<PAGE>
As filed with the Securities and Exchange Commission on August 25, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
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
incorporation or (Primary Standard Industrial (I.R.S. Employer
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
David L. Leibsohn Michael R. Fassler
Christine S. Wong Latham & Watkins
Wilson Sonsini Goodrich & Rosati 505 Montgomery Street
Professional Corporation Suite 1900
650 Page Mill Road San Francisco, CA 94111
Palo Alto, CA 94304 Phone: (415) 391-0600
Phone: (650) 493-9300 Fax: (415) 395-8095
Fax: (650) 493-6811
</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. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Maximum
Aggregate
Title of Each Class of Offering Price Amount of
Securities to be Registered (1) Registration Fee
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value............... $40,000,000 $11,120
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
---------------
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 -- August 25, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Prospectus
, 1999
[ANDROMEDIA LOGO]
Shares of Common Stock
- --------------------------------------------------------------------------------
Andromedia, Inc.: The Offering:
. We believe that we . We are offering
are the first shares of our
company to offer a common stock.
comprehensive e-
marketing solution
that combines
advanced Web site
monitoring,
personalization
and analysis
capabilities.
. The underwriters
have an option to
purchase an
additional
shares from
Andromedia to
cover over-
allotments.
. Andromedia, Inc.
818 Mission Street . This is our
Second Floor San initial public
Francisco, CA offering, and no
94103 (415) 365- public market
6700 currently exists
for our shares. We
anticipate that
the initial public
offering price
will be between
$ and $ .
Proposed Symbol and
Market:
. ANDO/Nasdaq
National Market
. We expect to use
the proceeds from
this offering for
general corporate
purposes,
principally
working capital,
capital
expenditures and
additional sales
and marketing
efforts.
. Closing: ,
1999.
-------------------------------------------
<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 4.
- --------------------------------------------------------------------------------
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>
[Graphics depicting the Andromedia e-marketing solution]
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of the
prospectus or of any sale of the common stock. In this prospectus, unless the
context indicates otherwise, the "Company," "Andromedia," "we," "us" and "our"
refer to Andromedia, Inc. and its consolidated subsidiaries.
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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 4
Use of Proceeds...................... 13
Dividend Policy...................... 13
Capitalization....................... 14
Dilution ............................ 15
Selected Consolidated Financial
Data................................ 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business............................. 28
Management........................... 41
</TABLE>
<TABLE>
<CAPTION>
Page
<S> <C>
Certain Transactions.............................. 52
Principal Stockholders............................ 53
Description of Capital Stock...................... 55
Shares Eligible for Future Sale................... 58
Underwriting...................................... 60
Legal Matters..................................... 62
Experts........................................... 63
Where You Can Find More Information............... 63
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
immediately prior to the offering.
Andromedia, Inc.
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 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 first time 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.
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.
1
<PAGE>
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. Our customers include Chase
Manhattan Bank, Daimler-Chrysler, E*Trade, Internet Gift Registry, Levi Strauss
& Co., Motley Fool, Sun Microsystems, The Weather Channel, United Parcel
Service and the United States Postal Service. 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.
The Offering
<TABLE>
<S> <C>
Common stock offered by
Andromedia...................... 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, capital expenditures and additional sales and
marketing efforts, as well as potential acquisitions.
Proposed Nasdaq National Market
symbol.......................... ANDO
</TABLE>
This table is based on shares outstanding as of July 31, 1999. This table
excludes:
. 3,314,596 shares subject to outstanding options as of July 31, 1999 at a
weighted average exercise price of $1.93 per share;
. 2,641,466 additional shares available for grant as of July 31, 1999 under
our 1996 stock plan, 1997 stock plan, 1999 stock plan and 1999 employee
stock purchase plan; and
. 159,230 shares of common stock subject to outstanding warrants at a
weighted average exercise price of $4.90 per share.
2
<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.................................... $ 0.95 $ 0.59
======= =======
Shares used to compute pro forma basic and
diluted net loss per share............... 10,096 14,665
</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 $
Working capital........................................... 7,392
Total assets.............................................. 16,537
Long-term debt and lease obligations, less current........ 255
Mandatorily redeemable convertible preferred stock........ 55,141
Total stockholders' equity (deficit)...................... (44,003)
</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 shares of common stock in the offering 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."
3
<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 and expect to incur substantial losses 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 $23.1 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.
We derive a significant portion of our revenues in each quarter from a small
number of relatively large orders. We could be seriously harmed if we were
unable to complete one or more substantial sales 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 revenue in each of those quarters.
4
<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 us.
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 us. 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.
Our business could be seriously impacted by the privacy concerns of e-commerce
users.
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. The U.S. Federal Trade Commission has also
indicated that it will be vigilant in using its existing statutory authority to
institute enforcement actions against companies that the FTC believes have
infringed individual privacy. Moreover, 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. Proposed FTC regulations designed
to implement the law will go into effect in the year 2000. Various other
countries and political entities, such as the European Economic Community, have
adopted legislation or regulatory requirements which are in some respects
stricter than U.S. requirements. The United States may adopt similar
legislation or regulatory requirements, which could seriously harm us.
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. Cookies are
typically stored on a computer user's hard disk drive, possibly without the
user's knowledge, but generally may be removed or disabled by the user. Some
countries have imposed laws limiting the use of cookies, and 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.
If such laws are passed, we could be seriously harmed.
5
<PAGE>
We face intense competition, and if we are unable to compete successfully, we
will be seriously harmed.
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."
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. If we fail to do so, we would be seriously harmed and our growth will
be limited.
We need to substantially expand our direct sales operations if we are to
increase our revenues. If we fail to increase our direct sales capabilities, we
would be seriously harmed, and our growth would be limited. We have recently
expanded our direct sales force and plan to hire additional sales personnel. As
of July 31, 1999, our direct sales organization, including sales and sales
support personnel, consisted of 36 employees. 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.
We depend on key personnel. The loss of the services of one or more of our key
personnel, or our failure to attract and retain other highly qualified
personnel in the future would seriously harm us.
Our future success depends on the continued service of our senior management
and other key personnel. The loss of the services of one or more of our key
personnel could seriously harm us. 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.
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
6
<PAGE>
have recently hired a significant number of employees and plan to further
increase our total headcount. Our headcount has increased from 36 at December
31, 1997 to 86 at December 31, 1998 to 121 at June 30, 1999. 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 and a failure to do so could seriously harm us. We
are also subject to risks associated with making these acquisitions.
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. However, we cannot assure you that we will be able to identify
additional acquisition or investment opportunities that may be necessary to
maintain our competitive market position. 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 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 us.
We rely on our strategic relationships with:
. leading platform and applications providers such as Allaire, ATG,
BroadVision, Netscape/America Online, Sun Microsystems and Vignette;
7
<PAGE>
. Internet services companies such as Anubis, BASE Consulting, Fort Point
Partners, iXL, Multimedia Live, Net Effect, Net Quotient, Novo
Interactions, Oven Digital and Stonebridge;
. 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; and
. Object Design, which provides us the object database for our ARIA
recorder product.
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
seriously harm us.
As of July 31, 1999, our Services Group consisted of 29 employees, and we
plan to substantially increase the size of this organization. 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, although from time to time we bill
our clients on a time and materials 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, we 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, we 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.
Future expansion of our international operations is important to the growth of
our business and a failure to successfully expand these operations in a timely
manner could seriously harm us.
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.
8
<PAGE>
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.
Protection of our intellectual property may not be adequate.
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. If we do not adequately protect our
intellectual property, we could be seriously harmed.
We have been granted two U.S. patents and have one pending U.S. patent
application. We have one issued foreign patent but do not have any pending
foreign patent applications. It is possible that no patents will issue from the
currently pending patent application. Our patents relate to our collaborative
filtering technology which enables our LikeMinds product line to make
predictions about the profile and behavior of Web site visitors and to provide
personally relevant information and purchase recommendations. 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 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
9
<PAGE>
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.
We face a number of unknown risks associated with trying to become Year 2000
compliant.
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 the year 2000.
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 will require
substantial expenditures to fix. This could seriously harm us. 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
Management may apply the proceeds of this offering to uses that do not increase
our results of operations or market value.
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.
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 shares of our
common stock, or if the underwriters' over-allotment option is
exercised in full. Of these shares, the 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
10
<PAGE>
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,
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.
You will suffer immediate and substantial dilution.
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 $ per share from their investment.
Our charter documents and Delaware law will make it more difficult 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 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
11
<PAGE>
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.
12
<PAGE>
USE OF PROCEEDS
We estimate net proceeds from the sale of the shares of common stock
in this offering to be approximately $ million 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 $ million.
We expect to use the net proceeds for general corporate purposes, principally
working capital, capital expenditures and additional sales and marketing
efforts. 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.
13
<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
11,176,666 shares of common stock; and
. the pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at the initial public offering price of $ 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 $
======= ======= =====
Long-term debt and lease obligations less
current........................................ $ 255 $ 255 $ 255
Mandatorily redeemable convertible preferred
stock.......................................... 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 .................................... 1 --
Common stock: $0.001 par value; 20,000,000
shares authorized actual; 4,000,000, 5,942,125
and 6,166,886 (unaudited) shares issued
actual; 150,000,000 shares authorized,
17,343,552 shares issued and outstanding pro
forma ........................................ 6 17
Paid-in capital................................ 7,576 36,276
Deferred stock compensation.................... (2,015) (2,015)
Preferred stock accretion...................... (26,431) --
Accumulated deficit............................ (23,140) (23,140)
------- ------- -----
Total stockholders' equity (deficit)......... (44,003) 11,138
------- -------
Total capitalization........................... $11,393 $11,393 $
======= ======= =====
</TABLE>
This table does not include:
. 3,314,596 shares subject to outstanding options as of July 31, 1999 at a
weighted average exercise price of $1.93 per share;
. 2,641,466 additional shares available for grant as of July 31, 1999 under
our 1996 stock plan, 1997 stock plan, 1999 stock plan and 1999 employee
stock purchase plan; and
. 159,230 shares of common stock subject to outstanding warrants at a
weighted average exercise price of $4.90 per share.
14
<PAGE>
DILUTION
The net tangible book value of our common stock on June 30, 1999 was
$ , or approximately $ per share. 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. 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 shares of common stock offered by
this prospectus at an estimated price of $ per share and after deducting
the underwriting discount and estimated offering expenses payable by us, our
net tangible book value would have been $ , or approximately $ per
share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors.
<TABLE>
<S> <C> <C>
Estimated public offering price per share........................... $
Net tangible book value per share as of June 30, 1999............. $
Increase per share attributable to new investors..................
---
As adjusted net tangible book value per share after the offering....
---
Dilution in net tangible book value per share to new public
investors.......................................................... $
===
</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 3,185,186 shares of common stock with a
weighted average exercise price of $1.93 per share and warrants outstanding to
purchase a total of 159,230 shares of common stock with a weighted average
exercise price per share of $4.90. 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, 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 estimated public offering
price of $ per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- ------------------- Average Price
Number Percentage Amount Percentage Per Share
-------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... % $ % $
New investors.............
-------- ----- -------- ----- ----
Total................... 100.0% $ 100.0%
======== ===== ======== =====
</TABLE>
If the underwriters over-allotment option is exercised in full, the number of
shares held by new public investors will be increased to or approximately
% of the total number of shares of our common stock outstanding after this
offering.
15
<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............ $ (0.49) $ (0.95) $ (2.66) $ (1.30) $ (6.01)
======= ======= ======== ======= ========
Weighted average shares...... 3,344 3,531 4,105 3,684 5,602
Pro forma net loss per share:
Basic and diluted............ $ (0.95) $ (0.59)
======== ========
Weighted average shares...... 10,096 14,665
</TABLE>
16
<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>
17
<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 1.9 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 December 1998, we introduced
our initial version of the LikeMinds software for licensing to customers.
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 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
18
<PAGE>
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 accounted for 11% and
10% of total revenues and in 1998 and in the six months ended June 30, 1999,
two different customers accounted for 13% and 15%, respectively, 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 $23.1
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. As a result, 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.
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>
19
<PAGE>
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 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 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.
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.
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.
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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.
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.
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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 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.
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.
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.
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
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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.
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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>
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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. 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.
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 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% 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 subject us to certain restrictions.
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.
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
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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 determined to be 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 representations that their systems are year 2000
compliant. As a result, some of these systems may, either independently or in
combination with other 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 and have determined that they
meet our criteria for year 2000 readiness. 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
process and year 2000 compliance matters generally. At this time, 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
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<PAGE>
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.
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.
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BUSINESS
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 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 2002, and Forrester
Research estimates that Internet business-to-business and business-to-consumer
transactions 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 the percentage of large U.S. companies (1,000
or more employees) using the Internet as a channel for commerce will increase
from 20% in 1998 to 98% in 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 first time 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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<PAGE>
.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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<PAGE>
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 information and to
leverage existing geographic, demographic and psychographic data to improve the
accuracy of its personalization.
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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<PAGE>
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
[Graphic Depicting ARIA platform/recorder with diagram showing monitors at
left, LikeMinds Personalization Server engines in middle and ARIA reporter
modules at right]
Our ARIA and LikeMinds products leverage the functionality of a common
platform to enable scalable, flexible and accurate Web site monitoring,
analysis and personalization. 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.
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
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<PAGE>
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.
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
. 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.
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<PAGE>
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 generated
revenues or deferred revenues of at least $25,000 since January 1, 1998:
<TABLE>
<CAPTION>
Online Companies Manufacturers/Retailers Technology
<S> <C> <C>
Big Star Audi BellSouth
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 XTRA
NetFlix.com
On2.com Media Financial Services
Pangolin All Media Guide Chase Manhattan Bank
RealEstate.com Forrester Research First Chicago
visitalk.com Fox Home Entertainment First Union
www.com Launch Media Interactive Investor
NewsReal Intuit
Government Total Sports
General Services Administration The Weather Channel
U.S. Postal Service
Entertainment
Cinemax/HBO
Columbia House
Diva Systems
Sony Corporation
West Coast Video
</TABLE>
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.
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.
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<PAGE>
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.
Technology Relationships. We strive to establish relationships with leading
industry e-commerce platform and application providers and technology partners
that add value to our products. We have found that these relationships enable
our customers to more easily employ our products as part of larger, off-the-
shelf solutions, thereby minimizing the need for custom application
development. In addition, these relationships increase demand for our products
since many of our prospective customers first invest in complementary products
from our partner companies. We have strategic
relationships with leading platform and applications providers such as Allaire,
ATG, BroadVision, Netscape/America Online, Sun Microsystems and Vignette. We
continue to seek additional partners who complement our product and marketing
strategy. We share with our partners sales and marketing collateral materials,
sales leads and technology integration services.
In addition, we have recently established a relationship with Big Flower
Holdings, a direct marketing services provider that provides us access to
traditional geographic, demographic and psychographic profiles of over 220
million persons residing in the United States. Access to this large database of
historical consumer information is intended to enable our products to provide
more accurate information regarding the tastes and preferences of online
consumers. Our relationship with Webcraft, a leading provider of personalized
direct marketing services and a subsidiary of Big Flower
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<PAGE>
Holdings, Inc., is part of our strategy to consolidate traditional data from
various information channels with our own captured online data to enhance our
personalization solution.
Distribution Relationships. We intend to accelerate the implementation of our
e-marketing solutions by expanding our relationships with leading systems
integrators that specialize in designing and deploying e-commerce Web sites. We
have 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 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.
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.
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<PAGE>
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.
We currently hold two U.S. patents and one foreign patent and we have one
U.S. patent application pending. 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.
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.
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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 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 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, a manufacturer of computer
systems used in high-end transaction processing and decision support
applications. Mr. Godfrey serves on the boards of directors of TRM Corporation
and HipBone, Inc. and is a member of the advisory boards of eForce, Inc.,
Facilitas, Inc., Softcoin, Inc. and the Palo Alto Coffee Company. He also
serves on the advisory board of the non-profit charitable organization Planet
Hope. 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 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 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 October 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 Pictra, Inc., a developer of Web-
based photographic imaging software and services. From April 1994 to October
1997, Mr. Blumenfield served as Vice President of the Data Visualization Group
at
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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
1994 to December 1996, Mr. Tedesco served as Director, Sales for the Western
Region of Banyan Systems, 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 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
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<PAGE>
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 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 also serves as a director
of About.com, Inc. Mr. Wood received a B.S. degree in Economics from the
Wharton School of the University of Pennsylvania.
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<PAGE>
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."
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."
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 (1) our Chief Executive Officer, (2) our
four other most highly compensated executive officers who earned more than
$100,000 in 1998 and except as otherwise noted were serving as executive
officers at the end of 1998 and (3) certain other of our current executive
officers (collectively, the "Named 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.
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
---------------- ------------
Securities
Underlying All Other
Salary Bonus Options (#) Compensation
Name and Principal Position -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Kent B. Godfrey.................... $150,000 $40,000 -- $16,607(g)
Chairman of the Board and
Chief Executive Officer
Paul R. Gifford(a)................. 70,456 -- 390,000 20,000(h)
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)............ 125,000 -- -- 5,982(g)
Former Chief Technical Officer
James A. Cohan(e).................. 125,000 26,325 -- 21,607(g)
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) Represents salary earned in 1997 but paid in 1998.
(h) Represents signing bonus paid to Mr. Gifford upon commencement of his
employment.
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<PAGE>
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" for a description of the material terms of these options. Andromedia
granted options to purchase common stock equal to a total of 1,368,449 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......... 240,000 17.5 0.65 7/28/08 98,108 248,624
150,000 11.0 1.00 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
$2.38, the fair market value of the common stock as of December 31, 1998. 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............. -- 390,000 -- 622,200
Stephen F. Ghiglieri........ -- -- -- --
Mark A. Brewer.............. 52,000 104,000 112,320 224,640
Scott G. Capdevielle........ -- -- -- --
James A. Cohan.............. -- -- -- --
Paula B. Hawthorn........... 60,000 -- 124,800 --
</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 several of our key
employees. 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
occurence 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 (the
"1999 Plan") in August 1999 and our stockholders will be asked to approve the
1999 Plan in September 1999. The 1999 Plan provides for the grant of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code
(the "Code") to employees, and for the grant of nonstatutory stock options and
stock purchase rights ("SPRs") to employees, directors and consultants.
Number of Shares of Common Stock Available under the 1999 Plan. A total of
2,000,000 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, 1,000,000 shares or such other lesser amount as the board may determine.
Administration of the 1999 Plan. The board of directors or a committee of the
board (as applicable, the "Administrator") 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 Code, the committee will consist of two or
more "outside directors" within the meaning of Section 162(m) of the Code. The
Administrator has the power to determine the terms of the options or SPRs
granted, including the exercise price, the number of shares subject to each
option or SPR, 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 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 ("SPRs"). The Administrator determines the exercise
price of SPRs granted under the 1999 Plan. In the case of SPRs, unless the
Administrator determines otherwise, the restricted stock purchase agreement
entered into in connection with the exercise of the SPR 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 SPRs. An optionee generally may not transfer
options and SPRs granted under the 1999 Plan and only the optionee may exercise
an option and SPR 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 SPR. If the outstanding options or SPRs 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 SPR as to all of the shares subject
to the option or SPR, including shares which would not otherwise be
exercisable, for a period of fifteen days from the date of the notice. The
option or SPR 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 3,270,000 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, "SPRs," to employees,
directors and consultants.
The 1997 Stock Plan may be administered by our board or a committee of our
board (as applicable, the "Administrator"). The Administrator has the power to
determine the terms of the options or SPRs granted, including the exercise
price of the options or SPRs, the number of shares subject to each option or
SPR, 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 SPRs
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 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 SPRs, 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
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.
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<PAGE>
Options and SPRs granted under the 1997 Stock Plan are generally not
transferable by the optionee, and each option and SPR is exercisable during the
lifetime of the optionee only by the optionee. Options granted under the 1997
Stock Plan must generally be exercised within 30 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 SPR must be assumed or an
equivalent option substituted by the successor corporation. If the outstanding
options and SPRs are not assumed or substituted by the successor corporation,
the outstanding options and SPRs will fully vest.
1996 Stock Plan
In February 1996, our board adopted, and our stockholders approved, the 1996
Stock Plan. We reserved for issuance 500,000 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.
1999 Employee Stock Purchase Plan
Our board of directors adopted the Andromedia, Inc. 1999 Employee Stock
Purchase Plan (the "Purchase Plan") in August 1999. Our stockholders will be
asked to approve the Purchase Plan in September 1999.
Number of Shares of Common Stock Available under the Purchase Plan. A total
of 500,000 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, 500,000
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.
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 .
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
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<PAGE>
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 5,000 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 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.
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;
50
<PAGE>
. 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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<PAGE>
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
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, Inc.................. -- -- 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.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of July 31, 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 17,347,288 shares of
common stock outstanding as of July 31, 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 July 31, 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).. 1,800,789 10.4%
Jack L. Rivkin(b).................. 1,800,789 10.4
JK&B Capital, L.P. and affiliated
entities(c)........................ 1,746,897 10.1
UBS Capital II LLC(d)............... 1,711,365 9.9
Hyunja F. Laskin(e)................ 1,711,365 9.9
Scott G. Capdevielle(f)............. 1,500,000 8.6
Jamie A. Cohan(g)................... 1,480,000 8.5
XL Ventures, Inc.(h)................ 1,132,182 6.5
Kristopher A. Wood(i).............. 1,132,182 6.5
Kent B. Godfrey(j).................. 1,026,042 5.9
Paul R. Gifford(k).................. 129,375 *
Mark A. Brewer(l)................... 85,750 *
Paula B. Hawthorn................... 30,000 *
Robert J. Saldich(m)................ 23,157 *
L. William Krause................... -- *
Richard Wolpert..................... -- *
All directors and officers as a
group (14 persons)(n).............. 6,370,936 36.1
</TABLE>
- --------
* Less than 1%
53
<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 1,800,789 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 1,210,054 held by JK&B Capital, L.P. and 536,843 shares
held by JK&B Capital II, L.P.
(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 1,711,365 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, Inc. is c/o Big Flower Holdings,
Inc., 3 East 54th Street, New York, NY 10022.
(i) Number of shares includes 1,132,182 shares held by XL Ventures, Inc. Mr.
Wood is a Managing Director of XL Ventures, Inc. Mr. Wood disclaims
beneficial ownership of the shares held by XL Ventures, Inc. except to the
extent of his proportionate pecuniary interest in the entity.
(j) Number of shares includes 26,042 shares of common stock issuable upon
exercise of options exercisable within 60 days of July 31, 1999.
(k) Number of shares includes 129,375 shares of common stock issuable upon
exercise of options exercisable within 60 days of July 31, 1999.
(l) Number of shares includes 85,750 shares of common stock issuable upon
exercise of options exercisable within 60 days of July 31, 1999.
(m) Number of shares includes 10,000 shares of common stock issuable upon
exercise of options exercisable within 60 days of July 31, 1999.
(n) Includes the shares beneficially owned by current directors and officers,
plus an additional 534,776 shares beneficially owned by other executive
officers. Of the shares beneficially owned by other executive officers,
490,506 shares were outstanding as of July 31, 1999 and 44,270 shares are
subject to options that are exercisable within 60 days of July 31, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summarizes the material provisions of Andromedia's capital
stock. This summary, however, does not purport to be complete and is subject
to, and qualified in its entirety by, 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 and by the provisions of
applicable law.
As of, July 31, 1999, there were 17,347,288 shares of common stock
outstanding, no 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.
See "Dividend Policy." 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 30,000 shares of common stock at an
exercise price of $15.00 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 129,230 shares of common
stock.
Registration Rights
The holders of approximately 11,206,626 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,
55
<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
56
<PAGE>
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).
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
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.
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<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 shares of
common stock based upon shares outstanding as of July 31, 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 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 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 restricted shares will
be eligible for sale in the public market, all of which are subject to volume
limitations under Rule 144, except shares eligible for sale under Rule
144(k) and shares eligible for sale under Rule 701. Of those restricted
shares not eligible for sale beginning 181 days after the date of this
prospectus, restricted shares will be eligible for sale on , all of
which are subject to volume limitations under Rule 144. In addition, as of July
31, 1999, there were outstanding options and warrants to purchase an aggregate
of shares of common stock, some of which may be exercised prior to this
offering. All such options and warrants are subject to lock-up restrictions.
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 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.
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<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 shares of common stock subject to
outstanding options or reserved for future issuance under our stock plans. As
of July 31, 1999, options to purchase a total of shares were outstanding
and 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
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.
59
<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 and Wit Capital Corporation, 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.
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<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;
61
<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 49,134 shares of our common stock
on an as-converted to common stock basis.
62
<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, and the rules and regulations promulgated thereunder, with
respect to the common stock offered hereby. This prospectus, which constitutes
a part of the registration statement, does not contain all of the information
set forth in the registration statement and the exhibits thereto. Statements
contained in this prospectus as to the contents of any contract or other
document that is filed as an exhibit to the registration statement are not
necessarily complete and each such statement is qualified in all respects by
reference to the full text of such contract or document. For further
information with respect to Andromedia and the common stock, reference is
hereby made to the registration statement and the exhibits thereto, 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.
63
<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 August 25, 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 September , 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; 4,000,000,
5,942,125 and 6,166,886 (unaudited) shares
issued actual; 150,000,000 shares
authorized, 17,343,552 shares issued and
outstanding pro forma (unaudited)........... 4 6 6 17
Paid-in-capital.............................. 2,220 5,769 7,576 36,276
Deferred stock compensation.................. -- (651) (2,015) (2,015)
Preferred Stock accretion.................... -- (1,351) (26,431) --
Accumulated deficit.......................... (4,976) (14,532) (23,140) (23,140)
------- -------- -------- --------
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............. $ (0.49) $ (0.95) $ (2.66) $ (1.30) $ (6.01)
======= ======= ======== ======= ========
Weighted average shares....... 3,344 3,531 4,105 3,684 5,602
Pro Forma Net Loss Per Share
(Unaudited):
Basic and diluted............. $ (0.95) $ (0.59)
======== ========
Weighted average shares....... 10,096 14,665
</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 Preferred
-------------- ---------------- Paid-in Stock Stock Accumulated
Shares Amount Shares Amount Capital Compensation Accretion Deficit Total
------- ------ --------- ------ ------- ------------ --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock
to founders ........... -- $ -- 4,000,000 $ 4 $ 105 $ -- $ -- $ -- $ 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 4,000,000 4 1,929 -- -- (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 4,000,000 4 2,220 -- -- (4,976) (2,751)
Issuance of Common Stock
upon acquisition of
LikeMinds, Inc......... -- -- 1,856,672 2 2,598 -- -- -- 2,600
Deferred stock
compensation........... -- -- -- -- 938 (938) -- -- --
Amortization of deferred
stock compensation..... -- -- -- -- 287 -- -- 287
Exercise of stock
options................ -- -- 85,453 -- 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 5,942,125 6 5,769 (651) (1,351) (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).... -- -- 224,761 -- 45 -- -- -- 45
Foreign translation
adjustment
(unaudited)............ -- -- -- -- (31) -- -- -- (31)
Preferred Stock
accretion (unaudited).. -- -- -- -- -- -- (25,080) -- (25,080)
Net loss (unaudited).... -- -- -- -- -- -- -- (8,608) (8,608)
------- ----- --------- ---- ------ ------- -------- -------- --------
Balance at June 30, 1999
(unaudited)............ 744,910 $ 1 6,166,886 $ 6 $7,576 $(2,015) $(26,431) $(23,140) $(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"). Share data in the accompanying financial statements has been
retroactively adjusted to reflect the proposed reincorporation, which is
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 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............... 4,000 4,000 4,475 4,012 6,096
Weighted average
unvested common
shares subject to
repurchase........... (656) (469) (370) (328) (494)
------------ ------------ ------------- ------- --------
Total weighted
average shares...... 3,344 3,531 4,105 3,684 5,602
------------ ------------ ------------- ------- --------
Net loss per share:.... -- --
Basic and diluted..... $ (0.49) $ (0.95) $ (2.66) $ (1.30) $ (6.01)
============ ============ ============= ======= ========
Pro forma:
Numerator:
Net loss.............. $ (9,556) $ (8,608)
============= ========
Denominator:
Weighted average
common shares, basic
and diluted.......... 4,105 5,602
Conversion of
Convertible Preferred
Stock................ 5,991 9,063
------------- --------
Total weighted
average shares...... 10,096 14,665
============= ========
Pro forma net loss per
share:
Basic and diluted.... $ (0.95) $ (0.59)
============= ========
</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.
F-10
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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
F-11
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 1,856,672 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 $1.40
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
F-12
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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)................... $ (0.94) $ (2.10)
Weighted average shares (basic and diluted).............. 5,270 5,468
</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.
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 four shares of Common Stock subject to adjustment for dilution. Series B, C
and E Convertible Preferred Stock convert on a one-to-one ratio, subject to
adjustment for dilution. Each share of Series D Convertible Preferred Stock
converts on a ratio of 1 to 1.16 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 $7.10 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 6,949,222 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 in 1998. The fair value of the warrants was estimated on
the date of grant using the Black-Scholes model.
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 fair value of the
warrants was estimated to be approximately 60,000 using the Black-Scholes
model.
F-17
<PAGE>
ANDROMEDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
7. Common Stock
The Company's articles of incorporation, as amended in March 1999, authorize
the Company to issue 20,000,000 shares of no par value Common Stock. Upon
incorporation of the Company in January 1996, the Company issued 4,000,0000
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 353,820 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 541,820 shares and 447,820 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 500,000
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 3,270,000 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.............................. 500,000 -- $ --
Options granted................................ (489,072) 489,072 0.11
---------- ---------
Outstanding at December 31, 1996............... 10,928 489,072 0.11
Additional shares authorized.................. 750,000 -- --
Options granted............................... (675,822) 675,822 0.26
Options canceled.............................. 16,438 (16,438) 0.19
---------- ---------
Outstanding at December 31, 1997............... 101,544 1,148,456 0.20
Additional shares authorized.................. 1,320,000 -- --
Options granted............................... (1,368,449) 1,368,449 0.75
Options exercised............................. -- (85,453) 0.19
Options canceled.............................. 385,050 (385,050) 0.32
---------- ---------
Outstanding at December 31, 1998............... 438,145 2,046,402 0.54
Additional shares authorized (unaudited)...... 1,200,000 --
Options granted (unaudited)................... (1,599,500) 1,599,500 3.25
Options exercised (unaudited)................. -- (224,761) 0.20
Options canceled (unaudited).................. 235,985 (235,985) 0.54
---------- ---------
Outstanding at June 30, 1999 (unaudited)....... 274,630 3,185,156 $1.93
========== =========
</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>
$0.025-- $0.125........... 271,479 7.28 $0.06 185,146 $0.06
0.19 -- 0.30.............. 633,577 8.67 0.25 259,163 0.25
0.65 -- 1.00.............. 1,141,346 9.65 0.82 33,627 0.69
--------- -------
2,046,402 9.03 $0.54 477,936 $0.21
========= =======
</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...... $ 0.49 $ 0.96 $ 2.81
</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>
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 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.
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 30,000 shares of the Company's Common Stock at an
exercise price of $15.00 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 two million shares authorized for
future option grants and the 1999 Employee Stock Purchase Plan with 500,000
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)
<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)
===== =====
</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.
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.
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.
F-29
<PAGE>
LIKEMINDS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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
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.
F-30
<PAGE>
LIKEMINDS, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
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)
======== ===== ===== ========
Pro forma net loss per share: Basic
and diluted......................... $ (2.10)
========
Shares used in computing pro forma
net loss per share: Basic and
diluted............................. 5,468
</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>
[Graphics depicting the Andromedia e-marketing solution]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[ANDROMEDIA LOGO]
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.................................. *
Printing and engraving expenses..................................... *
Professional fees and expenses...................................... *
Blue Sky fees and expenses.......................................... 7,500
Transfer agent fees................................................. *
Miscellaneous *
-------
Total............................................................... *
=======
</TABLE>
- --------
* To be filed by amendment.
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 312,505
shares of unregistered common stock to directors, officers, employees, former
employees and consultants at prices ranging
II-1
<PAGE>
from $0.1250 to $3.20 per share, for aggregate cash consideration of $58,504.
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 16, 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 1,856,675 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
30,000 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 Bylaws of the Registrant, as currently in effect.
3.4* 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 (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
II-3
<PAGE>
(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 24th day of August, 1999.
ANDROMEDIA, INC.
/s/ Kent B. Godfrey
By: _________________________________
Kent B. Godfrey
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Kent B.
Godfrey and Paul Gifford and each one of them as attorneys-in-fact, with the
power of substitution, for him in any and all capacities, to sign any amendment
to this Registration Statement (including post-effective amendments and
registration statements filed pursuant to Rule 462 and otherwise), and to file
the same, with exhibits thereto and other documents in connection therewith,
with the SEC, granting to said attorneys-in-fact, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact or each of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kent B. Godfrey Chief Executive Officer and August 24, 1999
____________________________________ Chairman of the Board
Kent B. Godfrey (Principal Executive
Officer)
/s/ Stephen F. Ghiglieri Vice President of Finance August 24, 1999
____________________________________ and Chief Financial Officer
Stephen F. Ghiglieri (Principal Financial and
Accounting Officer)
/s/ Paul R. Gifford President and Director August 24, 1999
____________________________________
Paul R. Gifford
/s/ L. William Krause Director August 24, 1999
____________________________________
L. William Krause
/s/ Hyunja F. Laskin Director August 24, 1999
____________________________________
Hyunja F. Laskin
/s/ Jack L. Rivkin Director August 24, 1999
____________________________________
Jack L. Rivkin
/s/ Robert J. Saldich Director August 24, 1999
____________________________________
Robert J. Saldich
/s/ Richard Wolpert Director August 24, 1999
____________________________________
Richard Wolpert
/s/ Kristopher A. Wood Director August 24, 1999
____________________________________
Kristopher A. Wood
</TABLE>
II-5
<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 Bylaws of the Registrant, as currently in effect.
3.4* 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 (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger (the "Agreement") dated as of the 18th
---------
day of September, 1998, is made by and among ANDROMEDIA, INC., a California
corporation ("Andromedia"), LM ACQUISITION CORPORATION, a California
----------
corporation ("Sub"), and LIKEMINDS, INC., a California corporation
---
("LikeMinds").
---------
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Andromedia, Sub and LikeMinds deem it
advisable and in the best interests of their respective shareholders that
Andromedia and LikeMinds become affiliated through the merger of Sub with and
into LikeMinds in the manner hereinafter set forth (the "Merger") and, in
------
furtherance thereof, have approved the Merger;
WHEREAS, pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of LikeMinds (the "LikeMinds Capital Stock") and all outstanding
-----------------------
options, warrants or other rights to acquire or receive shares of LikeMinds
Capital Stock shall be converted into the right to receive shares of Common
Stock of Andromedia (the "Andromedia Common Stock");
-----------------------
WHEREAS, a portion of the shares of Andromedia Common Stock otherwise issuable
by Andromedia in connection with the Merger shall be placed in escrow by
Andromedia, the release of which amount shall be contingent upon certain events
and conditions, all as set forth in Article IX hereof;
WHEREAS, the parties intend that the Merger be treated as a purchase for
accounting purposes;
WHEREAS, certain employees of LikeMinds are entering into an Employment
Agreement (collectively, the "Employment Agreements") as of the date hereof in
---------------------
substantially the form attached hereto as Exhibit B;
---------
WHEREAS, the parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions of this
----------
Agreement at the Effective Time (as hereinafter defined), Sub shall be merged
with and into LikeMinds and the separate existence and corporate organization of
Sub shall thereupon cease and Sub and LikeMinds shall thereupon be a single
corporation. LikeMinds shall be the surviving corporation in the Merger and
the separate corporate existence of LikeMinds shall continue unaffected and
unimpaired by the Merger.
1.2. Effective Time of Merger. On a date which shall occur not more than
------------------------
three (3) business days after the date on which the last of any condition
precedent contained herein is waived or is fulfilled, or on such other date as
LikeMinds, Andromedia and Sub shall mutually agree, but in no event later than
October ___, 1998 (the "Closing Date"), the proper officers of LikeMinds and Sub
------------
shall execute and acknowledge an Agreement of Merger that shall be filed with
the Secretary of State of California, in accordance with applicable law. The
Merger shall become effective immediately upon the acceptance by the Secretary
of State of California of such filing (the "Effective Time").
