manufacturer: Object Design, Inc.,
Address: 25 Mall Road
Burlington, MA 01803
<PAGE>
(v) Customer hereby acknowledges receipt of the following notice:
NOTICE - Notwithstanding any other lease or license arrangement that
may pertain to, or accompany the delivery of, this restricted computer software,
the rights of the government regarding its use, reproduction and disclosure are
as set forth in subparagraphs (c)(1) & (2) of the Commercial Computer Software -
Restricted Rights clause at FAR 52.227-19.
B. With respect to the Runtime Program and documentation that are
sublicensed. to U.S. government agencies under this Part 2, VAR will
conspicuously place the Restricted Rights Legend set forth at the foregoing
paragraph l(c) and the Notice set forth at the foregoing paragraph l(d), in
addition to applicable copyright notices, on the labels for media containing
software and on the copyright page of the documentation.
C. VAR will require its Sub-Distributors to use such contract provisions
and legends when they grant sublicenses to the U.S. Government or agencies
thereof.
D. In addition, prior to sublicensing pursuant to this Part 2 the VAR
shall take all other steps necessary to ensure that the U.S. government or
agency thereof obtains only those rights set forth in DFARs 252.227-
7013(c)(1)(ii) (if a unit of the Department of Defense), or FAR 52.227-19 (if a
government agency other than a unit of the Department of Defense) and is bound
by the restrictions set forth in the foregoing Section 2A, including without
limitation complying with all notice and marking requirements of the DFARs, the
FARs, or other applicable law or regulation necessary to ensure that the
government obtains only the rights referred to in such Section 2A.
-2-
<PAGE>
OBJECT DESIGN, INC.
INTERNET PRODUCT ADDENDUM
TO VALUE ADDED RESELLER AGREEMENT
Object Design, Inc. ("ODI") and VAR hereby agree that the following
additional terms and conditions shall apply to Agreement No. AND032896-01V (the
"Agreement"):
1. DEFINITIONS
"Internet Applications" are applications that VAR develops using the
Internet Tools in accordance with Section 2.1(b) hereof, and that are intended
to be accessed and used via the internet.
"Internet Tools" shall mean the Programs identified on an Order Supplement
as ObjectStore ObjectForms and ObjectStore Extended Object Management Suite.
"Programs" shall include Internet Tools.
"Runtime Programs" shall include the portions of Internet Tools that are
accessible by operation of the Internet Application.
2. GRANT OF LICENSES
2.1 ODI hereby grants to VAR, and VAR hereby accepts the following
additional non-exclusive and non-transferable licenses, subject to the terms and
conditions of the Agreement and this Addendum:
(a) A license to install the ObjectStore ObjectForms portion of an
Internet Tool as a single designated computer which may be operated by a single
user at a time; and to install the ObjectStore Extended Object Management Suite
portions of an Internet Tool on an internal use network that may be operated by
VAR by the number of simultaneous internal users designated in the Order
Supplement;
(b) A license to operate the Internet Tools for the purposes of
developing and operating Internet Applications, provided the Internet
Applications are structured so that users cannot gain access to individual
object code modules of particular routines in the Runtime Program(s), and the
Runtime Program(s) shall remain subject to the provisions of this Agreement;
(c) A license to install an Internet Applications on VAR's single,
designated server, which is accessed by third parties via the internet; provided
that such third parties shall not access the individual object code modules of
particular routines in the Runtime Program(s) that are otherwise accessible by
operation of the Internet Application.
<PAGE>
2.2 The rights and licenses granted herein do not grant VAR the right to
distribute, sublicense or sell internet Applications to third parties; or to
allow third parties to access the Internet Applications by any means other than
by way of the internet.
3. LICENSE FEES FOR INTERNET TOOLS
For the Internet Tools, VAR shall pay to ODI a nonrefundable license
fee and maintenance fee as set forth in an Order Supplement, and in accordance
with Sections 5.1 of the Agreement.
4. WARRANTY FOR INTERNET TOOLS
For the Internet Tools, the warranty period under Section 6.1 of the
Agreement shall be 90 days following delivery of the Internet Tools to VAR.
