<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1999
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ANDOVER.NET, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 04-3153168
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
50 NAGOG PARK
ACTON, MA 01720
(978) 635-5300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
BRUCE A. TWICKLER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ANDOVER.NET, INC.
50 NAGOG PARK
ACTON, MA 01720
(978) 635-5300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
DAVID P. KREISLER, ESQUIRE WILLIAM J. GRANT, JR., ESQUIRE
HUTCHINS, WHEELER & DITTMAR WILLKIE FARR & GALLAGHER
A PROFESSIONAL CORPORATION 787 SEVENTH AVENUE
101 FEDERAL STREET NEW YORK, NY 10019
BOSTON, MASSACHUSETTS 02110 (212) 728-8000
(617) 951-6600
</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 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 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 earlier
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share............... $69,000,000 $19,182.00
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 1999
- --------------------------------------------------------------------------------
4,000,000 shares of common stock $ per share
Andover net
The Leading Linux Destination
[LOGO]
<TABLE>
<S> <C> <C> <C>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
Andover.Net, Inc. Andover.Net is the leading Linux/Open
50 Nagog Park Source destination on the Internet. Our
Acton, MA 01720 network of web sites provides an
We have applied for approval for listing of our shares on the Nasdaq independent, unbiased source for content,
National Market under the symbol "ANDN." community and commerce for the Linux and,
more generally, the Open Source
communities.
This is our initial public offering and
no public market currently exists for our
shares. We expect that the public
offering price will be between $12.00 and
$15.00 per share. This price may not
reflect the market price of our shares
after this offering.
PER SHARE TOTAL
<S> <C> <C> <C>
Public Offering Price........................... $ $
Underwriting Discount........................... $ $
Proceeds to Andover.Net......................... $ $
We have granted the underwriters the right to purchase up to 600,000
additional shares within 30 days to cover any over-allotments. The
underwriters expect to deliver shares of common stock to purchasers
on , 1999.
</TABLE>
- --------------------------------------------------------------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES
ONLY IF YOU CAN AFFORD A COMPLETE LOSS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Neither the Securities and Exchange Commission nor any state OPEN IPO WR HAMBRECHT & CO [LOGO]
securities commission has approved or disapproved of these securities
or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The method of distribution being used by the underwriters in this
offering differs somewhat from that traditionally employed in firm
commitment underwritten public offerings. In particular, the public
offering price and allocation of shares will be determined primarily
by an auction process conducted by the underwriters and other
securities dealers participating in the offering. A more detailed
description of this process is included in "Plan of Distribution."
</TABLE>
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WR HAMBRECHT & CO [LOGO]
ADVEST, INC.
DLJdirect INC.
- --------------------------------------------------------------------------------
The date of this prospectus is _____ , 1999
<PAGE> 3
[ANDOVER.NET LOGO]
Andover.Net is the leading Linux/Open Source destination on the Internet.
Our network of web sites serves over 2 million unique visitors and 40 million
page views on a monthly basis. We provide an independent, unbiased source
for content, community and commerce for the Linux and, more generally, the Open
Source communities. We provide products, online tools, news and other services
for programmers, software developers, web site designers, technology managers
and corporate buyers.
LINUX RESOURCE SITES--VISITS
[PIE CHART]
<TABLE>
<S> <C>
Andover.Net includes: Slashdot, FreeCode, and Freshmeat..... 51.1%
SSC Includes: SSC, Linux Resources, Linux Gazette and
Linux Journal............................................. 6.7%
Other....................................................... 6.5%
VA Linux includes: Themes.org and Linux.com................. 3.5%
Linux Today................................................. 4.9%
Linux Documentation Project................................. 4.4%
Linux News.................................................. 3.7%
Linux Online................................................ 19.2%
[SLASHDOT LOGO]
[FREECODE LOGO]
[FRESHMEAT.NET LOGO]
</TABLE>
Source: Linux Journal, August 1999.
These numbers were collected on May 13, 1999.
"Visits" are accumulated over the previous six months.
<PAGE> 4
LINUX/OPEN SOURCE SITES
SLASHDOT.ORG
News for Nerds. Stuff that Matters. A leading
voice for the Open Source community.
[Screen Shot] http://www.andover.net
FRESHMEAT.NET FREECODE
One of the largest downloadable Linux A comprehensive archive
software application repositories. of free source code.
[Screen Shot] [Screen Shot]
<PAGE> 5
CROSS-PLATFORM SITES
<TABLE>
<S> <C> <C>
DAVECENTRAL MEDIABUILDER ANDOVER NEWS
Over 10,000 downloadable Complete online multimedia Searchable computer-industry news
products for both Linux resource center, including and editorials.
and Windows. online tools.
[Screen Shot] [Screen Shot] [Screen Shot]
</TABLE>
<TABLE>
<S> <C>
IT MANAGER'S JOURNAL INTERNET TRAFFIC REPORT
Editorials and summaries for Monitors the flow of data around
IT managers. the world.
[Screen Shot] [Screen Shot]
</TABLE>
WINDOWS SITE
SLAUGHTERHOUSE
Free Windows applications and news.
<PAGE> 6
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 our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
------------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.......................................... 1
The Offering................................................ 2
Summary Financial Data...................................... 3
Risk Factors................................................ 4
Special Note Regarding Forward Looking Statements........... 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 31
Management.................................................. 43
Principal Stockholders...................................... 48
Relationships with Andover.Net and Related Transactions..... 50
Description of Capital Stock................................ 52
Shares Eligible for Future Sale............................. 55
Plan of Distribution........................................ 56
Legal Matters............................................... 59
Experts..................................................... 59
Where You Can Find Additional Information................... 60
Index to Financial Statements............................... F-1
------------------------
Andover.Net and the Andover.Net logo are trademarks of Andover.Net, Inc.
All other trademarks, tradenames or copyrights referred to in this prospectus
are the property of their respective owners.
Information contained on our network does not constitute a part of this
prospectus.
<PAGE> 7
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 8
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes appearing elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully.
<TABLE>
<S> <C>
Our Business: Andover.Net is the leading Linux/Open Source destination on
the Internet. Our network of web sites provides an
independent, unbiased source for content, community and
commerce for the Linux and, more generally, the Open Source
communities. We provide products, online tools, news and
other services for programmers, software developers, web
site designers, technology managers and corporate buyers.
Our network generates over 40 million page views with over
two million unique visitors on a monthly basis. With our
recent acquisitions of Slashdot.org and Freshmeat.net, we
believe that traffic on our network represents over 50% of
the visits to Linux resource sites on the World Wide Web, or
web. This leading position in the Linux market allows us to
provide advertisers targeted access to the Linux/Open Source
communities. We have over 100 advertisers on our network.
Our top five advertisers based on cash revenues for the six
months ended August 31, 1999 were IBM, Compaq, Silicon
Graphics, Hewlett-Packard and Intel.
Our Network: We combine our Linux/Open Source web sites with other web
sites to provide programmers and developers with a leading
online resource regardless of operating system. Our closely
integrated network consists of web sites that are deep and
rich in content. Our network includes:
</TABLE>
<TABLE>
<S> <C> <C> <C>
LINUX/OPEN SOURCE CROSS-PLATFORM WINDOWS
- Slashdot - DaveCentral - Slaughter House
- Freshmeat - MediaBuilder
- FreeCode - Andover News
- IT Manager's Journal
- Internet Traffic Report
</TABLE>
<TABLE>
<S> <C>
Our Strategy: Our goal is to maintain and enhance our position as the
leading destination for content, community and commerce for
the Linux and, more generally, the Open Source movement. The
key elements of our strategy are to:
- grow the size and share of our dominant Linux/Open Source
position;
- facilitate and guide the transition of Windows developers
to Linux/Open Source;
- expand our e-commerce offerings to our targeted, high
volume traffic;
- acquire complementary Linux/Open Source web sites;
- expand the number and participation of major advertisers;
and
- strengthen the Andover.Net brand.
Linux/Open Source The Internet has accelerated the growth of the Open Source
Movement: movement. The Open Source movement is a collaborative
approach to the development and distribution of software and
has emerged as a viable alternative to traditional
proprietary software development. The growth of the Internet
has greatly increased the scale and efficiency of Open
Source development by enabling large communities of
independent developers to collaborate online. The best-known
example of Open Source is the Linux operating system, or
Linux, created by Linus Torvalds in 1991. Due to the growing
number of Linux/Open Source operating systems and related
applications, a number of major technology industry leaders,
including IBM, Intel and Hewlett-Packard, have recently
announced support for Linux-based operating systems.
According to International Data Corporation, Linux-based
operating systems represented 17% of all new licensed
shipments of server operating systems in 1998, which was an
increase of 190% from the previous year.
</TABLE>
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1
<PAGE> 9
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We were founded in 1992 as Andover Advanced Technologies, Inc., a
Massachusetts corporation. We reincorporated in Delaware and changed our name to
Andover.Net, Inc. in September 1999. Our headquarters are located at 50 Nagog
Park, Acton, Massachusetts, 01720 and our telephone number is (978) 635-5300.
Information about Andover.Net is available at www.andover.net. Information
contained on our network of web sites does not constitute part of this
prospectus.
THE OFFERING
<TABLE>
<S> <C>
Type of Security............................. Common stock
Common stock offered......................... 4,000,000 shares
Common stock to be outstanding after the 15,000,000 shares
offering...................................
Use of proceeds.............................. For redemption of redeemable preferred stock,
potential strategic acquisitions and general
corporate purposes, including working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... ANDN
</TABLE>
References to "we," "us" or "Andover.Net" shall refer to Andover.Net, Inc.
and all predecessor entities.
Except as otherwise noted, all information in this prospectus assumes:
- no exercise of the underwriters' over-allotment option;
- no exercise of those options to purchase shares of common stock remaining
outstanding after the completion of this offering;
- the shares of common stock to be issued upon the closing of this offering
in connection with the acquisition of Slashdot.org, Freshmeat.net and
Animation Factory have not been issued;
- the conversion of all outstanding shares of Series B convertible
preferred stock into 3,017,138 shares of our common stock immediately
prior to the closing of this offering;
- the redemption of all outstanding shares of Series A redeemable preferred
stock immediately prior to the closing of this offering;
- the completion of a 5.02 for 1 stock split effective immediately prior to
the effectiveness of the registration statement of which this prospectus
forms a part; and
- an increase in our authorized common stock to 100,000,000 shares and the
authorization of 1,000,000 shares of undesignated preferred stock
effective immediately prior to the closing of this offering.
- --------------------------------------------------------------------------------
2
<PAGE> 10
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SUMMARY FINANCIAL DATA
The following table summarizes the financial data of our business. The pro
forma 1999 statements of operations data gives effect to the conversion of
convertible notes into Series B convertible preferred stock in September 1999,
the automatic conversion of the Series B convertible preferred stock into common
stock and the effects of the acquisition of Slashdot.org and Animation Factory.
See Note 2(j) of the Financial Statements and Notes thereto for discussion of
pro forma basic and diluted net loss per share.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------ ----------------------------
PRO FORMA
1996 1997 1998 1998 1999 1999
------ ------ ------ ------ ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues....................................... $ 316 $ 741 $1,290 $ 986 $ 1,109 $ 1,617
Gross profit................................... 287 438 963 731 679 914
Loss from operations........................... (573) (590) (445) (341) (2,309) (5,630)
Net loss....................................... (654) (664) (474) (374) (2,250) (7,335)
Net loss attributable to common stockholders... (654) (705) (608) (463) (2,510) (7,595)
Basic and diluted net loss per share........... $(0.38) $(0.29) $(0.12) $(0.09) $ (0.36) $ (1.06)
Basic and diluted weighted average common
shares outstanding........................... 1,763 2,468 5,110 5,106 6,990 7,169
Pro forma basic and diluted net loss per
share........................................ $(0.12) $ (0.32) $ (1.06)
Pro forma basic and diluted weighted average
common shares outstanding.................... 5,110 6,992 7,171
</TABLE>
The following table summarizes our balance sheet data as of June 30, 1999.