--------------
1.3. Articles of Incorporation and Bylaws; Officers and Directors. The
------------------------------------------------------------
Articles of Incorporation and Bylaws of Sub as in effect immediately prior to
the Effective Time shall become the Articles of Incorporation and Bylaws of the
surviving corporation from and after the Closing Date until amended as provided
by law; provided, however, that Article I of the Articles of Incorporation of
-------- -------
Sub shall be amended to read as follows: "The name of the corporation is
LikeMinds, Inc.". The officers and director(s) of Sub immediately prior to the
Effective Time shall become the officers and director(s) of the surviving
corporation from and after the Closing Date until successors shall have been
duly elected and qualified.
1.4. Effect of Merger on Sub Stock. At the Effective Time of the Merger,
-----------------------------
each share of common stock of Sub issued and outstanding immediately prior to
the Effective Time shall be canceled.
1.5. Exchange of LikeMinds Shares in the Merger. As consideration for the
------------------------------------------
Merger and in exchange for all of the LikeMinds Capital Stock upon the Closing
Date, Andromedia shall issue to the holders of the LikeMinds Capital Stock an
aggregate of 1,732,400 shares of Andromedia Common Stock (as appropriately
adjusted to reflect the effect of any stock split, stock dividend,
reorganization, recapitalization or the like with respect to the Andromedia
Common Stock occurring after the date hereof and prior to the Effective Time),
upon surrender of all such shares of LikeMinds Capital Stock to Andromedia, as
set forth in Schedule 1.5. All shares of Andromedia Common Stock issued
pursuant to the Merger shall be validly issued, fully paid and nonassessable,
and shall be free and clear of any lien, security interest or other encumbrance
of
2
<PAGE>
any kind, including without limitation, preemptive rights. No fractional shares
of Andromedia Common Stock will be issued, but in lieu thereof, each holder of
LikeMinds Capital Stock shall receive on the Closing Date a cash amount equal to
the amount set forth opposite his or her respective name in Schedule 1.5, if
any.
1.6. LikeMinds' Employee Bonuses. In connection with the Merger,
---------------------------
Andromedia agrees to set up a bonus pool in an aggregate amount of $175,000 for
the benefit of certain LikeMinds employees. Such bonuses shall be paid to the
employees and in the amount set forth in Schedule 1.6 ninety (90) days following
the Closing Date.
1.7. Shareholders' Approval. LikeMinds agrees to, as promptly as
----------------------
practicable after the date hereof, use its reasonable best efforts to solicit
from its shareholders written consent for the Merger, and shall take all other
action necessary or advisable to secure such consent of the shareholders
required by Section 1201 of the California General Corporation Law.
1.8. Dissenters Rights. LikeMinds will attempt to obtain unanimous
------------------
shareholder approval for the Merger so that no LikeMinds shareholder will
exercise dissenters rights or appraisal rights with regard to the Merger.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ANDROMEDIA AND SUB
----------------------------------------------------
Except as otherwise qualified in the Schedules attached hereto, Andromedia
and Sub, jointly and severally, hereby represent and warrant to LikeMinds as
follows:
2.1. Organization and Good Standing.
------------------------------
(a) Andromedia is a corporation duly organized, validly existing and
in good standing under the laws of the State of California. Andromedia (i) has
the corporate power to own its properties and to carry on its business as now
being or proposed to be conducted and (ii) is duly qualified to do business and
in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on Andromedia.
Andromedia has delivered to LikeMinds a true and correct copy of its Articles
of Incorporation and Bylaws, each as amended to date.
(b) Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Sub (i) has the corporate
power to own its properties and to carry on its business as now being or
proposed to be conducted and (ii) is duly qualified to do business and in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on Sub. Sub has delivered
to LikeMinds a true and correct copy of its Articles of Incorporation and
Bylaws.
3
<PAGE>
2.2. Valid and Binding Agreement; No Violation. Andromedia and Sub have
-----------------------------------------
all necessary power and authority to execute and deliver this Agreement, to
perform their respective obligations hereunder and to consummate the
transactions contemplated hereby. Subject to any required shareholder approval,
the execution and delivery of this Agreement, the Employment Agreements, and the
stock restriction agreements (the "Stock Restriction Agreements") (collectively,
the "Transaction Documents") by Andromedia and Sub and the consummation by
---------------------
Andromedia and Sub of the transactions contemplated hereby and thereby have been
duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of Andromedia are necessary to authorize each
of the Transaction Documents or to consummate the transactions contemplated
herein or therein. Each of the Transaction Documents constitutes a legal, valid
and binding agreement of Andromedia and Sub enforceable in accordance with its
respective terms, and neither the execution and delivery of any of the
Transaction Documents nor the consummation by Andromedia or Sub of the
transactions contemplated hereby or thereby violates or conflicts with the
Articles of Incorporation or Bylaws of Andromedia or Sub or any agreement, law,
regulation, order, judgment or other restriction of any kind to which Andromedia
or Sub is a party or by which either of them is bound.
2.3. Capitalization.
--------------
(a) On the date hereof, Andromedia has authorized capital stock
consisting of 20,864,512 shares, which are divided into 15,000,000 shares of
common stock of which 4,009,062 shares are issued and outstanding; 248,120
shares of authorized Series A Preferred Stock, 248,120 of which are issued and
outstanding; 496,790 shares of authorized Series B Preferred Stock, 496,790 of
which are issued and outstanding; 1,818,182 shares of authorized Series C
Preferred Stock, 1,627,269 of which are issued and outstanding; and 3,301,420
shares of authorized Series D Preferred Stock, 3,301,420 of which are issued and
outstanding. All of the issued and outstanding shares of Andromedia capital
stock are validly issued, fully paid and non-assessable. Except as set forth in
Schedule 2.3, there are no outstanding warrants, options, subscriptions,
contracts, rights or other agreements or commitments obligating Andromedia to
issue or sell any additional shares of capital stock nor are there outstanding
any securities, debts, obligations or rights which are convertible into or
exchangeable for shares of capital stock in Andromedia.
(b) Sub has authorized capital stock consisting of 100 shares of
common stock all of which are issued and outstanding and held of record by
Andromedia. All of the issued and outstanding shares of Sub are validly issued,
fully paid and non-assessable.
(c) Andromedia has reserved 2,570,000 shares of Common Stock for
issuance to employees and consultants pursuant to Andromedia's 1996 and 1997
Stock Plans ("Andromedia Stock Plans"), of which 1,577,994 shares are subject to
outstanding, unexercised options
4
<PAGE>
("Andromedia Options") and 982,944 shares remain available for future grant.
Andromedia has also isued a warrant (the "Andromedia Warrant") for 19,084 shares
of Series C Preferred Stock. Except for the Andromedia Options and the
Andromedia Warrant, there are no options, warrants, calls, rights, commitments
or agreements of any character, written or oral, to which Andromedia is a party
or by which it is bound obligating Andromedia to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of Andromedia.
2.4. Financial Statements. Attached hereto as Schedule 2.4 are true,
--------------------
complete and correct copies of (i) the audited balance sheet as of December 31,
1996 and December 31, 1997 and the related audited statements of operations and
cash flow of Andromedia for each of the twelve-month periods then ended; and
(ii) the unaudited balance sheet as of July 31, 1998 and the unaudited statement
of operations for the seven (7) months ended July 31, 1998 (the "Andromedia
----------
Financial Statements"). The Andromedia Financial Statements fairly present in
- --------------------
accordance with generally accepted accounting principles consistently applied,
the financial position of Andromedia as of the date indicated and the results of
operations of Andromedia for the periods then ended.
2.5. Compliance. Except as set forth in Schedule 2.5, Andromedia is not
----------
in conflict with, or in default or violation of, (a) any law, rule, regulation,
order, judgment or decree applicable to it or by which any of its property or
assets is bound or affected or (b) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which any such entity it is a party or by which it or any property
or asset of it is bound or affected, the violation of which could have a
material effect on Andromedia, its business operations, prospects, assets or
capital stock.
2.6. Government Regulation. Andromedia holds all material licenses,
---------------------
certificates, permits, franchises and rights from all appropriate federal, state
or other public authorities necessary for the lawful conduct of its business and
ownership of its properties. Except as set forth in Schedule 2.6, Andromedia
has complied with, and has not received any notice that it is in violation of,
any applicable federal, state or local statute, regulation, ordinance, rule,
judgment or decree.
2.7. Litigation. Except as set forth in Schedule 2.7, there are as of the
----------
date hereof no actions, suits, claims, demands or other proceedings or
investigations, either judicial or administrative, pending or, to the knowledge
of Andromedia, threatened against or affecting the properties, assets, rights or
business of Andromedia or the right to carry on or conduct its business, nor are
there to the knowledge of Andromedia any grounds therefor, which, if adversely
determined, would in the aggregate materially adversely affect the business,
operations, properties or financial condition of Andromedia. As of the date
hereof, no judgment, order, decree or award has been entered against Andromedia
nor to the knowledge of Andromedia has any liability been incurred which has or
could have such effect.
5
<PAGE>
2.8. Title to Assets. Except as set forth in Schedule 2.8 or reflected
---------------
in the Andromedia Financial Statements, Andromedia has good and marketable title
to and possession of all of its real and personal properties and assets, in each
case free and clear of any liens, restrictions, encumbrances, rights, title and
interests of others which could have a material effect on Andromedia, its
business operations, prospects or capital stock.
2.9. Undisclosed Liabilities and Existing Commitments. Except as set
------------------------------------------------
forth in Schedule 2.9, Andromedia has no debt, liability or obligation (whether
accrued, contingent, absolute or otherwise) that is not reflected or reserved
against in the Andromedia Financial Statements or was not incurred in the
ordinary course of its business. Andromedia has not given a power of attorney,
which is currently in effect, to any person, firm or corporation for any purpose
whatsoever.
2.10. Defaults. As of the date hereof, Andromedia is not in material
--------
breach or material default under any agreement or commitment to which it is a
party; and no event has occurred which, after the giving of notice, the lapse of
time or otherwise, would constitute a default under, or result in a breach of,
any such agreement or commitment.
2.11. Taxes. Andromedia has filed with the appropriate government
-----
agencies all tax or information returns and tax reports required to be filed.
All federal, state, local and foreign income, franchise, sales, use, occupation,
property, excise or other taxes whether or not yet due have been fully paid or
adequately provided for. There are no actions, proceedings, examinations, or
claims pending or, to the knowledge of Andromedia, threatened by any
governmental entity for or relating to taxes with respect to Andromedia and no
agreements or waivers extending the statue of limitations period therefor.
2.12. Intellectual Property.
---------------------
(a) Andromedia owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, computer software programs or applications (in both source
code and object code form), and tangible or intangible proprietary information
or material that are used in the business of Andromedia as currently conducted
or as proposed to be conducted by Andromedia (such ownership rights or rights to
use being referred to as the "Andromedia Intellectual Property Right(s)").
-----------------------------------------
Schedule 2.12(a) sets forth a complete list of all patents, registered and
material unregistered trademarks, registered copyrights, trade names and service
marks, and any applications therefor, included in Andromedia Intellectual
Property Rights, and specifies, where applicable, the jurisdictions in which
each such Andromedia Intellectual Property Right has been issued or registered
or in which an application for such issuance and
6
<PAGE>
registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(b) Schedule 2.12(b) sets forth a complete list of all licenses,
sublicenses and other agreements to which Andromedia is a party and pursuant to
which Andromedia or any other person is authorized to use any Andromedia
Intellectual Property Right (excluding End-User Licenses as defined herein) or
trade secret of Andromedia, and such licenses, sublicenses and other agreements
listed on Schedule 2.12(b) have been delivered to LikeMinds. The execution and
delivery of this Agreement by Andromedia, and the consummation of the
transactions contemplated hereby, will neither cause Andromedia to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement. Except as set forth
in Schedules 2.12(a) or 2.12(b), Andromedia is the sole and exclusive owner or
licensee of, with all right, title and interest in and to (free and clear of any
liens or encumbrances), Andromedia Intellectual Property Rights, and has sole
and exclusive rights (and is not contractually obligated to pay any compensation
to any third party in respect thereof) to the use thereof or the material
covered thereby in connection with the services or products in respect of which
Andromedia Intellectual Property Rights are being used.
(c) No claims with respect to Andromedia Intellectual Property Rights
have been asserted or are, to Andromedia's knowledge, threatened by any person,
nor are there any valid grounds for any claims, (i) to the effect that the
manufacture, sale, licensing or use of any of the products of Andromedia
infringes on any copyright, patent, trade mark, service mark, trade secret or
other proprietary right, (ii) against the use by Andromedia of any trademarks,
service marks, trade names, trade secrets, copyrights, maskworks, patents,
technology, know-how or computer software programs and applications used in
Andromedia's business as currently conducted or as proposed to be conducted by
Andromedia, or (iii) challenging the ownership by Andromedia, validity or
effectiveness of any of Andromedia Intellectual Property Rights. All registered
trademarks, service marks and copyrights held by Andromedia are valid and
subsisting. Andromedia has not infringed, and the business of Andromedia as
currently conducted or as proposed to be conducted does not infringe, any
copyright, patent, trademark, service mark, trade secret or other proprietary
right of any third party. There is no material unauthorized use, infringement
or misappropriation of any of Andromedia Intellectual Property Rights by any
third party, including any employee or former employee of Andromedia. No
Andromedia Intellectual Property Right or product of Andromedia or any of its
subsidiaries is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by Andromedia. Each
employee, consultant or contractor of Andromedia has executed a proprietary
information and confidentiality agreement substantially in Andromedia's standard
forms, which standard proprietary information and confidentiality agreement has
been made available to LikeMinds for review. All software included in Andromedia
Intellectual Property Rights is original with Andromedia and has been either
created by employees of Andromedia on a work-for-hire basis or by consultants or
contractors who have
7
<PAGE>
created such software themselves and have assigned all rights they may have had
in such software to Andromedia.
2.13. Books and Records.
-----------------
(a) The books and records of accounts of Andromedia (i) are in all
material respects thorough, complete and correct, (ii) have been maintained in
accordance with good business practices on a basis consistent with prior years,
(iii) state in reasonable detail and accurately reflect the acquisitions and
disposition of Andromedia's assets and (iv) accurately and fairly reflect in all
material respects the basis for the Andromedia Financial Statements.
(b) The minute book of Andromedia as made available to LikeMinds for
review is complete and correctly reflects in all material respects all corporate
actions taken by the Board of Directors of Andromedia and all committees thereof
and by its shareholders.
2.14. Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which Andromedia is a party or otherwise binding upon Andromedia which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of Andromedia, any acquisition of property (tangible or
intangible) by Andromedia or the conduct of business by Andromedia as currently
conducted or as proposed to be conducted. Without limiting the foregoing,
Andromedia has not entered into any agreement under which Andromedia is
restricted from developing, selling, licensing, marketing, promoting or
otherwise distributing any products, services or technology to any class of
customers, or entering into any strategic alliances, in any geographic area,
during any period of time or in any segment of the market.
2.15 Employment Matters. Schedule 2.15 lists all contracts, agreements,
------------------
arrangements and understandings, whether written or oral, with respect to the
payment or delivery to any person of compensation, bonuses, perquisites,
benefits and other items of value by Andromedia, to the extent that any such
item has a value of more than $25,000 in any calendar year.
(a) Schedule 2.15 contains a true and complete list of each
pension, profit sharing, other deferred compensation, bonus, incentive
compensation, stock purchase, stock option, supplemental retirement, severance
or termination pay, medical, hospitalization, life insurance, dental,
disability, salary continuation, vacation, supplemental unemployment benefits
plan, program, arrangement or contract, and each other employee benefit plan,
program, arrangement or contract, maintained, contributed to, or required to be
contributed to, or promised by Andromedia for the benefit of any current or
former employee, director or agent of LikeMinds, whether or not any of the
foregoing is funded, whether formal or informal, whether or not subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(collectively,
8
<PAGE>
the "Andromedia Benefit Plans"). Andromedia does not have any express or implied
------------------------
commitment or any contract to create any additional Andromedia Benefit Plan or
modify any existing Andromedia Benefit Plan, other than as may be required to
comply with ERISA or the Code. Andromedia has delivered to LikeMinds, with
respect to each applicable Andromedia Benefit Plan (i) true and complete copies
of all documents embodying or relating to each Andromedia Benefit Plan
including, without limitation, the plan and trust or other funding arrangement
relating thereto, summary plan descriptions, employee handbooks or personnel
manuals, and all amendments and supplements thereto; (ii) the most recent annual
report (Series 5500 and all schedules thereto), if any, required by ERISA; and
(iii) the most recent determination letter received from the Internal Revenue
Service ("IRS"), if any.
(b) Andromedia has performed the obligations required to be performed
by it under, and is not in default under or in violation of, any and all of the
Andromedia Benefit Plans, and each Andromedia Benefit Plan has been operated in
all material respects in accordance with the requirements of all applicable laws
and regulations. Neither any Andromedia Benefit Plan or fiduciary nor
Andromedia has taken any action, or failed to take any action, that could
subject it or any other person to any material liability for any excise tax
under Chapter 43 of the Code or for breach of fiduciary duty with respect to or
in connection with an Andromedia Benefit Plan.
(c) At no time has Andromedia been required to contribute to any
"multi-employer plan" (within meaning of Section 3(37) of ERISA) and Andromedia
has no liability (contingent or otherwise) relating to the withdrawal or partial
withdrawal from a multi-employer plan. Andromedia does not participate in any
"multiple employer plans," within the meaning of ERISA.
(d) No Andromedia Benefit Plan provides or is required to provide
group health, medical, death or survivor benefits to any former or retired
employee of Andromedia or beneficiary thereof, except to the extent (i) required
under any state insurance law providing for a conversion option under a group
insurance policy or health care continuation coverage similar to the
continuation coverage required under Section 601 et seq. of ERISA, or (ii) under
Section 601 et seq. of ERISA.
(e) No Andromedia Benefit Plan or fiduciary has nor does Andromedia
have any liability to any participant, beneficiary or other person under any
provision of ERISA or any other applicable law by reason of any payment of, or
failure to pay, benefits or other amounts with respect to or in connection with
any Andromedia Benefit Plan.
(f) Each Andromedia Benefit Plan may be terminated by Andromedia at
any time without acceleration or additional vesting or any benefits and without
payment of any amount as a penalty, bonus, premium, severance pay or other
compensation or amount.
9
<PAGE>
2.16 No Changes. Except as set forth in Schedule 2.16, since the date of
----------
the Andromedia Financial Statements, there has not been, occurred or arisen any:
(a) transaction by Andromedia except in the ordinary course of
business as conducted as of the date of Andromedia Financial Statements and
consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or Bylaws
of Andromedia;
(c) capital expenditure or commitment by Andromedia, either
individually or in the aggregate, exceeding $150,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of Andromedia (whether or not covered by insurance);
(e) claim of wrongful discharge or other unlawful labor practice or
action;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by Andromedia;
(g) revaluation by Andromedia of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of Andromedia, or any direct or
indirect redemption, purchase or other acquisition by Andromedia of any of its
capital stock;
(i) increase in the salary or other compensation payable or to become
payable to any of its officers, directors, employees or advisors, or the
declaration, payment or commitment or obligation of any kind for the payment of
a bonus or other additional salary or compensation to any such person except as
otherwise contemplated by this Agreement or in the ordinary course of business
and consistent with past practices and Schedule 2.16(i) lists all salary
increases in excess of 10% and any bonus or other compensation arrangement
exceeding $10,000;
(j) sale, lease, license or other disposition of any of the assets or
properties of Andromedia, except in the ordinary course of business and
consistent with past practices;
(k) material amendment or termination of any material contract,
agreement or license to which Andromedia is a party or by which it is bound;
(l) loan by Andromedia to any person or entity, incurring by
Andromedia of any indebtedness, guaranteeing by Andromedia of any indebtedness,
issuance or sale of any debt
10
<PAGE>
securities of Andromedia or guaranteeing of any debt securities of others,
except for advances to employees for travel and business expenses in the
ordinary course of business, consistent with past practices;
(m) waiver or release of any right or claim of Andromedia, including
any write-off or other compromise of any account receivable of Andromedia;
(n) commencement or notice or threat of commencement of any lawsuit or
proceeding against or investigation of Andromedia or its affairs;
(o) notice of any claim of ownership by a third party of Andromedia's
Intellectual Property Rights if Andromedia has an ownership interest in such
rights or of infringement by Andromedia of any third party's intellectual
property rights;
(p) issuance or sale by LikeMinds of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
(q) change in pricing or royalties set or charged by Andromedia to its
customers or licensees or in pricing or royalties set or charged by persons who
have licensed intellectual property to Andromedia;
(r) event or condition of any character that has or could be
reasonably expected to have a material adverse effect on Andromedia, its
business, operations, prospects, assets or capital stock; or
(s) negotiation or agreement by Andromedia or any of its officers or
employees to do any of the things described in the preceding clauses (a) through
(r) (other than negotiations with LikeMinds and its representatives regarding
the transactions contemplated by this Agreement).
2.17. Disclosure. No representation or warranty of Andromedia or Sub
----------
in this Agreement or any other document delivered pursuant hereto or any
statement, document, certificate, schedule or exhibit furnished or to be
furnished by Andromedia or Sub pursuant to this Agreement or in connection with
the transactions contemplated hereby contains or will contain any untrue
statement of material fact or omits or will omit a material fact necessary to
make the statement contained therein not misleading. To the best knowledge of
Andromedia and Sub, after reasonable investigation there is no fact which
Andromedia or Sub has not disclosed in writing to LikeMinds which materially
adversely affects, or may materially adversely affect, Andromedia or Sub, their
respective business, operations, prospects, assets or capital stock.
ARTICLE III
11
<PAGE>
REPRESENTATIONS AND WARRANTIES OF LIKEMINDS
-------------------------------------------
Except as otherwise qualified in the Schedules attached hereto, LikeMinds
hereby represents and warrants to each of Andromedia and Sub as follows:
3.1. Organization and Good Standing. LikeMinds is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
California. LikeMinds is duly licensed, domesticated or qualified and in good
standing in those states in which the nature of its assets or the business
conducted by it makes qualification necessary and where the failure to so
qualify would have a material adverse affect on LikeMinds.
3.2. Valid and Binding Agreement; No Violation. LikeMinds has all
-----------------------------------------
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. Subject to any required director and shareholder approval, the
execution and delivery of this Agreement by LikeMinds and the consummation by
LikeMinds of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of LikeMinds are necessary to authorize this Agreement or to
consummate the transactions contemplated herein. This Agreement constitutes a
legal, valid and binding obligation of LikeMinds, enforceable in accordance with
its terms, and neither the execution and delivery of this Agreement, nor the
consummation by LikeMinds of the transactions contemplated hereby violates or
conflicts with the Articles of Incorporation or Bylaws of LikeMinds or any
agreement, law, regulation, order, judgment or other restriction of any kind to
which LikeMinds is a party or by which it is bound.
3.3. Capitalization. LikeMinds has authorized capital stock consisting
--------------
of 10,000,000 shares of Common Stock, 2,821,085 of which are issued and
outstanding, and 1,000,000 shares of Preferred Stock, 602,461 of which are
issued and outstanding. All of the issued and outstanding shares of LikeMinds
capital stock are validly issued, fully paid and non-assessable. Except as set
forth in Schedule 3.3, as of the Closing Date there are no outstanding warrants,
options, subscriptions, contracts, rights or other agreements or commitments
obligating LikeMinds to issue or sell any additional shares of capital stock nor
are there outstanding any securities, debts, obligations or rights which are
convertible into or exchangeable for shares of capital stock of LikeMinds.
3.4. Financial Statements. Attached hereto as Schedule 3.4 are true,
--------------------
complete and correct copies of LikeMinds' unaudited balance sheet as of December
31, 1996 and December 31, 1997 and the related unaudited statements of
operations and cashflow for each of the twelve-month periods then ended, and
LikeMinds' unaudited balance sheet as of August 31, 1998, and the related
unaudited statement of operations for the eight (8) months then ended (the
"LikeMinds Financial Statements"). The LikeMinds Financial Statements fairly
------------------------------
present in accordance with
12
<PAGE>
generally accepted principles consistently applied, the financial position of
LikeMinds as of the date indicated in the results of operations of LikeMinds for
the periods then ended.
3.5. Compliance. Except as set forth in Schedule 3.5, LikeMinds is not
----------
in conflict with, or in default or violation of, (a) any law, rule, regulation,
order, judgment or decree applicable to it or by which any of its property or
assets is bound or affected or (b) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, certificate, franchise or other
instrument or obligation to which any such entity it is a party or by which it
or any property or asset of it is bound or affected, the violation of which
could have a material effect on LikeMinds, its business operations, prospects,
assets or capital stock.
3.6. Government Regulation. LikeMinds holds all material licenses,
---------------------
certificates, permits, franchises and rights from all appropriate federal, state
or other public authorities necessary for the lawful conduct of its business and
ownership of its properties. Except as set forth in Schedule 3.6, LikeMinds has
complied with, and has not received any notice that it is in violation of, any
applicable federal, state or local statute, regulation, ordinance, rule,
judgment or decree.
3.7. Litigation. Except as set forth in Schedule 3.7, there are as of
----------
the date hereof no actions, suits, claims, demands or other proceedings or
investigations, either judicial or administrative, pending or, to the knowledge
of LikeMinds, threatened against or affecting the properties, assets, rights or
business of LikeMinds or the right to carry on or conduct its business, nor are
there to the knowledge of LikeMinds any grounds therefor, which, if adversely
determined, would in the aggregate materially adversely affect the business,
operations, properties or financial condition of LikeMinds. As of the date
hereof, no judgment, order, decree or award has been entered against LikeMinds
nor to the knowledge of LikeMinds has any liability been incurred which has or
could have such effect.
3.8. Title to Assets. Except as set forth in Schedule 3.8 or reflected
---------------
on the LikeMinds Financial Statements, LikeMinds has good and marketable title
to and possession of all of its real and personal properties and assets, in each
case free and clear of any liens, restrictions, encumbrances, rights, title and
interests of others which could have a material effect on LikeMinds, its
business operations, prospects or capital stock.
3.9. Undisclosed Liabilities and Existing Commitments. Except as set
------------------------------------------------
forth in Schedule 3.9: (a) LikeMinds has no debt, liability or obligation
(whether accrued, contingent, absolute or otherwise) that is not reflected or
reserved against in the LikeMinds Financial Statements or was not incurred in
the ordinary course of its business; (b) LikeMinds has no existing contracts
with directors, officers, employees or shareholders that are not cancelable by
LikeMinds on notice of not longer than thirty (30) days without liability,
penalty or premium; and (c) LikeMinds has not given a power of attorney, which
is currently in effect, to any person, firm or corporation for any purpose
whatsoever.
13
<PAGE>
3.10. Defaults. As of the date hereof, LikeMinds is not in material
--------
breach or material default under any agreement or commitment to which it is a
party; and no event has occurred which, after the giving of notice, the lapse of
time or otherwise, would constitute a default under, or result in a breach of,
any such agreement or commitment.
3.11. Intellectual Property.
---------------------
(a) LikeMinds owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, computer software programs or applications (in both source
code and object code form), and tangible or intangible proprietary information
or material that are used in the business of LikeMinds as currently conducted or
as proposed to be conducted by LikeMinds (such ownership rights or rights to use
being referred to as the "LikeMinds Intellectual Property Right(s)"). Schedule
----------------------------------------
3.11(a) sets forth a complete list of all patents, registered and material
unregistered trademarks, registered copyrights, trade names and service marks,
and any applications therefor, included in LikeMinds Intellectual Property
Rights, and specifies, where applicable, the jurisdictions in which each such
LikeMinds Intellectual Property Right has been issued or registered or in which
an application for such issuance and registration has been filed, including the
respective registration or application numbers and the names of all registered
owners.
(b) Schedule 3.11(b) sets forth a complete list of all licenses,
sublicenses and other agreements to which LikeMinds is a party and pursuant to
which LikeMinds or any other person is authorized to use any LikeMinds
Intellectual Property Right (excluding object code end-user licenses granted to
end-users in the ordinary course of business that permit use of software
products without a right to modify, distribute or sublicense the same ("End-User
--------
Licenses")) or trade secret of LikeMinds, and such licenses, sublicenses and
- --------
other agreements listed on schedule 3.11(b) have been delivered to Andromedia.
The execution and delivery of this Agreement by LikeMinds, and the consummation
of the transactions contemplated hereby, will neither cause LikeMinds to be in
violation or default under any such license, sublicense or agreement, nor
entitle any other party to any such license, sublicense or agreement to
terminate or modify such license, sublicense or agreement. Except as set forth
in Schedules 3.11(a) or 3.11(b), LikeMinds is the sole and exclusive owner or
licensee of, with all right, title and interest in and to (free and clear of any
liens or encumbrances), LikeMinds Intellectual Property Rights, and has sole and
exclusive rights (and is not contractually obligated to pay any compensation to
any third party in respect thereof) to the use thereof or the material covered
thereby in connection with the services or products in respect of which
LikeMinds Intellectual Property Rights are being used.
(c) No claims with respect to LikeMinds Intellectual Property
Rights have been asserted or are, to LikeMinds' knowledge, threatened by any
person, nor are there any valid grounds
14
<PAGE>
for any claims (i) to the effect that the manufacture, sale, licensing or use of
any of the products of LikeMinds infringes on any copyright, patent, trade mark,
service mark, trade secret or other proprietary right, (ii) against the use by
LikeMinds of any trademarks, service marks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how or computer software
programs and applications used in LikeMinds' business as currently conducted or
as proposed to be conducted by LikeMinds, or (iii) challenging the ownership by
LikeMinds, validity or effectiveness of any of LikeMinds Intellectual Property
Rights. All registered trademarks, service marks and copyrights held by
LikeMinds are valid and subsisting. LikeMinds has not infringed, and the
business of LikeMinds as currently conducted or as proposed to be conducted does
not infringe, any copyright, patent, trademark, service mark, trade secret or
other proprietary right of any third party. There is no material unauthorized
use, infringement or misappropriation of any of LikeMinds Intellectual Property
Rights by any third party, including any employee or former employee of
LikeMinds. No LikeMinds Intellectual Property Right or product of LikeMinds or
any of its subsidiaries is subject to any outstanding decree, order, judgment,
or stipulation restricting in any manner the licensing thereof by LikeMinds.
Each employee, consultant or contractor of LikeMinds has executed a proprietary
information and confidentiality agreement substantially in LikeMinds's standard
forms. Except for software licensed to LikeMinds, all software included in
LikeMinds Intellectual Property Rights (i) is original with LikeMinds and has
been either created by employees of LikeMinds on a work-for-hire basis or by
consultants or contractors who have created such software themselves and have
assigned all rights they may have had in such software to LikeMinds, or (ii) was
acquired by LikeMinds and the representations made by the seller of such
software have been delivered to Andromedia.
3.12. Taxes. LikeMinds has filed with the appropriate government
-----
agencies all tax or information returns and tax reports required to be filed.
All federal, state, local and foreign income, franchise, sales, use, occupation,
property, excise or other taxes whether or not yet due have been fully paid or
adequately provided for on the LikeMinds Financial Statements. There are no
actions, proceedings, examinations, or claims pending or threatened by any
governmental entity for or relating to taxes with respect to LikeMinds and no
agreements or waivers extending the statue of limitations period therefor.
LikeMinds has not filed any consent agreement under Section 341(f) of the Code
or agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as defined in Section 341(f) of the Code) owned by
LikeMinds. LikeMinds is not a party to any tax sharing indemnification or
allocation agreement nor does LikeMinds owe any amount under any such agreement.
There is no contract, agreement, plan or arrangement to which LikeMinds is
a party as of the date of this Agreement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of
LikeMinds, individually or collectively, that could give rise to the payment of
any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m)
of the Code.
15
<PAGE>
3.13. Books and Records.
-----------------
(a) The books and records of accounts of LikeMinds (i) are in all
material respects thorough, complete and correct, (ii) have been maintained in
accordance with good business practices on a basis consistent with prior months,
(iii) state in reasonable detail and accurately reflect the acquisitions and
disposition of LikeMinds's assets and (iv) accurately and fairly reflect in all
material respects the basis for the LikeMinds Financial Statements.
(b) The minute book of LikeMinds is complete and correctly
reflects in all material respects all corporate actions taken by the Board of
Directors of LikeMinds and all committees thereof and by its shareholders.
3.14. Bank Accounts. Schedule 3.14 sets forth the names and location of
-------------
all banks, trust companies, savings and loan associations and other financial
institutions at which LikeMinds maintains safe deposit boxes, lock boxes or bank
accounts of any nature in the names of all persons authorized to draw thereon,
make withdrawals therefrom, or have access thereto.
3.15. Employment Matters. Schedule 3.15 lists all contracts, agreements,
------------------
arrangements and understandings, whether written or oral, with respect to the
payment or delivery to any person of compensation, bonuses, perquisites,
benefits and other items of value by LikeMinds, to the extent that any such item
has a value of more than $25,000 in any calendar year.
(a) Schedule 3.15 contains a true and complete list of each
pension, profit sharing, other deferred compensation, bonus, incentive
compensation, stock purchase, stock option, supplemental retirement, severance
or termination pay, medical, hospitalization, life insurance, dental,
disability, salary continuation, vacation, supplemental unemployment benefits
plan, program, arrangement or contract, and each other employee benefit plan,
program, arrangement or contract, maintained, contributed to, or required to be
contributed to, or promised by LikeMinds for the benefit of any current or
former employee, director or agent of LikeMinds, whether or not any of the
foregoing is funded, whether formal or informal, whether or not subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")
-----
(collectively, the "LikeMinds Benefit Plans"). LikeMinds does not have any
-----------------------
express or implied commitment or contract to create any additional Benefit Plan
or modify any existing LikeMinds Benefit Plan, other than as may be required to
comply with ERISA or the Code. LikeMinds has delivered to Andromedia, with
respect to each applicable LikeMinds Benefit Plan (i) true and complete copies
of all documents embodying or relating to each LikeMinds Benefit Plan including,
without limitation, the plan and trust or other funding arrangement relating
thereto, summary plan descriptions, employee handbooks or personnel manuals, and
all amendments and supplements thereto; (ii) the most recent annual report
(Series 5500 and all schedules thereto), if any, required by ERISA; and (iii)
the most recent determination letter received from the Internal Revenue Service
("IRS"), if any.
---
16
<PAGE>
(b) None of the LikeMinds Benefit Plans are subject to Title IV of
ERISA.
(c) LikeMinds has performed the obligations required to be
performed by it under, and is not in default under or in violation of, any and
all of the LikeMinds Benefit Plans, and each Benefit Plan has been operated in
all material respects in accordance with the requirements of all applicable laws
and regulations. Neither any LikeMinds Benefit Plan or fiduciary nor LikeMinds
has taken any action, or failed to take any action, that could subject it or any
other person to any material liability for any excise tax under Chapter 43 of
the Code or for breach of fiduciary duty with respect to or in connection with a
LikeMinds Benefit Plan.
(d) At no time has LikeMinds been required to contribute to any
"multi-employer plan" (within the meaning of Section 3(37) of ERISA) and
LikeMinds has no liability (contingent or otherwise) relating to the withdrawal
or partial withdrawal from a multi-employer plan. LikeMinds does not
participate in any "multiple employer plans," within the meaning of ERISA.
(e) No LikeMinds Benefit Plan provides or is required to provide
group health, medical, death or survivor benefits to any former or retired
employee of LikeMinds or beneficiary thereof, except to the extent (i) required
under any state insurance law providing for a conversion option under a group
insurance policy or health care continuation coverage similar to the
continuation coverage required under Section 601 et seq. of ERISA, or (ii) under
Section 601 et seq. of ERISA.
(f) No LikeMinds Benefit Plan or fiduciary has nor does LikeMinds
have any liability to any participant, beneficiary or other person under any
provision of ERISA or any other applicable law by reason of any payment of, or
failure to pay, benefits or other amounts with respect to or in connection with
any LikeMinds Benefit Plan.
(g) Each LikeMinds Benefit Plan may be terminated by LikeMinds at
any time without acceleration or additional vesting of any benefits and without
payment of any amount as a penalty, bonus, premium, severance pay or other
compensation or amount.