5. INDEMNITY FOR INTERNET TOOLS
For the Internet Tools, VAR's indemnification under Section 11 shall
include any third party claims that the Internet Application infringes a third
party patent, copyright or intellectual property right.
6. ENTIRE AGREEMENT
This Addendum, including the Agreement and Schedules, sets forth the
entire agreement and understanding of the parties with respect to the subject
matter hereof, and supersedes all prior oral and written agreements and
understanding relating therein.
IN WITNESS WHEREOF, the parties hereto executed this Addendum as of the
date first above written.
ODI
By: /s/ Kevin F. Colliton
------------------------------
Title: Controller
---------------------------
VAR:
By: /s/ Kent Godfrey
------------------------------
Title: President and CEO
---------------------------
-2-
<PAGE>
March 29, 1996
Mr. Kent Godfrey
Andromedia
1756 Lacassie Avenue, Suite 101
Walnut Creek, California 94594
Dear Kent:
In conjunction with Value Added Reseller agreement number AND032896-01V,
ObjectDesign agrees to extend a loan of ObjectStore development software, for a
period of not less than three years, comprised of the following components:
<TABLE>
<CAPTION>
Product Number Product Description Quantity
- ----------------------------- -------------------------------------------------------- ------------------
<S> <C> <C>
OS1000DS ObjectStore Development Server for Solaris/SPARC 1
OS1000DC ObjectStore Development Client for Solaris/SPARC 2
OS3100DS ObjectStore Development Server for Windows NT 1
OS3100DC ObjectStore Development Client for window NT 2
OS1010DS ObjectStore Development Server for Solaris/Intel 1
OS1010DC ObjectStore Development Client for Solaris/Intel 2
OS3100XB ObjectStore Inspector 1
- - ObjectForms 1
- - Extended Object Management Suite 1
(Video Manager, Audio Manager, HTML Manager, Java Manager,
Text Manager, Image Manager)
</TABLE>
Prepaid royalties may be exchanged at then-current list pricing for any
additional requirements for software beyond the above.
Your sublicense fees for ObjectStore runtime licenses will be calculated at
the royalty rate of 7.5% of the selling price of your Andromedia Activity
Accounting Server software product.
You may distribute up to 50 ObjectStore runtime licenses royalty free in
support of your limited term beta or free trial programs. (See Section 2.1 (e)
of the VAR agreement.)
We further agree to provide five days on-site consulting and support
services.
We look forward to becoming a part of your team and successfully meeting
your storage and performance requirements.
Best regards,
Derek Marsano
Senior Account Manager
<PAGE>
March 28, 1996
Mr. Kent Godfrey
Andromedia
1756 Lacassie Avenue, Suite 101
Walnut Creek, California 94594
Dear Kent:
Thanks for your telephone call this afternoon. Here for your review are
the pertinent details from our conversation:
1. You will complete a Value Added Reseller (VAR) agreement and commit to
Object Design the sum of $100,000 over the next eight months for runtime and
development software licenses. Your initial payment of $25,000 will be invoiced
on March 29, terms net 30. (See Schedule 1 of the agreement.)
2. Your sublicense fees for ObjectStore runtime licenses will be
calculated at the royalty rate of 7.5% of the selling price of your Andromedia
Activity Accounting Server software product. Ordinarily Object Design resellers
pay a 15% royalty, and commit $100,000 in runtime sublicense fees in order to
obtain a 7.5% royalty level. However, as an incentive to move your business
into this quarter, I will apply your development software costs toward your
sublicense fee commitment. (See Schedule 2 of the agreement.)
3. You may distribute ObjectStore runtime licenses royalty free to
support those units of Activity Accounting Server that you distribute for no
charge. (See Schedule 2 Section C of the agreement.)
4. You may distribute up to 50 ObjectStore runtime licenses royalty free
in support of your limited term beta or free trial programs. (See Section 2.1
(e) of the agreement.)