The pro forma column gives effect to the recent issuance and sale of 480,354
shares of Series B convertible preferred stock on September 15, 1999 and the
concurrent automatic conversion of all convertible notes into 120,214 shares of
Series B convertible preferred stock. The pro forma column also gives effect to
the automatic conversion of the Series B convertible preferred stock into
3,017,138 shares of common stock. The effects of the Slashdot.org and Animation
Factory acquisitions are included in the actual June 30, 1999 balance sheet data
below, as such acquisitions were consummated before June 30, 1999. The pro forma
as adjusted column reflects the sale of 4,000,000 shares of common stock offered
by Andover.Net at an assumed initial public offering price of $13.50 per share,
after deducting the estimated underwriting discount and assumed offering
expenses and the automatic redemption of all outstanding shares of Series A
redeemable preferred stock, including accrued dividends, of $4,713,000 which
will occur upon the closing of this offering. See "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,610 $11,710 $56,622
Working capital............................................. (1,146) 11,044 55,956
Total assets................................................ 5,170 15,270 60,182
Long-term obligations, less current portion................. 487 487 487
Redeemable convertible preferred stock...................... 4,713 4,713 --
Stockholders' equity (deficit).............................. (3,221) 8,969 58,594
</TABLE>
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3
<PAGE> 11
RISK FACTORS
You should carefully consider the following risks and all other information
contained in this prospectus before you decide to buy our common stock.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations. If any of the
following risks actually occur, our business, financial condition or operating
results could suffer. If this occurs, the trading price of our common stock
could decline, and you could lose all or part of the money you paid to buy our
common stock.
RISKS RELATED TO ANDOVER.NET
WE HAVE A LIMITED OPERATING HISTORY AS AN INTERNET COMPANY.
Although we began operating in May 1992, we only commenced our Internet
focus in 1997. Thus, we have a limited operating history in our current market
upon which you can evaluate our business. We are subject to the risks, expenses
and uncertainties frequently encountered by companies in the new and rapidly
evolving markets for Internet products and services. For example:
- we might fail to continue to develop and extend our Internet-based
content offerings and services;
- we might not effectively integrate our recent acquisitions;
- Internet users, vendors or advertisers may not accept our services;
- we might be unable to maintain and increase the levels of traffic on our
network;
- our competitors may develop or may already have developed similar or
superior content, services or products;
- the market might not continue to accept the Internet as an advertising
medium;
- we might be unable to sell Internet advertising successfully;
- market prices for Internet advertising may drop as a result of
competition;
- we might not effectively integrate the technology and operations of any
acquired businesses or technologies with our operations;
- the technologies we use in our operations might fail or operate poorly;
and
- we might be unable to identify, attract, retain and motivate qualified
personnel.
We might not be successful in addressing these risks or other risks we may
face. If we are unable to address these risks adequately, our business, results
of operations and financial condition may suffer.
WE EXPECT TO INCUR SUBSTANTIAL LOSSES IN THE FUTURE.
We have incurred operating losses since our inception in 1992, including
our most recent fiscal year ended September 30, 1998 and the nine months ended
June 30, 1999. We expect to incur significant losses in the near term as we
substantially increase our sales and marketing, general and administrative, and
research and development expenses. In addition, we are investing considerable
resources in our expansion strategies. As a result, we cannot be certain when or
if we will achieve sustained profitability. Failure to become and remain
profitable may materially and adversely affect the market price of our common
stock and our ability to raise capital and continue operations.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
Our quarterly operating results have fluctuated, and may continue to
fluctuate significantly in the future because of a variety of factors, many of
which are outside our control. These factors include:
- the level of Internet usage;
- traffic levels on our network;
- the demand for advertising on our network, as well as on the Internet in
general;
4
<PAGE> 12
- changes in rates paid for Internet advertising resulting from
competition or other factors;
- our ability to enter into or renew key agreements with our advertisers
and vendors;
- the acceptance of our e-commerce strategy;
- the amount and timing of costs related to our marketing efforts;
- costs incurred as we expand operations;
- our ability to introduce new content offerings and services
successfully;
- seasonality of our business;
- new services introduced by us or our competitors;
- technical difficulties or system downtime affecting the Internet
generally or the operation of our network; and
- economic conditions specific to the Internet as well as general economic
conditions.
Therefore, operating results for any particular quarter might not be
indicative of future operating results. If our e-commerce strategy does not
generate a significant amount of revenue, then we expect to depend primarily on
advertising revenues for the foreseeable future. As a result, the level of
advertising revenues in each quarter is likely to significantly affect our
quarterly revenues and operating results. Our selling and marketing, general and
administrative, and research and development expenses are based on expectations
of future revenues and are relatively fixed in the short term. These expenses
totaled approximately $1.0 million during the three months ended June 30, 1999.
If our advertising and other revenues are lower than expected, we might not be
able to reduce spending quickly. In addition, we intend to significantly
increase operating expenses to expand our business. Any shortfall in revenues
would have a direct impact on operating results for a particular quarter, and
these fluctuations could affect the market price of our common stock.
ATTEMPTS TO EXPAND BY MEANS OF ACQUISITIONS AND STRATEGIC ALLIANCES MAY NOT BE
SUCCESSFUL.
We intend to expand our operations or market presence by entering into
business combinations, investments, joint ventures or other strategic alliances
both in the United States and internationally. We may not, however, be able to
enter into such combinations and alliances. Furthermore, any such expansion may
harm our operational efficiency, financial performance and relationships with
employees and third parties. Our ability to expand in this way may be limited
due to the many financial and operational risks accompanying these transactions.
For example:
- we may have difficulty assimilating the operations, technology and
personnel of any acquired companies;
- the allocation of resources to consummate these transactions may disrupt
our business;
- we may have problems retaining key technical and managerial personnel
from acquired companies;
- we may experience one-time, in-process research and development charges
as well as ongoing expenses associated with amortization of goodwill and
other purchased intangible assets;
- our stockholders will be diluted if we issue equity to fund these
transactions;
- acquired businesses may initially be unprofitable resulting in our
assumption of operating losses and increased expenses;
- our reputation may be harmed if the Linux/Open Source communities do not
approve of these transactions; and
- our relationships with existing employees, customers and business
partners may be weakened or terminated as a result of these
transactions.
5
<PAGE> 13
Furthermore, we have acquired and intend to continue to acquire
complementary web sites, companies, technologies, services and products as
appropriate opportunities arise. If we identify an appropriate acquisition
opportunity, we might not be able to negotiate the terms of that acquisition
successfully, obtain financing, or integrate the acquired company's personnel
and operations. We may also have difficulty continuing to acquire web sites and
other Internet media properties at the prices historically paid due to the
escalation of Internet media valuations. If we make acquisitions outside of our
core business, assimilating the acquired technology, services or products into
our operations could be difficult. This may cause a disruption in our ongoing
business, distract management and make it difficult to maintain standards,
controls and procedures. In addition, we might be required to incur debt or
issue equity securities to pay for any future acquisitions. If the market price
for acquisition targets increases substantially, our business, results of
operations and financial condition could suffer.
WE RELY ON THE GROWTH OF THE LINUX/OPEN SOURCE MOVEMENT.
Our business relies on the growth of Linux operating systems. If users
choose a different operating system, and the use of Linux operating systems
decreases or does not grow, then our business, results of operations and
financial condition will suffer. Moreover, if a competitor subverts further
development or adoption of the Open Source software movement by tying the Open
Source modules into a proprietary operating system or developing proprietary
applications that promote their control over the distribution and influence of
Linux operating systems, then our business would be harmed. If a competitor were
able to convert the essentially open nature of Linux operating systems into a
proprietary system, our business, results of operations and financial condition
would suffer.
NEGATIVE REACTION WITHIN THE OPEN SOURCE COMMUNITY TO OUR BUSINESS STRATEGY
COULD HARM OUR REPUTATION AND BUSINESS.
Some members of the Open Source community have criticized the
commercialization of the Open Source movement. This type of negative reaction,
if widely shared by our visitors, developers or the rest of the Open Source
community, could harm our reputation and diminish the Andover.Net brand. Our
business, results of operations and financial condition could suffer.
WE HAVE A SIGNIFICANT AMOUNT OF NET INTANGIBLE ASSETS.
We had approximately $2.9 million of net intangible assets as of June 30,
1999. Of these intangible assets $2.3 million relates to goodwill. If we are
unable to recover the recorded amounts of our intangible assets, our business,
results of operations and financial condition will suffer.
WE RELY HEAVILY ON ADVERTISING REVENUES.
As we execute our Internet strategy, we expect to continue to derive a
majority of our revenue from advertising on our network for the foreseeable
future. We may not generate these revenues if advertisers do not maintain or
increase their current levels of Internet advertising. As there is no industry
standard for the measurement of the effectiveness of Internet advertising,
advertisers that currently advertise on the Internet may reduce or eliminate
this form of advertising, and advertisers that have traditionally relied upon
other advertising media may be reluctant to begin to advertise on the Internet.
Moreover, widespread adoption of currently available software programs that
limit or prevent advertisements from being delivered to an Internet user's
computer would negatively affect the commercial viability of Internet
advertising and would further deter advertisers from increasing or maintaining
current levels of Internet advertising. Our ability to execute our Internet
strategy successfully will suffer if the market for Internet advertising fails
to develop or develops more slowly than expected.
Different pricing models are used to sell advertising on the Internet. It
is difficult to predict which, if any, will emerge as the industry standard. If
we cannot quickly and successfully respond to changes in pricing models for
Internet advertising, or identify and adopt any industry standards that may
emerge, we will not be able to attract a sufficient number of advertising
customers, and our Internet advertising strategy will fail.
6
<PAGE> 14
We expect that it will be important to our advertisers that we accurately
measure the demographics of the visitors to our network. If we are unable to
provide this demographic data for any reason, or if it becomes costly to do so,
then companies may choose not to advertise on our network or may pay less for
advertising on our network.
A SIGNIFICANT PORTION OF OUR REVENUES COMES FROM A LIMITED NUMBER OF
ADVERTISERS.
We have derived our revenues to date from a limited number of advertising
customers, and we expect that a limited number of advertisers will continue to
account for a significant portion of our revenues. In particular, one advertiser
accounted for approximately 17% of our cash advertising revenues for the six
month period ended June 30, 1999, and our top ten advertisers accounted for an
aggregate of approximately 65% of our revenues for the six month period ended
June 30, 1999. Moreover, we generally sell advertising through the use of
insertion order agreements that are subject to cancellation with no minimum
notice requirement. Current advertisers may not continue to purchase advertising
from us, or we may not be able to attract additional advertisers. If we lose one
or more of the advertisers that represent a material portion of our revenues, or
if we experience the non-payment or late payment of amounts due by a significant
advertiser, our business, results of operations and financial condition could
suffer.
WE MAY FAIL TO DEVELOP AND PROMOTE OUR NETWORK EFFECTIVELY, WHICH MAY PREVENT US
FROM ATTRACTING NEW VISITORS, ADVERTISERS OR E-COMMERCE PARTNERS TO OUR NETWORK.