3.16. Property.
--------
(a) Schedule 3.16 contains an accurate and complete list of:
(i) all real property owned by LikeMinds which is used by
LikeMinds in connection with the operation of its business;
17
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(ii) the fixed assets, inventory and supplies (the "LikeMinds
---------
Equipment") owned by LikeMinds as of July 31, 1998.; and
- ---------
(iii) all liens, claims, encumbrances and restrictions on the
LikeMinds Equipment.
(b) LikeMinds has delivered to Andromedia copies of all loan
agreements, indentures, mortgages, pledges, security agreements, equipment
obligations, guarantees, leases (including leases of real and personal property)
or lease purchase agreements to which LikeMinds is a party or by which it is
bound.
3.17. Restrictions on Business Activities. There is no agreement
-----------------------------------
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which LikeMinds is a party or otherwise binding upon LikeMinds which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of LikeMinds, any acquisition of property (tangible or
intangible) by LikeMinds or the conduct of business by LikeMinds. Without
limiting the foregoing, LikeMinds has not entered into any agreement under which
LikeMinds is restricted from developing, selling, licensing, marketing,
promoting or otherwise distributing any products, services or technology to any
class of customers, or entering into any strategic alliances, in any geographic
area, during any period of time or in any segment of the market.
3.18. Material Events and Contracts. Schedule 3.18 sets forth a list of
-----------------------------
any and all material transactions, events and contracts occurring or executed
since December 31, 1996, other than those already disclosed pursuant to this
Article 3, that are of material importance to LikeMinds or have the potential to
have a material adverse effect on LikeMinds, its business, operations,
prospects, assets or capital stock.
3.19. No Changes. Except as set forth in Schedule 3.19, since the date
----------
of the LikeMinds Financial Statements, there has not been, occurred or arisen
any:
(a) transaction by LikeMinds except in the ordinary course of
business as conducted as of the date of the LikeMinds Financial Statements and
consistent with past practices;
(b) amendments or changes to the Articles of Incorporation or
Bylaws of LikeMinds;
(c) capital expenditure or commitment by LikeMinds, either
individually or in the aggregate, exceeding $25,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of LikeMinds (whether or not covered by insurance);
18
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(e) claim of wrongful discharge or other unlawful labor practice
or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by LikeMinds;
(g) revaluation by LikeMinds of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the capital stock of LikeMinds, or any direct or
indirect redemption, purchase or other acquisition by LikeMinds of any of its
capital stock;
(i) increase in the salary or other compensation payable or to
become payable to any of its officers, directors, employees or advisors, or the
declaration, payment or commitment or obligation of any kind for the payment of
a bonus or other additional salary or compensation to any such person except as
otherwise contemplated by this Agreement or in the ordinary course of business
and consistent with past practices and Schedule 3.19(i) lists all salary
increases in excess of 10% and any bonus or other compensation arrangement
exceeding $10,000;
(j) sale, lease, license or other disposition of any of the assets
or properties of LikeMinds, except in the ordinary course of business and
consistent with past practices;
(k) material amendment or termination of any material contract,
agreement or license to which LikeMinds is a party or by which it is bound;
(l) loan by LikeMinds to any person or entity, incurring by
LikeMinds of any indebtedness, guaranteeing by LikeMinds of any indebtedness,
issuance or sale of any debt securities of LikeMinds or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(m) waiver or release of any right or claim of LikeMinds,
including any write-off or other compromise of any account receivable of
LikeMinds;
(n) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of LikeMinds or its affairs;
(o) notice of any claim of ownership by a third party of LikeMinds
Intellectual Property Rights if LikeMinds has an ownership interest in such
rights or of infringement by LikeMinds of any third party's intellectual
property rights;
(p) issuance or sale by LikeMinds of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities;
19
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(q) change in pricing or royalties set or charged by LikeMinds to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed intellectual property to LikeMinds;
(r) event or condition of any character that has or could be
reasonably expected to have a material adverse effect on LikeMinds, its
business, operations, prospects, assets or capital stock; or
(s) negotiation or agreement by LikeMinds or any of its officers
or employees to do any of the things described in the preceding clauses (a)
through (r) (other than negotiations with Andromedia and its representatives
regarding the transactions contemplated by this Agreement).
3.20. Disclosure. No representation or warranty of LikeMinds in this
----------
Agreement or any other document delivered pursuant hereto or any statement,
document, certificate, schedule or exhibit furnished or to be furnished by
LikeMinds pursuant to this Agreement or in connection with the transactions
contemplated hereby contains or will contain any untrue statement of material
fact or omits or will omit a material fact necessary to make the statement
contained therein not misleading. To the best knowledge of LikeMinds, after
reasonable investigation there is no fact which LikeMinds has not disclosed in
writing to Andromedia which materially adversely affects, or may materially
adversely affect, LikeMinds, its business, operations, prospects, assets or
capital stock.
ARTICLE IV
COVENANTS OF LIKEMINDS
----------------------
4.1. Conduct of Business Until Closing Date. Between the date hereof and
--------------------------------------
the Closing Date, unless prior written consent of Andromedia is obtained, and
except pursuant to existing agreements disclosed herein or hereunder, LikeMinds:
(a) will carry on its business diligently and substantially in the same manner
as heretofore conducted, and will not enter into any transaction other than in
the ordinary course of business; (b) will not declare or pay any dividend or
make any other distribution in respect of any capital stock of LikeMinds; and
(c) will not amend the Articles of Incorporation or Bylaws of LikeMinds or make
any change in the authorized, issued or outstanding capital stock of LikeMinds.
4.2. Inspection. Between the date hereof and the Closing Date and upon
----------
reasonable notice, Andromedia and its authorized representatives shall be
permitted full access during normal business hours to all properties, books,
records, contracts and documents of LikeMinds. LikeMinds shall furnish to
Andromedia and its authorized representatives all information with respect to
the affairs of LikeMinds as Andromedia may reasonably request.
20
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ARTICLE V
COVENANTS OF ANDROMEDIA AND SUB
-------------------------------
5.1. Conduct of Business Until Closing Date. Between the date hereof and
--------------------------------------
the Closing Date, unless prior written consent of LikeMinds is obtained, and
except pursuant to existing agreements disclosed herein or hereunder,
Andromedia: (a) will carry on its business diligently and substantially in the
same manner as heretofore conducted, and will not enter into any transaction
other than in the ordinary course of business; (b) will not declare or pay any
dividend or make any other distribution in respect of any capital stock of
Andromedia; and (c) will not amend the Articles of Incorporation or Bylaws of
Andromedia or make any change in the authorized, issued or outstanding capital
stock of Andromedia.
5.2. Inspection. Between the date hereof and the Closing Date and upon
----------
reasonable notice, LikeMinds and its authorized representatives shall be
permitted full access during normal business hours to all properties, books,
records, contracts and documents of Andromedia and Sub. Andromedia and Sub shall
furnish to LikeMinds and its authorized representatives all information with
respect to the affairs of Andromedia and Sub as LikeMinds may reasonably
request.
5.3. Amendment to Investors' Rights Agreement. The Company will use its
----------------------------------------
reasonable best efforts to obtain as soon as practicable following the Closing
the consent of the holders of a majority of the Registrable Securities (as
defined in the Andromedia, Inc. Amended and Restated Investors' Rights Agreement
(the "Rights Agreement")) to amend the Rights Agreement substantially in the
form attached hereto as Exhibit G (the "Amended Rights Agreement"). The Company
covenants and agrees that it will execute the Amended Rights
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF ANDROMEDIA AND SUB
---------------------------------------------------------
The obligations of Andromedia and Sub to consummate the transactions
contemplated hereunder shall be subject to the satisfaction on or before the
Closing Date of all of the following conditions, except such conditions as
Andromedia or Sub may otherwise waive in writing:
6.1. Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of LikeMinds contained in this Agreement shall be true in all
material respects on and as of the Closing Date; LikeMinds shall have performed
all agreements and covenants in all material respects required by this Agreement
to be performed on or prior to the Closing Date; and Andromedia shall have
received a certificate to such effect signed on behalf of LikeMinds by a duly
authorized officer of LikeMinds.
21
<PAGE>
6.2. Adverse Changes. From the date hereof to the Closing Date, there
---------------
will have been no material adverse change in the financial condition of, or in
the properties, assets, liabilities, rights or business of LikeMinds.
6.3. Approval by Directors and Shareholders. The Directors and all of the
--------------------------------------
shareholders of LikeMinds shall have approved and adopted this Agreement and the
other transactions contemplated hereby to the extent required by applicable
requirements of law and the Articles of Incorporation and Bylaws of LikeMinds.
All LikeMinds shareholders must waive any dissenters rights or appraisal rights
related to the Merger.
6.4. Additional Agreements.
---------------------
(a) Each employee of LikeMinds who holds Shares of LikeMinds Common
Stock (such Shares held by each employee to be referred to as "Employee Shares")
shall have entered into a Stock Restriction Agreement (a "Stock Restriction
-----------------
Agreement") with Andromedia in substantially the form set forth in Exhibit C.
- --------- ---------
The Stock Restriction Agreement will grant Andromedia the right to repurchase
the Employee Shares such that (i) 30/48th of the Employee Shares will be vested
on the Closing Date; (ii) 12/48th of the Employee Shares will vest twelve (12)
months following the Closing Date; and (iii) 1/48 of the Employee Shares will
vest each month thereafter; subject to, in the case of (ii) and (iii) above,
continued employment by such employee.
(b) Each employee of LikeMinds shall have entered into an
Employment Agreement with Andromedia in substantially the form set forth in
Exhibit B. Andromedia will use its best efforts to transition the employees of
- ---------
LikeMinds as soon as possible after the Effective Date to employment benefit
plan packages that are substantially equivalent to those maintained by
Andromedia for its employees generally. Andromedia will cause the employee
benefit plans and packages to which the employees of LikeMinds are transitioned
to give full credit for each employee's period of service with LikeMinds prior
to the Effective Date for all purposes for which the service would be recognized
under Andromedia employee benefit plans or arrangements.
6.5. Termination of Agreements. All existing employment agreements with
-------------------------
employees of LikeMinds as well as all other agreements and arrangements
requiring the payment of compensation, expenses or reimbursements to such
parties shall have been terminated and LikeMinds shall have no further
obligation under such agreements.
6.7. Permits. All approvals from government authorities, including any
-------
requisite Blue Sky approvals, which are appropriate or necessary for the
consummation of the Merger, shall have been obtained. All such permits and
approvals are listed in Schedule 6.7.
6.8. Investment Representation Statement. All shareholders of LikeMinds
-----------------------------------
that are to receive shares of Andromedia Common Stock as part of the Merger
shall have executed and
22
<PAGE>
delivered to Andromedia an Investment Representation Statement (the "Investment
----------
Representation Statement") in substantially the form attached hereto as Exhibit
- ------------------------ -------
D.
- -
6.9. Legal Opinion of Fenwick & West, LLP. Andromedia shall have received
-------------------------------------
an opinion of Fenwick & West, LLP, counsel to LikeMinds, in substantially the
form attached hereto as Exhibit E.
6.10. Management Certificates. Management Certificates in the form set
-----------------------
forth in Exhibit A shall be executed by the respective parties.
---------
6.11. Neonics Agreement. LikeMinds shall have executed an intellectual
-----------------
property assignment with Neonics and John Hey satisfactory to Andromedia in its
sole discretion.
6.12. Consents and Approvals. Each Party shall have obtained any and all
---------------------
consents required for consummation of the Merger or for the preventing of any
default under any Contract or Permit of such Party which, if not obtained or
made, is reasonably likely to have, individually or in the aggregate, a material
adverse effect upon Andromedia. All such consents are listed in Schedule 6.11.
6.11. Conversion of LikeMinds Preferred Stock. All LikeMinds Preferred
---------------------------------------
Stock shall have converted to LikeMinds Common Stock in accordance with the
LikeMinds Articles of Incorporation and any other relevant agreements, laws and
regulations.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATION OF LIKEMINDS
-----------------------------------------------
The obligations of LikeMinds to consummate the transactions contemplated
hereunder shall be subject to the satisfaction on or before the Closing Date of
all of the following conditions, except such conditions as LikeMinds may
otherwise waive in writing:
7.1. Representations, Warranties and Covenants. All representations and
-----------------------------------------
warranties of Andromedia and Sub contained in this Agreement shall be true in
all material respects on and as of the Closing Date. Andromedia and Sub shall
have performed all agreements and covenants in all material respects required by
this Agreement to be performed on or prior to the Closing Date.
7.2. Adverse Change. From the date hereof to the Closing Date, there will
--------------
have been no material adverse change in the financial condition of, or in the
properties, assets, liabilities, rights or business of Andromedia.
23
<PAGE>
7.3. Approval by Sub Shareholder. Andromedia, in its capacity as sole
---------------------------
shareholder of Sub, shall have unanimously approved and adopted this Agreement
and the transactions contemplated hereby to the extent required by applicable
requirements of law and the Articles of Incorporation and Bylaws of Sub.
7.4. Material Actions, Debts or Defaults. On the Closing Date, there
-----------------------------------
shall not be: (i) except as set forth in Schedule 2.7 or as otherwise disclosed
to LikeMinds prior to the date hereof, any material actions, suits, claims,
demands or other proceedings or investigations, either judicial or
administrative, pending or, to the knowledge of Andromedia, threatened against
or materially affecting the properties, assets, rights or business of Andromedia
or Sub or the right to carry on or conduct their business; (ii) any known
material debt, liability or obligation of Andromedia or Sub (whether accrued,
contingent, absolute or otherwise) required to be reflected in a corporate
balance sheet or the notes thereto that is not reflected or reserved against in
the Andromedia Financial Statements or was not incurred in ordinary course of
business; or (iii) any material breach or material default of Andromedia or Sub
known to either Andromedia or Sub under any agreement or commitment to which it
is a party, or under any loan agreement, note, security agreement or guarantee;
any of the foregoing of which would have a material adverse effect upon the
financial condition of, or upon the properties, assets, liabilities, rights or
business, taken as a whole, of Andromedia or Sub.
7.5. Legal Opinion of Wilson Sonsini Goodrich & Rosati, P.C. LikeMinds
-------------------------------------------------------
shall have received an opinion of Wilson Sonsini Goodrich & Rosati, P.C.,
counsel to Andromedia and Sub, in substantially the form attached hereto as
Exhibit F.
- ---------
7.6. Additional Agreements.
---------------------
(a) Each employee of LikeMinds who holds Shares of LikeMinds Common
Stock (such Shares held by each employee to be referred to as "Employee Shares")
shall have entered into a Stock Restriction Agreement (a "Stock Restriction
-----------------
Agreement") with Andromedia in substantially the form set forth in Exhibit C.
- --------- ---------
The Stock Restriction Agreement will grant Andromedia the right to repurchase
the Employee Shares such that (i) 30/48th of the Employee Shares will be vested
on the Closing Date; (ii) 12/48th of the Employee Shares will vest twelve (12)
months following the Closing Date; and (iii) 1/48 of the Employee Shares will
vest each month thereafter; subject to, in the case of (ii) and (iii) above,
continued employment by such employee.
(b) Each employee of LikeMinds shall have entered into an
Employment Agreement with Andromedia in substantially the form set forth in
Exhibit B.
- ---------
24
<PAGE>
7.7. Permits. All approvals from government authorities, including any
-------
requisite Blue Sky approvals, which are appropriate or necessary for the
consummation of the Merger, shall have been obtained. All such permits and
approvals are listed in Schedule 6.7.
7.8. Management Certificates. Management Certificates in the form set
-----------------------
forth in Exhibit A shall be executed by the respective parties.
---------
7.9. Consents and Approvals. Each Party shall have obtained any and all
----------------------
consents required for consummation of the Merger or for the preventing of any
default under any Contract or Permit of such Party which, if not obtained or
made, is reasonably likely to have, individually or in the aggregate, a material
adverse effect upon Andromedia. All such consents are listed in Schedule 6.10.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
--------------------------------------------------
8.1. Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
covenants to be performed prior to the Effective Time, representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger and remain in full force and effect until the
first anniversary of the Effective Time (the "Expiration Date").
---------------
8.2. Escrow Arrangements.
-------------------
(a) Escrow Fund. Two distinct sub accounts (the "First Sub Account
-----------
Fund" and the "Second Sub Account Fund") in one escrow fund (the "Escrow Fund")
shall be created. As soon as practicable after the effective time, a total of
297,512 shares of Andromedia Common Stock (the "Escrow Amount") as described in
Sections 8.2(a)(i) and (ii) shall be deposited with U.S. Bank, (or other
institution acceptable to Andromedia and the Securityholder Agent (as defined in
Section 8.2(g) below)) as Escrow Agent (the "Escrow Agent"), such deposit to
------------
constitute the Escrow Fund to be governed by the terms set forth herein and at
Andromedia's cost and expense.
(i) The First Sub Account. At the Effective Time, the
shareholders of LikeMinds will be deemed to have received and deposited with the
Escrow Agent (as defined below) without any act of any shareholder 173,240
shares of Andromedia Common Stock, which is equal to ten percent (10%) of the
shares of Andromedia Common Stock to be delivered to the shareholders of
LikeMinds by Andromedia (such escrowed shares, plus any additional shares as may
be issued upon any stock split, stock dividend or recapitalization effected by
Andromedia after the Effective Time, collectively comprising the First Sub
Account Amount). As soon as
25
<PAGE>
practicable after the Effective Time, the First Sub Account Amount, without any
act of any shareholder, will be deposited into the First Sub Account Fund. The
portion of the First Sub Account Amount contributed on behalf of each
shareholder of LikeMinds shall be in proportion to the aggregate Andromedia
Common Stock which such holder would otherwise be entitled under Section 1.5.
The First Sub Account Fund shall be available to compensate Andromedia and its
affiliates for any claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses, and expenses of
investigation and defense (hereinafter individually a "Loss" and collectively
----
"Losses") incurred by Andromedia, its officers, directors, or affiliates
------
(together the "Indemnified Persons") directly or indirectly as a result of any
inaccuracy or breach of a representation or warranty of LikeMinds contained in
Article III herein (as modified by LikeMinds Schedules). Andromedia and
LikeMinds each acknowledge that such Losses, if any, would relate to unresolved
contingencies existing at the Effective Time, which if resolved at the Effective
Time would have led to a reduction in the aggregate Merger consideration.
Andromedia may not receive any shares from the First Sub Account Fund unless and
until an Officer's Certificate (as defined in paragraph (d) below) identifying
Losses, the aggregate amount of which exceed $25,000, has been delivered to the
Escrow Agent as provided in paragraph (e) below; in such case, Andromedia may
recover its Losses, if any, from the First Sub Account Fund in excess of the
first $25,000. The First Sub Account shall be the exclusive remedy of Andromedia
and the other Indemnified Persons for any Loss hereunder.
(ii) The Second Sub Account. The Second Sub Account Fund shall be
created to compensate LikeMinds shareholders for conversion adjustments given to
holders of Andromedia Series D Preferred Stock ("Series D Holders") as required
under Article III Section 5(e) of Andromedia's Sixth Amended and Restated
Articles of Incorporation (the "Andromedia Articles"). As soon as practicable
after the Effective Time, Andromedia shall deposit with the Escrow Agent without
any act of any LikeMinds shareholder 124,272 shares of Andromedia Common Stock
(such escrowed shares, plus any additional shares as may be issued upon any
stock split, stock dividend or recapitalization effected by Andromedia after the
Effective Time, collectively comprising the "Second Sub Account Amount").
-------------------------
(A) If Andromedia determines that the milestones described
in Article III Section 5(e)(ii)(A) of the Andromedia Articles have been met and
that the Series D Holders will not receive a conversion adjustment under the
Andromedia Articles, Andromedia shall notify the Escrow Agent which shall
distribute all shares in the Second Sub Account Fund to Andromedia. Such shares
shall be voided by Andromedia.
(B) If the Series D Holders receive the adjustment
described in Article III Section 5(e)(ii)(B) of the Andromedia Articles, at such
time Andromedia shall notify the Escrow Agent which shall distribute 57,000
shares (adjusted for any stock split, stock dividend or recapitalization) to the
shareholders of LikeMinds in proportion to their respective original
contributions to the First Sub Account Fund. At the same time, the remainder of
the
26
<PAGE>
Second Account Amount shall be distributed to Andromedia. Shares distributed to
Andromedia shall be voided.
(C) If the Series D Holders receive the adjustment
described in Article III Section 5(e)(ii)(C) of the Andromedia Articles, at such
time Andromedia shall notify the Escrow Agent which shall distribute the Second
Sub Account Amount to the shareholders of LikeMinds in proportion to their
respective original contributions to the First Sub Account Fund.
(b) Escrow Period; Distribution upon Termination of Escrow Periods.
--------------------------------------------------------------
(i) The First Sub Account. Subject to the following
requirements, the Escrow Fund shall be in existence immediately following the
Effective Time and shall terminate at 5:00 p.m., Pacific Standard Time, on the
Expiration Date (the "First Sub Account Escrow Period"); provided that the
-------------------------------
Escrow Period shall not terminate with respect to such amount (or some portion
thereof), that together with the aggregate amount remaining in the Escrow Fund
is necessary in the reasonable judgment of Andromedia, subject to the objection
of the Securityholder Agent and the subsequent arbitration of the matter in the
manner provided in Section 8.2(f) hereof, to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the termination of such
First Sub Account Escrow Period specified in any Officer's Certificate delivered
to the Escrow Agent prior to termination of such Escrow Period. As soon as all
such claims have been resolved, the Escrow Agent shall deliver to the
shareholders of LikeMinds the remaining portion of the Escrow Fund and not be
required to satisfy such claims. Deliveries of First Sub Account Amounts to the
shareholders of LikeMinds pursuant to this Section 8.2(b)(i) shall be made in
proportion to their respective original contributions to the Escrow Fund.
(ii) The Second Sub Account. The Second Sub Account Fund shall be
in existence immediately following the effective time and shall terminate as
soon as the Second Sub Account Amount has been distributed in accordance with
8.2(a)(ii) above.
(c) Protection of Escrow Fund.
-------------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund
during the Escrow Period, shall treat such fund as a trust fund in accordance
with the terms of this Agreement and not as the property of Andromedia and shall
hold and dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Andromedia Common Stock or other equity
securities issued or distributed by Andromedia (including shares issued upon a
stock split) ("New Shares") in respect of Andromedia Common Stock in the Escrow
----------
Fund which have not been released from the
27
<PAGE>
Escrow Fund shall be added to the Escrow Fund and become a part thereof. New
Shares issued in respect of shares of Andromedia Common Stock which have been
released from the Escrow Fund shall not be added to the Escrow Fund but shall be
distributed to the record holders thereof. Cash dividends on Andromedia Common
Stock shall not be added to the Escrow Fund but shall be distributed to the
record holders thereof.
(iii) Each shareholder shall have voting rights with respect to
the shares of Andromedia Common Stock contributed to the Escrow Fund by such
shareholder (and on any voting securities added to the Escrow Fund in respect of
such shares of Andromedia Common Stock).
(d) Claims Upon First Sub Account Fund.
----------------------------------
(i) Upon receipt by the Escrow Agent at any time on or before
the last day of the Escrow Period of a certificate signed by any officer of
Andromedia (an "Officer's Certificate"): (A) stating that Andromedia has paid or
---------------------
properly accrued or reasonably anticipates that it will have to pay or accrue
Losses, and (B) specifying in reasonable detail the individual items of Losses
included in the amount so stated, the date each such item was paid or properly
accrued, and the nature of the misrepresentation, breach of warranty or covenant
to which such item is related, the Escrow Agent shall, subject to the provisions
of Section 8.2(e) hereof, deliver to Andromedia out of the First Sub Account
Fund, as promptly as practicable, shares of Andromedia Common Stock held in the
First Sub Account Fund in an amount equal to such Losses.
(ii) For the purposes of determining the number of shares of
Andromedia Common Stock to be delivered to Andromedia out of the First Sub
Account Fund pursuant to Section 8.2(d)(i) hereof, the shares of Andromedia
Common Stock held in the First Sub Account Fund shall be valued at $1 (one
dollar) per share (unless the conversion price of such shares for purposes of
converting to non-adjustable common stock of Andromedia is adjusted as provided
in the Restated Articles, in which case such new valuation shall be used for
purposes of Section 8.2(d)(i)). In the event the applicable conversion price is
adjusted pursuant to the Restated Articles, Andromedia and the Securityholder
Agent shall provide a written notice, signed by each such party (or its properly
authorized agent), to the Escrow Agent advising of such adjustment.
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall be
delivered to the Securityholder Agent and for a period of fifteen (15) days
after such delivery, the Escrow Agent shall make no delivery to Andromedia of
any First Sub Account Fund Amount pursuant to Section 8.2(d) hereof unless the
Escrow Agent shall have received written authorization from the Agent to make
such delivery. After the expiration of such fifteen (15) day period, the Escrow
Agent shall make delivery of shares of Andromedia Common Stock from the First
Sub Account Fund in accordance with Section 8.2(d) hereof, provided that no such
payment or delivery may be made if the Securityholder Agent shall object in a
written statement to the claim made in the Officer's
28
<PAGE>
Certificate, and such statement shall have been delivered to the Escrow Agent
prior to the expiration of such fifteen (15) day period.
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Andromedia shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and Andromedia should so agree, a memorandum setting forth
such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute shares of Andromedia Common Stock from the First
Sub Account Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either Andromedia or the Securityholder Agent may demand
arbitration of the matter unless the amount of the damage or loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
three arbitrators. Andromedia and the Securityholder Agent shall each select
one arbitrator, and the two arbitrators so selected shall select a third
arbitrator, each of which arbitrators shall be independent and have at least ten
years relevant experience. The arbitrators shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery while
allowing the parties an opportunity, adequate in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties about
the subject matter of the dispute. The arbitrators shall rule upon motions to
compel or limit discovery and shall have the authority to impose sanctions,
including attorneys fees and costs, to the extent as a court of competent law or
equity, should the arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or objected to without
substantial justification. The decision of a majority of the three arbitrators
as to the validity and amount of any claim in such Officer's Certificate shall
be binding and conclusive upon the parties to this Agreement, and
notwithstanding anything in Section 8.2(e) hereof, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold payments
out of the First Sub Account Fund in accordance therewith. Such decision shall
be written and shall be supported by written findings of fact and conclusions
which shall set forth the award, judgment, decree or order awarded by the
arbitrators.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
San Francisco, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 8.2(f), in any
arbitration hereunder in which any claim or the amount thereof stated in the
Officer's Certificate is at issue, Andromedia shall be deemed to be the Non-
Prevailing Party in the event that the arbitrators award Andromedia less than
the sum of fifty (50%) of the disputed
29
<PAGE>
amount plus any amounts not in dispute; otherwise, the shareholders of LikeMinds
as represented by the Securityholder Agent shall be deemed to be the Non-
Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its own
expenses, the fees of each arbitrator, the administrative costs of the
arbitration, and the expenses, including without limitation, reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
(g) Securityholder Agent of the LikeMinds Shareholders; Power of
------------------------------------------------------------
Attorney.
- --------
(i) In the event that the Merger is approved by the LikeMinds
Shareholders, effective upon such vote, and without further act of any LikeMinds
shareholder, Tim O'Reilly shall be appointed as agent and attorney-in-fact (the
"Securityholder Agent") for each shareholder of LikeMinds, for and on behalf of
--------------------
shareholders of LikeMinds, to give and receive notices and communications, to
authorize delivery to Andromedia of shares of Andromedia Common Stock from the
First Sub Account Fund in satisfaction of claims by Andromedia, to object to
such deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the shareholders of LikeMinds from
time to time upon not less than thirty (30) days prior written notice to
Andromedia; provided that the Securityholder Agent may not be removed unless
holders of a two-thirds interest of the First Sub Account Fund agree to such
removal and to the identity of the substituted agent. Any vacancy in the
position of Securityholder Agent may be filled by approval of the holders of a
majority in interest of the First Sub Account Fund. No bond shall be required
of the Securityholder Agent, and the Securityholder Agent shall not receive
compensation for his or her services. Notices or communications to or from the
Securityholder Agent shall constitute notice to or from each of the shareholders
of LikeMinds.
(ii) The Securityholder Agent shall not be liable for any act
done or omitted hereunder as Securityholder Agent while acting in good faith and
in the exercise of reasonable judgment. The shareholders of LikeMinds on whose
behalf the First Sub Account Amount was contributed to the First Sub Account
Fund shall severally indemnify the Securityholder Agent and hold the
Securityholder Agent harmless against any loss, liability or expense incurred
without negligence or bad faith on the part of the Securityholder Agent and
arising out of or in connection with the acceptance or administration of the
Securityholder Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholder Agent.
(h) Actions of the Securityholder Agent. A decision, act, consent or
-----------------------------------
instruction of the Securityholder Agent shall constitute a decision of all the
shareholders for whom a portion of the First Sub Account Amount otherwise
issuable to them are deposited in the First Sub Account Fund and shall be final,
binding and conclusive upon each of such shareholders, and the
30
<PAGE>
Escrow Agent and Andromedia may rely upon any such decision, act, consent or
instruction of the Securityholder Agent as being the decision, act, consent or
instruction of each every such shareholder of LikeMinds. The Escrow Agent and
Andromedia are hereby relieved from any liability to any person for any acts
done by them in accordance with such decision, act, consent or instruction of
the Securityholder Agent.
(i) Third-Party Claims. In the event Andromedia becomes aware of a
------------------
third-party claim which Andromedia believes may result in a demand against the
First Sub Account Fund, Andromedia shall notify the Securityholder Agent of such
claim, and the shareholders of LikeMinds, shall be entitled, at their expense,
to participate in any defense of such claim, provided, however, that Andromedia
shall retain full control of the defense of any such claim. Andromedia shall
have the right in its sole discretion to settle any such claim; provided,
however, that except with the consent of the Securityholder Agent, no settlement
of any such claim with third-party claimants shall alone be deter minative of
the amount of any claim against the First Sub Account Fund. In the event that
the Securityholder Agent has consented (such consent not to be unreasonably
withheld) to any such settlement and acknowledged that the claim is a valid
claim against the First Sub Account Fund, the Securityholder Agent shall have no
power or authority to object under any provision of this Article VIII to the
amount of any claim by Andromedia against the Escrow Fund with respect to such
settlement.
(j) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Andromedia and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
31
<PAGE>
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of
any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for gross negligence or willful misconduct on the part of the Escrow Agent. The
Escrow Agent shall not incur any such liability for (A) any act or failure to
act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by him/her in good faith in accordance
with the advice of counsel. The Escrow Agent is not responsible for determining
and verifying the authority of any person acting or purporting to act on behalf
of any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. At its option the
Escrow Agent may hold all documents and shares of Andromedia Common Stock and
may wait for settlement of any such controversy by final appropriate legal
proceedings or other means as, in the Escrow Agent's discretion, the Escrow
Agent may be required, despite what may be set forth elsewhere in this
Agreement. In such event, the Escrow Agent will not be liable for damage. The
Escrow Agent may also, at its option, file an action of interpleader requiring
the parties to answer and litigate any claims and rights among themselves. In
such event, the Escrow Agent is authorized to deposit with the clerk of the
court all documents and shares of Andromedia Common Stock held in escrow, except
all cost, expenses, charges and reasonable attorney fees incurred by the Escrow
Agent due to the interpleader action and which the parties jointly and severally
agree to pay. Upon initiating such action, the Escrow Agent shall be fully
released and discharged of and from all obligations and liability imposed by the
terms of this Agreement.
(vii) The parties and their respective successors and assigns
agree jointly and severally to indemnify and hold Escrow Agent harmless against
any and all losses, claims, damages, liabilities, and expenses, including
reasonable costs of investigation, counsel fees, and disbursements that may be
imposed on Escrow Agent or incurred by Escrow Agent in connection
32
<PAGE>
with the performance of his or her duties under this Agreement, including but
not limited to any litigation arising from this Agreement or involving its
subject matter.
(vi) The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however, that no
such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the state of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall thereafter be
discharged from any further duties and liability under this Agreement.
(k) Fees. All fees of the Escrow Agent for performance of its duties
----
hereunder shall be paid by Andromedia. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Andromedia promises to pay these sums upon demand.
33
<PAGE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
9.1. Basis for Termination. This Agreement and the transactions
---------------------
contemplated hereby may be terminated at any time prior to the Closing Date:
(a) by mutual consent in writing of the parties hereto; (b) by Andromedia if
LikeMinds has materially breached this Agreement and has not cured such breach
within the earlier of (i) 30 days after the non-breaching party shall have given
notice to the breaching party of the existence of such breach or (ii) the
Closing Date; (c) by LikeMinds if Andromedia has materially breached this
Agreement and has not cured such breach within the earlier of (i) 30 days after
the non-breaching party shall have given notice to the breaching party of the
existence of such breach or (ii) the Closing Date; (d) by one party in the event
any of the conditions precedent to its obligations hereunder shall not have been
satisfied at or prior to the Closing Date and shall not have been waived by such
party or (e) by either Andromedia or LikeMinds if the Merger shall not have been
consummated on or prior to October ___, 1998, provided that the terminating
party's failure to fulfill its obligations or breach of this Agreement has not
caused or resulted in the failure of the Merger.
9.2. Effect of Termination. In the event of termination of the Agreement
---------------------
pursuant to Section 9.1, no party hereto shall have any liability to the other
of any nature whatsoever, including any liability for loss, damages or expenses
suffered or claimed to be suffered by reason thereof hereto; provided however,
that in the event of termination of this Agreement, Andromedia will remain
liable for certain operating expenses of LikeMinds as listed on Schedule 9.2.
9.3. Amendment. This Agreement may be amended by the parties hereto, by
---------
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the merger
by the shareholders of LikeMinds or Sub, but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of all of the parties.
9.4. Extension; Waiver. At any time prior to the Effective Time, the
-----------------
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
34
<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
10.1. Brokers and Finders. Except as set forth in Schedule 10.1,
-------------------
Andromedia and LikeMinds represent each to the other that this Agreement is the
result of direct negotiations between them and that such party has not incurred
any liability for any brokers, finders or similar fees in connection with this
Agreement.
10.2. Parties in Interest. This Agreement and the rights hereunder are not
-------------------
assignable unless such assignment is consented to in writing by all parties
hereto. Except as otherwise expressly provided herein, all of the terms and
provisions of this Agreement shall be binding upon, shall inure to the benefit
of and shall be enforceable by the respective heirs, beneficiaries, personal and
legal representatives, successors and permitted assigns of the parties hereto.
10.3. Entire Agreement, Amendments, Waiver. This Agreement contains the
------------------------------------
entire understanding of Andromedia, Sub and LikeMinds with respect to the Merger
and supersedes all prior agreements and understandings, whether written or oral,
between them with respect to the Merger contemplated herein. This Agreement may
be amended only by a written instrument duly executed by the parties or their
respective successors or permitted assigns. Any condition to a party's
obligation hereunder may be waived by such party only in writing.
10.4. Notices. All notices, requests, demands or other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or transmitted by facsimile with a copy thereof deposited
in the United States mail, certified or registered, return receipt requested,
postage prepaid, addressed to the parties at the following addresses or at such
other address as shall be given in like manner by any party to the other:
If to LikeMinds: Mr. Steven Kanzler
LikeMinds, Inc.
457 Bryant Street
San Francisco, California 94102
Fax: (415) 284-6969
with a copy to: Mark C. Stevens, Esq.
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, California 94306
Fax: (650) 493-6811
If to ANDROMEDIA: Mr.Kent Godfrey
Andromedia, Inc.
35
<PAGE>
818 Mission Street, 2nd Floor
San Francisco, California 94103
Fax: (415) 659-9620
with a copy to: Jeffrey A. Herbst, Esq.
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Fax: (650) 493-6811
If to the Securityholder Agent: Mr. Tim O'Reilly
O'Reilly & Associates
101 Morris Street
Sebastopol, California 94572
Fax:
with a copy to: Mr. Mark Jacobsen
O'Reilly & Associates
101 Morris Street
Sebastopol, California 94572
Fax:
If to the Escrow Agent: Ms. Barbara L. Wise
U.S. Bank Trust
One California Street, 4th Floor
San Francisco, CA 94111
Fax:
10.5. Interpretation. The descriptive headings contained in this Agreement
--------------
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement. The terms "knowledge," "best
knowledge," and any terms of similar import with used in this Agreement shall
mean the knowledge of a party after a reasonable inquiry and investigation.