5. We will provide you with consulting services as you require. You may
purchase consulting at the rate of $1,500 per day. Consulting may be arranged
through Frank Broskovetz, Western Region Services Manager, at (708) 413-9700
extension 12. We will provide you with two days of consulting next week at no
additional cost. Further, we will enroll you in the Object Design Technical
Account Management program as previously discussed. Under this program, we will
appoint a Technical Account Manager, produce a project plan, and provide on-site
consulting (at our discretion) at no additional cost to you.
We look forward to becoming a part of your team and successfully meeting
your storage and performance requirements. I will call you later this afternoon
to further discuss this proposal.
Best regards,
Derek Marsano
Senior Account Manager
<PAGE>
AMENDMENT No. 1 TO VALUE ADDED RESELLER AGREEMENT
-------------------------------------------------
No. AND032926-01V
-----------------
Object Design, Inc.("ODI") and Andromedia, Inc., ("VAR") in consideration
of the mutual covenants herein, and in the stated Value Added Reseller Agreement
No. AND032896-01V (the "Agreement") contained, hereby agree to amend and renew
the Agreement effective this day, December 31, 1998, as follows:
1. Section 10, Term and Termination: 10.1, delete the last sentence and
replace with the following:
"This Agreement may be renewed for an additional one (1) year period,
provided that VAR has met the Guaranteed Fees requirements set forth
in Schedule 2, and that the terms and conditions of Schedule 2, Sub-
---------- ----------
Section F apply."
2. Schedule 2, Add additional Sub-Section as follows:
"F. Renewal Period
In accordance with Section 10.1 hereof, VAR may renew this Agreement
for an additional one (1 year period (the "Renewal Period"). For such
Renewal Period only, Sub-Sections A, B, C, and D hereof do not apply
----
and are hereby replaced with this Sub-Section F.
(1) Renewal Guaranteed Fees: An additional $100,000.00 payable upon
-----------
execution of an amendment which renews this Agreement.
(2) Sublicense Fees for Renewal Period. The sublicense fee rate used
to calculate sublicense fees under Section 6.2 for this Renewal Period
only shall be 6.0%.
----
Sublicense Fees for VAR's licensing of Application Programs directly
to its Customers shall be determined by multiplying the sublicense fee
rate specified above, times the fees charged by VAR for the licenses
granted to Customers for the Application Programs (the "License
Fees"). For the purposes of sublicense fee calculation, the minimum
License Fee for the Application Program known as "Standard Recorder"
shall be $6,895.00, and the minimum License Fee for the Application
---------
Program known as "Gold Recorder" shall be $15,895.00.
----------
Sublicense fees for the licensing of Application Programs through
VAR's Sub-Distributors shall be determined by multiplying the
sublicense fee rate specified above, times the net license fees
charged by VAR for such licenses granted to Customers through VAR's
Sub-Distributors. For licenses granted through VAR's Sub-Distributors
the minimum License Fees listed above do not apply.
<PAGE>
Any other Application Program within VAR's product suite which
utilizes the Programs shall be subject to the above-listed 6.0%
sublicense fee rate."
Except as set forth in this Amendment, all provisions, conditions and terms
of the Agreement shall remain in effect. Should there be any conflict between
the provisions, terms and conditions of this Amendment and the provisions, terms
and conditions of the Agreement, then the provisions of this Amendment shall
prevail.
This Amendment, and the Agreement (including Schedules), sets forth the
entire agreement and understanding of the parties with respect to the subject
matter hereof, and supersedes all prior oral and written agreements and
understandings relating thereto.
IN WITNESS WHEREOF, the parties hereto executed this Amendment as of the
date above written.
Object Design, Inc.: Andromedia, Inc.:
By: By: /s/ James Cohan
-------------------------- --------------------------
Name: Name: James Cohan
-------------------------- --------------------------
Title: Title: CFO
-------------------------- --------------------------
-2-
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 10, 1999,
relating to the Consolidated financial statements of Andromedia Inc., which
appears in such Prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 23, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated August 10, 1999,
relating to the financial statements of LikeMinds Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ PricewaterhouseCoopers LLP
San Jose, California
September 23, 1999