Enhancing our network is critical to our ability to increase our revenue.
In order to attract and retain Internet users, advertisers and e-commerce
partners, we intend to substantially increase our expenditures to further
promote and develop our network. Our success in developing and promoting the
Andover.Net network will also depend on our ability to provide high quality
content, features and functionality. If we fail to promote our network
successfully or if visitors to our network or advertisers do not perceive our
services to be useful, current or of high quality, our business, results of
operations and financial condition will suffer.
WE DEPEND ON AN EFFECTIVE DIRECT SALES FORCE.
We depend on our direct sales force to sell advertising on our network.
This dependence involves the following risks:
- the need to increase the size of our direct sales force;
- the need to hire, retain, integrate and motivate additional sales and
sales support personnel;
- lack of experience of our new sales personnel; and
- competition from other companies in hiring and retaining sales
personnel.
Our business, results of operations and financial condition may suffer if
we do not maintain an effective direct sales force.
WE FACE INTENSE COMPETITION IN OUR INDUSTRY.
The market for Internet-based content offerings and services is relatively
new, intensely competitive and rapidly changing. Since the advent of commercial
services on the Internet, the number of online services competing for users'
attention and spending has proliferated. We expect that competition will
continue to intensify. We compete with other web sites which are aimed
specifically at Linux/Open Source users as well as other companies that direct
some of their overall web content and services at the Internet professional
community. We also compete for circulation with general interest portal and
destination web sites as well as traditional media.
In addition, the competition in the sale of advertising on the Internet,
including competition from Internet portals and other high-traffic sites, is
intense. This competition has resulted in a wide range of rates quoted by
different vendors for a variety of advertising services. As a result, we cannot
accurately predict the future levels of Internet advertising revenues that we
will realize. The prices for Internet advertising may also
7
<PAGE> 15
be affected by competition among current and future suppliers of Internet
navigational services or web sites and advertising networks. This, together with
competition with other traditional media for advertising placements, could
result in significant price competition, reduced pricing for Internet
advertising and reductions in our advertising revenues.
The market for Internet based content offerings focusing on the Linux-based
operating system is new and growing rapidly. This market is based on Open Source
software. If one of our Linux-based competitors were to make essential aspects
of this industry proprietary, it could harm our business.
An important part of our strategy is to develop and increase the reputation
of our brand names. If we are unable to do so, or if our competitors develop
their brand names more successfully than we do, our future growth, business,
results of operations and financial condition would suffer.
Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition and significantly
greater financial, marketing and other resources than we have. These competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements and to devote greater resources to the development,
promotion and sale of their products and services than we can. We might not be
able to compete successfully against our current or future competitors.
WE MIGHT NOT BE ABLE TO ADEQUATELY MANAGE OUR GROWTH.
Our recent growth has placed, and will continue to place, a significant
strain on our managerial, operational and financial resources. We must continue
to implement and improve our operational and financial systems and expand, train
and manage our employee base to manage this future growth. We also intend to
establish or acquire additional web sites which will create additional
operational and management complexities. In addition, we expect that our
operational and management systems will face increased strain as a result of the
expansion of our content offerings and services. We might not be able to manage
effectively the expansion of our operations and systems, and our procedures and
controls might not be adequate to support our operations. In addition, our
management might not be able to make and execute decisions rapidly enough to
exploit market opportunities for the expansion of our content offerings and
services. If we are unable to manage our growth effectively, our business,
results of operations and financial condition would suffer.
WE DEPEND ON THE CONTINUED SERVICE OF OUR KEY OFFICERS.
Our future success depends on the continued services of a number of key
officers. The loss of the technical knowledge and industry expertise of any of
these officers could seriously impede our success. If we lose one or a group of
our key employees, particularly to a competitor, our business, financial
condition and results of operations could suffer. Andover.Net does not currently
have a chief financial officer, although it is in active discussions with
qualified individuals to fill this position and will have a chief financial
officer before the closing of this offering.
WE ARE VULNERABLE TO UNEXPECTED NETWORK INTERRUPTIONS CAUSED BY SYSTEM FAILURES,
WHICH MAY RESULT IN
REDUCED VISITOR TRAFFIC ON OUR NETWORK, DECREASED REVENUE AND HARM TO OUR
REPUTATION.
Substantially all of our communications hardware and other hardware related
to our web sites is located at one location, although we are considering
duplicating them at other facilities within the next six months. Fire, floods,
hurricanes, tornadoes, earthquakes, power loss, telecommunications failures,
break-ins and similar events could damage these systems. In addition, although
we have implemented network security measures, our servers are vulnerable to
computer viruses, electronic break-ins, human error and other similar disruptive
problems which could adversely affect our systems and web sites. Although we try
to prevent unauthorized access to our systems, we cannot eliminate this risk
entirely. We could lose revenue and suffer damage to our reputation if any of
these occurrences affected our systems. Our insurance policies may not
adequately compensate us for any losses that may occur due to failures or
interruptions in our systems.
8
<PAGE> 16
OUR SYSTEMS MAY FAIL OR EXPERIENCE A SLOWDOWN AND OUR USERS DEPEND ON OTHERS FOR
ACCESS TO OUR NETWORK.
Our network must accommodate a high volume of traffic and deliver
frequently updated information. Our network has in the past, and may in the
future, experience slower response times or decreased traffic for a variety of
reasons. Slower response times can result from general Internet problems,
routing and equipment problems by third-party Internet access providers,
problems with third-party advertising servers and increased traffic to our
servers. Our network could experience interruptions in service due to the
failure or delay in the transmission or receipt of this information. In
addition, our community of Internet users depends on Internet service providers,
online service providers and other web sites' operators for access to our
network. Those providers have experienced outages in the past, and may
experience outages or delays in the future. Moreover, our Internet
infrastructure might not be able to support continued growth of our network. If
we experience any of these problems, our reputation and brand name could suffer,
users might perceive our network as not functioning properly and our business,
results of operations and financial condition could suffer.
OUR SOFTWARE PRODUCTS, AS WELL AS THOSE OF OUR CUSTOMERS AND SUPPLIERS, COULD
FAIL AS A RESULT OF THE YEAR 2000 PROBLEM.
Our business will suffer if the computer systems we use, as well as the
computer systems used by our Internet users, advertisers and vendors, do not
correctly process the change in year from "99" to "00" on January 1, 2000. We
are working to avoid such problems and to obtain assurances from our
advertisers, vendors and other service providers that they are taking similar
steps. We believe that our computer systems will successfully handle the year
2000 issue, but there may be parts of our computer systems and aspects of the
year 2000 issue, including the potential cost of addressing the year 2000 issue,
that we have failed to consider. If our efforts and the efforts of our users,
advertisers, vendors and other service providers to address the year 2000 issue
are not successful, our business, results of operations and financial condition
could suffer.
OUR FAILURE TO UPDATE AND MODERNIZE OUR INTERNAL SYSTEMS, PROCEDURES AND
CONTROLS MAY PREVENT THE IMPLEMENTATION OF OUR BUSINESS STRATEGIES IN A RAPIDLY
EVOLVING MARKET AND MAY LIMIT OUR FUTURE GROWTH.
Our operational and financial systems, procedures and controls, which are
adequate for a small private company, may become outdated as we grow. Our
business could suffer if we fail to improve our transaction processing and
reporting systems and procedures, or to expand and train our expanding workforce
quickly enough to maintain a competitive position in our markets. In addition,
failure to quickly replace obsolete systems, procedures and controls could
impede our management's decision-making abilities. This, in turn, may impair our
ability to pursue business opportunities and may hamper future growth.
THE AVAILABILITY OF BARTER TRANSACTIONS MAY BE LIMITED.
We engage in barter transactions, which reduce cash expenditures in
marketing and other areas, and leverage our advertising inventory. Barter is the
exchange by us of advertising space on our network for reciprocal advertising
space on other web sites. During the nine months ended June 30, 1999, 40% of our
viewable pages contained bartered advertisements. In the future, our ability to
barter may be limited due to a lack of availability or willingness of other web
sites to enter into barter transactions. This could increase our expenses which
could harm our business.
OUR EFFORTS TO PROTECT OUR TRADEMARKS MAY NOT BE ADEQUATE TO PREVENT THIRD
PARTIES FROM MISAPPROPRIATING OUR INTELLECTUAL PROPERTY RIGHTS.
We use a number of trademarks which contribute to drawing visitors to our
web sites. We have taken steps to register our most important trademarks in the
United States; however, we are uncertain as to whether a trademark owner in the
United States or another country will have superior rights that will result in
our inability to continue to use one or more of our trademarks. The protective
steps we have taken in the past have been, and may in the future continue to be,
inadequate to deter misappropriation of our trademark rights.
9
<PAGE> 17
Although we do not believe that we have suffered any material harm from
misappropriation to date, we may be unable to detect the unauthorized use of, or
take appropriate steps to enforce, our trademark rights. Effective trademark
protection may not be available in every country in which we offer or intend to
offer our products and services. Failure to protect our trademark rights
adequately could damage or even destroy the Andover.Net brand and impair our
ability to compete effectively. Furthermore, defending or enforcing our
trademark rights could result in the expenditure of significant financial and
managerial resources.
THERE ARE A NUMBER OF RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS THAT COULD
HARM OUR BUSINESS.
One component of our growth strategy is to further expand into
international markets. We have operations in Europe and Asia. Our international
operations are at an early stage of development and have an extremely limited
operating history. In addition, the markets in which we have undertaken
international expansion have technology and online industries that are less
developed than those in the United States.
There are risks inherent in doing business in international markets, such
as the following:
- uncertainty of product acceptance by different cultures;
- unforeseen changes in regulatory requirements;
- difficulties in staffing and managing multinational operations;
- government imposed restrictions on the repatriation of funds;
- currency fluctuations;
- difficulties in finding appropriate foreign licensees or joint venture
partners; and
- potentially adverse tax consequences.
These factors could harm our ability to successfully operate
internationally and could harm our business.
RISKS RELATED TO OUR INTERNET STRATEGY
OUR FUTURE RESULTS DEPEND ON CONTINUED GROWTH IN THE USE OF THE INTERNET.
Our market is new and rapidly evolving. Our business could suffer if
Internet usage does not continue to grow. Internet usage may be inhibited for a
number of reasons, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service;
- lack of availability of cost-effective and high-speed service; and
- changes in government regulation of the Internet.
If Internet usage grows, the Internet infrastructure might not be able to
support the demands placed on it by this growth or its performance and
reliability may decline. In addition, future outages and other interruptions
occurring throughout the Internet could lead to decreased use of our network and
would therefore harm our business.
WE ARE VULNERABLE TO CLAIMS THAT OUR PRODUCTS INFRINGE THIRD PARTY INTELLECTUAL
PROPERTY RIGHTS PARTICULARLY BECAUSE OUR PRODUCTS ARE COMPRISED OF MANY DISTINCT
SOFTWARE COMPONENTS DEVELOPED BY THOUSANDS OF INDEPENDENT PARTIES.
We may be exposed to future litigation based on claims that our content
infringes on the intellectual property rights of others. This risk is
exacerbated by the fact that independent parties over whom we exercise no
supervision or control develop most of the code in our products. Claims of
infringement could require us
10
<PAGE> 18
to obtain licenses from third parties in order to continue offering our
products. In addition, an adverse legal decision affecting our intellectual
property, or the use of significant resources to defend against this type of
claim, could place a significant strain on our financial resources and harm our
reputation.
WE MAY BE SUED AS A RESULT OF INFORMATION PUBLISHED OR POSTED ON OR ACCESSIBLE
FROM OUR NETWORK.