10.6. Law Governing. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of California without regard
to its conflicts of laws provisions.
10.7. Further Acts. Andromedia and LikeMinds agree to execute and deliver
------------
on or before the Closing Date such other documents, certificates, agreements or
other writings and take
36
<PAGE>
such other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement.
10.8. Counterparts. This Agreement may be executed in any number of
------------
counterparts each of which shall be deemed to be an original, but all of which
together shall constitute but one agreement.
10.9. Confidential Treatment. In the event the Merger contemplated by this
----------------------
Agreement shall not be consummated for any reason whatsoever, each party agrees
that all information it receives relative to one of the other parties concerning
operations, prospects, technical information, financial condition and other
information not generally provided to the general public shall be treated as
confidential information which will not be disclosed or utilized by the party
gaining access to such information or its agents, representatives or employees.
10.10. Survival. The provisions of Article VIII and Sections 9.2, 10.4,
--------
10.6 and 10.9 shall survive any termination of this Agreement.
10.11. Expenses. Andromedia shall bear its own, and shall assume
--------
LikeMinds's debts for all reasonable legal, accounting and other expenses
incurred in connection with the transactions contemplated hereby.
37
<PAGE>
IN WITNESS WHEREOF, Andromedia, Sub, LikeMinds, the Securityholder Agent
(as to matters set forth in Article VIII only) and the Escrow Agent (as to
matters set forth in Article VIII only) have caused this Agreement to be duly
executed as of the date first above written.
ANDROMEDIA, INC.
By: /s/ Jamie Cohan
--------------------------
Name: Jamie Cohan
Title: Chief Financial Officer
LM ACQUISITION CORPORATION
By: /s/ Jamie Cohan
--------------------------
Name: Jamie Cohan
Title: Chief Financial Officer
LIKEMINDS, INC.
By: /s/ Steven Kanzler
--------------------------
Name: Steven Kanzler
Title: President and Chief Executive Officer
ESCROW AGENT SECURITYHOLDER AGENT
By: /s/ Barbara L. Wise By: /s/ Tim O'Reilly
-------------------------- --------------------------
Name: Barabara L. Wise Name: Tim O'Reilly
Title: Vice President
U.S. Bank Trust
<PAGE>
EXHIBIT 3.1
SEVENTH AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
ANDROMEDIA, INC.
Kent Godfrey and Scott Capdevielle each certify that:
ONE: They are the President and Chief Executive Officer, and Secretary,
respectively, of Andromedia, Inc., a California corporation (the "Corporation").
TWO: The Articles of Incorporation of said corporation shall be amended
and restated to read in full as follows:
ARTICLE I
The name of the Corporation is Andromedia, Inc.
ARTICLE II
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
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,
no par value. The number of shares of Preferred Stock authorized is 10,110,195
shares, no 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").
<PAGE>
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 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
-2-
<PAGE>
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).
(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.
(d) As authorized by Section 402.5(c) of the California Corporations
Code, the provisions of Sections 502 and 503 of the California Corporations Code
shall not apply with respect to repurchase by the Corporation of shares of
Common Stock issued to or held by employees, directors, independent contractors
or consultants of the Corporation or its subsidiaries upon termination of their
employment or services pursuant to agreements providing for the right of said
repurchase.
4. Voting Rights.
-------------
-3-
<PAGE>
(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. The number of directors of the Corporation
------------------
shall be not greater than eight (8). 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 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
-4-
<PAGE>
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 $7.07 (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 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
-5-
<PAGE>
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 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
-6-
<PAGE>
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).
(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;
-7-
<PAGE>
(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;
(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
-8-
<PAGE>
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 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
-9-
<PAGE>
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 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
-10-
<PAGE>
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 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
-11-
<PAGE>
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 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,
-12-
<PAGE>
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 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.
-13-
<PAGE>
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 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
-14-
<PAGE>
(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 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;
-15-
<PAGE>
(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.
ARTICLE IV
1. Limitation of Directors' Liability. The liability of the directors of
----------------------------------
the Corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
2. Indemnification of Corporate Agents. The Corporation is authorized to
-----------------------------------
indemnify the directors and officers of the corporation to the fullest extent
permissible under California law.
3. Repeal or Modification. Any repeal or modification of this Article IV
----------------------
or any provision hereof shall not adversely affect any right of indemnification
or limitation of liability of an agent of the Corporation relating to acts or
omissions occurring prior to such repeal or modification.
THREE: The foregoing amendment and restatement has been duly approved by
the Board of Directors of said corporation.
-16-
<PAGE>
FOUR: The foregoing amendment and restatement has been duly approved by
the required vote of the shareholders of the Corporation in accordance with
Sections 902 and 903 of the California Corporations Code. The total number of
outstanding shares of Common Stock of the Corporation is 5,862,730. The total
number of outstanding shares of Preferred Stock of the Corporation is 5,673,599,
248,120 of which is Series A Preferred, 496,790 of which is Series B Preferred,
1,627,269 of which is Series C Preferred and 3,301,420 of which is Series D
Preferred. The number of shares voting in favor of the amendment and restatement
equaled or exceeded the vote required. The percentage vote required was more
than fifty percent (50%) of the outstanding Common Stock voting as a separate
class, more than fifty percent (50%) of the outstanding Series A Preferred,
Series B Preferred and Series C Preferred, and more than sixty-six and two-
thirds percent (66 2/3%) of the outstanding Series D Preferred, each such series
of Preferred Stock voting as a separate series.
[Remainder of this Page Intentionally Left Blank]
-17-
<PAGE>
The undersigned further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of their own knowledge.
Date: March 9, 1999
/s/ Kent Godfrey
__________________________________________
Kent Godfrey
President and Chief Executive Officer
/s/ Scott Capdevielle
___________________________________________
Scott Capdevielle
Secretary
-18-
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT
OF AMENDED AND RESTATED BYLAWS OF
ANDROMEDIA, INC.
That Article III, Section 3.2 of the Company's Amended and Restated Bylaws
be, and hereby is amended to read in full as follows (with the revised portions
highlighted in bold):
"The number of directors of the corporation shall be not less than
five (5) nor more than eight (8). The exact number of directors shall
be eight (8) until changed, within the limits specified above, by a
bylaw amending this Section 3.2, duly adopted by the board of
directors or by the shareholders. The indefinite number of directors
may be changed, or a definite number may be fixed without provision
for an indefinite number, by a duly adopted amendment to the articles
of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that an amendment reducing
the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption
at a meeting, or the shares not consenting in the case of an action by
written consent, are equal to more than sixteen and two-thirds percent
(16-2/3%) of the outstanding shares entitled to vote thereon. No
amendment may change the stated maximum number of authorized directors
to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires."
This Certificate of Amendment of Amended and Restated Bylaws shall be
effective as of this ___ day of February, 1999.
/s/ Scott G. Capdevielle
________________________________
Scott G. Capdevielle, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF AMENDED AND RESTATED BYLAWS OF
ANDROMEDIA, INC.
That Article III, Section 3.2 of the Company's Amended and Restated Bylaws
be, and hereby is amended to read in full as follows (with the revised portions
highlighted in bold):
"The number of directors of the corporation shall be not less than
five (5) nor more than nine (9). The exact number of directors shall
be nine (9) until changed, within the limits specified above, by a
bylaw amending this Section 3.2, duly adopted by the board of
directors or by the shareholders. The indefinite number of directors
may be changed, or a definite number may be fixed without provision
for an indefinite number, by a duly adopted amendment to the articles
of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that an amendment reducing
the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption
at a meeting, or the shares not consenting in the case of an action by
written consent, are equal to more than sixteen and two-thirds percent
(16-2/3%) of the outstanding shares entitled to vote thereon. No
amendment may change the stated maximum number of authorized directors
to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires."
This Certificate of Amendment of Amended and Restated Bylaws shall be
effective as of this ___ day of December, 1998.
/s/ Scott G. Capdevielle
________________________________
Scott G. Capdevielle, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF AMENDED AND RESTATED BYLAWS OF
ANDROMEDIA, INC.
That Article III, Section 3.2 of the Company's Amended and Restated Bylaws
be, and hereby is amended to read in full as follows (with the revised portions
highlighted in bold):
"The number of directors of the corporation shall be not less than
five (5) nor more than eight (8). The exact number of directors shall
be eight (8) until changed, within the limits specified above, by a
bylaw amending this Section 3.2, duly adopted by the board of
directors or by the shareholders. The indefinite number of directors
may be changed, or a definite number may be fixed without provision
for an indefinite number, by a duly adopted amendment to the articles
of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that an amendment reducing
the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption
at a meeting, or the shares not consenting in the case of an action by
written consent, are equal to more than sixteen and two-thirds percent
(16-2/3%) of the outstanding shares entitled to vote thereon. No
amendment may change the stated maximum number of authorized directors
to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires."
This Certificate of Amendment of Amended and Restated Bylaws shall be
effective as of this 3rd day of June, 1998.
/s/ Scott G. Capdevielle
________________________________
Scott G. Capdevielle, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF AMENDED AND RESTATED BYLAWS OF
ANDROMEDIA, INC.
That Article III, Section 3.2 of the Company's Amended and Restated Bylaws
be, and hereby is amended to read in full as follows (with the revised portions
highlighted in bold):
"The number of directors of the corporation shall be not less than
five (5) nor more than nine (9). The exact number of directors shall
be seven (7) until changed, within the limits specified above, by a
bylaw amending this Section 3.2, duly adopted by the board of
directors or by the shareholders. The indefinite number of directors
may be changed, or a definite number may be fixed without provision
for an indefinite number, by a duly adopted amendment to the articles
of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that an amendment reducing
the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption
at a meeting, or the shares not consenting in the case of an action by
written consent, are equal to more than sixteen and two-thirds percent
(16-2/3%) of the outstanding shares entitled to vote thereon. No
amendment may change the stated maximum number of authorized directors
to a number greater than two (2) times the stated minimum number of
directors minus one (1).
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office
expires."
This Certificate of Amendment of Amended and Restated Bylaws shall be
effective as of this 9th day of April, 1998.
/s/ Scott G. Capdevielle
________________________________
Scott G. Capdevielle, Secretary
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
ANDROMEDIA, INC.
<PAGE>
AMENDED AND RESTATED BYLAWS OF
ANDROMEDIA, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES................................................................ 1
1.1 PRINCIPAL OFFICE................................................................. 1
1.2 OTHER OFFICES.................................................................... 1
ARTICLE II - MEETINGS OF SHAREHOLDERS........................................................ 1
2.1 PLACE OF MEETINGS................................................................ 1
2.2 ANNUAL MEETING................................................................... 1
2.3 SPECIAL MEETING.................................................................. 1
2.4 NOTICE OF SHAREHOLDERS' MEETINGS................................................. 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE..................................... 2
2.6 QUORUM........................................................................... 3
2.7 ADJOURNED MEETING; NOTICE........................................................ 3
2.8 VOTING........................................................................... 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT................................ 4
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.......................... 5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS...................... 6
2.12 PROXIES.......................................................................... 6
2.13 INSPECTORS OF ELECTION........................................................... 7
ARTICLE III - DIRECTORS...................................................................... 8
3.1 POWERS........................................................................... 8
3.2 NUMBER OF DIRECTORS.............................................................. 8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS......................................... 8
3.4 RESIGNATION AND VACANCIES........................................................ 8
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE......................................... 9
3.6 REGULAR MEETINGS................................................................. 9
3.7 SPECIAL MEETINGS; NOTICE......................................................... 10
3.8 QUORUM........................................................................... 10
3.9 WAIVER OF NOTICE................................................................. 10
3.10 ADJOURNMENT...................................................................... 11
3.11 NOTICE OF ADJOURNMENT............................................................ 11
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................ 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.13 FEES AND COMPENSATION OF DIRECTORS............................................... 11
3.14 APPROVAL OF LOANS TO OFFICERS.................................................... 11
ARTICLE IV - COMMITTEES...................................................................... 12
4.1 COMMITTEES OF DIRECTORS.......................................................... 12
4.2 MEETINGS AND ACTION OF COMMITTEES................................................ 12
ARTICLE V - OFFICERS......................................................................... 13
5.1 OFFICERS......................................................................... 13
5.2 ELECTION OF OFFICERS............................................................. 13
5.3 SUBORDINATE OFFICERS............................................................. 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS.............................................. 13
5.5 VACANCIES IN OFFICES............................................................. 14
5.6 CHAIRMAN OF THE BOARD............................................................ 14
5.7 PRESIDENT........................................................................ 14
5.8 VICE PRESIDENTS.................................................................. 14
5.9 SECRETARY........................................................................ 14
5.10 CHIEF FINANCIAL OFFICER.......................................................... 15
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS.............. 15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................ 15
6.2 INDEMNIFICATION OF OTHERS........................................................ 16
6.3 PAYMENT OF EXPENSES IN ADVANCE................................................... 16
6.4 INDEMNITY NOT EXCLUSIVE.......................................................... 16
6.5 INSURANCE INDEMNIFICATION........................................................ 16
6.6 CONFLICTS........................................................................ 17
ARTICLE VII - RECORDS AND REPORTS............................................................ 17
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER..................................... 17
7.2 MAINTENANCE AND INSPECTION OF BYLAWS............................................. 18
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS............................ 18
7.4 INSPECTION BY DIRECTORS.......................................................... 18
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER............................................ 19
7.6 FINANCIAL STATEMENTS............................................................. 19
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................................... 20
ARTICLE VIII - GENERAL MATTERS............................................................... 20
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............................ 20
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS........................................ 20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS.............................................. 20
8.4 CERTIFICATES FOR SHARES.......................................................... 21
8.5 LOST CERTIFICATES................................................................ 21
8.6 CONSTRUCTION; DEFINITIONS........................................................ 21
ARTICLE IX - AMENDMENTS...................................................................... 22
9.1 AMENDMENT BY SHAREHOLDERS........................................................ 22
9.2 AMENDMENT BY DIRECTORS........................................................... 22
</TABLE>
-iii-
<PAGE>
AMENDED AND RESTATED BYLAWS
---------------------------
OF
--
ANDROMEDIA, INC.
----------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 PRINCIPAL OFFICE
----------------
The board of directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
-------------
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the board of directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
--------------
The annual meeting of shareholders shall be held each year on a date
and at a time designated by the board of directors. However, if such day falls
on a legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the meeting, directors shall be
elected, and any other proper business may be transacted.
2.3 SPECIAL MEETING
---------------
<PAGE>
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or 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.
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
--------------------------------
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
--------------------------------------------
Written notice of any meeting of shareholders shall be given either
(i) personally or (ii) by first-class mail or (iii) by third-class mail but only
if the corporation has outstanding shares held of record by five hundred (500)
or more persons (determined as provided in Section 605 of the Code) on the
record date for the shareholders' meeting, or (iv) by telegraphic or other
written communication. Notices not personally delivered shall be sent charges
prepaid and shall be addressed to the shareholder
<PAGE>
at the address of that shareholder appearing on the books of the corporation or
given by the shareholder to the corporation for the purpose of notice. If no
such address appears on the corporation's books or is given, notice shall be
deemed to have been given if sent to that shareholder by mail or telegraphic or
other written communication to the corporation's principal executive office, or
if published at least once in a newspaper of general circulation in the county
where that office is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent by telegram or
other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
------
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
-------------------------
Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting
is fixed or if the adjournment is for more than forty-five (45) days from the
date set for the original meeting, then notice of the adjourned meeting shall be
given. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance with
<PAGE>
the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned meeting
the corporation may transact any business which might have been transacted at
the original meeting.
2.8 VOTING
------
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as
may be otherwise provided in the articles of incorporation, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote of the shareholders. Any shareholder entitled to vote on any
matter may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or, except when the matter is the election of
directors, may vote them against the proposal; but, if the shareholder fails to
specify the number of shares which the shareholder is voting affirmatively, it
will be conclusively presumed that the share holder's approving vote is with
respect to all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any share-holder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit.
The candidates receiving the highest number of affirmative votes, up to the
number of directors to be elected, shall be elected; votes against any candidate
and votes withheld shall have no legal effect.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
-------------------------------------------------
-4-
<PAGE>
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of shareholders, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be
effective only if signed by the holders of all outstanding shares entitled to
vote for the election of directors. However, a director may be elected at any
time to fill any vacancy on the board of directors, provided that it was not
created by removal of a director and that it has not been filled by the
directors, by the written consent of the holders of a majority of the
outstanding shares entitled to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall
-5-
<PAGE>
give prompt notice of the corporate action approved by the shareholders without
a meeting. Such notice shall be given to those shareholders entitled to vote who
have not consented in writing and shall be given in the manner specified in
Section 2.5 of these bylaws. In the case of approval of (i) a contract or
transaction in which a director has a direct or indirect financial interest,
pursuant to Section 310 of the Code, (ii) indemnification of a corporate
"agent," pursuant to Section 317 of the Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of the Code, the notice shall be given at least
ten (10) days before the consummation of any action authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
-----------------------------------------------------------
For purposes of determining the shareholders entitled to notice of
any meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
(a) the record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the close of business on
the business day next preceding the day on which notice is given or, if notice
is waived, at the close of business on the business day next preceding the day
on which the meeting is held; and
(b) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article
VIII of these bylaws.
2.12 PROXIES
-------
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Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's attorney-in-
fact. A validly executed proxy which does not state that it is irrevocable
shall continue in full force and effect unless (i) the person who executed the
proxy revokes it prior to the time of voting by delivering a writing to the
corporation stating that the proxy is revoked or by executing a subsequent proxy
and presenting it to the meeting or by voting in person at the meeting, or (ii)
written notice of the death or incapacity of the maker of that proxy is received
by the corporation before the vote pursuant to that proxy is counted; provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
----------------------
Before any meeting of shareholders, the board of directors may
appoint an inspector or inspectors of election to act at the meeting or its
adjournment. If no inspector of election is so appointed, then the chairman of
the meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint an inspector or inspectors of election to act at the meeting. The
number of inspectors shall be either one (1) or three (3). If inspectors are
appointed at a meeting pursuant to the request of one (1) or more shareholders
or proxies, then the holders of a majority of shares or their proxies present at
the meeting shall determine whether one (1) or three (3) inspectors are to be
appointed. If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person to fill that
vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
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(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to action required to be
approved by the shareholders 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.
3.2 NUMBER OF DIRECTORS
-------------------
The number of directors of the corporation shall be not less than
three (3) nor more than five (5). The exact number of directors shall be five
(5) until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw duly adopted by the
vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that an amendment reducing the fixed number
or the minimum number of directors to a number less than five (5) cannot be
adopted if the votes cast against its adoption at a meeting, or the shares not
consenting in the case of an action by written consent, are equal to more than
sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to
vote thereon. No amendment may change the stated maximum number of authorized
directors to a number greater than two (2) times the stated minimum number of
directors minus one (1).
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 AND TERM OF OFFICE OF DIRECTORS
----------------------------------------
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
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3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
Vacancies in the board of directors may be filled by a majority of
the remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased, or (iv)
if the shareholders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to
fill any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
Regular meetings of the board of directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all directors participating in
the meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
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3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without
notice if the times of such meetings are fixed by the board of directors.
3.7 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 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
telegram, 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 telegram, it shall be delivered personally or by telephone or to
the telegraph company 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.
3.8 QUORUM
------
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
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3.9 WAIVER OF NOTICE
----------------
Notice of a meeting need not be given to any director (i) who signs
a waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
-----------
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
---------------------
Notice of the time and place of holding an adjourned meeting need
not be given unless the meeting is adjourned for more than twenty-four (24)
hours. If the meeting is adjourned for more than twenty-four (24) hours, then
notice of the time and place of the adjourned meeting shall be given before the
adjourned meeting takes place, in the manner specified in Section 3.7 of these
bylaws, to the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------
Any action required or permitted to be taken by the board of
directors may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Directors and members of committees may receive such compensation,
if any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
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3.14 APPROVAL OF LOANS TO OFFICERS*
-----------------------------
The corporation may, upon the approval of the board of directors
alone, make loans of money or property to, or guarantee the obligations of, any
officer of the corporation or its parent or subsidiary, whether or not a
director, or adopt an employee benefit plan or plans authorizing such loans or
guaranties provided that (i) the board of directors determines that such a loan
or guaranty or plan may reasonably be expected to benefit the corporation, (ii)
the corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may, by resolution adopted by a majority of
the authorized number of directors, designate one (1) or more committees, each
consisting of two (2) or more directors, to serve at the pleasure of the board.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
___________________
* This section is effective only if it has been approved by the shareholders
in accordance with Sections 315(b) and 152 of the Code.
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<PAGE>
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the board
of directors; or
(g) the appointment of any other committees of the board of directors
or the members of such committees.
4.2 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), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without 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 be determined either by resolution of the board of directors
or by resolution of the committee, that special 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.
ARTICLE V
OFFICERS
--------
5.1 OFFICERS
--------
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and 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
--------------------
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The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, 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 may empower the president to
appoint, such other officers 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 the
board of directors at any regular or special meeting of the board or, except in
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
--------------------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
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
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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
shareholders 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 PRESIDENTS
---------------
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 shareholders. 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
shareholders' 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 shareholders 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.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders 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,
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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.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
-------------------------------------------------
AND OTHER AGENTS
----------------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), 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 Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), 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.
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6.3 PAYMENT OF EXPENSES IN ADVANCE
------------------------------
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE
-----------------------
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
-------------------------
The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation against any liability asserted against or incurred by
such person in such capacity or arising out of such person's status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
6.6 CONFLICTS
---------
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the Articles of
Incorporation, these bylaws, a resolution of the shareholders or an agreement in
effect at the time of the accrual of the alleged cause of the action asserted in
the proceeding in which the expenses were incurred or other amounts were paid,
which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
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ARTICLE VII
RECORDS AND REPORTS
-------------------
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
--------------------------------------------
The corporation shall keep either at its principal executive office
or at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in
person or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
------------------------------------
The corporation shall keep at its principal executive office or, if
its principal executive office is not in the State of California, at its
principal business office in California the original or a copy of these bylaws
as amended to date, which bylaws shall be open to inspection by the shareholders
at all reasonable times during office hours. If the principal executive office
of the corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
-----------------------------------------------------
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The accounting books and records and the minutes of proceedings of
the shareholders, of the board of directors, and of any committee or committees
of the board of directors shall be kept at such place or places as are
designated by the board of directors or, in absence of such designation, at the
principal executive office of the corporation. The minutes shall be kept in
written form, and the accounting books and records shall be kept either in
written form or in any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or
by an agent or attorney and shall include the right to copy and make extracts.
Such rights of inspection shall extend to the records of each subsidiary
corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
-----------------------
Every director shall have the absolute right at any reasonable time
to inspect all books, records, and documents of every kind as well as the
physical properties of the corporation and each of its subsidiary corporations.
Such inspection by a director may be made in person or by an agent or attorney.
The right of inspection includes the right to copy and make extracts of
documents.
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
-------------------------------------
The board of directors shall cause an annual report to be sent to
the shareholders not later than one hundred twenty (120) days after the close of
the fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of
the fiscal year, (ii) an income statement, (iii) a statement of changes in
financial position for the fiscal year, and (iv) any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so
long as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
7.6 FINANCIAL STATEMENTS
--------------------
-19-
<PAGE>
If no annual report for the fiscal year has been sent to
shareholders, then the corporation shall, upon the written request of any
shareholder made more than one hundred twenty (120) days after the close of such
fiscal year, deliver or mail to the person making the request, within thirty
(30) days thereafter, a copy of a balance sheet as of the end of such fiscal
year and an income statement and statement of changes in financial position for
such fiscal year.
If a shareholder or shareholders holding at least five percent (5%)
of the outstanding shares of any class of stock of the corporation makes a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the then current fiscal
year ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in
this section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
7.7 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 herein granted 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 VII
GENERAL MATTERS
---------------
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
-----------------------------------------------------
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty
-20-
<PAGE>
(60) days before any such action. In that case, only shareholders of record at
the close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided in the Code.
If the board of directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
-----------------------------------------
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.
8.3 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 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.
8.4 CERTIFICATES FOR SHARES
-----------------------
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All
certificates shall be signed in the name of the corporation by the chairman of
the board or the vice chairman of the board or the president or a vice president
and by the chief financial officer or an assistant treasurer or the secretary or
an assistant secretary, certifying the number of shares and the class or series
of shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
-----------------
-21-
<PAGE>
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 canceled at the same time. The
board of directors may, in case any share certificate or certificate for any
other security is lost, stolen or destroyed, authorize the issuance of
replacement certificates on such terms and conditions as the board may require;
the board may require indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
-------------------------
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the Code 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.
ARTICLE IX
AMENDMENTS
----------
9.1 AMENDMENT BY SHAREHOLDERS
-------------------------
New bylaws may be adopted or these bylaws may be amended or repealed
by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that if the articles of
incorporation of the corporation set forth the number of authorized directors of
the corporation, then the authorized number of directors may be changed only by
an amendment of the articles of incorporation.
9.2 AMENDMENT BY DIRECTORS
----------------------
Subject to the rights of the shareholders as provided in Section 9.1
of these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing
the authorized number of directors (except to fix the authorized number of
directors pursuant to a bylaw providing for a variable number of directors), may
be adopted, amended or repealed by the board of directors.
-22-
<PAGE>
EXHIBIT 4.2
ANDROMEDIA, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
First Closing: March 15, 1999
Second Closing: April 8, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Certain Definitions.......................................................................... 1
2. Financial Statements and Reports to Shareholders............................................. 3
3. Additional Information....................................................................... 3
4. Inspection................................................................................... 4
5. Use of Information; Termination of Covenants................................................. 4
6. Demand Registration.......................................................................... 4
6.1 Request for Registration on Form Other Than Form S-3................................. 4
6.2 Right of Deferral of Registration on Form Other Than Form S-3........................ 5
6.3 Request for Registration on Form S-3................................................. 5
6.4 Right of Deferral of Registration on Form S-3........................................ 5
6.5 Registration of Other Securities in Demand Registration.............................. 5
6.6 Underwriting in Demand Registration.................................................. 6
6.7 Blue Sky............................................................................. 7
7. Piggyback Registration....................................................................... 7
7.1 Notice of Piggyback Registration and Inclusion of Registrable Securities............. 7
7.2 Underwriting in Piggyback Registration............................................... 7
7.3 Blue Sky in Piggyback Registration................................................... 9
8. Expenses of Registration..................................................................... 9
9. Registration Procedures...................................................................... 9
10. Information Furnished by Holder.............................................................. 9
11. Indemnification.............................................................................. 10
11.1 Company's Indemnification of Holders................................................. 10
11.2 Holder's Indemnification of Company.................................................. 10
11.3 Indemnification Procedure............................................................ 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12. Company's Grant of Right of First Offer...................................................... 11
13. Limitations on Registration Rights Granted to Other Securities............................... 13
14. Transfer of Rights........................................................................... 13
15. Market Stand-off............................................................................. 14
16. Miscellaneous................................................................................ 14
16.1 Entire Agreement; Successors and Assigns............................................. 14
16.2 Governing Law........................................................................ 14
16.3 Counterparts......................................................................... 14
16.4 Headings............................................................................. 14
16.5 Notices.............................................................................. 14
16.6 Amendment of Agreement............................................................... 15
</TABLE>
SCHEDULE A Schedule of Investors
- ----------
<PAGE>
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement") is
---------
made as of March 15, 1999 by Andromedia, Inc., a California corporation (the
"Company") and the purchasers of the Company's Series C Preferred Stock ("Series
------
C Preferred Stock"), Series D Preferred Stock ("Series D Preferred Stock"),
- ----------------- ------------------------
Series E Preferred Stock ("Series E Preferred Stock") and certain holders of the
------------------------
Company's Common Stock ("Certain Common Shareholders") set forth on the attached
Schedule A who become signatories to this Agreement. Such purchasers and
holders set forth on the attached Schedule A shall be referred to hereinafter as
the "Investors," and each individually as an "Investor."
--------- --------
R E C I T A L S
---------------
A. Certain of the Investors hold shares of the Company's (i) Series C
Preferred Stock, (ii) Series D Preferred Stock or (iii) Common Stock issued
pursuant to the acquisition of Likeminds, Inc. by the Company (the "Merger") and
such Investors possess certain rights pursuant to that certain Second Amended
and Investors' Rights Agreement dated as of October 9, 1998 (the "Prior
-----
Agreement");
- ---------
B. The undersigned Investors who hold Series C Preferred Stock, Series D
Preferred Stock or Common Stock desire to terminate the Prior Agreement and to
accept the rights created pursuant hereto in lieu of the rights granted to them
under the Prior Agreement;
C. The Company and certain of the Investors have entered into that
certain Series E Preferred Stock Purchase Agreement dated of even date herewith
(the "Purchase Agreement") pursuant to which the Company agreed to sell and
------------------
certain of the Investors agreed to purchase up to 4,245,683 shares of the
Company's Series E Preferred Stock (the "Series E Financing"); and
------------------
D. In connection with the consummation of the Series E Financing, the
Company and the Investors desire to provide for certain rights to be granted to
and certain covenants to be made with the Investors with respect to information
about the Company and registration of the Common Stock issued upon conversion or
exercise of certain outstanding securities of the Company, and hereby agree that
this Agreement shall govern the rights of the Investors as to certain matters as
set forth herein.
NOW THEREFORE, the parties hereto agree that the Prior Agreement shall be
amended and restated in its entirety to read as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
<PAGE>
(b) "Common Stock" shall mean Common Stock of the Company.
------------
(c) "Form S-3" shall mean Form S-3 issued by the Commission or any
--------
substantially similar form then in effect.
(d) "Holder" shall mean any holder of outstanding Registrable
------
Securities which have not been sold to the public, but only if such holder is an
Investor or an assignee or transferee of registration rights as permitted by
Section 14.
(e) "Initiating Holders" shall mean Holders who in the aggregate hold
------------------
at least thirty percent (30%) of the Registrable Securities.
(f) "Material Adverse Event" shall mean an occurrence having a
----------------------
consequence that (a) is materially adverse as to the business, properties,
prospects or financial condition of the Company or (b) is reasonably
foreseeable, has a reasonable likelihood of occurring, and if it were to occur
might materially adversely affect the business, properties, prospects or
financial condition of the Company.
(g) "Permitted Transferee" shall mean, for each Investor which is a
--------------------
partnership or limited liability company, an affiliate (as defined in the
Securities Act) ("Affiliate"), a direct or indirect constituent member or
partner or a retired partner or member of such partnership or limited liability
company, or the estate of any such partner or retired partner or member.
(h) The terms "Register", "Registered" and "Registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act ("Registration Statement"), and the
----------------------
declaration or ordering of the effectiveness of such Registration Statement by
the Commission.
(i) "Registrable Securities" shall mean (i) shares of Common Stock
----------------------
issued or issuable pursuant to the conversion of the Shares, (ii) any Common
Stock issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, the Shares (iii)
shares of Common Stock issued or issuable pursuant to the conversion of New
Securities (as defined in Section 12 hereof) acquired by an Investor under
Section 12 hereof and (iv) the shares of Common Stock issued to Certain Common
Shareholders pursuant to the Merger, excluding in all cases, however, any
Registrable Securities that have been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction or which
have been sold in a private transaction in which the transferor's rights under
this Agreement are not assigned.
(j) "Registrable Securities then outstanding" shall be equal to the
---------------------------------------
sum of (i) the number of shares of Common Stock outstanding that are Registrable
Securities and (ii) the number of shares of Common Stock issuable pursuant to
then exercisable or convertible securities that are exercisable or convertible
into Registrable Securities.
-2-
<PAGE>
(k) "Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in complying with Section 6 or 7 of this Agreement, including without
limitation, all federal and state registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel for the Company and one
special counsel for Holders (if different from the Company), blue sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration.
(l) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(m) "Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale of Registrable Securities pursuant to
this Agreement.
(n) "Shares" shall mean the Company's Series C Preferred Stock, Series
------
D Preferred Stock, Series E Preferred Stock and shares of Common Stock issued to
Certain Common Shareholders pursuant to the Merger.
2. Financial Statements and Reports to Shareholders. As long as an
------------------------------------------------
Investor (together with any affiliates) or its transferee holds either (i) not
less than twenty percent (20%) of a class or series of the Registrable
Securities then outstanding or (ii) Registrable Securities with an original cost
to such Investor of $500,000, the Company shall deliver to such Investor as soon
as practicable after the end of each fiscal year of the Company, and in any
event within 90 days thereafter, an audited consolidated balance sheet of the
Company as of the end of such year and audited consolidated statements of
income, shareholders' equity and cash flows for such year, and any related
management letter from the Company's accountants, which year-end financial
reports shall be in reasonable detail, and shall be prepared by an independent
"Big Five" public accounting firm in accordance with generally accepted
accounting principles and fairly reflecting the fiscal affairs of the Company to
the date thereof. In addition, the Company shall deliver to each such Investor
(together with any affiliates) or its transferee holding either (i) not less
than twenty percent (20%) of a class or series of the Registrable Securities
then outstanding or (ii) Registrable Securities with an original cost to such
Investor of $500,000: (a) as soon as practicable after the end of each fiscal
quarter of the Company, and in any event within 30 days thereafter, financial
statements of the Company on a quarterly basis prepared in accordance with
generally accepted accounting principles, consistently applied, fairly
reflecting the fiscal affairs of the Company to the date thereof and certified
by the Chief Financial Officer of the Company, and (b) contemporaneously with
delivery to holders of Common Stock, a copy of each report of the Company
delivered to holders of Common Stock.
3. Additional Information. As long as an Investor (together with any
----------------------
affiliates) or its transferee holds either (i) not less than twenty percent
(20%) of a class or series of the Registrable Securities then outstanding or
(ii) Registrable Securities with an original cost to such Investor of $500,000,
the Company will deliver to such Investor:
-3-
<PAGE>
(a) As soon as practicable after the end of each month, and in any
event within 20 days thereafter, consolidated balance sheets of the Company and
its subsidiaries, if any, as of the end of such month, and consolidated
statements of income and cash flow for such month and for the current fiscal
year to date together with comparisons to the applicable month of the prior
fiscal year and the applicable monthly budget.
(b) As soon as practicable after the end of every second month, a
management report describing the current status of the Company and its
operations and prospects.
(c) As soon as practicable following submission to and approval by the
Board of Directors of the Company, but in no event later than 30 days prior to
the end of each fiscal year, each operating budget and plan (the "Plan")
----
respecting the next fiscal year and a summary of each such Plan containing a
monthly financial budget together with any update of the Plan as such update is
prepared.
(d) Prompt notice of any material litigation or any material adverse
claims, disputes or other developments relating to the Company.
(e) Other information reasonably requested by such Investor.
4. Inspection. As long as an Investor (together with any affiliates) or
----------
its transferee holds either (i) not less than twenty percent (20%) of a class or
series of the Registrable Securities then outstanding or (ii) Registrable
Securities with an original cost to such Investor of $500,000, the Company shall
permit the Investor, at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by each such Investor; provided, however,
that Company shall not be obligated pursuant to this Section 4 to provide any
information which it reasonably considers to be a trade secret. Each Investor
hereby agrees to hold in confidence and trust and not to misuse or disclose any
confidential information provided pursuant to this Section 4, except that
Investors may disclose confidential information to their legal or financial or
similar representatives or Affiliates on a "need-to-know" basis so long as such
legal or financial or similar representatives or Affiliates have agreed to be
bound by the confidentiality and non-disclosure agreements set forth herein and
to not further disclose any such confidential information. The Company shall
not be required to comply with this Section 2.2 in respect of any Investor whom
the Company reasonably determines to be a competitor or potential competitor of
the Company. Subject to Section 5, the rights of an Investor under this Section
4 may not be assigned as part of such Investor's sale of any of the Registrable
Securities except with the consent of the Company, which consent shall not be
unreasonably withheld, and except as provided by Section 14 hereof.