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement or other claims relating to the information we publish on
our network. These types of claims have been brought, sometimes successfully,
against online services in the past, and can be costly to defend. We may also be
subjected to claims based on content that is accessible from our network through
links to other web sites or through content and materials that visitors to our
network may post. We believe that the scope and amount of our commercial and
general liability insurance is appropriate, given our current financial
position. However, this insurance may not adequately protect us against these
types of claims. We have not been a party to any lawsuit of this type to date.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS AND
RISKS TO DOING BUSINESS ON THE INTERNET.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may be
adopted in the future that address issues such as user privacy, pricing and the
characteristics and quality of products and services. For example, although it
was held unconstitutional, the Telecommunications Act of 1996 prohibited certain
types of information and content from being transmitted over the Internet.
Several other nations have taken actions to restrict the free flow of material
deemed to be objectionable on the Internet. In addition, local telephone
carriers have argued before the Federal Communications Commission that Internet
service providers and online service providers should be required to pay fees
for access to local telephone networks in a manner similar to long distance
telephone carriers. If these efforts are successful, costs for Internet access
could increase sharply. Moreover, it may take years to determine the extent to
which existing laws relating to issues such as property ownership, libel and
personal privacy are applicable to the Internet. Any new laws or regulations
relating to the Internet could harm our business.
REGULATION COULD REDUCE THE VALUE OF OUR DOMAIN NAMES.
We own the Internet domain name "andover.net" as well as numerous other
domain names both in the United States and internationally. Internet regulatory
bodies regulate domain names. The regulation of domain names in the United
States and in foreign countries is subject to change. Regulatory bodies could
establish additional top-level domains, appoint additional domain name
registrars or modify the requirements for holding domain names. As a result, we
might not acquire or maintain the "andover.net" or comparable domain names in
all the countries in which we conduct business, which could harm our business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear and still
evolving. Therefore, we might be unable to prevent third parties from acquiring
domain names that infringe or otherwise decrease the value of our trademarks and
other proprietary rights. If this occurs, our business, results of operations
and financial condition would suffer.
THE INTERNET INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE.
Rapid technological developments, evolving industry standards and user
demands, and frequent new product introductions and enhancements characterize
the market for Internet products and services. These market characteristics are
exacerbated by the emerging nature of the market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. Our future success will depend on our ability to continually
improve our content offerings and services. In addition, the widespread adoption
of developing technologies could require fundamental and costly changes in our
technology and could adversely affect the nature, viability and measurability of
Internet-based advertising, which could harm our business.
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<PAGE> 19
RISKS RELATED TO THIS OFFERING
THERE HAS BEEN NO PUBLIC TRADING MARKET FOR OUR STOCK PRIOR TO THIS OFFERING AND
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE.
There has not previously been a public market for our common stock. We
cannot predict the extent to which investor interest in Andover.Net will lead to
the development of a trading market or how liquid any trading market might
become. The initial public offering price for the shares of our common stock
might not reflect prices that will prevail in the trading market. The stock
market has experienced extreme price and volume fluctuations, and the market
prices of securities of technology companies, particularly Internet-related
companies, have been highly volatile. Investors might not be able to resell
their shares at or above the initial public offering price. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Such litigation could result in substantial costs and a diversion of
our management's attention and resources.
CONCENTRATION OF OWNERSHIP WILL LIMIT YOUR ABILITY TO INFLUENCE CORPORATE
MATTERS.
Immediately following this offering, our directors, executive officers and
their affiliates will beneficially own approximately 48.0% of our outstanding
common stock. These stockholders could significantly influence the outcome of
actions taken by us that require stockholder approval. For example, these
stockholders could significantly influence the election of our directors, delay
or prevent a transaction in which stockholders might receive a premium over the
prevailing market price for their shares and control changes in management.
PROVISIONS OF OUR CHARTER AND BY-LAWS MAY DELAY OR PREVENT TRANSACTIONS THAT
MANY STOCKHOLDERS MAY FAVOR.
Provisions of our certificate of incorporation and by-laws may discourage,
delay or prevent a merger or acquisition that stockholders may consider
favorable, including transactions in which you might otherwise receive a premium
for your shares. These provisions include:
- authorizing the issuance of "blank check" preferred stock without any
need for action by stockholders;
- providing for a classified board of directors with staggered three-year
terms;
- eliminating the ability of stockholders to call special meetings of
stockholders;
- prohibiting stockholder action other than by unanimous written consent;
and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Some provisions of Delaware law may also discourage, delay or prevent
someone from acquiring us or merging with us.
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR
SHARES AT OR ABOVE THE INITIAL OFFERING PRICE.
Following this offering, the price at which our common stock will trade may
be extremely volatile and may fluctuate significantly. The public market may not
agree with or accept the valuation determined in connection with this offering.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
securities of technology companies, particularly software and Internet
companies. After this offering, therefore, you might not be able to resell your
shares at or above the initial public offering price.
12
<PAGE> 20
A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK COULD BE SOLD INTO THE PUBLIC
MARKET SOON AFTER THIS OFFERING, WHICH COULD DEPRESS OUR STOCK PRICE.
Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their stock for the first time.
2,946,906 shares will become eligible for sale in the public market at various
dates beginning 90 days after the date of this prospectus. Sales of a
substantial number of shares of common stock in the public market, or the threat
that substantial sales might occur, could cause the market price of our stock to
decrease significantly. These factors could also make it difficult for us to
raise additional capital by selling stock.
YOU WILL INCUR IMMEDIATE DILUTION IN THIS OFFERING.
The initial public offering price of our common stock is substantially
higher than the net tangible book value per share of the outstanding common
stock immediately after this offering. Therefore, if you purchase our common
stock in this offering, you will incur immediate dilution of $9.78 in the net
tangible book value per share of common stock from the price you pay for such
common stock (based upon an assumed initial public offering price of $13.50 per
share).
13
<PAGE> 21
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains "forward looking statements." These statements may
include statements regarding:
- our business strategy;
- plans for hiring additional personnel;
- entering into business combinations strategic alliances;
- adequacy of anticipated sources of funds, including the proceeds from
this offering; and
- other statements about our plans, objectives, expectations and
intentions contained in this prospectus that are not historical facts.
When used in this prospectus, the words "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions are
generally intended to identify forward looking statements. Because these forward
looking statements involve risks and uncertainties, actual results could differ
materially from those express or implied by these forward looking statements for
a number of reasons, including those discussed under "Risk Factors" and
elsewhere in this prospectus. We assume no obligation to update any forward
looking statements.
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<PAGE> 22
USE OF PROCEEDS
We estimate the net proceeds from the sale of the 4,000,000 shares of
common stock offered by us will be $49,625,000, after deducting the estimated
underwriting discount and offering expenses. We intend to use a portion of the
net proceeds of this offering to redeem our outstanding Series A redeemable
preferred stock in the amount of $4,713,000. We expect to use the remainder of
the net proceeds for potential strategic acquisitions and general corporate
purposes, including working capital and expansion of sales and marketing and
research and development activities. The amounts actually expended for such
working capital purposes may vary significantly and will depend on a number of
factors, including the amount of our future revenues and the other factors
described under "Risk Factors." Accordingly, our management will retain broad
discretion in the allocation of the net proceeds of this offering. Pending these
uses, we intend to invest the proceeds in short-term, investment-grade,
interest-bearing investments.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently anticipate that we will retain all available funds for use in our
business and do not anticipate paying any cash dividends in the foreseeable
future. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our financial
condition, results of operations and capital requirements.
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<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. Our
capitalization is presented:
- on an actual basis;
- on a pro forma basis to give effect to (a) the recent issuance and sale
of 480,354 shares of Series B convertible preferred stock on September
15, 1999 and the concurrent automatic conversion of all convertible
notes into 120,214 shares of Series B convertible preferred stock and
(b) the automatic conversion of the Series B convertible preferred stock
into 3,017,138 shares of common stock; and
- on a pro forma as adjusted basis to reflect (a) our receipt of the net
proceeds from the sale of 4,000,000 shares of common stock in this
offering at an assumed initial public offering price of $13.50 per share
after deducting the estimated underwriting discount and assumed offering
expenses and (b) the automatic redemption of all outstanding shares of
Series A redeemable preferred stock including accrued dividends for
$4,713,000 upon the closing of this offering.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Current portion of long-term debt.......................... $ 664 $ 664 $ 664
Convertible note payable................................... 2,090 -- --
Long-term debt, less current portion....................... 487 487 487
Series A redeemable preferred stock, $.01 par value; 325
shares authorized; 322 shares issued and outstanding,
actual and pro forma; 0 shares issued and outstanding,
pro forma as adjusted................................. 4,713 4,713 --
Series B convertible redeemable preferred stock, $.01 par
value; 700 shares authorized; 0 shares issued and
outstanding actual, pro forma and pro forma as
adjusted.............................................. -- -- --
Stockholders' equity (deficit):
Common Stock, $.01 par value authorized; 100,000 shares
authorized; 7,951 issued and outstanding, actual;
10,968 shares issued and outstanding, pro forma;
14,968 shares issued and outstanding, pro forma as
adjusted.............................................. 79 110 150
Additional paid in capital................................. 2,338 28,755 78,340
Deferred compensation...................................... (863) (863) (863)
Accumulated deficit........................................ (4,775) (19,033) (19,033)
------- ------- -------
Total stockholders' equity (deficit)............. (3,221) 8,969 58,594
------- ------- -------
Total capitalization............................. $ 4,733 $14,833 $59,745
======= ======= =======
</TABLE>
Common stock outstanding after this offering excludes 1,000,543 shares
issuable upon exercise of stock options outstanding as of June 30, 1999.
See "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
Notes thereto included in this prospectus.
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<PAGE> 24
DILUTION
The pro forma net tangible book value of the common stock as of June 30,
1999 was $6,049,000, or $0.55 per share, after giving effect to:
- the recent issuance and sale of 480,354 shares of Series B convertible
preferred stock on September 15, 1999;
- the concurrent automatic conversion of all convertible notes into 120,214
shares of Series B convertible preferred stock;
- the automatic conversion of the Series B convertible preferred stock into
3,017,138 shares of common stock;
After giving effect to the sale of the common stock in this offering at an
assumed initial public offering price of $13.50 per share and after deducting
the estimated underwriting discount and expenses of this offering, the adjusted
pro forma net tangible book value at June 30, 1999, would have been $55,672,000,
or $3.72 per share.
Pro forma net tangible book value per share before this offering has been
determined by dividing our pro forma net tangible book value (total tangible
assets less total liabilities) by the pro forma number of shares of common stock
outstanding at June 30, 1999. This offering will result in an increase in pro
forma net tangible book value per share of $3.17 to existing stockholders and
dilution in pro forma net tangible book value per share of $9.78 to new
investors who purchase common stock in this offering. Dilution is determined by
subtracting pro forma net tangible book value per share from the assumed initial
public offering price of $13.50. The following table illustrates this dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.50
Pro forma net tangible book value per share at June 30,
1999................................................... $0.55
Increase attributable to sale of common stock in this
offering (1)........................................... 3.17
-----
Pro forma net tangible book value per share after this
offering.................................................. 3.72
------
Dilution of net tangible book value per share to persons who
purchase shares in this offering.......................... $ 9.78
======
</TABLE>
- ---------------
(1) After deduction of the estimated underwriting discount and expenses totaling
$4,375,000.
If the underwriters' over-allotment option were exercised in full, the pro
forma net tangible book value per share after this offering would be $4.06 per
share, the increase in net tangible book value per share to existing
stockholders would be $3.51 per share and the dilution to persons who purchase
common stock in this offering would be $9.44 per share.
The table below summarizes, on a pro forma basis, as of June 30, 1999, the
following differences between our existing stockholders and new investors
purchasing our common stock in this offering:
- the number of shares purchased from Andover.Net;
- the aggregate cash consideration paid; and
- the average price per share paid.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 10,968,913 73% $12,924,000 19% $ 1.18
New investors..................... 4,000,000 27 54,000,000 81 13.50
----------- --- ----------- --- ------
Total........................ 14,968,913 100% $66,924,000 100%
=========== === =========== ===
</TABLE>
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<PAGE> 25
This information is based on pro forma shares outstanding as of June 30,
1999 and excludes:
- 1,000,542 shares of common stock reserved for issuance pursuant to
outstanding options granted under our 1995 stock option plan and our 1999
stock option plan;
- 1,736,228 shares of common stock reserved for issuance pursuant to future
grants under our 1999 stock option plan; and
- 587,630 shares of common stock reserved for issuance as consideration for
recent acquisitions based on an assumed initial public offering price of
$13.50, 171,193 of which will be issued immediately following this
offering.
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<PAGE> 26
SELECTED FINANCIAL DATA
The selected financial data of Andover.Net set forth below as of September
30, 1998 and June 30, 1999 and for each of the years ended September 30, 1997,
1998 and the nine months ended June 30, 1999 are derived from financial
statements of Andover.Net audited by Arthur Andersen LLP, independent public
accountants, which are included elsewhere in this prospectus. The selected
financial data as of September 30, 1996 and 1997, and for the year ended
September 30, 1996 are derived from audited financial statements of Andover.Net
which are not included in this prospectus. The selected financial data as of
September 30, 1994 and 1995, the nine months ended June 30, 1998 and the years
ended September 30, 1994 and 1995 are derived from unaudited financial
statements of Andover.Net which are not included in this prospectus and which
include, in the opinion of Andover.Net, all adjustments (consisting only of
normal recurring adjustments) that are necessary for a fair presentation of its
financial position and the results of its operations for those periods.
Operating results for the nine months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year ending
September 30, 1999. Pro forma statements of operations data gives effect to the
conversion of convertible notes into Series B convertible preferred stock in
September 1999, the automatic conversion of the Series B convertible preferred
stock into common stock and the effects of the acquisitions of Slashdot.org and
Animation Factory. See Note 2(j) of the Financial Statements or Notes thereto
for discussion of the pro forma basis and diluted net loss per share. The pro
forma balance sheet data as of June 30, 1999 reflects the conversion of all
convertible notes into Series B convertible preferred stock, then the automatic
conversion of the Series B convertible preferred stock into common stock. The
effects of the Slashdot.org and Animation Factory acquisitions are included in
the actual June 30, 1999 balance sheet data below, as such acquisitions were
consummated before June 30, 1999. The data should be read in conjunction with
the Financial Statements and the Notes thereto and with Management's Discussion
and Analysis of Financial Condition and Results of Operations appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------------------ ----------------------------
PRO FORMA
1994 1995 1996 1997 1998 1998 1999 1999
------ ------ ------ ------ ------ ------ ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Advertising................................ $ -- $ -- $ -- $ 469 $1,290 $ 986 $ 1,109 $ 1,402
Software................................... 889 989 316 272 -- -- -- 215
------ ------ ------ ------ ------ ------ ------- -------
Total revenues........................... 889 989 316 741 1,290 986 1,109 1,617
Cost of revenues:
Editorial content and related.............. -- -- -- 136 327 255 430 548
Software................................... 316 376 29 167 -- -- -- 155
------ ------ ------ ------ ------ ------ ------- -------
Total cost of revenues................... 316 376 29 303 327 255 430 703
------ ------ ------ ------ ------ ------ ------- -------
Gross profit................................. 573 613 287 438 963 731 679 914
Operating expenses:
Sales and marketing........................ 401 301 339 496 744 582 1,118 1,118
General and administrative................. 192 311 521 338 360 290 678 4,234
Research and development................... -- -- -- 194 304 200 472 472
Amortization of deferred compensation...... -- -- -- -- -- -- 720 720
------ ------ ------ ------ ------ ------ ------- -------
Total operating expenses................. 593 612 860 1,028 1,408 1,072 2,988 6,544
------ ------ ------ ------ ------ ------ ------- -------
Loss from operations......................... (20) 1 (573) (590) (445) (341) (2,309) (5,630)
Interest income.............................. -- -- 3 1 20 16 59 82
Interest expense............................. -- (35) (84) (75) (49) (49) -- (1,787)
------ ------ ------ ------ ------ ------ ------- -------
Net loss................................. $ (20) $ (34) $ (654) $ (664) $ (474) $ (374) $(2,250) $(7,335)
====== ====== ====== ====== ====== ====== ======= =======
Accrued dividends and issuance costs on
redeemable preferred stock................. -- -- -- 41 134 89 260 260
------ ------ ------ ------ ------ ------ ------- -------
Net loss attributable to common
stockholders........................... $ (20) $ (34) $ (654) $ (705) $ (608) $ (463) $(2,510) $(7,595)
====== ====== ====== ====== ====== ====== ======= =======
Basic and diluted net loss per share......... $(1.00) $(1.70) $(0.38) $(0.29) $(0.12) $(0.09) $ (0.36) $ (1.06)
====== ====== ====== ====== ====== ====== ======= =======
Basic and diluted weighted average common
shares outstanding......................... 20 20 1,763 2,468 5,110 5,106 6,990 7,169
====== ====== ====== ====== ====== ====== ======= =======
Pro forma basic and diluted net loss per
share...................................... $(0.12) $ (0.32) $ (1.06)
====== ======= =======
Pro forma basic and diluted weighted average
common shares outstanding.................. 5,110 6,992 7,171
====== ======= =======
</TABLE>
19
<PAGE> 27
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF JUNE 30, 1999
------------------------------------------------ -------------------
1994 1995 1996 1997 1998 ACTUAL PRO FORMA
-------- ------- ------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 4 $ 2 $ 128 $837 $196 $1,610 $11,710
Working capital.................................. (41) (72) 155 710 230 (1,146) 11,044
Total assets..................................... 96 142 404 1,099 533 5,170 15,270
Long-term obligations, less current portion...... -- -- 51 -- -- 487 487
Redeemable convertible preferred stock........... -- -- 988 2,228 2,362 4,713 4,713
Stockholders' equity (deficit)................... (30) (64) (870) (1,503) (2,109) (3,221) 8,969
</TABLE>
20
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the financial statements and related notes included elsewhere in this
prospectus. Except for historical information, the discussion in this prospectus
contains certain forward looking statements that involve risks and
uncertainties. The principal factors that could cause or contribute to
differences in our actual results are discussed in the section titled "Risk
Factors."
OVERVIEW
Andover.Net is a network of web sites that provides an independent,
unbiased source for content, community and commerce for the Linux and, more
generally, the Open Source communities. We provide products, online tools, news
and other services for programmers, software developers, web site designers,
technology managers and corporate buyers.
We were incorporated in Massachusetts in 1992 as Andover Advanced
Technologies, Inc. In September 1999, Andover Advanced Technologies, Inc. was
merged into its wholly-owned subsidiary, Andover.Net, Inc., a Delaware
corporation, and we changed our fiscal year end from September 30 to December
31.
Prior to fiscal 1996, we were a software publisher of multimedia and web
authoring tools. We derived revenues from distributing and marketing graphic
arts and multimedia software developed by others, primarily to large
distributors and retailers. In fiscal 1996, we launched our first web site,
DaveCentral. During fiscal 1997, we transitioned from a software publisher to a
web site publisher to participate in the commercial opportunities emerging on
the Internet. Since March 1997, all of our activities have been focused on
expanding our Internet business.
We currently generate substantially all of our revenue from advertisements
on our network of web sites. Our current advertising products include standard
banner advertising, display advertisements, megabanners and web site and
newsletter sponsorships. We recognize advertising revenue in the period that the
advertising is displayed, provided that we deem the collectibility of the
resulting receivable as probable. We sell advertising through our nationwide
direct media sales force.
We enter into barter transactions with other web sites in order to increase
traffic to our network of web sites and to strengthen the Andover.Net brand. A
barter transaction is the exchange by us of advertising space on our web sites
for reciprocal advertising space on the web sites of others. We record revenues
only on the portion of our barter transactions which could be paid in cash by
the advertiser if a barter arrangement were not in place. Otherwise, we do not
recognize barter revenue. We record revenue from these barter transactions, and
the corresponding advertising expense, based upon the fair market value of the
advertising space exchanged. Revenues from barter transactions, representing
advertising space given, is recognized as income when advertisements are
delivered on our network. Barter expense, representing advertising space
received, is recognized when our advertisements are run on other companies' web
sites, which is typically in the same period when the related barter revenue is
recognized.
We have incurred losses since our inception. As of June 30, 1999, we had an
accumulated deficit of $4.8 million and net operating loss carry-forwards in the
amount of $3.1 million. We anticipate incurring additional expenses to increase
our product development and sales and marketing efforts, to pursue additional
strategic acquisitions and to support the growth of the organization. As a
result, we believe that we will incur additional losses in the foreseeable
future.
RECENT DEVELOPMENTS
Sale of Series B Convertible Preferred Stock. Andover.Net issued 600,568
shares of Series B convertible preferred stock on September 15, 1999. Of these
shares, 480,354 shares were issued and sold for consideration of $10.1 million
and 120,214 shares were issued to holders of convertible notes in consideration
for the conversion of approximately $2.1 million of principal and interest. The
price per share in the private
21
<PAGE> 29
placement was $21.03. The Series B convertible preferred stock is convertible
into common stock immediately upon issuance at the option of the holder and will
convert into 3,017,138 shares of common stock upon the closing of this offering.
This conversion will result in an effective purchase price of $4.05 per share of
common stock. The difference between the offering price and the deemed effective
purchase price resulted in a beneficial conversion feature of approximately $2.1
million which will be reflected as interest expense in the statement of
operations in the period in which this offering occurs.
Acquisition of Slashdot.org. In June 1999, we acquired certain assets and
assumed certain liabilities relating to the Slashdot.org web site from
BlockStackers, Inc. for consideration consisting of a $1.5 million cash payment
made at the closing, and contingent payments of $2.0 million of stock valued at
the initial public offering price issuable upon the closing of this offering, up
to $3.5 million in cash and up to $5.0 million in stock valued at the initial
public offering price and payable during the two years following this offering.
The amount of cash and stock consideration that is contingent solely on the
continued employment of the principals of Slashdot.org in the amount of $6.3
million will be recorded as a compensation charge ratably over the period of the
payments. The amount of stock consideration that is contingent on the
achievement of performance milestones and the continued employment of the
principals of Slashdot.org will be recognized upon the achievement of these
milestones. To the extent any stock consideration is issued, we will record a
non-cash compensation charge based on the fair value of the shares issued at
such time.
Acquisition of Animation Factory. In June 1999, we acquired certain assets
and assumed certain liabilities of Eclipse Digital Imaging, Inc., including the
graphical and artistic web site known as Animation Factory, for consideration
consisting of a $250,000 cash payment made at the closing, $200,000 of stock
valued at the initial offering price issuable upon the closing of this offering
and payments of up to $1.25 million in cash and contingent payments of up to
$400,000 in stock valued at the initial public offering price. These payments
are payable during the two years following this offering. The amount of the
stock consideration that is contingent solely on the continued employment of the
principals of Animation Factory in the amount of $204,000 will be recorded as a
compensation charge ratably over the period of the payments. The amount of the
stock consideration that is contingent on the achievement of performance
milestones and the continued employment of the principals of Animation Factory
will be recognized upon the achievement of these milestones. To the extent any
stock consideration is issued, we will record a non-cash compensation charge
based on the fair value of the shares issued at such time.