5. Use of Information; Termination of Covenants. The covenants of the
--------------------------------------------
Company set forth in Section 2, 3 or 4 shall be terminated and be of no further
force or effect upon the earlier of (a) the date when a Registration Statement
filed by the Company under the Securities Act, in connection with the first
public offering of its equity securities (other than either a public offering
limited solely to employees of the company or an offering pursuant to Rule 145
under the Securities Act) becomes
-4-
<PAGE>
effective and (b) the date the Company registers any securities under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and such covenants
------------
shall terminate as to any Investor as of such date as such Investor (together
with any Affiliate) or its transferee no longer holds at least the lesser of (i)
fifty percent (50%) of the shares of the capital stock of the Company originally
held by such Investor and (ii) Registrable Securities with an original cost to
such Investor of $500,000.
6. Demand Registration.
-------------------
6.1 Request for Registration on Form Other Than Form S-3. Subject to
----------------------------------------------------
the terms of this Agreement, in the event that the Company shall receive from
the Initiating Holders at any time after the earlier of (a) three (3) years from
the date of this Agreement and (b) six months following the Company's initial
public offering of its equity securities under a Registration Statement, a
written request that the Company effect any firmly-underwritten Registration
with respect to all or a part of the Registrable Securities on a Form other than
Form S-3 for an offering of at least 20% of the then outstanding Registrable
Securities (or any lesser percent if the reasonably anticipated aggregate
offering price to the public would exceed $2,000,000), the Company shall (i)
promptly give written notice of the proposed Registration to all other Holders
and shall (ii) as soon as practicable, use its best efforts to effect
Registration of the Registrable Securities specified in such request, together
with any Registrable Securities of any Holder joining in such request as are
specified in a written request given within 20 days after written notice from
the Company. The Company shall not be obligated to take any action to effect
any such Registration pursuant to this Section 6.1 after the Company has
effected four such Registrations pursuant to this Section 6.1 and such
Registrations have been declared effective by the Commission.
6.2 Right of Deferral of Registration on Form Other Than Form S-3.
-------------------------------------------------------------
If the Company shall furnish to all such Holders who joined in the request a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for any Registration to be effected as requested
under Section 6.1, the Company shall have the right, exercisable one time only,
to defer the filing of a Registration Statement with respect to such offering
for a period of not more than 90 days from delivery of the request of the
Initiating Holders.
6.3 Request for Registration on Form S-3. Subject to the terms of
------------------------------------
this Agreement, in the event that the Company receives from Holders who in the
aggregate hold Registrable Securities for which the reasonably anticipated
aggregate offering price to the public would exceed $2,000,000, a written
request that the Company effect any Registration on Form S-3 (or any successor
form to Form S-3 regardless of its designation) at a time when the Company is
eligible to register securities on Form S-3 (or any successor form to Form S-3
regardless of its designation), but not within six (6) months of the effective
date of a Registration for an offering of Registrable Securities, the Company
will promptly give written notice of the proposed Registration to all the
Holders and will as soon as practicable use its best efforts to effect
Registration of the Registrable Securities specified in such request, together
with all or such portion of the Registrable Securities of any Holder joining in
such request as are specified in a written request delivered to the Company
within 30 days after written notice from the Company of the proposed
Registration. There shall be no limit to the number of occasions on
-5-
<PAGE>
which the Company shall be obligated to effect Registration under this Section
6.3; provided, however, that the Company shall not be obligated to effect such
Registration more than once in any twelve (12) month period.
6.4 Right of Deferral of Registration on Form S-3. If the Company
---------------------------------------------
shall furnish to all such Holders who joined in the request a certificate signed
by the President of the Company stating that, in the good faith judgment of the
Board of Directors of the Company, it would not be in the best interests of the
Company for any Registration to be effected as requested under Section 6.3, the
Company shall have the right, exercisable one time only for each request for
registration by the Holders, to defer the filing of a Registration Statement on
Form S-3 with respect to such offering for a period of not more than ninety (90)
days from delivery of the request by such Holders.
6.5 Registration of Other Securities in Demand Registration. Any
-------------------------------------------------------
Registration Statement filed pursuant to the request of the Initiating Holders
under this Section 6 may, subject to the provisions of Section 6.6, include
securities of the Company other than Registrable Securities.
6.6 Underwriting in Demand Registration.
-----------------------------------
6.6.1 Notice of Underwriting. If the Initiating Holders intend
----------------------
to distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to this Section 6, and the Company shall include such information in
the written notice referred to in Section 6.1 or 6.3. The right of any Holder to
Registration pursuant to Section 6 shall be conditioned upon such Holder's
agreement to participate in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting.
6.6.2 Inclusion of Other Holders in Demand Registration. If the
-------------------------------------------------
Company, officers or directors of the Company holding Common Stock other than
Registrable Securities or holders of securities other than Registrable
Securities, request inclusion in such Registration, the Initiating Holders, to
the extent they deem advisable and consistent with the goals of such
Registration, shall, on behalf of all Holders, offer to any or all of the
Company, such officers or directors and such holders of securities other than
Registrable Securities that such securities be included in the underwriting and
may condition such offer on the acceptance by such persons of the terms of this
Section 6. In the event, however, that the number of shares requested to be
registered by the Company so included exceeds the number of shares of
Registrable Securities included by all Holders, such Registration shall be
treated as governed by Section 7 hereof rather than Section 6, and it shall not
count as a Registration for purposes of Section 6.1 hereof, provided that, the
Holders shall receive priority in the event of any market cut-back.
6.6.3 Selection of Underwriter in Demand Registration. The
-----------------------------------------------
Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement with
the representative ("Underwriter's Representative") of the underwriter or
----------------------------
underwriters of national reputation selected for such underwriting by the
Holders of a majority of the
-6-
<PAGE>
Registrable Securities being registered by the Initiating Holders and reasonably
agreed to by the Company.
6.6.4 Marketing Limitation in Demand Registration. In the event
-------------------------------------------
the Underwriter's Representative advises the Initiating Holders in writing that
market factors (including without limitation, the aggregate number of shares of
Common Stock requested to be Registered, the general condition of the market,
and the status of the persons proposing to sell securities pursuant to the
Registration) require a limitation of the number of shares to be underwritten,
then (i) first the Common Stock held by officers or directors of the Company,
(ii) next the other securities other than Registrable Securities, and (iii) last
the securities requested to be registered by the Company, shall be excluded from
such Registration to the extent required by such limitation. If a limitation of
the number of shares is still required, the Initiating Holders shall so advise
all Holders and the number of shares of Registrable Securities that may be
included in the Registration and underwriting shall be allocated among all
Holders in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities then owned by such Holders. No Registrable Securities or
other securities excluded from the underwriting by reason of this Section 6.6.4
shall be included in such Registration Statement.
6.6.5 Right of Withdrawal in Demand Registration. If any Holder
------------------------------------------
of Registrable Securities, or a holder of other securities entitled (upon
request) to be included in such Registration, disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the underwriter and the Initiating Holders delivered at least seven
days prior to the effective date of the Registration Statement. The securities
so withdrawn shall also be withdrawn from the Registration Statement.
6.7 Blue Sky. In the event of any Registration pursuant to Section
--------
6, the Company will exercise its best efforts to Register and qualify the
securities covered by the Registration Statement under such other securities or
Blue Sky laws of such jurisdictions (not exceeding 20 at the expense of the
Company) as shall be reasonably appropriate for the distribution of such
securities; provided, however, that (i) the Company shall not be required to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions, and (ii) notwithstanding anything in this
Agreement to the contrary, in the event any jurisdiction in which the securities
shall be qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders, such expenses shall be payable pro rata by selling shareholders.
7. Piggyback Registration.
----------------------
7.1 Notice of Piggyback Registration and Inclusion of Registrable
-------------------------------------------------------------
Securities. Subject to the terms of this Agreement, in the event the Company
- ----------
decides to Register any of its Common Stock (either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights) on a form that would be suitable for a registration
involving Registrable Securities, the Company will: (i) promptly give each
Holder written notice thereof (which shall include a list of the jurisdictions
in which the Company intends to attempt to qualify such securities under the
applicable Blue Sky or other state securities laws) and (ii) include in such
Registration (and any related
-7-
<PAGE>
qualification under Blue Sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
delivered to the Company by any Holder within 15 days after delivery of such
written notice from the Company.
7.2 Underwriting in Piggyback Registration.
--------------------------------------
7.2.1 Notice of Underwriting in Piggyback Registration. If the
------------------------------------------------
Registration of which the Company gives notice is for a Registered public
offering involving an underwriting, the Company shall so advise the Holders as a
part of the written notice given pursuant to Section 7.1. In such event the
right of any Holder to Registration shall be conditioned upon such underwriting
and the inclusion of such Holder's Registrable securities in such underwriting
to the extent provided in this Section 7. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders distributing their securities through such underwriting) enter
into an underwriting agreement with the Underwriter's Representative for such
offering. The Holders shall have no right to participate in the selection of
the underwriters for an offering pursuant to this Section 7.
7.2.2 Marketing Limitation in Piggyback Registration. In the
----------------------------------------------
event the Underwriter's Representative advises the Holders seeking registration
of Registrable Securities pursuant to Section 7 in writing that market factors
(including, without limitation, the aggregate number of shares of Common Stock
requested to be Registered, the general condition of the market, and the status
of the persons proposing to sell securities pursuant to the Registration)
require a limitation of the number of shares to be underwritten, the
Underwriter's Representative (subject to the allocation priority set forth in
Section 7.2.3) may:
(a) in the case of the Company's initial Registered public
offering, exclude some or all Registrable Securities from such registration and
underwriting;
(b) in the case of the first Registered public offering
subsequent to the initial public offering, limit the number of shares of
Registrable Securities to be included in such Registration and underwriting to
not less than twenty percent (20%) of the securities included in such
Registration (based on aggregate market values); and
(c) in the case of any subsequent registered public offering,
limit the number of shares of Registrable Securities to be included in such
Registration and underwriting to not less than twenty five percent (25%) of the
securities included in such Registration (based on aggregate market values).
7.2.3 Allocation of Shares in Piggyback Registration. In the
----------------------------------------------
event that the Underwriter's Representative limits the number of shares to be
included in a Registration pursuant to Section 7.2.2, the number of shares to be
included in such Registration shall be allocated (subject to Section 7.2.2) in
the following manner: First, the shares held by officers or directors of the
Company shall be excluded from such registration and underwriting to the extent
required by such limitation and
-8-
<PAGE>
if such exclusion is not sufficient, then shares held by holders of securities
other than Registrable Securities requesting and legally entitled to include
shares in such Registration shall be excluded from such registration and
underwriting to the extent required by such limitation. If a limitation of the
number of shares is still required after such exclusions, the number of shares
that may be included in the Registration and underwriting by selling
shareholders shall be allocated among all other Holders in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities then owned
by such Holders. No Registrable Securities or other securities excluded from the
underwriting by reason of this Section 7.2.3 shall be included in the
Registration Statement.
7.2.4 Withdrawal in Piggyback Registration. If any Holder
------------------------------------
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the underwriter delivered at
least seven days prior to the effective date of the Registration Statement. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such Registration.
7.3 Blue Sky in Piggyback Registration. In the event of any
----------------------------------
Registration of Registrable Securities pursuant to Section 7, the Company will
exercise its best efforts to Register and qualify the securities covered by the
Registration Statement under such other securities or Blue Sky laws of such
jurisdictions (not exceeding 20 unless otherwise agreed to by the Company) as
shall be reasonably appropriate for the distribution of such securities;
provided, however, that (i) the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions, and (ii) notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
shareholders, such expenses shall be payable pro rata by selling shareholders.
8. Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with all Registrations pursuant to Section 6 and Section 7 shall be
borne by the Company. Notwithstanding the above, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 6 if the registration request is subsequently withdrawn at the
request of the holders of a majority of the Registrable Securities to be
registered (which Holders shall bear such expenses), unless the holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 6; provided further, however, that if at
the time of such withdrawal (i) the Holders have learned of a Material Adverse
Event with respect to the condition, business or prospects of the Company not
known to the Holders at the time of their request, (ii) a marketing limitation
was imposed by the Underwriter's Representative such that the Holders would be
unable to include at least 50% of such Holder's Registrable Securities (or 100%
of such Holder's Registrable Securities if the registration is the Holder's last
right to a demand registration pursuant to Section 6) requested to be included
in such registration or (iii) the Holders reasonably believe that the Company
will fail to comply with the Securities Act in effecting such registration, then
the Holders shall not be required to pay any of such expenses and shall not
forfeit a right to a demand registration pursuant to Section 6. All Selling
Expenses shall be borne by the holders of the securities registered pro rata on
the basis of the number of shares registered.
-9-
<PAGE>
9. Registration Procedures. The Company will keep each Holder whose
-----------------------
Registrable Securities are included in any Registration pursuant to this
Agreement advised as to the initiation and completion of such Registration. At
its expense the Company will: (a) use its best efforts to keep such Registration
effective for a period of 180 days or until the Holder or Holders have completed
the distribution described in the Registration Statement relating thereto,
whichever first occurs; (b) before filing such Registration Statement or any
amendments thereto, furnish such number of prospectuses (including preliminary
prospectuses) and other documents as a Holder from time to time may reasonably
request and (c) take other customary actions to carry out its obligations, and
to provide the Holders of Registrable Securities the benefits, granted to them
hereunder.
10. Information Furnished by Holder. It shall be a condition precedent of
-------------------------------
the Company's obligations under this Agreement that each Holder of Registrable
Securities included in any Registration furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder or Holders as
the Company may reasonably request.
11. Indemnification.
---------------
11. Company's Indemnification of Holders. To the extent permitted by
------------------------------------
law, the Company will indemnify each Holder, each of its officers, directors and
constituent partners, legal counsel for the Holders, and each person controlling
such Holder within the meaning of the Securities Act, with respect to which
Registration, qualification or compliance of Registrable Securities has been
effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter against all claims, losses, damages or
liabilities (or actions in respect thereof) to the extent such claims, losses,
damages or liabilities arise out of or are based upon any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus or
other document (including any related Registration Statement) incident to any
such Registration, qualification or compliance, or are based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such Registration, qualification or compliance;
and the Company will reimburse each such Holder, each such underwriter and each
person who controls any such Holder or underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action; provided, however, that the
indemnity contained in this Section 11.1 shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if settlement is
effected without the consent of the Company (which consent shall not
unreasonably be withheld); and provided, further, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based upon any untrue statement or
omission made in reliance upon and in conformity with written information
furnished to the Company by such Holder, underwriter, or controlling person and
stated to be specifically for use in connection with the offering of securities
of the Company.
11. Holder's Indemnification of Company. To the extent permitted by
-----------------------------------
law, each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such
-10-
<PAGE>
Registration, qualification or compliance is being effected pursuant to this
Agreement, severally, but not jointly with other Holders, indemnify the Company,
each of its directors and officers, each legal counsel and independent
accountant of the Company, each underwriter, if any, of the Company's securities
covered by such a Registration Statement, each person who controls the Company
or such underwriter within the meaning of the Securities Act, and each other
such Holder, each of its officers, directors and constituent partners and each
person controlling such other Holder, against all claims, damages and
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact contained in
any such Registration Statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by such Holder of any rule or regulation
promulgated under the Securities Act applicable to such Holder and relating to
action or inaction required of such Holder in connection with any such
Registration, qualification or compliance; and will reimburse the Company, such
Holders, such directors, officers, partners, persons, law and accounting firms,
underwriters or control persons for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such Registration Statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use in
connection with the offering of securities of the Company, provided, however,
that each Holder's liability under this Section 11.2 shall not exceed such
Holder's proceeds from the offering of securities made in connection with such
Registration.
11.3 Indemnification Procedure. Promptly after receipt by an
-------------------------
indemnified party under this Section 11 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party under this Section 11, notify the indemnifying
party in writing of the commencement thereof and generally summarize such
action. The indemnifying party shall have the right to participate in and to
assume the defense of such claim; provided, however, that the indemnifying party
shall be entitled to select counsel for the defense of such claim with the
approval of any parties entitled to indemnification, which approval shall not be
unreasonably withheld; provided further, however, that if either party
reasonably determines that there may be a conflict between the position of the
Company and the Investors in conducting the defense of such action, suit or
proceeding by reason of recognized claims for indemnity under this Section 11,
then counsel for such party shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interest of such party. The failure to notify an indemnifying party promptly of
the commencement of any such action, if prejudicial to the ability of the
indemnifying party to defend such action, shall relieve such indemnifying party,
to the extent so prejudiced, of any liability to the indemnified party under
this Section 11, but the omission so to notify the indemnifying party will not
relieve such party of any liability that such party may have to any indemnified
party otherwise other than under this Section 11.
11.4 If the indemnification provided for in this Section 11 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any claim, loss, damage,
-11-
<PAGE>
liability or action referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such claim, loss,
damage, liability or action in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such claim, loss, damage, liability or action as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the violation of law or the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to acts of or
information supplied by the indemnifying party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
12. Company's Grant of Right of First Offer. So long as any Shares (or
---------------------------------------
shares of Common Stock issuable upon conversion of the Shares) are outstanding,
the Company hereby grants to the Investors the right of first offer to purchase,
pro rata, a portion of "New Securities" (as defined in this Section 12) that the
--------------
Company may, from time to time, propose to sell and issue. The Investor's "Pro
---
Rata Share", for purposes of this right of first offer, is the ratio of (X) the
- ----------
number of shares of Common Stock (assuming conversion, exercise or exchange of
all outstanding securities convertible into or exercisable or exchangeable for
Common Stock) owned by such Investor to (Y) the total number of shares of Common
Stock then outstanding (assuming conversion, exercise or exchange of all
outstanding Preferred Stock (as defined below)) and all outstanding options to
purchase Common Stock of the Company. This right of first offer shall be
subject to the following provisions:
(a) "New Securities" shall mean any Common Stock and any series of
--------------
preferred stock ("Preferred Stock") of the Company whether or not authorized on
---------------
the date hereof, and rights, options, or warrants to purchase such Common Stock
or Preferred Stock, and securities (or rights to acquire securities) of any type
whatsoever that are, or may become, convertible into said Common Stock or
Preferred Stock; provided, however, that New Securities does not include the
following:
(i) shares of Common Stock, or options to purchase shares of
Common Stock, issued or granted to officers, directors, employees and
consultants of the Company pursuant to stock and option plans or arrangements
approved by a majority of the disinterested directors on the Board of Directors;
(ii) shares of Common Stock issuable upon conversion of the
Company's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock;
(iii) securities of the Company offered to the public pursuant
to a bona fide public offering;
(iv) securities of the Company issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of
substantially all of the assets, or other
-12-
<PAGE>
reorganization whereby the Company owns not less than fifty-one percent (51%) of
the voting power of such other corporation;
(v) shares of Common Stock or Preferred Stock issued in
connection with any stock split, stock dividend, or recapitalization by the
Company; and
(vi) shares of the Company's Common Stock or Preferred Stock or
options to purchase shares of the Company's Common Stock or Preferred Stock
issued to financial institutions or lessors in connection with commercial credit
arrangements, equipment financings or similar transactions approved by the
Company's Board of Directors.
(b) In the event that the Company proposes to undertake an issuance
of New Securities, it shall give the Investors written notice of its intention,
describing the type of New Securities, the price, and the general terms upon
which the Company proposes to issue the same. The Investors shall have twenty
(20) business days from the date such notice is given to agree to purchase its
share of such New Securities at the price and upon the general terms specified
in the notice by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased. If not all of the Investors elect
to purchase their Pro Rata Share of the New Securities, then the Company shall
promptly notify in writing the Investors who do so elect and shall offer such
Investors the right to acquire such unsubscribed shares (the "Unsubscribed
------------
Shares"). Each such Investor shall have five (5) days after receipt of such
- ------
notice to notify the Company of its election to purchase all or a portion of the
Unsubscribed Shares. However, if more than one such Investor elects to purchase
the Unsubscribed Shares, each such Investor shall be entitled to purchase only
the portion of such Unsubscribed Shares equal to (X) the number of shares of
Common Stock (assuming conversion, exercise or exchange of all securities
convertible into or exercisable or exchangeable for Common Stock) owned by such
Investor immediately prior to the issuance of New Securities divided by (Y) the
aggregate number of shares of Common Stock (assuming conversion, exercise or
exchange of all securities convertible into or exercisable or exchangeable for
Common Stock) held by all such Investors who elect to purchase the Unsubscribed
Shares.
(c) The Company shall have one hundred and twenty (120) days
thereafter to sell (or enter into an agreement pursuant to which the sale of New
Securities covered thereby shall be closed, if at all, within sixty (60) days
from the date of such agreement) any New Securities not acquired by the
Investors at a price and upon general terms no more favorable to the purchasers
thereof than specified in the Company's notice. In the event the Company has
not sold the New Securities within such one hundred twenty (120) day period (or
sold and issued New Securities in accordance with the foregoing within sixty
(60) days from the date of such agreement), the Company shall not thereafter
issue or sell any New Securities without first offering such New Securities to
the Investors in the manner provided above.
(d) The right of first offer granted under this Section 12 shall
expire upon the closing of an underwritten public offering of the Company's
securities registered under the Securities Act.
-13-
<PAGE>
(e) This right of first offer is assignable to any transferee
acquiring at least 100,000 shares of Registrable Securities.
(f) This right of first offer shall not apply with respect to any
Investor if such Investor no longer owns any Shares or Common Stock issuable
upon conversion thereof as of the date of the notice referred to above.
13. Limitations on Registration Rights Granted to Other Securities. From
--------------------------------------------------------------
and after the date of this Agreement, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
providing for the granting to such holder of any information or Registration
rights, except that, with the consent of the Holders of a majority of the
Registrable Securities then outstanding, additional holders may be added as
parties to this Agreement with regard to any or all securities of the Company
held by them. Any such additional parties shall execute a counterpart of this
Agreement, and upon execution by such additional parties and by the Company,
shall be considered an Investor for all purposes of this Agreement. The
additional parties and the additional Registrable Securities shall be identified
in an amendment to Schedule A hereto.
14. Transfer of Rights. The rights to information under Sections 2, 3 and
------------------
4, the right to cause the Company to Register securities, and the Right of First
Offer under Section 12 granted by the Company to the Investors under this
Agreement may be assigned by any Holder to a transferee or assignee of any
Registrable Securities not sold to the public acquiring at least 100,000 shares
(equitably adjusted for any stock splits, subdivisions, stock dividends,
changes, combinations or the like) or, if less, 100% of such Holder's
Registrable Securities; provided, however, that (i) the shares of Registrable
Securities acquired by said transferee must constitute at least 20% of Holder's
aggregate Registrable Securities immediately prior to the transfer, (ii) the
Company must receive written notice prior to the time of said transfer, stating
the name and address of said transferee or assignee and identifying the
securities with respect to which such information and Registration rights are
being assigned, (iii) shares obtained by partners of Holders pursuant to a
partnership distribution may be aggregated, and (iv) the transferee or assignee
of such rights must not be a person reasonably determined by the Board of
Directors of the Company to be a competitor or potential competitor of the
Company. Notwithstanding the limitation set forth in the foregoing sentence
respecting the minimum number of shares which must be transferred, any Holder
may transfer such Holder's rights under Sections 2, 3, 4, and 12 and the right
of Registration to a Permitted Transferee without restriction as to the number
or percentage of shares acquired.
15. Market Stand-off. Each Holder hereby agrees that, if so requested by
----------------
the Company and the Underwriter's Representative (if any), such Holder shall not
sell or otherwise transfer any Registrable securities or other securities of the
Company (except for any securities of the Company that may be purchased on the
open market) during the 180-day period following the effective date of the
Company's initial public offering of securities under a Registration Statement
of the Company filed under the Securities Act or such lesser period as agreed to
by the managing underwriter; provided, however, that all officers and directors
of the Company are similarly restricted.
-14-
<PAGE>
16. Miscellaneous.
-------------
16.1 Entire Agreement; Successors and Assigns. This Agreement
----------------------------------------
constitutes the entire contract between the Company and the Investors relative
to the subject matter hereof. Any previous agreement between the Company and
the Investors concerning registration rights, rights of first offer and other
rights provided herein is superseded by this Agreement. Subject to the
exceptions specifically set forth in this Agreement, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
executors, administrators, heirs, successors and assigns of the parties.
16.2 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California applicable to contracts
entered into and wholly to be performed within the State of California by
California residents.
16.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16.4 Headings. The headings of the Sections of this Agreement are for
--------
convenience and shall not by themselves determine the interpretation of this
Agreement.
16.5 Notices. Any notice required or permitted to be given to a party
-------
pursuant to the provisions of this Agreement will be in writing and will be
effective upon (i) the date of personal delivery or delivery by facsimile, (ii)
the business day after deposit with a nationally-recognized courier or overnight
service, including Express Mail, for United States deliveries or (iii) five (5)
business days after deposit in the United States mail by registered or certified
mail for United States deliveries. All notices not delivered personally or by
facsimile will be sent with postage and other charges prepaid and properly
addressed to the party to be notified at the address set forth below such
party's signature on this Agreement or at such other address as such party may
designate by ten (10) days advance written notice to the other parties hereto.
All notices for delivery outside the United States will be sent by facsimile, or
by nationally recognized courier or overnight service. Any notice given
hereunder to more than one person will be deemed to have been given, for
purposes of counting time periods hereunder, on the date given to the last party
required to be given such notice. Notices to the Company will be marked to the
attention of the President and Chief Executive Officer.
16.6 Amendment of Agreement. This Agreement may be amended, or any
----------------------
provisions thereof waived, with the consent of the Company and the vote or
written consent of holders of greater than sixty-seven percent (67%) of each
class or series of the outstanding Registrable Securities. Notwithstanding
anything herein to the contrary, in the event of a subsequent closing with an
investor as provided for in Section 1.2 of the Purchase Agreement, such investor
shall become a party to this Agreement as an "Investor" without the need for any
consent, approval or signature of any Investor upon (i) receipt from such
investor of a fully executed signature page hereto with the Company's consent
and
-15-
<PAGE>
(ii) payment of all consideration for the purchase by such investor of shares of
Series E Preferred Stock pursuant to the terms of the Purchase Agreement.
[Remainder of Page Intentionally Left Blank]
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
The Company: ANDROMEDIA, INC.
a California corporation
By: /s/ Kent B. Godfrey
______________________________
Title:___________________________
Address:_________________________
Investors
_________________________________
INVESTORS
Investor: Investors
________________________
By: /s/ Investors
______________________________
Name: Investors
____________________________
(Print Name of Signatory)
Title:___________________________
***Signature Page to Amended and Restated Investors' Rights Agreement***
-18-
<PAGE>
SCHEDULE A
SCHEDULE OF INVESTORS
---------------------
Series C Preferred Holders:
- --------------------------
JK&B Capital, Inc.
JK&B Capital II, L.P.
Randolph Street Partners DIF, LLC
Transcorp c/f David I. Bostwick
Gotham Park Associates
Randolph Street Partners
W. Elridge Custer
Fairfield Development Company
Felice DiIorio and Lisa M. DiIorio JTWROS
Jim A. Youssef
WS Investment Company 97A
Trustee, WSGR Retirement Plan fbo Steven E. Bochner
Jeffrey A. Herbst
Thomas J. Martin
Series D Preferred Holders:
- --------------------------
JK&B Capital, L.P.
JK&B Capital II, L.P.
The Travelers Insurance Company
UBS Capital II LLC
Westbury Capital Partners, L.P.
Keith W. Abell
Mary Capdevielle Ascher
Christian V. Bergmann
Jerome Buttrick
Fung Ching Chen
Paul E. Cohan
Peter S. Cohan
Suzanne H. Cohan
William D. Cohan
Kathleen Cotton
Christopher J. Dressel and Elizabeth Capdevielle Dressel, as Trustees
of the 1998 Dressel Family Trust
Robert E. Esper
Alan J. Freedman
Milton H. Hieken
-19-
<PAGE>
Dorothy E. Isacks
Leonard S. Isacks
W. Ronald Kops
Matranet SA
Robert B. Nolan
Brett J. Rome
Peter J. Scattini
Patricia Siders
Sippl Macdonald Ventures II, L.P.
Eugene L. Witt or Alice Witt TTEES
Certain Common Shareholders
- ---------------------------
O'Reilly & Associates
Tim O'Reilly
Dale Dougherty
Deepak Moorjani
Fenwick & West Investments
Series E Preferred Holders:
- --------------------------
Ares Leveraged Investment Fund II, L.P.
Ares Leveraged Investment Fund, L.P.
C.E. Unterberg, Towbin Capital Partners I, L.P.
C.E. Unterberg, Towbin LLC
UT Technology Partners, LDC
Vivian Doremus
Alexander W. Hargrave
Lisa Kops-Wendel
Merrill Lynch, Pierce, Fenner & Smith Inc. for
the Benefit of Kevin M. Kops
Kevin M. Kops and Beth L. Kops
Roy Jay Kops
Merrill Lynch, Pierce, Fenner & Smith for
the Benefit of W. Ronald Kops
Pacific Technology Ventures USA LP
Ronald and Felicia Schack
Michael Simon
Sippl MacDonald Ventures II, L.P.
The Travelers Insurance Company
UBS Capital II LLC
Wesbury Equity Partners, L.P.
XL Capital LLC
-20-
<PAGE>
ABS Employees' Venture Fund Limited Partnership
AM Co-Investments LLC
Richard A. Backer TTEE Richard A. Backer CPA
PC PSP U/A Dated 10/6/95 FBO Richard A. Backer
Edward B. Bloom
James A. Casella
Fairfield Development Company
Alan J. Freedman
Zachary Gomes
Saul Herbst
Merrill Lynch, Pierce, Fenner & Smith Inc. for the Benefit
of Barbara Lois Kops
Merrill Lynch, Pierce, Fenner & Smith for
Jennifer Maria Kops - UTMA CT
Merrill Lynch, Pierce, Fenner & Smith Inc. for the
Benefit of W. Ronald Kops
W. Ronald Kops and Barbara Lois Kops
Irwin Kornfeld
James V. McCloskey
James A. Moore
William P. Murphy Revocable Trust
James E. Spencer and Nancy C. Spencer
Eugene L. or Alice J. Witt TTEES UDT 8/16/83
-21-
<PAGE>
EXHIBIT 10.2
ANDROMEDIA, INC.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
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attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and any Parent or Subsidiary and to promote the success of the
Company's business. Options granted under the Plan may be Incentive Stock
Options or Nonstatutory Stock Options, as determined by the Administrator at the
time of grant of an option and subject to the applicable provisions of Section
422 of the Code and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
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(a) "Administrator" means the Board or any of its Committees appointed
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pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
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(c) "Code" means the Internal Revenue Code of 1986, as amended.
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(d) "Committee" means a Committee appointed by the Board of Directors in
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accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
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(f) "Company" means Andromedia, Inc., a California corporation.
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(g) "Consultant" means any person who is engaged by the Company or any
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Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any director of the Company whether
compensated for such services or not. If and in the event the Company registers
any class of any equity security pursuant to the Exchange Act, the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
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employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or Consultant
shall not be considered interrupted in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. A leave of
absence
<PAGE>
approved by the Company shall include sick leave, military leave, or any other
personal leave. For purposes of Incentive Stock Options, no such leave may
exceed 90 days, unless reemployment upon expiration of such leave is guaranteed
by statute or contract, including Company policies. If reemployment upon
expiration of a leave of absence approved by the Company is not so guaranteed,
on the 181st day of such leave any Incentive Stock Option held by the Optionee
shall cease to be treated as an Incentive Stock Option and shall be treated for
tax purposes as a Nonstatutory Stock Option.
(i) "Disability" means total and permanent disability as defined in
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Section 22(e)(3) of the Code.
(j) "Employee" means any person, including officers and directors,
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employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
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(l) "Fair Market Value" means, as of any date, the value of Common Stock
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determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market
Value shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as an
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incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to qualify as
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an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
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<PAGE>
(p) "Optioned Stock" means the Common Stock subject to an Option.
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(q) "Optionee" means an Employee or Consultant who receives an Option.
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(r) "Parent" means a "parent corporation," whether now or hereafter
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existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1996 Stock Option Plan.
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(t) "Section 16(b)" means Section 16(b) of the Securities Exchange Act of
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1934, as amended.
(u) "Share" means a share of the Common Stock, as adjusted in accordance
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with Section 11 below.
(v) "Subsidiary" means a "subsidiary corporation," whether now or
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hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of the
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Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 500,000 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an option exchange program
authorized by the Administrator, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated); provided, however, that Shares that have actually been
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issued under the Plan shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if unvested Shares
are repurchased by the Company at their original purchase price, and the
original purchaser of such Shares did not receive any benefits of ownership of
such Shares, such Shares shall become available for future grant under the Plan.
For purposes of the preceding sentence, voting rights shall not be considered a
benefit of Share ownership.
4. Administration of the Plan.
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(a) Initial Plan Procedure. Prior to the date, if any, upon which the
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Company becomes subject to the Exchange Act, the Plan shall be administered by
the Board or a committee appointed by the Board.
(b) Plan Procedure after the Date, if any, upon Which the Company becomes
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Subject to the Exchange Act.
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<PAGE>
(i) Administration With Respect to Directors and Officers Subject to
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Section 16(b). With respect to Option grants made to Employees who are also
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Officers or Directors subject to Section 16(b) of the Exchange Act, the Plan
shall be administered by (A) the Board, if the Board may administer the Plan in
a manner complying with the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made, or (B) a
committee designated by the Board to administer the Plan, which committee shall
be constituted to comply with the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules under
Rule 16b-3 relating to the disinterested administration of employee benefit
plans under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made.
(ii) Administration With Respect to Other Persons. With respect to
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Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a committee designated by the Board, which committee shall be constituted to
satisfy the legal requirements, if any, relating to the administration of
incentive stock option plans of state corporate and securities laws, of the
Code, and of any stock exchange or national market system upon which the Common
Stock is then listed or traded (the "Applicable Laws"). Once appointed, such
Committee shall serve in its designated capacity until otherwise directed by the
Board. The Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the Plan
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and, in the case of a Committee, the specific duties delegated by the Board to
such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange or national market
system upon which the Common Stock is then listed, the Administrator shall have
the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
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(iv) to determine the number of shares of Common Stock to be covered
by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and conditions
may include, but are not limited to, the exercise price, the time or times when
Options may be exercised, any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or the
Shares relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option may
be settled in cash under Section 9(e) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by such
Option has declined since the date the Option was granted;
(ix) to provide for the early exercise of Options for the purchase
of unvested Shares, subject to such terms and conditions as the Administrator
may determine; and
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions, determinations and
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interpretations of the Administrator shall be final and binding on all Optionees
and any other holders of any Options.
5. Eligibility.
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(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options.
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For purposes of this Section 5(b), Incentive Stock Options shall be taken
into account in the order in which they were granted, and the Fair Market Value
of the Shares shall be determined as of the time the Option with respect to such
Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with respect
to the continuation of the Optionee's employment or consulting relationship with
the Company, nor shall it interfere in any way with the Optionee's right or the
Company's right to terminate the Optionee's employment or consulting
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
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of its adoption by the Board of Directors or its approval by the shareholders of
the Company, as described in Section 17 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 13 of the
Plan.
7. Term of Option. The term of each Option shall be the term stated in the
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Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
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(a) The per share exercise price for the Shares to be issued pursuant to
exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in the preceding paragraph, the per Share exercise price shall be no less than
100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per share
exercise price shall be determined by the Administrator.
<PAGE>
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option have been owned by the Optionee for more
than six months on the date of sur render and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. Exercise of Option.
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(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
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hereunder shall be exercisable at such times and under such conditions as
determined by the Administrator, including performance criteria with respect to
the Company and/or the Optionee, and as shall be permissible under the terms of
the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
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termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or
<PAGE>
Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Notice of Grant, and only to the extent
that the Optionee was entitled to exercise it at the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Notice of Grant). In the absence of a specified time in the Notice of Grant,
the Option shall remain exercisable for three (3) months following the
Optionee's termination. In the case of an Incentive Stock Option, such period of
time for exercise shall not exceed three (3) months from the date of
termination. If, on the date of termination, the Optionee is not entitled to
exercise the Optionee's entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
Notwithstanding the above, in the event of an Optionee's change in status
from Consultant to Employee or Employee to Consultant, an Optionee's Continuous
Status as an Employee or Consultant shall not automatically terminate solely as
a result of such change in status. However, in such event, an Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option
three months and one day following such change of status.