Acquisition of Freshmeat.net. In August 1999, we acquired the assets and
assumed the liabilities relating to the Freshmeat.net web site from a business
owned by Patrick Lenz for consideration consisting of a $367,000 cash payment
made at the closing, $111,111 of stock valued at the initial public offering
price issuable upon the closing of this offering and contingent payments of up
to $300,000 in cash and $222,222 in stock valued at the initial public offering
price and payable during the two year period following this offering. The stock
payments are contingent on the continued employment of Mr. Lenz. To the extent
any stock consideration is issued, we will record a non-cash compensation charge
based on the fair value of the shares issued at such time.
AMORTIZATION OF DEFERRED COMPENSATION
In the nine months ended June 30, 1999, we recorded total deferred stock
compensation of $1.6 million in connection with stock option grants totaling
472,632 options. This amount represents the difference between the exercise
price of stock option grants and the deemed fair value of our common stock at
the time of such grants. Should the actual offering price of this offering
increase, we may record additional deferred compensation expense. We are
amortizing this amount over the vesting periods of the stock options, which will
result in amortization expense of $720,000 for the nine months ended June 30,
1999, $65,000 in the three months ended September 30, 1999, $259,000 in 2000,
$259,000 in 2001, $243,000 in 2002 and $39,000 in 2003. In addition, we
anticipate recording additional deferred compensation of approximately $4.5
million related to the 430,759 options granted in September 1999 which will be
recognized as an expense over the vesting period of these options.
22
<PAGE> 30
Certain options contain provisions that accelerate the vesting to 100% upon
an initial public offering. Upon the closing of this offering, additional
compensation expense of approximately $800,000 relating to 260,459 options will
be recorded as compensation expense in the quarter in which this offering
occurs. The remaining deferred compensation will be amortized over the remaining
vesting period.
NET OPERATING LOSS CARRYFORWARDS
As of June 30, 1999, we had net operating loss carryforwards of $3.1
million. The net operating loss carryforwards will expire at various dates
through 2019, if not utilized. The Tax Reform Act of 1986 imposes substantial
restrictions on the utilization of net operating loss carryforwards in the event
of an "ownership change" of a corporation. Our ability to utilize net operating
loss and tax credit carryforwards on an annual basis would be limited as a
result of an "ownership change" as defined by Section 382 of the Internal
Revenue Code. We have completed several financings since inception and believe
that we have incurred ownership changes. We do not believe the ownership changes
to date will have a material impact on our ability to utilize our net operating
loss and tax credit carryforwards.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------------------ ------------------
1994 1995 1996 1997 1998 1998 1999
----- ----- ------ ----- ----- ------ -------
(AS A PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................ 35.5 38.0 9.2 40.9 25.3 25.9 38.8
----- ----- ------ ----- ----- ----- ------
Gross profit.................... 64.5 62.0 90.8 59.1 74.7 74.1 61.2
Operating expenses:
Sales and marketing........ 45.1 30.4 107.3 66.9 57.7 59.0 100.8
General and
administrative........... 21.6 31.4 164.9 45.6 27.9 29.4 61.1
Research and development... -- -- -- 26.2 23.6 20.3 42.6
Amortization of deferred
compensation............. -- -- -- -- -- -- 64.9
----- ----- ------ ----- ----- ----- ------
Total operating
expenses............ 66.7 61.8 272.2 138.7 109.2 108.7 269.4
----- ----- ------ ----- ----- ----- ------
Loss from operations............ (2.2) 0.2 (181.4) (79.6) (34.5) (34.6) (208.2)
Interest income................. -- -- 0.9 0.1 1.6 1.6 5.3
Interest expense................ -- (3.5) (26.6) (10.1) (3.8) (5.0) --
----- ----- ------ ----- ----- ----- ------
Net loss........................ (2.2)% (3.3)% (207.1)% (89.6)% (36.7)% (38.0)% (202.9)%
===== ===== ====== ===== ===== ===== ======
</TABLE>
NINE MONTHS ENDED JUNE 30, 1998 AND 1999
Revenues. Substantially all of the revenues for the nine months ended June
30, 1998 and 1999 were from advertisements on our network of web sites. Since
our acquisitions of Slashdot.org, Freshmeat.net and Animation Factory occurred
on or after June 28, 1999, revenues for the nine months ended June 30, 1998 and
1999 did not include advertising revenues generated from these sites. Revenues
increased 12.5% from $986,000 in the nine months ended June 30, 1998 to $1.1
million in the nine months ended June 30, 1999. The increase was primarily due
to an increase in banner advertising and sponsorships on our network of web
sites. There were no barter revenues in the nine months ended June 30, 1998. In
the nine months ended June 30, 1999, revenues from barter transactions were
$218,000, or 19.7% of revenues.
23
<PAGE> 31
Cost of Revenues. Cost of revenues primarily consists of expenses
associated with editorial content, communications infrastructure and web site
hosting. Cost of revenues increased from $255,000, or 25.9% of revenues, in the
nine months ended June 30, 1998 to $430,000, or 38.8% of revenues, in the nine
months ended June 30, 1999. The increase in cost of revenues reflects additional
operations personnel and expenses for freelance contributors for editorial
content, as well as higher costs for hosting our network of web sites. We
anticipate that cost of revenues will continue to increase in absolute dollars
as we continue to enhance our content offerings and services and expand the
number of data centers hosting our web sites.
Sales and Marketing Expenses. Sales and marketing expenses primarily
consist of advertising and promotional expenditures and payroll, sales
commissions and related expenses for personnel engaged in sales and marketing
activities. Sales and marketing expenses increased from $582,000, or 59.0% of
revenues, in the nine months ended June 30, 1998 to $1.1 million, or 100.8% of
revenues, in the nine months ended June 30, 1999. The increase in expenses
relates to added sales personnel and an increase in advertising and promotional
expenses. In January 1999, we began to transition to a direct sales force.
Previously, we had relied primarily on a limited number of independent,
non-exclusive sales representatives to sell advertising for us. Between January
and June of 1999, we expanded our direct sales personnel from three to ten. In
addition to the increase in sales personnel, we substantially increased our
advertising and promotional expenditures in the nine months ended June 30, 1999.
Included in sales and marketing expenses for the nine months ended June 30, 1999
were non-cash advertising costs of $218,000 from barter transactions. There were
no barter advertising costs in the nine months ended June 30, 1998. We
anticipate our sales and marketing expenses will substantially increase in the
future as we continue to expand our direct sales force and invest in advertising
and promotions to strengthen the Andover.Net brand.
General and Administrative Expenses. General and administrative expenses
primarily consist of payroll and related costs of management and administrative
personnel, as well as professional fees and facility costs. General and
administrative expenses increased from $290,000, or 29.4% of revenues, in the
nine months ended June 30, 1998 to $678,000, or 61.1% of revenues, in the nine
months ended June 30, 1999. The increase in expenses largely reflects the hiring
of additional management and administrative personnel, employee recruiting costs
and an increase in facility costs due to our move to larger, leased office space
in May 1999. We anticipate that our general and administrative expenses will
continue to increase in absolute dollars as we plan on hiring additional
personnel and will incur costs associated with being a public company, including
directors' and officers' liability insurance and higher professional service
fees.
Research and Development Expenses. Research and development expenses
primarily consist of payroll and related costs for developing our web sites,
including our internal banner advertising and page statistic systems, as well as
developing our online web applications, or e-Tools. Research and development
expenses increased from $200,000, or 20.3% of revenues, in the nine months ended
June 30, 1998 to $472,000, or 42.6% of revenues, in the nine months ended June
30, 1999. The increase in research and development expenses largely reflects
additions to our research and development staff of direct and contract
personnel. We anticipate that these expenses will increase significantly as we
continue to expand our technical staff to handle the integration of future
acquisitions and development of new internal systems and e-Tools.
Interest Income and Expense. Interest income increased from $16,000 in the
nine months ended June 30, 1998 to $59,000 in the nine months ended June 30,
1999. Interest expense was $49,000 in the nine months ended June 30, 1998. The
increase in interest income reflects the higher average cash balances resulting
from the private sale of equity securities during the nine months ended June 30,
1999. Interest expense relates to a loan from two stockholders which was repaid
in early fiscal 1998.
Provision for Income Taxes. We had no provision for income taxes for the
nine months ended June 30, 1998 and 1999 because we incurred losses during these
periods.
FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1998
Revenues. Revenues increased 75.4% from $741,000 in the fiscal year ended
September 30, 1997 to $1.3 million in the fiscal year ended September 30, 1998.
In fiscal 1997, we transitioned our business activities from software publishing
to web site publishing. Revenues from software publishing in fiscal 1997
24
<PAGE> 32
were $272,000 and initial advertising revenues on our web sites were $469,000.
In fiscal 1998, substantially all of our revenues of $1.3 million represent
advertising on our network of web sites. The increase in advertising revenues in
fiscal 1998 was a result of increased sales of banner advertising and
sponsorships from our expanding base of customers.
Cost of Revenues. Cost of revenues increased from $303,000, or 40.9% of
revenues, in the fiscal year ended September 30, 1997 to $327,000, or 25.3% of
revenues, in the fiscal year ended September 30, 1998. In fiscal 1997, costs of
advertising revenues were $136,000, or 29.0% of advertising revenues, and costs
of software publishing revenues were $167,000, or 61.4% of software publishing
revenues. In fiscal 1998, costs of revenues related entirely to advertising
revenues. The lower costs of advertising revenues, as a percentage of
advertising revenues, in fiscal 1998 was due to lower proportionate fixed costs
on the higher year-to-year revenues.
Sales and Marketing Expenses. Sales and marketing expenses increased from
$496,000, or 66.9% of revenues, in the fiscal year ended September 30, 1997 to
$744,000, or 57.7% of revenues, in the fiscal year ended September 30, 1998. The
increase in absolute dollars in sales and marketing expenses relates primarily
to higher variable sales commissions on the year-to-year increases in revenues.
During fiscal 1997 and 1998, we primarily relied on independent, non-exclusive
sales representatives to sell our advertising.
General and Administrative Expenses. General and administrative expenses
increased from $338,000, or 45.6% of revenues, in the fiscal year ended
September 30, 1997 to $360,000, or 27.9% of revenues, in the fiscal year ended
September 30, 1998. The increase in general and administrative expenses, in
absolute dollars, relates primarily to administrative support from contract
employees and other non-payroll administrative costs.
Research and Development Expenses. Research and development expenses
increased from $194,000, or 26.2% of revenues, in the fiscal year ended
September 30, 1997 to $304,000, or 23.6% of revenues, in the fiscal year ended
September 30, 1998. The increase in research and development expenses, in
absolute dollars, relates primarily to personnel additions to our development
staff.
Interest Income and Expense. Interest income increased from $1,000 in the
nine months ended June 30, 1997 to $20,000 in the fiscal year ended September
30, 1998. Interest expense decreased from $75,000 in the fiscal year ended
September 30, 1997 to $49,000 in the fiscal year ended September 30, 1998. The
increase in interest income in fiscal 1998 over fiscal 1997 relates to higher
average cash balances during fiscal 1998. The interest expense over this
two-year period relates to a secured loan we received from two of our
stockholders in fiscal 1993. This loan was repaid in early fiscal 1998.
Provision for Income Taxes. We had no provision for income taxes for
fiscal years 1997 or 1998 because we incurred losses during these periods.
25
<PAGE> 33
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statements of operations
data for each quarter of fiscal 1998 and the first three quarters of fiscal
1999, as well as such data expressed as a percentage of Andover.Net's revenues
for each quarter. This information has been presented on the same basis as the
audited Financial Statements appearing elsewhere in this prospectus and, in the
opinion of management, includes all adjustments, consisting only of normal
recurring adjustments, that Andover.Net considers necessary to present fairly
the unaudited quarterly results. This information should be read in conjunction
with Andover.Net's audited Financial Statements and Notes thereto appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1998 1998 1998 1998 1999 1999
-------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. $ 333 $ 364 $ 289 $ 304 $ 373 $ 253 $ 483
Cost of revenues.......................... 53 99 103 72 107 147 176
----- ----- ----- ----- ----- ----- -----
Gross profit.......................... 280 265 186 232 266 106 307
Operating expenses:
Sales and marketing..................... 235 189 157 163 213 369 536
General and administrative.............. 90 115 85 70 145 236 297
Research and development................ 50 69 81 104 127 160 185
Amortization of deferred compensation... -- -- -- -- 577 16 127
----- ----- ----- ----- ----- ----- -----
Total operating expenses.............. 375 373 323 337 1,062 781 1,145
----- ----- ----- ----- ----- ----- -----
Loss from operations...................... (95) (108) (137) (105) (796) (675) (838)
Interest income........................... 4 7 5 4 12 28 19
Interest expense.......................... (49) -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Net loss.............................. $(140) $(101) $(132) $(101) $(784) $(647) $(819)
===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1997 1998 1998 1998 1998 1999 1999
-------- --------- -------- --------- -------- --------- --------
(AS A PERCENTAGE OF REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......................... 15.9 27.2 35.6 23.7 28.7 58.1 36.4
----- ----- ----- ----- ------ ------ ------
Gross profit.......................... 84.1 72.8 64.4 76.3 71.3 41.9 63.6
Operating expenses:
Sales and marketing..................... 70.6 51.9 54.3 53.6 57.1 145.8 111.0
General and administrative.............. 27.0 31.6 29.4 23.0 38.9 93.3 61.5
Research and development................ 15.0 19.0 28.0 34.2 34.0 63.2 38.3
Amortization of deferred compensation... -- -- -- -- 154.7 6.3 26.3
----- ----- ----- ----- ------ ------ ------
Total operating expenses.............. 112.6 102.5 111.7 110.8 284.7 308.6 237.1
----- ----- ----- ----- ------ ------ ------
Loss from operations...................... (28.5) (29.7) (47.4) (34.5) (213.4) (266.8) (173.5)
Interest income........................... 1.2 1.9 1.7 1.3 3.2 11.1 3.9
Interest expense.......................... (14.7) -- -- -- -- -- --
----- ----- ----- ----- ------ ------ ------
Net loss.............................. (42.0)% (27.7)% (45.7)% (33.2)% (210.2)% (255.7)% (169.6)%
===== ===== ===== ===== ====== ====== ======
</TABLE>
The operating results for any quarter are not necessarily indicative of the
operating results for any future period. See "Risk Factors -- Our quarterly
operating results are subject to significant fluctuations." In particular, due
to our limited operating history as an Internet company and the unpredictability
of our industry, our revenues may fluctuate from quarter to quarter and are
difficult to forecast. Accordingly, a revenue shortfall in a particular quarter
would have a disproportionate adverse effect on our operating results for that
quarter. During the three months ended March 31, 1999, our revenues declined
from the prior quarter as we transitioned from using independent sales
representatives to a direct media sales force. During the second half of fiscal
1998, our quarterly revenues were lower than the first half of fiscal 1998. We
believe this was primarily related to a reduction in advertising spending by
technology companies who were adversely affected by the Asian economic crisis.
26
<PAGE> 34
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded operations primarily through the private
sales of common and preferred stock and short-term loans, which are convertible
into equity securities, together with cash flow from operations. As of June 30,
1999, we had $1.6 million in cash and cash equivalents, total current assets of
$2.0 million and a working capital deficit of $1.1 million. In September 1999,
we issued 600,568 shares of Series B convertible preferred stock, including
120,214 shares which were issued upon conversion of approximately $2.1 million
of principal and interest under the convertible notes. We received proceeds of
$10.1 million from the issuance of the 480,354 shares of Series B convertible
preferred stock.
Net cash used in operating activities was $602,000 in fiscal 1996, $529,000
in fiscal 1997 and $574,000 in fiscal 1998. Net cash used in operating
activities was $497,000 in the nine months ended June 30, 1998 and $1.5 million
in the nine months ended June 30, 1999. The net cash used in operating
activities for all of these periods was primarily a result of our operating
losses before non-cash expenses.
Cash used for additions to property and equipment was $10,000 in fiscal
1996, $8,000 in fiscal 1997 and $17,000 in fiscal 1998. Cash used for additions
to property and equipment was $12,000 for the nine months ended June 30, 1998
and $168,000 for the nine months ended June 30, 1999. For the nine months ended
June 30, 1999, the additions of $168,000 to property and equipment consisted of
leasehold improvements, furniture and office equipment for our new leased office
space, as well as computer equipment necessary to support personnel additions.
In June 1999, we paid $1.75 million in cash at closing for our acquisitions
of Slashdot.org ($1.5 million) and Animation Factory ($250,000). Under the terms
of the Slashdot.org acquisition, there are additional contingent cash payments
of up to $1.5 million in January 2000, $1.0 million in June 2000 and $1.0
million in June 2001. The amount of each of these cash payments is dependent on
the continued employment of the two principals of Slashdot.org. In addition, the
acquisition price of Slashdot.org includes the issuance of $2.0 million of stock
valued at the initial public offering price upon the closing of this offering
and contingent payments of up to an additional $5.0 million of stock valued at
the initial public offering price and payable in installments over a two-year
period, following this offering. The payment of this stock consideration is
contingent upon the continued employment of the two principals of Slashdot.org
and the achievement of certain performance milestones over the two-year period.
Under the terms of the Animation Factory acquisition, there are additional cash
payments totaling $1.25 million, payable in fifteen equal monthly installments
beginning October 1999. This amount payable of $1.2 million as of June 30, 1999,
representing future cash payments less interest, is reflected in current
liabilities for $664,000 and in long-term liabilities for $487,000. In addition,
the acquisition price of Animation Factory includes the issuance of $200,000 of
stock valued at the initial public offering price upon the closing of this
offering and contingent payments of up to an additional $400,000 of stock valued
at the initial public offering price and payable in installments over a two-year
period following this offering. The payment of this stock consideration is
contingent upon the continued employment of the two principals of Animation
Factory and the achievement of certain performance milestones over the two-year
period.
We have intangible assets of $2.9 million, consisting primarily of
goodwill, as of June 30, 1999 relating to the acquisitions of Slashdot.org and
Animation Factory. The purchase price for these acquisitions represents the
up-front cash payment for both acquisitions, as well as the installment cash
payments due under the Animation Factory acquisition. The intangible assets will
be amortized over a three-year period on a straight-line basis. The future
contingent cash payments under the Slashdot.org acquisition, as well as the
future contingent stock payments under both acquisitions, will be charged to
operations over the period the payments are made.
In August 1999, we paid $367,000 in cash at closing for our acquisition of
Freshmeat.net. Under the terms of the Freshmeat.net acquisition, there are
additional cash payments totaling $300,000, payable in 15 equal monthly
installments beginning September 1999. In addition, the acquisition price
includes the issuance of $111,111 of stock valued at the initial public offering
price upon the closing of this offering and contingent payments of up to an
additional $222,222 of stock valued at the initial public offering price and
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payable over a two-year period following this offering. The payment of this
stock consideration is contingent upon the continued employment of the principal
of Freshmeat.net.
In June 1999, we received proceeds of $2.1 million from the issuance of
convertible notes in a private placement to various investors, some of whom are
Andover.Net stockholders. The notes are due December 31, 1999 and bear interest
at the prime rate. In September 1999, the convertible notes were converted into
120,214 shares of Series B convertible preferred stock which will automatically
be converted into shares of common stock upon the closing of this offering.
During fiscal 1997, we received net proceeds of $1.3 million from sales of
Series B convertible preferred stock, Series A redeemable preferred stock and
common stock. We then changed our capital structure and issued Series C
redeemable preferred stock and common stock in exchange for our outstanding
Series A convertible preferred stock and Series B convertible preferred stock.
Between November 1998 and January 1999, we received net proceeds of $2.8 million
for the issuance of Series C redeemable preferred stock and common stock. In
connection with our merger in September 1999 with a wholly-owned subsidiary to
effect our reincorporation in Delaware, the Series C redeemable preferred stock
was converted into Series A redeemable preferred stock. The holders of the
Series A redeemable preferred stock accrue dividends at an 8.0% annual rate. As
of June 30, 1999, $393,000 of dividends have been accrued and not paid. The
Series A redeemable preferred stock will be redeemed upon the completion of this
offering at the redemption price of $13.50 per share, or a total of $4.4
million, plus accrued dividends.
We currently anticipate that the net proceeds of this offering, together
with our available funds, will be sufficient to meet our anticipated cash
requirements for working capital and capital expenditures through at least
December 31, 2000. We may need to raise additional funds sooner if, for example,
we pursue business or technology acquisitions or experience operating losses
that exceed our current expectations. If we raise additional funds through the
issuance of equity, equity related or debt securities, such securities may have
rights, preferences or privileges senior to those of the rights of our common
stock, and our stockholders may experience additional dilution. We cannot be
certain that such additional financing will be available to us on favorable
terms, or at all. If additional financing is not available when required or is
not available on acceptable terms, we may be unable to develop or enhance our
products or services. In addition, we may be unable to take advantage of
business opportunities or to respond to competitive pressures. Any of these
events could harm our business, financial condition or results of operations.
YEAR 2000
Many existing computer programs use only two digits to identify a year and
cannot reliably distinguish dates beginning on January 1, 2000 from dates prior
to the year 2000. If not corrected, many computer software applications could
fail or create erroneous results by, on or after the year 2000. We use software,
computer technology and other services provided by third parties that may fail
due to the year 2000 phenomenon.
State of Readiness
We have made a preliminary assessment of the year 2000 readiness of our
information technology systems. This assessment includes but is not limited to
the hardware and software necessary to provide and deliver our services. We are
also performing assessments of our non-information technology systems, which
include many of the building and office equipment systems.
Our year 2000 readiness plan consists of the following steps:
- quality assurance testing of our internally developed software;
- contacting third-party vendors of hardware, software and services that
we utilize;
- contacting material non-information technology systems and service
providers that we utilize;
- developing and implementing necessary remedial measures; and
- creating contingency plans in the event of year 2000 failures.
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Our year 2000 task force, which is being directed by our Chief Technology
Officer, is currently conducting an inventory of and developing testing
procedures for all software and other systems that might be affected by year
2000 issues. Since third parties developed and currently support many of the
systems we use, a significant portion of this effort will be to ensure that
these third-party systems are year 2000 ready. We plan to contact third-party
vendors to obtain representation of their year 2000 readiness, as well as
conduct specific testing of these systems. We plan to complete our evaluation
and testing of internally developed software and third-party vendors of
hardware, software and services by October 1, 1999 and plan to complete all
necessary remedial measures by November 1, 1999. However, until our evaluation
and testing is completed and such third-party vendors and service providers are
contacted, we will not be able to completely evaluate whether our systems will
need to be revised or replaced and the time and costs involved to do so.