(c) Disability of Optionee. In the event of termination of an Optionee's
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Continuous Status as an Employee or Consultant as a result of his or her
Disability, the Optionee may, but only within twelve (12) months from the date
of such termination (and in no event later than the expiration date of the term
of his or her Option as set forth in the Option Agreement), exercise the Option
to the extent the Optionee was otherwise entitled to exercise it on the date of
such termination. To the extent that the Optionee is not entitled to exercise
the Option on the date of termination, or if the Optionee does not exercise the
Option to the extent so entitled within the time specified herein, the Option
shall terminate, and the Shares covered by the Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
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Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who has acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquires the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
<PAGE>
(e) Buyout Provisions. The Administrator may at any time offer to buy
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out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
(f) Rule 16b-3. Options granted to persons subject to Section 16(b)
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of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
10. Non-Transferability of Options. Options may not be sold, pledged,
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assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
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(a) Changes in Capitalization. Subject to any required action by the
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shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
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or liquidation of the Company, the Administrator shall notify each Optionee as
soon as practicable prior to the effective date of such proposed transaction.
The Administrator in its discretion may provide for an Optionee to have the
right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
<PAGE>
(c) Merger or Asset Sale. In the event of a merger of the Company with or
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into another corporation, or the sale of substantially all of the assets of the
Company, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option is exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets was
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock subject to the Option, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
12. Time of Granting Options. The date of grant of an Option shall, for all
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purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
13. Amendment and Termination of the Plan.
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(a) Amendment and Termination. The Board may at any time amend, alter,
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suspend or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of any stock exchange or national market system upon
which the Common Stock is then listed), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
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termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the
<PAGE>
Optionee and the Board, which agreement must be in writing and signed by the
Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant
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to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed or traded, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan, shall
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at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Agreements. Options shall be evidenced by written agreements in such
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form as the Administrator shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
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approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange or national market system upon which the Common
Stock is then listed or traded.
<PAGE>
ANDROMEDIA, INC.
1996 STOCK OPTION PLAN
NOTICE OF GRANT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
Optionee's Name and Address: ____________________
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____________________
____________________
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Grant Number ____________________
Date of Grant ____________________
Vesting Commencement Date ____________________
Exercise Price per Share $___________________
Total Number of Shares Granted ____________________
Total Exercise Price $___________________
Type of Option: ____ Incentive Stock Option
____ Nonstatutory Stock Option
Term/Expiration Date: _____________________________
Vesting Schedule:
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This Option may be exercised, in whole or in part, in accordance with the
following schedule:
Twenty-five percent (25%) of the Shares subject to this Option shall vest
twelve (12) months after the Vesting Commencement Date, and one forty-eighth
(1/48th) of the Shares subject to the Option shall vest each month thereafter.
Termination Period:
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This Option may be exercised for three (3) months after termination of
employment or consulting relationship, or such longer period as may be
applicable upon death or Disability of
<PAGE>
Optionee as provided in the Plan, but in no event later than the Term/Expiration
Date as provided above.
<PAGE>
ANDROMEDIA, INC.
1996 STOCK OPTION PLAN
OPTION AGREEMENT
1. Grant of Option. Andromedia, Inc. (the "Company"), hereby grants to
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the Optionee (the "Optionee") named in the Notice of Grant, an option (the
"Option") to purchase the total number of shares of Common Stock (the "Shares")
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price") subject to the terms, definitions and
provisions of the 1996 Stock Option Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Option
Agreement.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. However, if this Option is intended to be an
Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code
Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term
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in accordance with the Vesting Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
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(a) This Option may not be exercised for a fraction of a Share.
(b) In the event of Optionee's death, disability or other
termination of the Optionee's Continuous Status as an Employee or Consultant,
the exercisability of the Option is governed by Sections 7, 8 and 9 below,
subject to the limitation contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price. This Option shall be deemed to be
exercised upon receipt by the Company of such written notice accompanied by the
Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock
<PAGE>
exchange or national market system upon which the Common Stock is then listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.
4. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan pro ceeds
required to pay the Exercise Price.
5. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
-2-
<PAGE>
7. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her Disability, Optionee may, but
only within twelve (12) months from the date of such termination (and in no
event later than the expiration date of the term of such Option as set forth in
the Notice of Grant) exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee is not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
8. Death of Optionee. In the event of termination of Optionee's
-----------------
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 10 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
9. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
11. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of an ISO. If this Option qualifies as an ISO, there
------------------
will be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(ii) Exercise of an NSO. There may be a regular federal income tax
------------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on
-3-
<PAGE>
the date of exercise over the Exercise Price. If Optionee is an Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise.
(iii) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and are disposed of at least two years after the Date of
Grant, any gain realized on disposition of the Shares will also be treated as
long-term capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within such one-year period or within two years
after the Date of Grant, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (1) the Fair Market
Value of the Shares on the date of exercise, or (2) the sale price of the
Shares.
(iv) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
ANDROMEDIA, INC.
By: ____________________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1996 STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and
-4-
<PAGE>
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions arising under the
Plan or this Option. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
Dated: ____________________ ____________________________________________
Optionee
Residence Address:
____________________________________________
____________________________________________
-5-
<PAGE>
EXHIBIT A
---------
ANDROMEDIA, INC.
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Andromedia, Inc.
1756 Lacasse Avenue, Suite 101
Walnut Creek, California 94596
Attention: Secretary
1. Exercise of Option. Effective as of today, ___________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
--------
_________ shares of the Common Stock (the "Shares") of Andromedia, Inc. (the
"Company") under and pursuant to the 1996 Stock Option Plan, as amended (the
"Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated
________, 19___ (the "Stock Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Stock Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have
-1-
<PAGE>
a right of first refusal to purchase the Shares on the terms and conditions set
forth in this Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee (the "Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee; and
(iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price (the "Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Administrator in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash, by check, by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before any Shares held by the Holder may
be sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
-2-
<PAGE>
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate upon the closing of the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
5. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends, Lock-Up Period and Stop-Transfer Orders.
------------------------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws
at the time of the issuance of the Shares:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
THE ISSUER OF THE SHARES (THE "ISSUER") HAS RECEIVED AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE WITH THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST
REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON
TRANSFEREES OF THE SHARES REPRESENTED HEREBY.
-3-
<PAGE>
(b) Lock-Up Period. Optionee hereby agrees that if so requested by
--------------
the Company or any representative of the underwriters (the "Managing
Underwriter") in connection with any registration of the offering of any
securities of the Company under the Securities Act, Optionee shall not sell or
otherwise transfer any Shares or other securities of the Company during the 180-
day period (or such longer period as may be requested in writing by the Managing
Underwriter and agreed to in writing by the Company) (the "Market Standoff
Period") following the effective date of a registration statement of the Company
filed under the Securities Act, provided, however, that such restriction shall
apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on behalf
of the Company to the public in an underwritten public offering under the
Securities Act. The Company may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such Market
Standoff Period.
(c) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instruc tions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(d) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator of the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on the Company and on Optionee.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
-4-
<PAGE>
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan, the Notice of Grant, and the Stock Option
----------------
Agreement are incorporated herein by reference. This Agreement, the Plan, the
Notice of Grant, the Stock Option Agreement and the Investment Representation
Statement (if applicable) constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof.
Submitted by: Accepted by:
OPTIONEE: Andromedia, Inc.
By:_______________________________
Its:______________________________
___________________________
(Signature)
Address: Address:
- ------- -------
___________________________ 1756 Lacasse Avenue, Suite 101
Walnut Creek, California 94596
___________________________
-5-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : ANDROMEDIA, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company and any other legend required
under then applicable state or federal securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted
-1-
<PAGE>
securities" acquired, directly or indirectly from the issuer thereof, in a non-
public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of the grant of
the Option to the Optionee, the exercise will be exempt from registration under
the Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") ninety (90) days thereafter (or such longer period
as any market stand-off agreement may require) the Securities exempt under Rule
701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including: (1) the resale being made through a broker in
an unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Exchange Act); and, in the case of an
affiliate, (2) the availability of certain public information about the Company,
(3) the amount of Securities being sold during any three month period not
exceeding the limitations specified in Rule 144(e), and (4) the timely filing of
a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters (the "Managing Underwriter") in connection
with any registration of the offering of any securities of the Company under the
Securities Act, Optionee shall not sell or otherwise transfer any Shares or
other securities of the Company during the 180-day period (or such longer period
of time as may be requested in writing by the Managing Underwriter and agreed to
in writing by the Company) (the "Market Standoff Period") following the
effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall only apply to the
first registration statement of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A under the Securities Act, or
some other registration exemption will be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities
and Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate
-2-
<PAGE>
in such transactions do so at their own risk. Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.
Signature of Optionee:
_________________________________________
Date:____________________________, 19____
-3-
<PAGE>
EXHIBIT 10.3
ANDROMEDIA, INC.
1997 STOCK PLAN
(as amended on October 1, 1997; as further amended on April 22, 1998 and April
21, 1999)
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
--------------------
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Andromedia, Inc., a California corporation.
-------
(h) "Consultant" means any person who is engaged by the Company or any
----------
Parent or Subsidiary to render consulting or advisory services to such entity.
(i) "Director" means a member of the Board of Directors of the Company.
--------
(j) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless
-1-
<PAGE>
reemployment upon expiration of such leave is guaranteed by statute or contract.
If reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
------
(q) "Option Agreement" means a written or electronic agreement
----------------
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
-2-
<PAGE>
(r) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are exchanged for Options with a lower exercise price.
(s) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(t) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(u) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1997 Stock Plan.
----
(w) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(x) "Section 16(b)" means Section 16(b) of the Securities Exchange
-------------
Act of 1934, as amended.
(y) "Service Provider" means an Employee, Director or Consultant.
----------------
(z) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
(aa) "Stock Purchase Right" means a right to purchase Common Stock
--------------------
pursuant to Section 11 below.
(bb) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is 3,270,000 Shares. The Shares may be authorized but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.
-3-
<PAGE>
4. Administration of the Plan.
--------------------------
(a) The Plan shall be administered by the Board or a Committee
appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities, the
Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each
such award granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, of any Option or
Stock Purchase Right granted hereunder. Such terms and conditions include, but
are not limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance criteria),
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or Stock Purchase Right or the
Common Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what circumstances an
Option may be settled in cash under subsection 9(f) instead of Common Stock;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be
-4-
<PAGE>
withheld. The Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined. All
elections by Optionees to have Shares withheld for this purpose shall be made in
such form and under such conditions as the Administrator may deem necessary or
advisable; and
(xi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
----------------------------------
and interpretations of the Administrator shall be final and binding on all
Optionees.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon any Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement; provided, however, that the term shall be no more than ten (10) years
from the date of grant thereof. In the case of an Incentive Stock Option granted
to an Optionee who, at the time the Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Option shall be five (5)
years from the date of grant or such shorter term as may be provided in the
Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
-5-
<PAGE>
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the time of grant
of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of the grant.
(B) granted to any other Service Provider, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price other than as required above pursuant to a merger or
other corporate transaction.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable according to the terms hereof at such times and
under such conditions as
-6-
<PAGE>
determined by the Administrator and set forth in the Option Agreement, but in no
case at a rate of less than 20% per year over five (5) years from the date the
Option is granted. Unless the Administrator provides otherwise, vesting of
Options granted hereunder shall be tolled during any unpaid leave of absence. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, such Optionee may exercise his or her Option
within such period of time as is specified in the Option Agreement (of at least
thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If such disability is not a "disability" as such term is defined
in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such
Incentive Stock Option shall automatically cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option on the day three
-7-
<PAGE>
months and one day following such termination. If, on the date of termination,
the Optionee is not vested as to his or her entire Option, the Shares covered by
the unvested portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified herein, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically of the terms, conditions and restrictions
related to the offer, including the number of Shares that such person shall be
entitled to purchase, the price to be paid, and the time within which such
person must accept such offer. The terms of the offer shall comply in all
respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason
-8-
<PAGE>
(including death or disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock purchase agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine, but in no case at a rate of less than 20% per year
over five years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
----------------------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities
of the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or
-9-
<PAGE>
Stock Purchase Right shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option or
Stock Purchase Right will terminate immediately prior to the consummation of
such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
13. Time of Granting Options and Stock Purchase Rights. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option or Stock Purchase Right is so granted within a reasonable time
after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
-10-
<PAGE>
(b) Shareholder Approval. The Board shall obtain shareholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
19. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee and to each individual who acquires Shares pursuant to the Plan,
not less frequently than annually during the period such Optionee or purchaser
has one or more Options or Stock Purchase Rights outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.
-11-
<PAGE>
ANDROMEDIA, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
The undersigned Optionee has been granted an Option to purchase Common Stock
of the Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number
---------------------------
Date of Grant
---------------------------
Vesting Commencement Date
---------------------------
Exercise Price per Share $
---------------------------
Total Number of Shares Granted
---------------------------
Total Exercise Price $
---------------------------
Type of Option: Incentive Stock Option
---
Nonstatutory Stock Option
---
Term/Expiration Date:
---------------------------
Vesting Schedule:
----------------
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to Optionee's continuing to be a Service
Provider on such dates.]
<PAGE>
Termination Period:
------------------
This Option shall be exercisable for [___________] months after Optionee
ceases to be a Service Provider. Upon Optionee's death or disability, this
Option may be exercised for such longer period as provided in the Plan. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants
---------------
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
------------------
(a) Right to Exercise. This Option shall be exercisable during its
-----------------
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by delivery
------------------
of an exercise notice in the form attached as Exhibit A (the "Exercise Notice")
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as may be required by the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by the aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
-2-
<PAGE>
3. Optionee's Representations. In the event the Shares have not been
--------------------------
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver to the Company his or
her Investment Representation Statement in the form attached hereto as Exhibit
B.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be by
-----------------
any of the following, or a combination thereof, at the election of the Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
-3-
<PAGE>
8. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
9. Tax Consequences. Set forth below is a brief summary as of the date of
----------------
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A
TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(b) Exercise of ISO Following Disability. If the Optionee ceases to
------------------------------------
be an Employee as a result of a disability that is not a total and permanent
disability as defined in Section 22(e)(3) of the Code, to the extent permitted
on the date of termination, the Optionee must exercise an ISO within three
months of such termination for the ISO to be qualified as an ISO.
(c) Exercise of Nonstatutory Stock Option. There may be a regular
-------------------------------------
federal income tax liability upon the exercise of a Nonstatutory Stock Option.
The Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
Employee or a former Employee, the Company will be required to withhold from
Optionee's compensation or collect from Optionee and pay to the applicable
taxing authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and refuse
to deliver Shares if such withholding amounts are not delivered at the time of
exercise.
(d) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and of at least two years after the Date of Grant, any
gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
-4-
<PAGE>
(e) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws but not
the choice of law rules of [State].
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
-5-
<PAGE>
OPTIONEE: ANDROMEDIA, INC.
- ------------------------------------ --------------------------------------
Signature By
- ------------------------------------ --------------------------------------
Print Name Title
- ------------------------------------
- ------------------------------------
Residence Address
-6-
<PAGE>
EXHIBIT A
---------
ANDROMEDIA, INC.
1997 STOCK PLAN
EXERCISE NOTICE
Andromedia, Inc.
545 Mission Street, Second Floor
San Francisco, CA 94105
Attention: Kent Godfrey:
1. Exercise of Option. Effective as of today, ___________, 19__, the
------------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Andromedia, Inc. (the
"Company") under and pursuant to the 1997 Stock Plan (the "Plan") and the Stock
Option Agreement dated ________, 19______ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the full
-------------------
purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as evidenced by
---------------------
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Shares shall be issued to the
Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee or
--------------------------------
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall deliver
---------------------------
to the Company a written notice (the "Notice") stating: (i) the Holder's bona
fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee
<PAGE>
("Proposed Transferee"); (iii) the number of Shares to be transferred to each
Proposed Transferee; and (iv) the bona fide cash price or other consideration
for which the Holder proposes to transfer the Shares (the "Offered Price"),
and the Holder shall offer the Shares at the Offered Price to the Company or
its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty (30)
----------------------------------
days after receipt of the Notice, the Company and/or its assignee(s) may, by
giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) Purchase Price. The purchase price ("Purchase Price") for the Shares
--------------
purchased by the Company or its assignee(s) under this Section shall be the
Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the option
-------
of the Company or its assignee(s), in cash (by check), by cancellation of all
or a portion of any outstanding indebtedness of the Holder to the Company (or,
in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the
manner and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee
at the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice, that any
such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands
of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall
be given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Section, and there shall be no further
transfer of such Shares except in accordance with the terms of this Section.
-2-
<PAGE>
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares upon the first sale of Common Stock of the
Company to the general public pursuant to a registration statement filed with
and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. Tax Consultation. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares
together with any other legends that may be required by the Company or by
state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE
ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF
THESE SHARES.
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
-3-
<PAGE>
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
8. Successors and Assigns. The Company may assign any of its rights under
----------------------
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
9. Interpretation. Any dispute regarding the interpretation of this Agreement
--------------
shall be submitted by Optionee or by the Company forthwith to the Administrator
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Administrator shall be final and binding on all parties.
10. Governing Law; Severability. This Agreement is governed by the internal
---------------------------
substantive laws but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated herein by
----------------
reference. This Agreement, the Plan, the Option Agreement and the Investment
Representation Statement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof, and may not be modified adversely to the Optionee's
interest except by means of a writing signed by the Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: ANDROMEDIA, INC.
____________________________ ___________________________________
Signature By
____________________________ ___________________________________
Print Name Its
Address: Address:
- ------- -------
____________________________ ___________________________________
____________________________ ___________________________________
___________________________________
Date Received
-4-
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: ANDROMEDIA, INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution"
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be unavailable
if Optionee's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to
register the Securities. Optionee understands that the certificate evidencing
the Securities will be imprinted with a legend which prohibits the transfer of
the Securities unless they are registered or such registration is not required
in the opinion of counsel satisfactory to the Company, a legend prohibiting
their transfer without the consent of the Commissioner of Corporations of the
State of California and any other legend required under applicable state
securities laws.
<PAGE>
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the
Optionee, the exercise will be exempt from registration under the Securities
Act. In the event the Company becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days
thereafter (or such longer period as any market stand-off agreement may
require) the Securities exempt under Rule 701 may be resold, subject to the
satisfaction of certain of the conditions specified by Rule 144, including:
(1) the resale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
the resale to occur not less than two years after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than three years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rules 144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or sales, and that such persons and their respective brokers who participate
in such transactions do so at their own risk. Optionee understands that no
assurances can be given that any such other registration exemption will be
available in such event.
Signature of Optionee:
_____________________________________
Date:__________________________, 19__
-2-
<PAGE>
EXHIBIT 10.4
ANDROMEDIA, INC.
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1999 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions
of substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Andromedia, Inc., a Deleware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
<PAGE>
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety (90)
days, unless reemployment upon expiration of such leave is guaranteed by statute
or contract. If reemployment upon expiration of a leave of absence approved by
the Company is not so guaranteed, on the 181/st/ day of such leave any Incentive
Stock Option held by the Optionee shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock
Option. Neither service as a Director nor payment of a director's fee by the
Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain times and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
-2-
<PAGE>
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Outside Director" means a Director who is not an Employee.
----------------
(x) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this 1999 Stock Plan, as amended and restated.
----
(z) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(aa) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(cc) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(dd) "Service Provider" means an Employee, Director or Consultant.
----------------
(ee) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ff) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(gg) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,000,000
-3-
<PAGE>
Shares, plus an annual increase to be added on the first day of the Company's
fiscal year beginning in fiscal year 2000 equal to the lesser of (i) 1,000,000
shares, (ii) 5% of the outstanding shares on such date, or (iii) an amount
determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Stock Purchase Right, shall not
be returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
-4-
<PAGE>
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
-5-
<PAGE>
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000
Shares, which shall not count against the limit, set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
-6-
<PAGE>
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six (6)
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
-7-
<PAGE>
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. Subject to
-------------------------------------------------
Section 13, if an Optionee ceases to be a Service Provider (but not in the event
of an Optionee's change of status from Employee to Consultant (in which case an
Employee's Incentive Stock Option shall automatically convert to a Nonstatutory
Stock Option on the ninety-first (91/st/) day following such change of status)
or from Consultant to Employee), such Optionee may, but only within such period
of time as is specified in the Option Agreement (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that Optionee was entitled
to exercise it at the date of such termination. In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for three (3)
months following
-8-
<PAGE>
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may, but only
within twelve (12) months from the date of such termination (and in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise his or her Option the extent the Option is vested on
the date of termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted
-9-
<PAGE>
Stock Purchase Agreement shall be the original price paid by the purchaser and
may be paid by cancellation of any indebtedness of the purchaser to the Company.
The repurchase option shall lapse at a rate determined by the Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, the number of shares of Common
Stock which have been authorized for issuance under the Plan but as to which no
Options or Stock Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right and the number of shares of Common Stock which may be added to
the Plan each fiscal year (pursuant to Section 3), as well as the price per
share of Common Stock covered by each such outstanding Option or Stock Purchase
Right, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may
-10-
<PAGE>
provide for an Optionee to have the right to exercise his or her Option until
ten (10) days prior to such transaction as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable. In addition, the Administrator may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an Option
or Stock Purchase Right shall lapse as to all such Shares, provided the proposed
dissolution or liquidation takes place at the time and in the manner
contemplated. To the extent it has not been previously exercised, an Option or
Stock Purchase Right will terminate immediately prior to the consummation of
such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
-11-
<PAGE>
(b) Stockholder Approval. The Company shall obtain stockholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<PAGE>
EXHIBIT 10.5
ANDROMEDIA, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Andromedia, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Andromedia, Inc. and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds ninety (90)
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the ninety-first (91/st/) day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before October 30,
1999. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
-2-
<PAGE>
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
October 30, 1999. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
-3-
<PAGE>
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent (15%) of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the
-4-
<PAGE>
Company's Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the Participant's
account as of the Exercise Date by the applicable Purchase Price; provided that
in no event shall an Employee be permitted to purchase during each Purchase
Period more than 5,000 shares of the Company's Common Stock (subject to any
adjustment pursuant to Section 19), and provided further that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
The Board may, for future Offering Periods, increase or decrease, in its
absolute discretion, the maximum number of shares of the Company's Common Stock
an Employee may purchase during each Purchase Period of such Offering Period.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The option shall expire
on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the
number of shares with respect to which options are to be exercised may exceed
(i) the number of shares of Common Stock that were available for sale under the
Plan on the Enrollment Date of the applicable Offering Period, or (ii) the
number of shares available for sale under the Plan on such Exercise Date, the
Board may in its sole discretion (x) provide that the Company shall make a pro
rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
stockholders subsequent to such Enrollment Date.
-5-
<PAGE>
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all, but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or she
shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares, plus an annual increase to be added on the first day of
the Company's fiscal year beginning in fiscal year 2000 equal to the lesser of
(i) 500,000 shares, (ii) 2% of the outstanding shares on such date, or (iii) an
amount determined by the Board. If, on a given Exercise Date, the number of
shares with respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the
-6-
<PAGE>
shares remaining available for purchase in as uniform a manner as shall be
practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
-7-
<PAGE>
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the Reserves and the number of shares of Common
Stock which may be added to the Plan each fiscal year (pursuant to Section 13),
the maximum number of shares each participant may purchase each Purchase Period
(pursuant to Section 7), as well as the price per share and the number of shares
of Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall
-8-
<PAGE>
end on the New Exercise Date. The New Exercise Date shall be before the date of
the Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain stockholder approval in such a
manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
-9-
<PAGE>
Such modifications or amendments shall not require stockholder approval or
the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
ANDROMEDIA, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the Andromedia, Inc.
1999 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and
subscribes to purchase shares of the Company's Common Stock in accordance
with this Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price
<PAGE>
which I paid for the shares. I hereby agree to notify the Company in
---------------------------------------
writing within 30 days after the date of any disposition of my shares and I
---------------------------------------------------------------------------
will make adequate provision for Federal, state or other tax withholding
------------------------------------------------------------------------
obligations, if any, which arise upon the disposition of the Common Stock.
-------------------------------------------------------------------------
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)__________________________________________________________
(First) (Middle) (Last)
______________________________________ _____________________________________
Relationship
_____________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: _______________________________
Employee's Address: _______________________________
_______________________________
_______________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ _______________________________________
Signature of Employee
_______________________________________
Spouse's Signature (If beneficiary other
than spouse)
-3-
<PAGE>
EXHIBIT B
---------
ANDROMEDIA, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Andromedia, Inc.
1999 Employee Stock Purchase Plan that began on ____________, ______ (the
Enrollment Date") hereby notifies the Company that, he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
_______________________________________
_______________________________________
_______________________________________
Signature:
_______________________________________
Date: _________________________________
<PAGE>
Exhibit 10.6
Office Lease
Dated February 5, 1998
Between the Registrant
and Ahdi Nashashibi
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
1. Premises............................................................. 3
2. Term................................................................. 3
3. Rent, Additional Charges and Security Deposit........................ 4
4. Tenant Share of Increased Costs...................................... 5
5. Construction In the Premises......................................... 5
6. Use and Compliance with Law.......................................... 5
7. Alterations and Additions............................................ 6
8. Repairs.............................................................. 6
9. Liens................................................................ 6
10. Subordination and Attornment......................................... 7
11. Inability to Perform................................................. 8
12. Damage or Destruction................................................ 8
13. Eminent Domain....................................................... 9
14. Assignment and Subletting............................................ 10
15. Services and Utilities............................................... 11
16. Default and Remedies................................................. 12
17. Indemnity, Insurance and Subrogation................................. 15
18. Entry by Landlord.................................................... 17
19. Notices.............................................................. 17
20. No Waiver............................................................ 18
21. Estoppel Certificates................................................ 18
22. Rules and Regulations................................................ 19
23. Tax on Tenant's Personal Property.................................... 19
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
24. Authority............................................................ 19
25. Miscellaneous........................................................ 19
Exhibit A............................................................ 22
Exhibit B............................................................ 23
Exhibit C............................................................ 24
Exhibit D............................................................ 25
Exhibit E............................................................ 28
Addendum 1-7......................................................... 30
</TABLE>
-ii-
<PAGE>
818 MISSION STREET
OFFICE LEASE
Basic Lease Information
<TABLE>
<CAPTION>
<S> <C> <C>
Lease Date: February 5, 1998
Landlord: Ahdi Nashashibi
Address of Landlord: 99 Magellen
San Francisco, CA 94116
Tenant: Andromedia, Inc.
a California corporation
Address of Tenant:
Building: 818 Mission Street
San Francisco, CA 94105
Section 1.1 Floor(s) and or Suite(s): Second & Third Floors, Suites 200 & 300
Rentable Area of Premises: Approximately 11,000 rentable square feet
Approximately 5,500 rentable square feet
per floor
Section 2.1 Commencement Date: May 1, 1998
Expiration Date: April 30, 2003
Section 3.1 Monthly Rent: Months 1-36 $16,500.00 per month
Months 37-60 $18,333.33 per month
See Exhibit B
Section 3.2 Advance Rent: $100,000.00
Section 3.5 Security Deposit: $100,000.00 Letter of Credit -See Exhibit F
Section 4.1(a) Tenant's Percentage Share: 40%
Section 4.1(b) Base Year: 1998
Section 5.1 Tenants Share of Improvement Costs: See Exhibit C
Section 17.2 Insurance: $2,000,000.00
Section 26.14 Broker: Walker Emerald, Inc.
Cushman Realty Corporation
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Exhibits Attached: Exhibit A - Floor Plans
Exhibit B - Monthly Premises Rent
Exhibit C - Tenant Improvements
Exhibit D - Rules and Regulations
Exhibit E - Option to Extend Term: One (1) five (5) year term,
Nine (9)months advance notice, Fair Market Value, not
less than last years rental
Exhibit F - Security Deposit/Letter of Credit
Addenda Attached: Addendum 1: 1-7
</TABLE>
The foregoing Basic Lease Information is hereby incorporated into and made a
part of this Lease. Each reference in this Lease to any of the Basic Lease
Information shall mean the respective Information herein above set forth and
shall be construed to incorporate all of the terms provided under the particular
Lease section pertaining to such information. In the event of any conflict
between any Basic Lease Information and the Lease, the latter shall control.
2
<PAGE>
STANDARD OFFICE LEASE
THIS LEASE is made and entered into this 5th day of February, 1998 by and
between Ahdi Nashashibi, an individual (herein called "Landlord"), and
Andromedia, Inc., a California corporation (herein called "Tenant").
W I T N E S S E T H:
Landlord and Tenant hereby covenant and agree as follows:
1. Premises
1.1 Upon and subject to the terms, covenants, and conditions hereinafter
set forth, Landlord leases to Tenant, and Tenant hires from Landlord, those
premises (herein called the "Premises") in the building commonly known as 818
Mission Street (the "Building"), comprising the area substantially as shown on
the floor plan or plans that have been initialed by Landlord and Tenant and are
attached hereto as Exhibit A. The Premises contain the rentable area specified
---------
in the Basic Lease information and are located on the floor(s) of the Building
that is (are) specified in the Basic Lease Information. The Building contains
five occupied floors ("Floors 1-5") plus a basement floor of storage and
auxiliary use. The Building, the land upon which the Building stands, together
with utilities, facilities, drives, walkways and other amenities appurtenant to
or servicing the Building, are herein sometimes collectively called the "Real
Property."
1.2 The purpose of attached Exhibit A is to show the approximate location
---------
of the Premises in the Building only, and such Exhibit is not meant to
constitute an agreement as to the construction of the Premises, the rentable
area thereof, or the specific location of the common areas or the elements
thereof or of the access ways to the Premises or the Building.
2. Term
2.1 The Premises are leased for a term (herein called the "Term") which
commences on the "Commencement Date" and terminates on the "Expiration Date,"
which dates are collectively specified in the Basic Lease Information, unless
the Term shall sooner terminate as hereinafter provided. Notwithstanding the
foregoing, if Landlord, for any reason whatsoever, is unable to deliver
possession of the Premises to Tenant on or prior to the Commencement Date set
forth in the Basic Lease Information, this Lease shall not be void or voidable,
nor shall Landlord be liable to Tenant for any loss or damage resulting
therefrom, but in that event, Rent and Additional Charges (as defined in Article
3) shall be abated for the period of time between the Commencement Date set
forth in the Basic Lease Information and the time when Landlord can deliver
possession as provided in Section 5.1 below. No delay in delivery of possession
shall operate to extend the Expiration Date beyond the date specified in the
Basic Lease Information.
2.2 In the event that Tenant takes occupancy of the Premises prior to the
Commencement Date, Tenant's obligations, including the obligation to pay rent,
under this Lease shall commence upon such occupancy, and shall continue until
the Expiration Date.
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2.3 Notwithstanding anything to the contrary herein contained, in the
event that possession of the Premises has not been delivered to Tenant within
one hundred eighty (180) days after the Commencement Date, then this Lease shall
be automatically terminated without any further act of either party hereto and
both parties hereto shall be released from all obligations hereunder.
3. Rent, Additional Charges and Security Deposit
3.1 Tenant shall pay to Landlord during the Term the monthly rent
specified in Exhibit B (referred to herein as "Rent"), which sums shall be
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payable by Tenant on or before the first day of each month, in advance, at the
address specified for Landlord in the Basic Lease Information, or such other
place as Landlord shall designate, without any prior demand therefor and without
any deductions or set off whatsoever. If the Commencement Date should occur on
a day other than the first day of a calendar month, or the Expiration Date
should occur on a day other than the last day of a calendar month, then the
rental for such fractional month shall be prorated upon a daily basis based upon
a thirty (30) day calendar month.
3.2 Upon the execution hereof, Tenant shall pay to Landlord the sum of
"Advance Rent" specified in the Basic Lease Information. Such Advance Rent
shall be applied to the first Rent due pursuant to Section 3.1.
3.3 Tenant shall pay to Landlord all charges and other amounts specified
in this Lease (herein called "Additional Charges"), including, without
limitation, any increase in the Rent resulting from the provisions of Article 4
hereof. All such amounts and charges shall be payable to Landlord at the place
where the Rent is payable. Landlord shall have the same remedies for a default
in the payment of Additional Charges as for a default in the payment of Rent.
3.4 If Tenant shall fail to pay any Rent or Additional Charges within ten
(10) days after the date same are due and payable, such unpaid amounts shall be
subject to a late payment charge equal to five percent (5%) of such unpaid
amounts in each instance to cover Landlord's additional administrative costs
resulting from Tenant's failure. Such late payment charge shall be paid to
Landlord together with such unpaid amounts. Any payment to Landlord following
the service upon Tenant of a three (3) day notice to pay Rent or quit shall be
in the form of a certified or cashier's check.
3.5 By execution of this Lease, Landlord acknowledges receipt of Tenant's
security deposit (the "Security Deposit") in the amount set forth in the Basic
Lease Information. The Security Deposit shall be held by Landlord as security
for Tenant's faithful performance of all terms, covenants and conditions of this
Lease. Tenant agrees that Landlord may, without waiving any of Landlords other
rights and remedies under this Lease upon the occurrence of any of the events of
default described in Article 16 hereof, apply the Security Deposit to remedy any
failure by Tenant to repair or maintain the Premises or to perform any other
terms, covenants or conditions contained herein. If Tenant has kept and
performed all terms, covenants and conditions of this Lease during the Term,
Landlord will within thirty (30) days following the termination hereof return
said sum to Tenant or the last permitted assignee of Tenant's interest
hereunder. Should Landlord use any portion of the Security Deposit to cure any
default by Tenant hereunder, Tenant shall within five (5)
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days after written demand therefor deposit cash with Landlord sufficient to
restore the Security Deposit to its original-amount. Landlord shall not be
required to keep the Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest thereon.
4. Tenant Share of Increased Costs SEE ADDENDUM 2
5. Construction In the Premises
5.1 Prior to the Commencement Date, Landlord will substantially complete
work in the Premises as set forth in Exhibit C attached hereto and made a pan
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hereof (such work being herein called "Tenant Improvements"). Substantial
completion and delivery of possession of the Premises to Tenant shall be deemed
to have occurred when Landlord delivers to Tenant (1) a Certificate of
Substantial Completion furnished by Landlord's architect; and (ii) a temporary
certificate of occupancy or similar governmental approval. It is agreed that by
occupying the Premises, Tenant acknowledges that the Premises are in the
condition called for hereunder, subject to normal punch list items specified by
Tenant to Landlord in writing within ten (10) days after the date of such
occupancy. The cost of Tenant Improvements shall be paid by Landlord and Tenant
as set forth in Exhibit C. SEE ADDENDUM 3.
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5.2 Landlord reserves the right, at any time and from time to time, to
make alterations, additions, repairs or improvements to or in or to decrease the
size or area of all or any part of the Building, the fixtures and equipment
therein and the arcades, plazas, and walkways outside the Building, including
without limitation the heating, ventilating, air conditioning, plumbing,
electrical, fire protection, life safety, security, and other mechanical,
electrical, and communications systems of the Building (herein called the
"Building Systems"), and the common areas in all other parts of the Building,
and to change the arrangement and/or location of entrances or passageways, doors
and doorways, corridors, elevators, stairs, toilets, and other public parts of
the Building; provided, however, that any such alterations or additions shall
not materially diminish the quality or quantity of services being provided to
the Premises or adversely affect the functional utilization of the Premises.
6. Use and Compliance with Law
6.1 Tenant shall use the Premises for general office purposes and shall
not use or permit the Premises to be used for any other purpose without the
prior written consent of Landlord. Tenant shall not do or permit anything to be
done in or about the Premises nor bring or keep anything therein which will in
any way increase the existing rate of or affect any fire or other insurance upon
the Building or any of its contents, or cause cancellation of any insurance
policy covering said Building or any part thereof of any of its contents.
Tenant shall not do Or permit anything to be done in or about the Premises which
will in any way obstruct or interfere with the rights of other tenants or
occupants of the Building or injure or annoy them or use or allow the Premises
to be used for any improper, immoral, unlawful or objectionable purpose, nor
shall Tenant cause, maintain or permit any nuisance in, on or about the
Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises.
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6.2 Tenant, at Tenant's cost and expense, shall comply with (a) all laws,
orders, regulations, and directions of federal, state, county and municipal
authorities that impose any duty upon Landlord or Tenant with respect to the
Premises or the use or occupancy thereof, and (b) all reciprocal casement
agreements and declarations of conditions, covenants, and restrictions that are
recorded against and affect the Building or the Premises; provided, however,
that Tenant shall not be required to make any structural alterations in order to
comply unless such alterations shall be necessitated or occasioned, in whole or
in part, by the acts, omissions or negligence of Tenant or any person claiming
through or under Tenant, or any of their servants, employees, contractors,
agents, visitors or licensees. Any work or installations made or performed by
or on behalf of Tenant or any person claiming through or under Tenant pursuant
to die provisions of this Article 6 shall be made in conformity with, and
subject to the provisions of Section 9.2 hereof.
7. Alterations and Additions SEE ADDENDUM 4.
8. Repairs
8.1 Tenant shall, at all times during the Term hereof and at Tenant's sole
cost and expense, keep the Premises and every part thereof in good condition and
repair. Tenant hereby waves all rights to make repairs at the expense of
Landlord or in lieu thereof to vacate the Premises as provided by California
Civil Code Sections 1941 and 1942 or any other law, statute or ordinance now or
hereafter in effect. Tenant shall at the end of the term hereof surrender to
Landlord the Premises and all Alterations in the same condition as when
received, ordinary wear and tear and damage by fire, earthquake, act of God or
the elements excepted. Landlord has no obligation and has made no promise to
alter, remodel, improve, repair, decorate or paint the Premises or any part
thereof, except as specifically set forth elsewhere in this Lease.
8.2 Landlord shall repair and maintain the structural portions of the
Building, including the plumbing, heating, air conditioning, ventilating and
electrical systems, installed or furnished by Landlord, unless the necessity for
such maintenance and repairs is in any way caused by the act, neglect, fault or
omission of any duty by Tenant, its agents, servants, employees or invitees, in
which case Tenant shall pay to Landlord the reasonable cost of such maintenance
and repairs. Landlord shall not be liable for any failure to make any such
repairs or to perform any maintenance unless Landlord receives written notice of
the need for such repairs or maintenance from and fails to make such repairs or
perform such maintenance for reasonable period of time following such notice by
Tenant. There shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations or improvements in or to any portion of the
Building or the Premises or in or to fixtures, appurtenances and/or equipment
therein.
9. Liens
9.1 Tenant shall keep the Premises free from any liens arising out of any
work performed, material furnished, or obligations incurred by or for Tenant or
any person or entity claiming through or under Tenant. In the event that Tenant
shall not, within ten (10) days after the imposition of any such lien, cause the
same to be released of record by payment or posting of a proper bond, Landlord
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shall have, in addition to all other remedies provided herein and by law, the
right but not the obligation to cause the same to be released by such means as
it shall deem proper, including payment of the claim giving rise to such lien.
All such sums paid by Landlord and all expenses incurred by it in connection
therewith shall be considered Additional Charges and shall be payable to it by
Tenant on demand. Landlord shall have the right at all times to post and keep
posted on the Premises any notices permitted or required by law, or that
Landlord shall deem proper, for the protection of Landlord, the Premises, the
Building, and any other party having an interest therein, from mechanic's and
materialmen's liens, and Tenant shall give to Landlord at least ten (10)
business days' prior notice of commencement of any construction on the Premises.
10. Subordination and Attornment
10.1 Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, Tenant agrees that this
Lease shall be subject and subordinate at all times to (a) all ground leases or
underlying leases that may now exist or hereafter be executed affecting the
Building or the Real Property or both, and (b) the lien of any mortgage or deed
of trust that may now exist or hereafter be executed in any amount for which the
Building, the Real Property, ground leases or underlying leases, or Landlord's
interest or estate in any of said items is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
conveyance in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination of any ground lease, underlying lease or lien
to this Lease, attorn to and become the Tenant of the successor in interest to
Landlord; provided that such successor in interest shall recognize all of
Tenant's rights hereunder. Tenant covenants and agrees to execute and deliver,
upon demand by Landlord and in the form reasonably requested by Landlord, any
additional documents evidencing the priority or subordination of this Lease with
respect to any such ground leases or underlying leases or the lien of any such
mortgage or deed of trust.
10.2 Nondisturbance. Landlord shall use its best efforts to obtain from
the holder of any encumbrance heretofore or hereafter placed against the
Premises or the Building a nondisturbance agreement in recordable form,
providing that in the event of any foreclosure, sale under a power of sale,
ground or master lease termination, or transfer in lieu of any of the foregoing,
or the exercise of any other remedy under any such Encumbrance:
(a) Tenant's use, possession, and enjoyment of the Premises shall not be
disturbed and this Lease shall continue in full force and effect as long as
Tenant is not in default; and
(b) This Lease shall automatically become a lease directly between any
successor to Landlord's interest, as landlord, and Tenant, as if that successor
were the landlord originally named in the Lease.
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11. Inability to Perform
11.1 If Landlord is unable to perform, or is delayed in performing, any
construction, installations, decorations, repairs, alterations, additions or
improvements, under this Lease, or is unable to fulfill or is delayed in
fulfilling any of Landlord's other obligations under this Lease, Including the
furnishing of utilities or other services pursuant to Article 15, by reason of
acts of God, governmental actions, accidents, breakage, repairs, strikes,
lockouts, other labor disputes, limitation, curtailment, rationing or
restrictions on the use of utilities or materials, or any other reason beyond
Landlord's reasonable control, then no such in-ability or delay by Landlord
shall constitute an actual or constructive eviction, in whole or in part, or
entitle Tenant to any abatement or diminution of Rent or Additional Charges, or
relieve Tenant from any of its obligations under this Lease, or impose any
liability upon Landlord or its agents by reason of inconvenience, annoyance,
interruption, injury or loss to or interference with Tenant's business or use
and occupancy or quiet enjoyment of the Premises or any loss or damage
occasioned thereby. Provided however, that the foregoing shall not be deemed to
extend the time at which tenant, pursuant to any express provisions of this
lease, is entitled to an abatement of rent or to terminate this lease. Tenant
hereby waives and releases any right to terminate this Lease under Section
1932(l) of the California Civil Code or under any similar law, statute or
ordinance now or hereafter in effect.
12. Damage or Destruction
12.1 If (i) the Premises are damaged by fire or other casualty for which
insurance coverage is available to Landlord, (ii) insurance proceeds in an
amount sufficient to repair such casualty are made available to Landlord and
(iii) in Landlord's judgement such repairs can be completed within one hundred
eighty (180) days after the date of such damage, then Landlord shall repair such
damage, and this Lease shall remain in full force and effect except that Tenant
shall be entitled to a reduction of Rent and Additional Charges while such
repairs are being made in the proportion that the rentable area of the Premises
tendered untenantable (as pertains to Tenants specific business for particular)
by such damage bears to the total rentable area of the Premises. Within thirty
(30) days after the date of such damage, Landlord shall notify Tenant whether or
not such repairs can be completed within one hundred eighty (180) days after the
date of such damage, and Landlord's determination shall be binding on Tenant.
If (x) such damage is caused by an uninsured casualty, or (y) such damage is
caused by and uninsured casualty for which insurance proceeds sufficient to
repair such damage are not made available to Landlord and/or (z) such repairs
cannot be made within one hundred eighty (180) days after the date of such
damage, in Landlord's judgement as determined above, then, in any such event,
Landlord shall have the option either to (a) notify Tenant of Landlord's
intention to repair such damage and diligently prosecute such repairs to
completion, in which event this Lease shall continue in full force and effect
and the rent and Additional Charges shall be reduced as provided herein, or (b)
notify Tenant of Landlord's election to terminate this Lease by giving such
notice of termination on the date specified in such notice, and the Rent and
Additional Charges, proportionately reduced as provided above, shall be paid up
to the date of such termination, with Landlord refunding to Tenant any Rent and
Additional Charges previously paid for any period of time subsequent to such
date. If Landlord elects or is required to repair the Premises or the Building
pursuant to this Article 12, the repairs to be made by Landlord shall not
include, and
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Landlord shall not be required to repair or replace any fixtures, equipment, for
loss or use of all or any part of the Premises, for any damage to Tenant's
business or profits, or for any disturbance to Tenant caused by any casualty or
the restoration of the Premises following such casualty. A total destruction of
the Building shall automatically terminate this Lease.
12.2 The provisions of this Lease, including this Article 12, constitute an
express agreement between Landlord and Tenant with respect to any and all damage
to, or destruction of, all or any part of the Premises or the Building, and any
statute or regulation of the State of California, including, without limitation,
Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any
rights or obligations concerning damage or destruction in the absence of an
express agreement between the parties, and any other statute or regulation, now
or hereafter in effect, shall have no application to this Lease or any damage or
destruction to all or any part of the Premises or the Building.
13. Eminent Domain
13.1 If all or any part of the Premises is condemned or taken in any manner
for public or quasi-public use, including, but not limited to, a conveyance or
assignment in lieu of a condemnation or taking, this Lease shall terminate as to
the part so taken on the earlier to occur of the date of the vesting of title or
the date of dispossession of Tenant as a result of such condemnation or taking,
and either Landlord or Tenant shall have the right to terminate this Lease as to
the balance of the Premises by written notice to the other party within thirty
(30) days if the portion of the Premises taken shall be of such extent and
nature as to render the balance of the Premises untenantable and unusable by
Tenant if any part of the Building other than the Premises is condemned or
otherwise taken so as to require in the opinion of Landlord, a substantial
alteration or reconstruction of the remaining portions thereof, this Lease may
be terminated by Landlord, as of the earlier of the date of the vesting of
title, or the date of dispossession as a result of such condemnation or taking,
by written notice to Tenant within sixty (60) days following notice to Landlord
of the date on which said vesting or dispossession will occur. If the Lease is
not so terminated, Landlord shall proceed to repair and reconstruct the
remaining portion of the Building to the extent insurance and condemnation
proceeds are available to do so.
13.2 Landlord shall be entitled to the entire award in any condemnation
proceeding or other proceeding, including, without limitation, any award made
for the value of the leasehold estate created by this Lease. No award for any
partial or entire taking shall be apportioned, and Tenant hereby assigns to
Landlord any award that may be made in such condemnation or other taking,
together with any and all rights of Tenant now or hereafter arising in or to
same or any part thereof, provided, however, that nothing contained herein shall
be deemed to give Landlord any interest in or to require Tenant to assign to
Landlord any award made to Tenant specifically for its relocation expenses or
the taking of personal property and fixtures belonging to Tenant.
13.3 In the event of a partial condemnation or other taking that does not
result in a termination of this Lease as to the entire Premises, the Rent and
Additional Charges shall abate in the proportion that the rentable area of the
Premises taken by such condemnation or other taking bears to the total rentable
area of the Premises.
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13.4 If all or any portion of the Premises is condemned or otherwise taken
for public or quasi-public use for a limited period of time not to exceed 180
days, this Lease shall remain in full force and effect and Tenant shall continue
to perform all of the terms, conditions and covenants of this Lease; provided,
however, that the Rent and Additional Charges shall abate during such limited
period in the proportion that the rentable area of the Premises rendered
untenantable and unusable as a result of such condemnation or other taking bears
to the total rentable area of the Premises. Landlord shall be entitled to
receive the entire award made in connection with any such temporary condemnation
or other taking.
13.5 Tenant hereby waives and releases any right to terminate this Lease
under Sections 1265.120 and 1265,130 of the California Code of Civil Procedure,
or under any similar law, statute or ordinance now or hereafter in effect.
14. Assignment and Subletting
14.1 Tenant shall not sell, assign, encumber, pledge or otherwise transfer
or hypothecate all of its interest in or rights with respect to the Premises or
Tenant's leasehold estate hereunder (collectively, "Assignment"), or permit all
or any portion of the Premises to be occupied by anyone other than Tenant or
sublet all or any portion of the Premises or transfer a portion of its interest
in or rights with respect to Tenant's leasehold estate hereunder (collectively,
"Sublease") without Landlord's prior written consent in each instance, which
consent shall not be unreasonably withheld.
14.2 If Tenant desires at any time enter into an Assignment of this Lease
or a Sublease of the Premises or any portion thereof, it shall first give
written notice to Landlord of its desire to do so, which notice shall contain
(a) the name of the proposed assignee, subtenant or occupant, (b) the nature of
the proposed assignee's, subtenant's or occupant's business to be carried on in
the Premises, (c) the terms and provisions of the proposed Assignment or
Sublease and (d) such financial information as Landlord may reasonably request
concerning the proposed assignee, subtenant or occupant. At any time within
fifteen (15) days after Landlord's receipt of the notice specified in this
Section 14.2, Landlord may by written notice to Tenant either consent to the
Sublease or Assignment or disapprove die Sublease or Assignment. As a condition
for granting its consent to any Assignment or Sublease, Tenant shall pay to
Landlord one hundred percent (100%) of the amount by which all sums payable to
Tenant in connection with such Assignment or Sublease (after deducting leasing
commissions, tenant improvement costs and similar expenses payable in connection
with such Assignment or Sublease) exceed the Rent and Additional Charges payable
by Tenant to Landlord hereunder (or a proportionate amount thereof representing
the portion of the Premises subject to a Sublease if less than the entire
Premises is subject to a Sublease).
14.3 No consent by Landlord to any Assignment or Sublease by Tenant shall
relieve Tenant of any obligation to be performed by Tenant under this Lease,
whether arising before or after the Assignment or Sublease. The consent by
Landlord to any Assignment or Sublease shall not relieve Tenant from the
obligation to obtain Landlord's express written consent to any other Assignment
or Sublease. Any Assignment or Sublease that is not in compliance with this
Article 14 shall be void and, at the option of Landlord, shall constitute a
material default by Tenant under this
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Lease. The acceptance of Rent or Additional Charges by Landlord from a proposed
assignee or sublessee shall not constitute the consent to such Assignment or
Sublease by Landlord.
14.4 Any sale or other transfer of Tenant's stock, including by
consolidation, merger or reorganization, of a majority of the voting stock of
Tenant, if Tenant is a corporation, or any sale or other transfer of a majority
of the partnership interests in Tenant, if Tenant is a partnership, shall not be
deemed an Assignment for purposes of this Article 14 provided that the net worth
of Transferee is equal to or greater than that of Tenant following such
transfer. In no event shall only public offering, private offering, or sale of
Tenant's stock over a public exchange constitute an Assignment under this lease.
14.5 Each assignee, sublessee, or other transferee, other than Landlord,
shall assume, a14.5, all obligations of Tenant under this Lease and shall be and
remain liable jointly and severally with Tenant for the payment of Rent and
Additional Charges, and for the performance of all the terms, c agreements
herein contained on Tenant's part to be performed for the Term; provided,
however, that the assignee, sublessee, mortgagee, pledgee or other transferee
shall be liable to Landlord for rent only in the amount set forth in the
Assignment or Sublease. No Assignment shall be binding on Landlord unless the
assignee of Tenant shall deliver to Landlord a counterpart of the Assignment and
an instrument in recordable form that contains a covenant of assumption by the
assignee satisfactory in substance and form to Landlord, consistent with the
requirements of this Section 14.5, but the failure or refusal of the assignee to
execute such instrument of assumption shall not release or discharge the
assignee from its liability as set forth above.
14.6 In the event Tenant shall assign this Lease or sublet the Premises or
shall request the consent of Landlord to any assignment or subletting, then
Tenant shall pay Landlord's reasonable attorney's fees incurred in connection
therewith.
15. Services and Utilities
15.1 Landlord shall furnish to the Building during the period from 8:00
a.m. to 6:00 p.m., Monday through Friday, except for New Year's Day,
Washington's Birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving,
Christmas and such other holidays as are generally recognized in San Francisco
(such time periods exclusive of holidays being referred to herein as "Normal
Business Hours"), (a) heating, air conditioning and ventilation in amounts
required for the use and occupancy of the Premises for general office purposes,
(b) elevator service, (c) electric current in amounts required for normal office
lighting and for normal fractional horsepower office machines, and (d) water for
lavatory and drinking purposes. It is understood that elevator service,
electric current and water will be available at all times, subject to Sections
15.2,15.3 and 15.4 hereof. Landlord shall wash all exterior windows not less
than twice per year.
15.2 Tenant shall contract and pay for all utilities and janitorial
services for the Premises including, but not limited to, heating, air
conditioning, ventilation and lighting.
15.3 In the event any governmental entity promulgates or revises any
statute, ordinance or building, fire or other code or imposes mandatory or
voluntary controls or guidelines on Landlord or
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the Building or any part thereof, relating to the use or conservation of energy,
water, gas, light or electricity, or the reduction of automobile or other
emissions, or the provision of any other utility or service provided with
respect to this Lease, or in the event Landlord is required or elects to make
alterations to the Building in order to comply with such mandatory or voluntary
controls or guidelines, Landlord may, in its sole discretion, comply with such
mandatory or voluntary controls or guidelines or make such alterations to the
Building. Such compliance and the making of such alterations shall in no event
entitle Tenant to any damages, relieve Tenant of the obligation to pay the full
Rent and Additional Charges reserved hereunder or constitute or be construed as
a constructive or other eviction of Tenant.
15.4 Without the prior written consent of Landlord, which Landlord may
refuse in its sole discretion, Tenant shall not (i) use any apparatus or device
in the Premises, including, without limitation, electronic data processing
machines, punch card machines and machines using current in excess of 110 volts,
which will in any way increase the amount of electricity or water usually
furnished or supplied for use of the Premises as general office space, or (ii)
connect any apparatus, machine or device with electric current except through
existing electrical outlets in the Premises. If Tenant shall utilize electric
current in excess of that usually supplied for use of the Premises as general
office space, Landlord shall have the right to install an electric current meter
in the Premises to measure the amount of electric current consumed on the
Premises. The cost of any such meter and separate conduit, wiring or panel
requirements and the installation, maintenance and repair thereof shall be paid
for by Tenant, and Tenant agrees to reimburse Landlord promptly upon demand for
all electric current measured by said meter at the rates charged for such
services by the local public utility, plus any additional expense incurred by
Landlord in accounting for electric current so consumed. If a separate meter is
not installed, the amount of excess electric consumption in the Premises and the
monthly cost thereof shall be estimated by the utility company or an electrical
engineer and Tenant shall pay such excess to Landlord on a monthly basis. If
the temperature otherwise maintained in any portion of the Premises by the
heating, air conditioning or ventilation systems is affected as a result of (a)
any lights, machines or equipment (including without limitation electronic data
processing machines) used by Tenant in the Premises, or (b) the occupancy of the
Premises by more than one person per one hundred seventy-five (175) square feet
of rentable area therein, Landlord shall have the right to install any machinery
and equipment that Landlord reasonably deems necessary to restore temperature
balance, including, without limitation, modifications to the standard air
conditioning equipment, and the cost thereof, including the cost of installation
and any additional cost of operation and maintenance incurred thereby, shall be
paid by Tenant to Landlord upon demand.
16. Default and Remedies
16.1 The occurrence of any one or more of the following events shall
constitute a default and breach of this Lease by Tenant:
(a) The abandonment of the Premises by Tenant.
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(b) The failure of Tenant to make any payment of Rent or any other sum or
payment due from Tenant hereunder within ten (10) days after delivery of a
written demand from Landlord therefor.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease, other than described in Section 16.1(b)
above, where such failure shall continue for a period of twenty (20) days after
written notice thereof by Landlord to Tenant; provided, however, that if the
nature of Tenant's default is such that more than twenty (20) days are
reasonably required for its cure, then Tenant shall not be deemed to be in
default if Tenant commences such cure within said twenty (20) day period and
thereafter diligently prosecutes such cure to completion.
(d) The making by Tenant of any general assignment or general arrangement
for the benefit of creditors; or the filing by or against Tenant of a petition
to have Tenant adjudged as bankrupt, or a petition of reorganization or
arrangement under any law relating to bankruptcy (unless in the case of such
petition filed against Tenant, the same is dismissed within sixty (60) days); or
the appointment of a trustee or a receiver to take possession of all or
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or the attachment, execution or other judicial seizure of all or
substantially all of Tenant's assets located at the Premises or of Tenant's
Interest in this Lease, where such Seizure is not discharged in thirty (30)
days; the admission by Tenant in writing of the inability to pay its debts as
they become due.
(e) Failure by Tenant to renew the Standby Letter of Credit as defined in
Exhibit F attached hereto.
16.2 Upon the occurrence of a default by Tenant as provided in Section 16.1,
Landlord shall have the following rights and remedies in addition to all other
rights and remedies available to Landlord in law or equity;
(a) The rights and remedies provided by California Civil Code Section
1951.2, including, but not limited to, the right to terminate Tenants right to
possession of the Premises and to recover the worth at the time of award of the
amount by which the unpaid Rent and Additional Charges for the balance of the
Term after the time of award exceed the amount of rental loss for the same
period that the Tenant proves could be reasonably avoided, as computed pursuant
to subsection (b) of said Section 1951.2;
(b) The rights and remedies provided by California Civil Code Section
1951.4, which allows Landlord to continue this Lease in effect and to enforce
all of its rights and remedies under this Lease, including the right to recover
Rent and additional Charges as they become due, for so long as Landlord does not
terminate Tenant's right to possession. Acts of maintenance or preservation,
efforts to relet the Premises or the appointment of a receiver upon Landlord's
initiative to protect its interest under this Lease shall not constitute a
termination of Tenant's right to possession;
(c) The right to terminate this Lease by giving notice to Tenant in
accordance with applicable law;
(d) The right and power, as attorney-in-fact for Tenant, to enter the
Premises and remove therefrom all persons and property, to store such property
in a public warehouse or elsewhere at the cost of and for the account of Tenant,
and to sell such property and apply the proceeds therefrom pursuant to
applicable California law; provided, however, that the foregoing remedy shall
only apply to a default by Tenant in payment of capital rent. Landlord, as
attorney-in-fact for Tenant, may from time to time sublet the Premises or any
part thereof for such
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term or terms (which may extend beyond the Term) and at such rent and such other
terms as Landlord in its sole discretion may deem advisable, with the right to
make alterations and repairs to the Premises. Upon each such subletting, (i)
Tenant shall be immediately liable for payment to Landlord of, in addition to
indebtedness other than Rent and Additional Charges due hereunder, the cost of
such subletting and such alterations and repairs incurred by Landlord and the
amount, if any, by which the Rent and Additional Charges for the period of such
subletting (to the extent such period does not exceed the Term) exceeds the
amount to be paid as Rent and Additional Charges for the Premises for such
period, or (ii) at the option of Landlord, rents received from such subletting
shall be applied, first, to payment of any indebtedness other than Rent and
Additional Charges due hereunder from Tenant to Landlord; second, to the payment
of any costs of such subletting and of such alterations and repairs; third, to
payment of Rent and Additional Charges due and unpaid hereunder; and the
residue, if any, shall be held by Landlord and applied in payment of future Rent
and Additional Charges as the same become due hereunder. If Tenant has been
credited with any rent to be received by such subletting under clause (i) and
such rent shall not be promptly paid to Landlord by the subtenant(s), or it such
rentals received from such subletting under clause (ii) during any month are
less than those to be paid during that month by Tenant hereunder, Tenant shall
pay any such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. For all purposes set forth in this Section 16.2(d), Landlord is
hereby irrevocably appointed attorney-in-fact for Tenant with power of
substitution. No taking possession of the Premises by Landlord, as attorney-in-
fact for Tenant, shall be construed as an election on its part to terminate this
Lease unless a written notice of such intention is given to Tenant.
Notwithstanding any such subletting without termination, Landlord may at any
time thereafter elect to terminate this Lease for such previous breach; and
(e) The right to have a receiver appointed for Tenant, upon
application by Landlord, to take possession of the Premises and to apply any
rental collected from the Premises and to exercise all other rights and remedies
granted to Landlord as attorney-in-fact for Tenant pursuant to Section 16.2(d)
hereof; provided, however, that the foregoing remedy shall only apply to a
default by Tenant in payment of capital rent.
16.3 If Tenant shall default in the performance of its obligations under
this Lease, Landlord, at any time thereafter and without notice, may remedy such
default for Tenant's account and at Tenants expense, without thereby waiving any
other rights or remedies of Landlord with respect to such default.
16.4 If Landlord fails to perform its obligations under this Lease within
fifteen (15) days after notice by Tenant to Landlord specifying the nature of
the obligations Landlord has failed to perform, Landlord shall be in default
hereunder. If the nature of Landlord's obligations is such that more than
fifteen (15) days are required for performance, then Landlord shall not be in
default if Landlord commences performance within such fifteen (15) day period
and thereafter diligently prosecutes the same to completion. In the event of a
default by Landlord hereunder, Tenant's remedies shall include an action for
damages and/or an injunction.
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17. Indemnity, Insurance and Subrogation
17.1 (a) Tenant agrees to indemnify Landlord against and save Landlord
harmless from any and all loss, cost, liability, damage and expense including,
without limitation, penalties, fines and reasonable counsel fees and
disbursements, incurred in connection with or arising from (i) any default or
breach by Tenant in the observance or performance of any of the terms, covenants
or conditions of this Lease; or (ii) any negligence or willful misconduct of
Tenant or of its contractors, agents, servants, employees, invitee or licensees
of Tenant in, on or about the Premises, or all or any part of the Real Property,
either prior to, during, or after the expiration of the Term and in connection
with this Lease. Tenant's obligations under this Section 17.1(a) shall survive
the expiration or other termination of this Lease.
(b) Landlord agrees to indemnify Tenant against and save Tenant harmless
from any and all loss, cost, liability, damage, and expense, including without
limitation penalties, fines and reasonable counsel fees and disbursements,
incurred in connection with or arising from (i) any default or breach by
Landlord in the observance of the terms, covenants, or conditions of this Lease;
or (ii) any negligence or willful misconduct of Landlord, or its contractors,
agents, servants, employees, invitees, or licensees in, on or about the
Premises, or all or any part of the Real Property, either prior to, during, or
after the expiration of the Term and in connection with this Lease. Landlords
obligations under this Section 17.1(b) shall survive the expiration or other
termination of this Lease.
17.2 Tenant agrees to carry and keep in force during the Term hereof, at
Tenant's sole cost and expense, the following types of insurance, in the amounts
and in the form provided for:
(a) Public Liability and Property Damage. Bodily and personal injury
liability insurance with limits of not less than Two Million Dollars
($2,000,000) per occurrence, insuring against any and all liability for injuries
to or death of persons occurring in, on or about the Premises or arising out of
the maintenance, use or occupancy thereof (including, for purposes of "personal
injury," coverage against false arrest, detention or imprisonment, malicious
prosecution, libel, slander and wrongful entry or eviction), and property damage
liability insurance with a limit of not less than Two Million Dollars
($2,000,000) per accident or occurrence. All such public liability and property
damage insurance shall specifically insure the performance by Tenant of its
indemnity obligations under Section 17.1 hereof with respect to liability for
injury to or death of persons and for damage to property.
(b) Workers' Compensation and Employers' Liability. Workers' compensation
and employers' liability insurance covering employees for California Workers'
Compensation benefits, including employers' liability with limits of at least
Five Hundred Thousand Dollars ($500,000) for each accident).
(c) Tenant Property. Insurance covering all improvements made by Tenant to
the Premises, and any and all Fixtures, equipment, furnishings and personal
property of Tenant from time to time in, on or about the Premises, providing
protection against all perils included within a standard fire and extended
coverage insurance policy ("all risk form"), together with insurance
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against sprinkler damage, vandalism and malicious mischief. Such insurance shall
be in an amount not less than the full replacement cost of the property insured
without deduction for depreciation.
(d) Policy Form. All policies of insurance provided for herein shall be
issued by insurance companies with a general policyholders' rating of not less
than A and a financial rating of X111 as rated in the most current available
"Best's Insurance Reports," and qualified to do business in the State of
California. Except for workers' compensation and employers' liability, all such
policies shall be issued in the names of Landlord, Tenant and such other persons
or firms as Landlord specifies from time to time and shall be for the mutual and
joint benefit and protection of Landlord, Tenant and others herein above
mentioned. Executed copies of all such policies of insurance or certificates
thereof shall be delivered to Landlord prior to delivery of possession of the
Premises to Tenant, and thereafter within thirty (30) days prior to the
expiration of the term of each such policy. All public liability and property
damage policies shall contain a provision that Landlord, although named as an
insured, shall nevertheless be entitled to recovery under said policies for any
loss occasioned to it, its agents and employees by reason of the negligence of
Tenant. As often as any such policy shall expire or terminate, renewal or
additional policies shall be procured and maintained by the Tenant in like
manner and to like extent. All such policies of insurance shall provide that
the company writing said policy will give Landlord thirty (30) days' notice in
writing in advance of any cancellation or lapse or the effective date of any
reduction in the amounts of insurance. All public liability, property damage
and other casualty policies shall be written as primary policies, not
contributing with and not in excess of coverage which Landlord may carry.
17.3 Landlord's Property Insurance. Landlord shall use its best efforts to
maintain such insurance at such coverage and amounts substantially similar to
the existing insurance, and shall promptly notify Tenant in writing in the event
that the coverage and/or amounts of Landlord's property insurance are materially
reduced; provided, however, that in any event the coverage and amounts of
insurance carried by Landlord in connection with the Building shall, at a
minimum, be comparable to the coverage and amounts of insurance that are carried
by reasonably prudent landlords of Comparable Buildings and workers'
compensation coverage as required by applicable law. On inquiry by Tenant from
time to time, Landlord shall inform Tenant of all such insurance carried by
Landlord.
17.4 Landlord shall not be responsible for or liable to Tenant for any loss
or damage that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises or any other part of the Building or the Complex,
or for any loss or damage resulting to Tenant or its property from burst,
stopped or leaking water, gas, sewer or steam pipes or for any damage or loss of
property within the Premises from any causes whatsoever, including theft;
provided, however, that nothing set forth herein shall be deemed to relieve
Landlord of its indemnity obligations under Section 17.1(b).
17.5 Notwithstanding anything to the contrary contained herein, to the
extent permitted by their respective policies of insurance and to the extent of
insurance proceeds received with respect to the loss, Landlord and Tenant each
hereby waive any right of recovery against the other party and
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against any other party maintaining a policy of Insurance with respect to the
Building or any portion thereof or the contents of any of the same, for any loss
or damage sustained by such other party with respect to the Building, or the
Premises or any portion thereof or the contents of the same or any operation
therein, whether or not such loss is caused by the fault or negligence of such
other party. If any policy of insurance relating to the Premises carried by
Tenant does not permit the foregoing waiver or if the coverage under any such
policy would be invalidated as a result of such waiver, Tenant and Landlord
shall, if possible, obtain from their respective insurers under such policy a
waiver of all rights of subrogation the insurer might have against Landlord or
Tenant, as the case may be, or any other party maintaining a policy of insurance
covering the same loss, in connection with any claim, loss or damage covered by
such policy.
18. Entry by Landlord
18.1 Landlord reserves and shall at all times have the right to enter the
Premises at all reasonable times upon prior notice to Tenant (except in cases of
emergency or in the provision of services under this Lease, in which cases no
prior notice need be given) to inspect the same, to supply any service to be
provided by Landlord to Tenant hereunder, to show the Premises to prospective
purchasers, mortgagees or tenants, to post notices of non-responsibility, and to
alter, improve or repair the Premises and any portion of the Building, without
abatement of Rent or Additional Charges, and may for that purpose erect, use and
maintain scaffolding, pipes, conduits and other necessary structures in and
through the Premises where reasonably required by the character of the work to
be performed, provided that the entrance to the Premises shall not be blocked
thereby, and further provided that the business of Tenant shall not be
interfered with unreasonably. Tenant hereby waives any claim for damages for
any injury or inconvenience to or interference with Tenant's business, any loss
of occupancy or quiet enjoyment of the Premises or any other loss occasioned
thereby. For each of the aforesaid purposes, Landlord shall at ail times have
and retain a key with which to unlock all of the doors in, upon and about the
Premises, excluding Tenant's vaults and safes, or special security areas
(designated in advance), and Landlord shall have the right to use any and all
means that Landlord may deem necessary or proper to open said doors in an
emergency, in order to obtain entry to any portion of the Premises, and any
entry to the Premises or portions thereof obtained by Landlord by any of said
means, or otherwise, shall not under any circumstances be construed or deemed to
be a forcible or unlawful entry into, or a detailer of, the Premises, or an
eviction, actual or constructive, of Tenant from the Premises or any portion
thereof.
19. Notices
19.1 Except as otherwise expressly provided in this Lease, any bills,
statements, notices, demands, requests or other communications given or required
to be given under this Lease shall be effective only if rendered or given in
writing, sent by registered or certified mail or delivered personally, (a) to
Tenant (i) at Tenant's address set forth in the Basic Lease Information, if sent
prior to Tenant's taking possession of the Premises, or (ii) at the Building if
sent subsequent to Tenant's taking possession of the Premises, or (iii) at any
place where Tenant or any agent or employee of Tenant may be found if sent
subsequent to Tenant's vacation, deserting, abandoning or surrendering
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the Premises, or (b) to Landlord at Landlord's address set forth in the Basic
Lease Information, or to such other address as either Landlord or Tenant may
designate as its new address for such purpose by notice given to the other in
accordance with the provisions of this Section 19.1. Any such bill, statement,
notice, demand, request or other communication shall be deemed to have been
rendered or given three (3) business days after the date when it shall have been
mailed as provided in this Section 19.1 if sent by registered or certified mail,
and such mortgagee or ground or underlying lessor shall be given a reasonable
opportunity to cure such default prior to Tenant exercising any remedy available
to it.
20. No Waiver
20.1 No failure by Landlord or Tenant to insist upon the strict performance
of any obligation of the other party under this Lease or to exercise any right,
power or remedy consequent upon a breach thereof, no acceptance of full or
partial Rent or Additional Charges during the continuance of any such breach,
and no acceptance of the keys to or possession of the Premises prior to the
termination of the Term by any employee of Landlord shall constitute a waiver of
any such breach or of such term, covenant or condition or operate as a surrender
of this Lease. No payment by Tenant or receipt by Landlord of a lesser amount
than the aggregate of all Rent and Additional Charges then due under this Lease
shall be deemed to be other than on account of the first items of such Rent and
Additional Charges then accruing or becoming due, unless Landlord elects
otherwise; and no endorsement or statement on any check and no letter
accompanying any check or other payment of Rent or Additional Charges in any
such lesser amount and no acceptance of any such check or other such payment by
Landlord shall constitute an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlords right to recover the
balance of such Rent or Additional Charges or to pursue any other legal remedy.
20.2 Neither this Lease nor any term or provision hereof may be changed,
waived, discharged or terminated orally, and no breach thereof shall be waived,
altered or modified, except by a written instrument signed by the party against
which the enforcement of the change, waiver, discharge or termination is sought.
No waiver of any breach shall affect or alter this Lease, but each and every
term, covenant and condition of this Lease shall continue in full force and
effect with respect to any other then existing or subsequent breach thereof.
21. Estoppel Certificates
21.1 Tenant at anytime and from time to time upon not less than ten (10)
days' prior written notice from Landlord, will execute, acknowledge and deliver
to Landlord and, at Landlords request to any prospective purchaser, ground or
underlying lessor or mortgagee of any part of the Real Property, a certificate
of Tenant stating: (a) that Tenant has accepted the Premises (or, if Tenant has
not done so, that Tenant has not accepted the Premises and specifying the
reasons therefor), (b) the Commencement and Expiration Dates of this Lease, (c)
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that same is in full force and effect as modified and
stating the modifications), (d) whether or not there are then existing any
defenses against the enforcement of any of the obligations of Tenant under this
Lease (and, if so, specifying same), (e) whether or not them are then existing
any defaults by Landlord in the performance of its
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obligations under this Lease (and, if so, specifying same), (f) the dates, if
any, to which the Rent and Additional Charges and other charges under this Lease
have been paid, and (g) any other information that may reasonably be required by
any of such persons. It is intended that any such certificate of Tenant
delivered pursuant to this Section 21.1 may be relied upon by Landlord and any
prospective purchaser, ground or underlying lessor or mortgagee of any part of
the Real Property.
22. Rules and Regulations
22.1 Tenant shall faithfully observe and comply with the rules and
regulations attached to this Lease as Exhibit D and all modifications thereof
---------
and additions thereto from time to time put into effect by Landlord. Landlord
shall not be responsible for the nonperformance by any other tenant or occupant
of the Building or the Complex of any of said rules and regulations. In the
event of an express and direct conflict between the terms, covenants, agreements
and conditions of this Lease and the terms, covenants, agreements and conditions
of such rules and regulations, as modified and amended from time to time by
Landlord, this Lease shall control.
23. Tax on Tenant's Personal Property
23.1 At least ten (10) days prior to delinquency Tenant shall pay all taxes
levied or assessed upon Tenant's equipment, furniture, fixtures and other
personal property located in Or about the Premises. If the assessed value of
Landlord's property is increased by the inclusion therein of a value placed upon
Tenant's equipment, furniture, fixtures or other personal property, Tenant shall
pay to Landlord, upon written demand, the taxes so levied against Landlord, or
the proportion thereof resulting from said increase in assessment. The portion
of real estate taxes payable by Tenant pursuant to this Section 23.1 and by
other tenants of the Building pursuant to similar provisions in their leases
shall be excluded from Real Estate Taxes for purposes of computing the
Additional Charges to be paid pursuant to Article 4 hereof.
24. Authority
24.1 Each of the persons executing this Lease on behalf of Tenant and
Landlord does hereby covenant and warrant that the party for which they are
executing this Lease is a duly authorized and existing entity, that the party
for which they are executing this Lease has and is qualified to do business in
California, that the party for which they are executing this Lease has full
right and authority to enter into this Lease, and that any such person signing
on behalf of such party is authorized to do so. Upon either party's request,
the other party shall provide the requesting party with evidence reasonably
satisfactory to such party confirming the foregoing covenants and warranties.
25. Miscellaneous
25.1 The words "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular. The words used in the neuter gender include the
masculine and feminine. If there is more than one Tenant, the obligations under
this Lease imposed on Tenant shall be joint and several. The captions preceding
the articles of this Lease have been inserted solely as a matter of
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convenience and such captions in no way define or limit the scope or intent of
any provision of this Lease.
25.2 The terms, covenants and conditions contained in this Lease shall bind
and inure to the benefit of Landlord and Tenant and, except as otherwise
provided herein, their respective personal representatives and successors and
assigns; provided, however, upon the sale, assignment or transfer by the
Landlord named herein (or by any subsequent landlord) of its interest in the
Building as owner or less", including any transfer by operation of law, the
Landlord (or subsequent landlord) shall be relieved from all subsequent
obligations or liabilities under this Lease, and all obligations subsequent to
such sale, assignment or transfer (but not any obligations or liabilities that
have accrued prior to the date of such sale, assignment or transfer) shall be
binding upon the grantee, assignee or other transferee of such interest, and any
such grantee, assignee or transferee, by accepting such interest, shall be
deemed to have assumed such subsequent obligations and liabilities. A lease of
the entire Building to a person other than for occupancy thereof shall be deemed
a transfer within the meaning of this Section 26.2.
25.3 If any provision of this Lease or the application thereof to any
person or circumstance shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is invalid or unenforceable.,
shall not be affected thereby, and each provision of this Lease shall be valid
and be enforced to the full "tent permitted by law.
25.4 This Lease shall be construed and enforced in accordance with the laws
of the State of California.
25.5 Submission of this instrument for examination or signature by Tenant
does not constitute a reservation of or an option for lease, and it is not
effective as a lease or otherwise until execution and delivery by both Landlord
and Tenant.
25.6 This instrument, including the Exhibits hereto, which are made a part
of this Lease, contains the entire agreement between the parties and all prior
negotiations and agreements are superseded by this Lease. Neither Landlord nor
Landlord's agents have made any representations or warranties with respect to
the Premises, the Building, the Real Property or this Lease except as expressly
set forth herein, and no rights, easements, or licenses are or shall be acquired
by Tenant by implication or otherwise unless expressly set forth herein.
25.7 The review, approval, inspection or examination by Landlord of any
item to be reviewed, approved, inspected or examined by Landlord under the terms
of this Lease or the Exhibits attached hereto shall not constitute the
assumption of any responsibility by Landlord for either the accuracy or
sufficiency of any such item or the quality or suitability of such item for its
intended use. Any such review, approval, inspection or examination by Landlord
is for the sole purpose of protecting Landlord's interests in the Building and
the Complex and under this Lease, and no third parties, including, without
limitation, Tenant or any person or entity claiming through or under Tenant, or
the contractors, agents, servants, employees, visitors or licensees of Tenant or
any such person or entity, shall have any rights hereunder.
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25.8 In the event of any action or proceeding brought by either party
against the other under this Lease, the prevailing party shall be entitled to
recover all costs and expenses, including its attorney's fees, in such action or
proceeding in such amount as the court may adjudge reasonable. The prevailing
party shall be determined by the court based upon an assessment of which party's
major arguments made or positions taken in the proceedings could fairly be said
to have prevailed over the other party's major arguments or positions on major
disputed issues in the court's or arbitrator's decision. If Landlord is named
as a defendant in any suit brought against Tenant in connection with or in
anyway arising out of this Lease or Tenant's use or occupancy of the Premises,
Tenant shall pay Landlord's costs and expenses, including, without limitation,
reasonable attorney's fees, incurred in such suit or action.
25.9 Upon the expiration or sooner termination of the Term, Tenant will
quietly and peacefully surrender to Landlord the Premises in the condition in
which they are required to be kept as provided in Article 8 hereof, ordinary
wear and tear and the provisions of Article 12 excepted.
25.10 Upon Tenant paying the Rent and Additional Charges and performing all
of Tenant's obligations under this Lease, Tenant may peacefully and quietly
enjoy tile Premises during the Term as against all persons or entities lawfully
claiming by or through Landlord, subject, however, to the provisions of this
Lease and to any mortgages or ground or underlying leases referred to in Article
10 hereof.
25.11 Tenant covenants and agrees that no diminution of light, air or view
by any structure that may hereafter be erected (whether or not by Landlord)
shall entitle Tenant to any reduction of Rent or Additional Charges under this
Lease, result in any liability of Landlord in Tenant, or in any other way affect
this Lease or Tenant's obligations hereunder.
25.12 Any holding over by Tenant after the expiration or other termination
of the Term with the written consent of Landlord shall be construed to be a
tenancy from month-to-month at one hundred seventy-five percent (175%) of the
Rent in effect on the date of such expiration or termination and shall otherwise
be on the terms and conditions herein specified so far as applicable. Any
holding over without Landlord's consent shall constitute a default by Tenant and
entitle Landlord to reenter the Premises as provided in Article 16 hereof.
25.13 Time is of the essence with respect to all provisions of this Lease in
which a definite time for performance is specified.
25.14 Tenant warrants that it has had no dealings with any real estate
broker or agents in connection with the negotiation of this Lease other then the
party identified as "Broker" in the Basic Lease Information and it knows of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Tenant agrees to indemnify Landlord and hold Landlord harmless
from and against any and all claims, demands, losses, liabilities, lawsuits,
judgments, costs and expenses (including reasonable attorneys' fees) with
respect to any leasing commission or equivalent compensation alleged to be owing
on account of Tenant's dealings with any real estate broker or agent other than
Broker.
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25.15 The following Exhibits and Addenda are attached hereto and
incorporated herein by this reference: (a) Exhibits A, B, C, D and Addendum 1.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
"Landlord" "Tenant"
Ahdi Nashashibi Andromedia, Inc.
- --------------- ----------------
An individual A California corporation
- ------------- ------------------------
By: /S/ AHDI NASHASHIBI By: /S/ JAMIE COHAN
----------------------- ------------------------
Its: Its:
----------------------- ------------------------
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EXHIBIT A
Floor Plans
TO BE SUPPLIED BY THE LANDLORD
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EXHIBIT B
Monthly Premises Rent
The following monthly rent shall be paid by Tenant in respect of the Premises
during each month of the Term:
Month Monthly Rent
------------ ------------------------
1-36 $16,500.00 per month
37-60 $18,333.33 per month
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EXHIBIT C
Tenant Improvements
Landlord shall install Improvements in the Premises in accordance with the plans
and specifications (the "Plans") attached hereto. The cost of such improvements
shall be paid by Landlord, provided that Tenant shall pay to Landlord within ten
(10) days after taking occupancy of the Premises the amount set forth as
"Tenant's Share of Improvement Costs" in the Basic Lease Information.
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EXHIBIT D
Rules and Regulations
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside or
inside of the Building without the written consent of Landlord. Landlord shall
have the right to remove any such sign, placard, picture, advertisement, name or
notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person approved of by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass or any window, door, partition or wall which may appear unsightly from
outside the Premises. Landlord shall furnish and install a Building standard
window covering at all exterior windows which shall not be modified by Tenant
without the prior written consent of Landlord.
2. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any of the tenants or used by them for any purpose
other than for ingress and egress from their respective premises.
3. Tenant shall not alter any lock or install any new or additional locks to
any bolts on any doors or windows of the Premises with Landlord's prior approval
(not to be unreasonably withheld or delayed).
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no foreign
substance of any kind whatsoever shall be thrown therein. The expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by the Tenant who, or whose employees or invitees, shall have caused it.
5. Tenant shall not overload the floor of the Premises or in any way deface
the Premises or any part thereof.
6. No furniture, freight or equipment of any kind shall be brought into the
Building without the prior notice to Landlord and all moving of the same into or
out of the Building shall be done at such time and in such manner as Landlord
shall designate. Landlord shall have the right to prescribe the weight, size
and position of all safes and other heavy equipment brought into the Building
and also the times and manner of moving the same in and out of the Building.
Safes or other heavy objects shall, if considered necessary by Landlord, stand
on supports of such thickness as is necessary to properly distribute the weight.
Landlord will not be responsible for loss of or damage to any such safe or
property from any cause and all damage done to the Building by moving or
maintaining any such safe or other property shall be repaired at the expense of
Tenant. Tenant shall pay for any damage to walls, doors, paint, elevator cabs
or other items caused by Tenant's movers.
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7. Tenant shall not use, keep or permit to be used or kept arty foul or
noxious gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
8. No commercial cooking shall be done or permitted by the Tenant on the
Premises, nor shall the Premises be used for the storage of merchandise, for
washing clothes, for lodging, or for any improper, objectionable or immoral
purposes.
9. Tenant shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method of
heating or air conditioning other then that supplied by Landlord, if any.
10. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the prior consent of the Landlord. The location of telephones,
call boxes and other office equipment affixed to the Premises shall be subject
to the prior approval of Landlord.
11. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 PM and 8:00 AM the following day, access to the Building, or to
the halls, corridors, elevators or stairways in the Building, or to the Premises
may be refused unless the person seeking access is known to the person or
employee of the Building in charge and has a pass or is properly identified.
The Landlord shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person. In case of
invasion, mob, riot, public excitement or other commotion, the Landlord reserves
the right to prevent access to the Building during the continuance of the same
by closing of the doors or otherwise, for the safety of the tenants and
protection of property in the Building and the Building.
12. Landlord reserves the right to exclude or expel from the Building any
person who, In the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
the rules and regulations of the Building.
13. No vending machines or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
14. Tenant shall not disturb, solicit, or canvas any occupant of the Building
and shall cooperate to prevent same.
15. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building in connection with or in promoting or advertising the
business of Tenant except as Tenant's address.
16. Landlord shall have the right to control and operate the public portions of
the Building and the public facilities, as well as facilities furnished for the
common use of the tenants, in such manner as it deems best for the benefit of
the tenants generally.
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17. All entrance doors in the Premises shall be left locked when the Premises
are not in use, and all doors opening to public corridors shall be kept closed
except for normal ingress and egress from the Premises.
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EXHIBIT E
Option to Extend Term
(A) Tenant shall have one (1) option "Extension Option" to extend the term of
the Lease. The Extension Option shall extend the term of the Lease for a period
(the "Extension Term") of five (5) years commending on the expiration of the
Initial Term. Tenant shall be payable during the Extension Term as set forth in
Exhibit B. All other provisions of this Lease shall remain unchanged during the
Extension Term except that the "Base Year" for the Extension Term shall be 2003.
(B) The Extension Option shall only be effective if Tenant is not in default
under any of the terms and conditions of this Lease, either at the time the
Extension Option is exercised or at the commencement of the Extension Term. The
Extension Option must be exercised, if at all, by written notice from Tenant to
Landlord given not less than nine (9) months prior to the expiration of the
initial Term and once exercised is irrevocable.
(C) For the purposes of this Lease, "Fair Market Value" shall be defined as
the rental rate charged for comparable space as the Premises or other areas, as
may be applicable, taking into account the size, location, location in the
Building, and terms of this Lease, including, without limitation, rental
escalation terms. Within thirty (30) days of exercise of an Extension Option or
other event requiring the determination of Fair Market Value, Landlord shall
notify Tenant of its determination of Fair Market Value. If Tenant disputes
Landlord's determination of Fair Market Value, Tenant shall notify Landlord
within ten (10) days following Landlord's notice to Tenant and such dispute
shall be resolved as follows:
(1) Within thirty (30) days following Landlord's notice to Tenant of Fair
Market Value, Landlord and Tenant shall meet no less than two (2) times, at a
mutually agreeable time and place, to attempt to resolve any disagreement.
(2) If within this thirty (30) day period, Landlord and Tenant cannot reach
agreement as to Fair Market Value, they shall each select an appraiser to arrive
at a determination of Fair Market Value and submit his/her conclusions in
writing to Landlord and Tenant within thirty (30) days of the expiration of the
thirty (30) day consultation period described in (1) above.
(3) If only one appraisal is submitted within the requisite period of time,
it shall be deemed the Fair Market Value. If both appraisals are submitted
within such time period, and if the two appraisals differ by less than ten
percent (10%) of the higher of the two, the average of the two appraisals shall
be deemed to be Fair Market Value. If the two appraisals differ by more than
ten percent (10%) of the higher of the two, then the two appraisers shall
immediately select a third appraiser who will within thirty (30) days of his/her
selection make a determination of Landlord and Tenant. This third appraisal
shall then be averaged with the closer of the two previous appraisals and the
results shall be the Fair Market Value.
(4) All appraisers specified shall be members of the American Institute of
Real Estate Appraisers with not less than five (5) years experience appraising
commercial properties in San Francisco. Each party shall pay the cost of the
appraiser selected by such party, one-half of the
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cost of the third appraiser, plus one-half of any other costs incurred in
determining the Fair Market Value.
(D) In no event shall the Extension Option rent be less than the rent paid by
Tenant in the last month of the Initial term.
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ADDENDUM TO LEASE
This Addendum to Lease ("Addendum") is part of that certain Lease (defined
below) of even date herewith by and between AHDI NASHASHIBI, an individual
("Landlord"), and ANDROMEDIA, INC., a California corporation, ("Tenant") for
approximately 11,000 rentable square feet of premises ("Premises") located on
the second and third floors of the building ("Building") located at 818 Mission
Street, San Francisco, California, as more particularly described in the Lease
Form (defined below). Landlord and Tenant agree that, notwithstanding anything
to the contrary contained in the Lease Form, the Lease Form shall be amended,
supplemented and modified as follows:
1. Definitions
Unless otherwise defined in this Addendum, all terms used in this Addendum
shall have the same meaning and definition given them in the Lease Form. As
used in this Addendum, the term "Lease Form" shall mean the printed lease form,
together with all exhibits and attachments thereto, to which this Addendum is
attached. As used herein, the term "Lease" shall mean the Lease Form, this
Addendum, and all other addenda, exhibits, and attachments to the Lease Form
referred to in the Lease Form or in this Addendum.
2. Tenant Share of Increased Costs (Replacing Section 4 of the Lease)
2.1 For purposes of this Lease, the following terms shall have the
meanings hereinafter set forth:
(a) "Tenant's Percentage Share" shall mean the percentage figure so
specified in the Basic Lease Information. Tenant's Percentage Share has been
computed by dividing the floor(s) of the Premises by the total rentable square
footage of Floors 1-5 (whether occupied or not) and multiplying the resulting
quotient by 100.
(b) Tenant agrees to pay Tenant's Percentage Share of the increase in Taxes
over the Base Tax Year 1998, as set forth in the Basic Lease Information.
Landlord represents that the Base Tax Year 1998 is based upon a fully assessed
and occupied Building.
(c) "Real Estate Taxes" shall mean all taxes, assessments and charges
levied upon or with respect to the Real Property or any personal property of
Landlord used in the operation thereof, or Landlord's interest in the Real
Property or such personal property. Real Estate Taxes shall include, without
limitation, all general real property taxes and general and special assessments,
charges, fees or assessments for transit, housing, police, fire or other
governmental services or purported benefits to the Real Property, service
payments in lieu of taxes, and any tax, free or excise on the act of entering
into this Lease or any other lease of space in the Building, or on the use or
occupancy of the Real Property or any part thereof, or on the rent payable under
any lease or in connection with business of renting space in the Building that
are now or hereafter levied or assessed against Landlord by the United States of
America, the State of California, or any political subdivision, public
corporation, district or other political or public entity, and shall also
include any
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other tax, fee or other excise, however described, that may be levied or
assessed as a substitute for, or as an addition to, in whole or in part, any
other Real Estate Taxes, whether or not now customary or in the contemplation of
the parties on the date of this Lease. Any assessments may be included in Real
Estate Taxes and shall be deemed payable over the longest lawful period and only
the installment(s) due in a given tax year should be included in Real Estate
Taxes for any such tax year. Real Estate Taxes shall not include franchise,
transfer, inheritance and excess profits taxes, gift taxes, succession taxes,
estate taxes, federal and state income taxes, penalties arising from Landlord's
failure to pay taxes in a timely manner, and other taxes applied or measured by
Landlord's general or net income (as opposed to rents, receipts, or income
attributable to operations at the Building); capital stock or income taxes
unless, due to a change in the method of taxation, any of such taxes is levied
or assessed against Landlord as a substitute for, or as an addition to, in whole
or in part, any other tax that would otherwise constitute a Real Estate Tax and
items included as Operating Expenses. Real Estate Taxes shall also include
reasonable legal fees, costs and disbursements incurred in connection with
proceedings to contest, determine or reduce Real Estate Taxes. Tenant shall be
entitled to its share of Tax refunds for any Lease year where Tenant paid its
Share of Taxes.
(d) "Operating Expenses" shall mean the total cost and expenses paid or
incurred by Landlord in connection with the management, operation, maintenance,
and repair of the Building, including, without limitation: (i) janitorial,
maintenance, security guard and other service contracts; (ii) charges for
electricity, gas, steam, water, sewer, waste disposal and other utilities
furnished or incurred by Landlord and not otherwise billed directly to Tenant by
Landlord; (iii) materials, supplies, equipment and tools: (iv) maintenance and
repairs; (v) the cost of fire, extended coverage, boiler, sprinkler, public
liability, property damage, rent loss, earthquake and other insurance; (vi)
wages, salaries, and other labor costs, including taxes, insurance, retirement,
medical and other employee benefits of all personnel engaged solely in the
operation and maintenance of the Building; (vii) fees, charges and other costs,
(but excluding management fees, consulting fees, legal fees and accounting
fees), of all independent contractors engaged by Landlord or reasonable charges
incurred by Landlord if Landlord performs management services in connection with
the Building; (viii) if in performing its obligations pertaining to operation,
maintenance and repair of the Common Areas, Landlord should incur any costs
which would constitute capital expenditures under generally accepted accounting
principles, and if such capital expenditure does not result from damage or
destruction or Landlord's discretionary renovation, remodeling, alteration or
expansion of the building commonly referred to as 818 Mission Street, or part
thereof, such capital expenditure shall be amortized (without interest) over the
useful life of the equipment or improvement so repaired or replaced, and there
shall be included as part of Common Area Operating Expenses each year only the
amortized portion of such capital expenditure allocable to such calendar year;
(ix) all expenses payable by the Building pursuant to the Complex Covenants; and
(x) any other reasonable expenses of any other kind whatsoever reasonably
incurred in operating, maintaining and repairing the Building. Operating
Expenses shall not include Real Estate Taxes, depreciation on the Building other
than depreciation on carpeting in public corridors and common areas, costs for
which Landlord has a right of reimbursement from others, costs of Tenants'
Improvements, real estate brokers' commissions, executive salaries (exclusive of
salaries, wages or fees paid for management activities) and capital, items other
than those referred to in this Section 4.1(d): services not generally provided
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to all Building tenants; legal compliance costs (such as the Americans With
Disabilities Act); utilities outside of common areas). Operating Expenses for
both Base Year and each subsequent calendar year shall be determined by
adjusting the actual Operating Expenses to equal Landlord's reasonable estimate
of what the total Operating Expenses would be if the total rentable area of the
Building had been 95% occupied for the entire calendar year. The computation of
Operating Expenses shall be made in accordance with generally accepted tax
accounting principles. Notwithstanding anything contained herein to the
contrary, Landlord shall deduct from Operating Expenses payment for Operating
Expenses received from any basement/lower level tenant.
2.2 In addition to the Rent payable by Tenant for each calendar year
subsequent to the Base Year 1998, Tenant shall pay Tenant's Percentage Share of
the total dollar increase, if any, in Operating Expenses paid or incurred by
Landlord in such calendar year over Operating Expenses paid or incurred by
Landlord in the Base Year 1998,
2.3 During December of each calendar year starting with the Base Year 1998
or as soon thereafter as practicable, Landlord shall give Tenant written notice
of Landlord's estimate of the amounts payable by Tenant under Section 4.2 (such
amounts are referred to herein as the "Estimated Operating Expenses") for the
ensuing calendar year. On or before the first day of each month during the
ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of the
Estimated Operating Expenses, provided that if such notice is not given in
December then Tenant shall continue to pay on the basis of the prior estimate
until the first day of the calendar month next succeeding the date such notice
is given. If at any time or times it appears to Landlord that the actual
amounts payable under Section 4.2 (such amounts are referred to herein as the
"Actual Operating Expenses") for the current calendar year will vary from the
Estimated Operating Expenses by more than five percent (5%), Landlord shall, by
written notice to Tenant, revise its estimate for such year, and subsequent
payments by Tenant for such year shall be based upon such revised estimate.
2.4 As soon after the close of each calendar year as practicable, Landlord
shall deliver to Tenant a statement of the Actual Operating Expenses for such
calendar year. If the Actual Operating Expenses are less than the estimated
payments for such calendar year previously made by Tenant and Tenant is not in
monetary default at the such statement is delivered, Landlord shall credit the
excess to the next payment of Rent failing due under this Lease. If the Actual
Operating Expenses are more than the estimated payments for such calendar year
previously made by Tenant, Tenant shall pay the deficiency to Landlord within
thirty (30) days after delivery of such statement. The respective obligations
of Landlord and Tenant under this Section 4.4 shall survive the expiration or
other termination of the term of this Lease, and if the term of this Lease shall
expire or terminate on a day other than the last day of the calendar year, the
adjustment in Additional Charges pursuant to this Section 4.4 for the calendar
year in which the term expires or otherwise terminates shall be prorated in the
proportion that the number of days in such year preceding expiration or
termination of the Lease bears to the number 365.
2.5 During December of each calendar year starting with the Base Year 1998
or as soon thereafter as practicable, Landlord shall give Tenant written notice
of Landlord's estimate of the
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amounts payable by Tenant under Section 4.1 (such amounts are referred to herein
as the "Estimated Real Estate Taxes") for the ensuing calendar year. On or
before the first day of each month during the ensuing calendar year, Tenant
shall pay to Landlord one-twelfth (1/12th) of the Estimated Real Estate Taxes,
provided that if such notice is not given in December then Tenant shall continue
to pay on the basis of the prior estimate until the first day of the calendar
month next succeeding the date such notice is given. If at any time or times it
appears to Landlord that the actual amounts payable under Section 4.1 (such
amounts are referred to herein as the "Actual Real Estate Taxes") for the
current calendar year will vary from the Estimated Real Estate Taxes by more
than five percent (5%), Landlord shall, by written notice to Tenant, revise its
estimate for such year, and subsequent payments by Tenant for such year shall be
based upon such revised estimate.
2.6 As soon after the close of each calendar year as practicable, Landlord
shall deliver to Tenant a statement of the Actual Real Estate Taxes for the
calendar year. If the Actual Real Estate Taxes are less than the estimated
payments for such calendar year previously made by Tenant and Tenant is not in
monetary default at the time such statement is delivered, Landlord shall credit
the excess to the next payment for Rent failing due under this Lease. If the
Actual Real Estate Taxes are more than the estimated payments for such calendar
year previously made by Tenant, Tenant shall pay the deficiency to Landlord
within thirty (30) days after delivery of such statement. The respective
obligations of Landlord and Tenant under this Section 4.6 shall survive the
expiration or other termination of the term of this Lease, and if the term of
this Lease shall expire or terminate on a day other than the last day of the
calendar year, the adjustment in Real Estate Taxes pursuant to this Section 4.6
for the calendar year in which the term expires or otherwise terminates shall be
prorated in the proportion that the number of days in such year preceding
expiration or termination of the Lease bears to the number 365.
3. Acceptance of Premises [Section 5.11]
Tenant's acceptance of the Premises shall not be deemed a waiver of Tenant's
right to have defects in the Tenant Improvements or the Premises repaired at
Landlord's sole expense. Tenant shall give notice to Landlord whenever any such
defect becomes reasonably apparent, and Landlord shall repair such defect as
soon as practicable. Landlord also hereby assigns to Tenant all warranties with
respect to the Premises which would reduce Tenant's maintenance and obligations
hereunder and shall cooperate with Tenant to enforce all such warranties.
Landlord warrants and represents that as of the Commencement Date the Premises
will be in good condition and repair and the electrical, mechanical, HVAC,
plumbing, elevator and other systems serving the Premises and the Building will
be in good condition and repair.
4. Alterations and Additions (Replacing Section 7 of the Lease)
4.1 Tenant shall not make or suffer to be made any structural (or non-
structural if the cost thereof exceeds Five Thousand Dollars ($5,000.00)
alterations, additions or improvements (collectively, "Alterations"), to or of
the Premises or any part thereof, or attach any fixtures or equipment thereto,
without first obtaining Landlord's written consent, which consent shall not be
unreasonably withheld, delayed or conditioned. Any Alterations to the Premises
consented to by Landlord shall be made by Landlord or an agent or contractor
designated by Landlord for Tenants
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account and Tenant shall reimburse Landlord for the commercially competitive
cost thereof (including a reasonable charge for Landlord's overhead) within ten
(10) days after receipt of a bill therefor. Any such alterations, additions or
improvements made in accordance with this section shall be competitively bid;
any contractor chosen shall be licensed, insured for projects in excess of
$25,000.00, Landlord may require Tenant to provide a performance bond in the
full amount of such alterations, additions or improvements. All Alterations
shall immediately become Landlord's property and, at the end of the term hereof,
shall remain on the Premises without compensation to Tenant unless Landlord
elects by notice to Tenant to have Tenant remove the same, in which event Tenant
shall promptly restore the Premises to their condition prior to the installation
of such alterations. Tenant shall have the right to make non-structural
alterations, additions or improvements (costing less than Five Thousand Dollars
($5,000.00)) without Landlord's consent. Tenant's alterations will not penetrate
the ceiling or the floors without the approval of Landlord, not to be
unreasonably withheld or delayed.
4.2 All furniture, furnishings, and articles of movable personal property
installed in the Premises by or for the account of Tenant, without expense to
Landlord, and which can be removed without structural or other material damage
to the Building (all of which are herein called "Tenant's Property") shall be
and remain the property of Tenant and may be removed by it at any time during
tile Term; provided, however, that any equipment or other property for which
Landlord has granted any allowance or credit to Tenant or which is a replacement
for items originally provided by Landlord at Landlord's expense shall not be
considered Tenant's Property. Upon the expiration or earlier termination of
this Lease, Tenant shall remove from the Premises all of Tenant's Property
except such items as the parties shall have agreed are to remain and become the
property of Landlord and Tenant shall repair or pay the costs of repairing any
damage to tile Premises or to the Building resulting from such removal.
Tenant's obligations under this Section 7.2 shall survive the termination of
this Lease. Any items of Tenant's Property that remain in the Premises after
the expiration or earlier termination of this Lease may, at the option of
Landlord, be deemed abandoned and in such case may either be retained by
Landlord as its property or be disposed of, without accountability, at Tenant's
expense in such manner as Landlord may see fit. In no event shall Tenant have
any obligation to remove any of the initial Tenant Improvements further defined
in Exhibit C.
5. Environmental
To the best knowledge of Landlord, (i) no Hazardous Material is present in, on
or under the Building or Property or the soil, surface water or groundwater
thereof, (ii) no underground storage tanks are present on the Property, and
(iii) no action, proceeding or claim is pending or threatened regarding the
Property concerning any Hazardous Material or pursuant to any Hazardous
Materials laws. Under no circumstance shall Tenant be liable for, and Landlord
shall indemnify, defend and hold harmless Tenant, its agents, contractors,
stockholders, directors, successors, representatives, and assigns from and
against, all losses, costs, claims, liabilities and damages (including
attorneys' and consultants' fees) of every type and nature, directly or
indirectly arising out of or in connection with any Hazardous Material present
at any time on or about the Property, or the soil, air, improvements,
groundwater or surface water thereof, or the violation of any laws, orders or
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regulations, relating to any such Hazardous Material, except to the extent that
any of the foregoing actually results from the release or emission of Hazardous
Material by Tenant or its agents or employees in violation of applicable
Hazardous Materials laws.
6. Approvals
Notwithstanding anything to the contrary in the Lease Form, whenever the Lease
requires an approval, consent, designation, determination or judgment by either
Landlord or Tenant, such approval, consent, designation, determination or
judgement (including, without limiting the generality of the foregoing, those
required in connection with assignment and subletting) shall not be unreasonably
withheld or delayed and in exercising any right or remedy hereunder, each party
shall at all times act reasonably and in good faith.
7. Reasonable Expenditures
Notwithstanding anything to the contrary in the Lease Form, any expenditure by
a party permitted or required under the Lease, for which such party is entitled
to demand and does demand reimbursement from the other party, shall be limited
to the fair market value of the goods and services involved, shall be reasonably
incurred, and shall be substantiated by documentary evidence available for
inspection and review by the other party or its representative during normal
business hours.
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EXHIBIT 10.9
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT (the "Agreement") is made and entered into
as of ______________, 1997, between Andromedia, Inc., a California corporation
(the "Company"), and ______________ ("Executive"). The parties to this Agreement
shall be referred to herein as each, a Party, and collectively, the Parties.
WHEREAS Executive is a key employee of the Company, and currently holds
(i) shares of the Company's capital stock and/or (ii) options, warrants or
rights to purchase shares of the Company's capital stock (collectively, the
"Securities") which are subject to certain vesting restrictions and rights of
repurchase in favor of the Company; and
WHEREAS in order to ensure Executive has an opportunity to acquire and/or
maintain an equity interest in the Company as an incentive for Executive to
participate in the affairs of the Company, the Company is willing to provide
Executive with an accelerated vesting schedule for those Securities currently
held or hereafter acquired by Executive according to the terms and conditions
contained herein.
NOW THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, the Parties agree as follows:
1. Accelerated Vesting of the Securities.
-------------------------------------
(a) In the event of a Change of Control (as defined in Section 1(b)(i)
below) of the Company and if the Executive's employment with the surviving
company is Involuntarily Terminated (as defined in Section 1(b)(ii) below)
within twelve (12) months following such Change of Control, (i) one hundred
percent (100%) of the unvested portion of the Securities held by the Executive,
if any, shall automatically be accelerated such that Executive shall have the
right to exercise all or any portion of such Securities immediately prior to
such Change of Control, and/or (ii) the Company's repurchase right shall
automatically lapse immediately prior to such Change of Control with respect to
one hundred percent (100%) of the Securities held by Executive which are subject
to such repurchase right; provided, however, that if the shares of capital stock
subject to the Company's repurchase right were purchased by Executive pursuant
to an early exercise provision under an option, warrant or other right to
purchase shares of the Company's capital stock (an "Early Exercise Option"),
then for the purpose of calculating the acceleration of the lapse of the
Company's repurchase right, such shares of capital stock shall be aggregated
with the shares of the Company's capital stock still subject to the Early
Exercise Option, if any.
(b) (i) A "Change of Control" shall, for the purposes of the foregoing,
mean a sale of all or substantially all of the assets or a stock tender or a
merger, consolidation or similar event pursuant to a transaction or series of
related transactions in which a third party acquires more than fifty percent
(50%) of the voting equity securities of the Company outstanding immediately
prior to such Change of Control.
(ii) An "Involuntary Termination" shall mean (1) a termination
initiated by the surviving company, other than a termination due to acts of
dishonesty, conviction of a felony or willful
<PAGE>
misconduct by Executive or (2) a termination initiated by Executive as a result
of a material diminution in salary, a material change in responsibility or a
change in work location of more than 30 miles from the then current job
location.
(c) Notwithstanding the foregoing, in the event any acceleration of
unvested Shares would prevent an acquisition from being treated as a "pooling-
of-interests" for financial accounting purposes by the surviving entity, and
such treatment is a condition to the acquisition, the foregoing benefits shall
be equitably adjusted to the extent necessary to effectuate such treatment.
2. Adjustment for Changes in Capital Stock. All references to the number of
---------------------------------------
Securities in this Agreement shall be appropriately adjusted to reflect any
stock split, stock dividend, stock combination or other change in the Shares
which may be made by the Company after the date of this Agreement.
3. General Provisions.
------------------
(a) This Agreement shall be governed by the laws of the State of
California (without regard to principles of conflict of laws).
(b) Any notice, demand or request required or permitted to be given by
either the Company or Executive pursuant to the terms of this Agreement shall be
in writing and shall be deemed given when delivered personally or deposited in
the U.S. mail, First Class with postage prepaid, and addressed to the parties at
such addresses as have been previously furnished by the Parties or such other
address as a Party may request by notifying the other in writing.
(c) The rights and obligations of Executive under this Agreement may not
be transferred or assigned without the prior written consent of the Company.
(d) This Agreement is meant to supplement the terms of the restricted
stock purchase agreement, stock option agreement or other agreement pursuant to
which Executive acquired the Securities. To the extent that the terms and
conditions of this Agreement are inconsistent with those found in the restricted
stock purchase agreement, stock option agreement or other agreement, the terms
and conditions of this Agreement shall be controlling.
(e) Any Party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such provision or
provisions, nor prevent any Party from thereafter enforcing each and every other
provision of this Agreement. The rights granted the Parties herein are
cumulative and shall not constitute a waiver of any Party's right to assert all
other legal remedies available to it under the circumstances.
(f) Executive agrees upon request to execute any further documents or
instruments necessary or desirable to carry out the purposes or intent of this
Agreement.
(g) In case any provision of this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired.
<PAGE>
(h) This Agreement, in whole or in part, may be modified, waived or amended
upon the written consent of (i) the Company and (ii) Executive.
(i) By Executive's signature below, Executive represents that he is
familiar with the terms and provisions of this Agreement, and hereby accepts
this Agreement subject to all of the terms and provisions set forth herein.
Executive has reviewed this Agreement in its entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Agreement and fully
understands all provisions of this Agreement. Executive agrees to accept as
binding, conclusive and final all decisions or interpretations of the Board of
Directors of the Company upon any questions arising under this Agreement.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which shall constitute one instrument.
EXECUTIVE ANDROMEDIA, INC.
_______________________ By:_______________________
Signature Signature
____________________ Title:____________________
Print Name Print Name
<PAGE>
Change of Control Agreement
EXHIBIT A
---------
CONSENT OF SPOUSE
I, ____________________, spouse of Executive, have read and approve the
foregoing Agreement. In consideration of granting to my spouse the Securities
of Andromedia, Inc., as referenced in the recitals to the Agreement, I hereby
appoint my spouse as my attorney-in-fact in respect to the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in said Agreement under the community
property laws or similar laws relating to marital property in effect in the
state of our residence as of the date of the signing of the foregoing Agreement.
Dated: ___________________, ______
______________________________
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Registrant:
LikeMinds, Inc., a California corporation.
Andromedia Europe, Ltd., a United Kingdom Company.
<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
August 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
August 23, 1999
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<PAGE>
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