Costs
To date, we have spent an immaterial amount on year 2000 readiness issues.
We expect to incur an additional $30,000 in the future in connection with
identifying, evaluating and addressing year 2000 readiness issues. Most of our
expenses to date have related to, and are expected to continue to relate to, the
time spent by employees in the evaluation process and developing and
implementing necessary remedial measures. If these expenses are significantly
higher than expected our business, results of operations and financial condition
could suffer.
Risks
We are not currently aware of any year 2000 readiness problems relating to
our internally developed software or third-party supplied hardware, software and
services that would have a material adverse affect on our business. However, as
we complete our evaluation and testing, we may discover year 2000 readiness
problems. These problems may require us to substantially revise our systems or
revise or replace third-party hardware, software or services, all of which could
be time-consuming and expensive. Our failure to fix or replace our internally
developed software or third-party hardware, software or services on a timely
basis could result in interruptions. These interruptions could harm our
business, results of operations and financial condition.
We are dependent on a number of third-party vendors to provide network
services and equipment. A significant year 2000-related disruption of the
services or equipment that third-party vendors provide to us could cause our
users, advertisers or sponsors to consider seeking alternate content providers
or cause a significant burden on our technical support, which could adversely
affect our business. In addition, a systematic failure beyond our control, such
as a prolonged Internet, telecommunications or electrical failure, which could
prevent us from delivering services or prevent users from accessing our network,
could harm our business, results of operations and financial condition.
Contingency Plan
As discussed above, we are currently engaged in an ongoing year 2000
readiness assessment and have not yet developed any contingency plans. The
results of our evaluation and testing, together with the responses we receive
from third-party vendors and service providers, will be considered in
determining the nature and extent of any contingency plans we develop.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
We have no derivative financial instruments or derivative commodity
instruments in our cash and cash equivalents and investments. We invest our cash
and cash equivalents and investments in short-term, interest-bearing, investment
grade securities. We anticipate investing our net proceeds from this offering in
similar investment grade investments pending their use as described in this
prospectus. See "Use of Proceeds." Our transactions are generally conducted, and
our accounts are denominated, in United States dollars. Accordingly, we are not
exposed to significant foreign currency risk.
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RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for 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. Pursuant to SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133, SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is
not expected to have a material impact on Andover.Net's financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires computer
software costs associated with internal use software to be charged to operations
as incurred until certain capitalization criteria are met. SOP 98-1 is effective
beginning January 1, 1999. The adoption of this statement did not have a
material impact on Andover.Net's financial position or consolidated results of
operations.
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BUSINESS
INTRODUCTION
Andover.Net is the leading Linux/Open Source destination on the Internet.
Our network of web sites provides an independent, unbiased source for content,
community and commerce for the Linux and, more generally, the Open Source
communities. We provide products, online tools, news and other services for
programmers, software developers, web site designers, technology managers and
corporate buyers.
Our network generates over 40 million page views with over two million
unique visitors on a monthly basis. With our recent acquisitions of Slashdot.org
and Freshmeat.net, we believe that traffic on our network represents over 50% of
the visits to Linux resource sites on the web. This leading position in the
Linux market allows us to provide advertisers targeted access to the Linux/Open
Source communities. We have over 100 advertisers on our network. Our top five
advertisers based on cash revenues for the six months ended August 31, 1999 were
IBM, Compaq, Silicon Graphics, Hewlett-Packard and Intel.
The Internet has accelerated the growth of the Open Source movement. The
Open Source movement is a collaborative approach to the development and
distribution of software and has emerged as a viable alternative to traditional
proprietary software development. The growth of the Internet has greatly
increased the scale and efficiency of Open Source development by enabling large
communities of independent developers to collaborate online. The best-known
example of Open Source is the Linux operating system created by Linus Torvalds
in 1991. Due to the growing number of Linux/Open Source operating systems and
related applications, a number of major technology industry leaders, including
IBM, Intel and Hewlett-Packard, have recently announced support for Linux-based
operating systems. According to International Data Corporation, or IDC,
Linux-based operating systems represented 17% of all new licensed shipments of
server operating systems in 1998, which was an increase of 190% from the
previous year.
INDUSTRY OVERVIEW
Growth and impact of the Internet
The Internet has emerged as a global communications medium, enabling
millions of people to gather information, communicate and conduct business
electronically. IDC estimates that there were approximately 142 million users of
the Internet at the end of 1998 and that number will grow to over 500 million
users by the end of 2003.
The Internet is an attractive medium for advertisers because it allows
flexibility, interactivity and measurement capabilities and provides users with
immediate access to information about advertisers and their products. For
example, the Internet allows advertisers to change messages frequently in
response to market developments or current events. The Internet also allows
advertisers to gather demographic information about users and to deliver
targeted messages to specific consumer groups. According to Jupiter
Communications, total Internet advertising revenues were $2.1 billion in 1998
and are expected to grow to $11.5 billion in 2003, representing an average
annual compounded growth rate of approximately 41% from 1998 to 2003. The
growing popularity of the Internet also represents a substantial opportunity for
companies to take advantage of the potential for conducting transactions online,
commonly known as e-commerce. IDC estimates that worldwide e-commerce revenue
will increase from approximately $50 billion in 1998 to more than $1 trillion in
2003.
Growth of the information technology profession
As the pace and complexity of technological change has increased,
professionals in the information technology, or IT, industry have become more
specialized and grown in number. IT professionals, including programmers and
developers, play a central role in many companies because of their ability to
deploy and integrate new information technologies. Organizations are
increasingly adopting technologies such as client/server architectures, data
warehousing, Internet/intranet applications and object-oriented software
development to execute business strategies and maintain competitiveness. These
and other technologies have
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continued to fuel the growth in the worldwide market for IT products and
services, which is forecasted by IDC to grow from an estimated $781 billion in
1998 to $1.1 trillion in 2002.
IT professionals devote considerable time, effort and financial resources
researching new technologies, seeking answers to technical questions and
developing and implementing IT solutions. These professionals need to stay
abreast of rapid technological developments in a marketplace where vendors
continually introduce new products with a variety of standards and short life
cycles. They have historically relied on resources provided by IT publishers,
software vendors, hardware vendors, training service providers and fellow
professionals to follow the latest trends in the industry. We do not believe
that any of these sources provides a comprehensive solution for IT
professionals' need for continuous education, access to new products and a
medium in which professionals can exchange ideas. Due to the rapid rate of
change, technical information, training materials, and software become dated and
obsolete relatively quickly. Therefore, IT professionals, including programmers
and developers, have the following common needs:
- Content -- News and other resources that keep them informed of changes
within the industry;
- Community -- The exchange of ideas and collaboration through a central
medium by which they can share their experiences as a means of growing
their personal knowledge as well as growing the industry and technology;
and
- Commerce -- An efficient, comprehensive source for products and services
which meet their purchasing needs.
Growth of the Linux and Open Source movement
The Internet has accelerated the growth of the Open Source movement. The
Open Source movement is a collaborative approach to the development and
distribution of software and has emerged as a viable alternative to traditional
proprietary software development. The growth of the Internet has greatly
increased the scale and efficiency of Open Source development by enabling large
communities of independent developers to collaborate online.
The growth of the Open Source movement is principally based on access to
software source code. Developers write programs in source code. This source code
is then translated into object code, which is read by the computer. Under the
proprietary model of software development, a software developer generally
licenses only the object code, not the source code, to the user. The source code
is always controlled and maintained by the proprietary software developer. By
contrast, under the Open Source development model, the software developer
provides the user access to the source code. This code is often provided for
free or for a minimal cost and is adaptable by the user for a wide variety of
applications.
Due to the collaborative nature of Open Source software, many new, Open
Source-based operating systems have emerged. The best known Open Source-based
operating system is the Linux operating system, or Linux, which was created by
Linus Torvalds in 1991. Since 1991, many distributions or varieties of Linux
have emerged. Due to the growing number of Linux/Open Source operating systems
and related applications, a number of major technology industry leaders,
including IBM, Intel and Hewlett-Packard, have recently announced support for
Linux-based operating systems. According to IDC, Linux-based operating systems
represented 17% of all new licensed shipments of server operating systems in
1998, which was an increase of 190% from the previous year. Further, the
inexpensive and adaptable nature of Linux/Open Source operating systems has
encouraged the growth of many Open Source applications, including low cost
computer products, known as electronic "appliances." These appliances are
designed to provide basic computer applications such as Internet access, word
processing and email at a cost much less than traditional personal computers. As
a result, manufacturers can create products that are unique, but which maintain
a lower cost because they are not required to license a proprietary operating
system such as Windows for their products.
A necessary element to the continued success of the Open Source movement is
the continued ability of software developers to communicate, share and develop
software in a collaborative manner. For technology developers, locating and
fostering a community within which one can share information is of critical
importance. Despite a strong continued focus on open software development and
continued support for Open
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Source products, a number of obstacles to widespread adoption of Open Source
products within the technology industry exist including the lack of:
- a highly-visible, intelligible transition path to Linux/Open Source;
- an independent, trusted intermediary to communicate the multiple
Linux/Open Source products, developments and services to diverse user
communities;
- a comprehensive and efficient support infrastructure providing product
and service guides, technical information, and development resources; and
- an open marketplace to facilitate the flow of Linux/Open Source products
and services.
We believe that a Linux/Open Source leader must broadly promote the
adoption of Linux/Open Source, provide a trusted, responsive, industry-focused
information resource that offers support and collaboration at a consistently
high level, and enable a market for Linux/Open Source products and services.
THE ANDOVER.NET SOLUTION
Through our network of web sites, we provide a solution designed to meet
the needs of the Linux/Open Source community and its developing markets. As an
extensive provider of cross-platform content, Andover.Net is a natural place to
begin the transition to Linux/Open Source from other operating systems. As the
Internet's leading Linux/Open Source destination, we also furnish an environment
for Linux/Open Source information exchange, downloadable resources and business
transactions.
Transition path. We believe the best way for people to discover and
understand Linux/Open Source is for them to visit Slashdot.org, a leading hub
for community, news and information. Its subject matter can be highly technical
but its postings and comments are lucid and irreverent enough for a more general
audience. To make Slashdot.org highly visible to non-Linux developers, we
include links, banners and buttons throughout Andover.Net's cross-platform sites
that contain content useful for both Linux and Windows. We believe that as
sophisticated IT professionals and technology hobbyists move to Linux and other
Open Source-based operating systems, our network will become an important
partner in this transition. In addition, millions of banner advertisements per
month and millions of links promote the possibilities of Linux on Slashdot.org
and our other web sites to developers outside our network.
Trusted content. We provide an independent, unbiased source for content,
much of which comes from the candid Linux/Open Source community itself.
Moreover, the comprehensive information we provide covers a broad range of Open
Source topics rather than a single version of Linux or a single hardware
platform. Freshmeat.net comprehensively rates and categorizes the latest in
Linux products regardless of developer or distribution. Further, FreeCode has
hundreds of code modules that can run on, or be easily adapted to run on, any
Linux/Open Source system. Through broad, unbiased coverage in editorials,
community comments and comprehensive software listings, Andover.Net is the
largest independent intermediary for Linux/Open Source.
Comprehensive support. Support for Linux/Open Source on our network comes
in many forms. The community itself offers advice and counsel on Slashdot.org.
Further, Freshmeat.net is one of five sites within our network providing
descriptions and free downloadable software resources. Other sites provide
tutorials, reviews, screenshots, links and market information.
Open marketplace. We provide the largest Internet media channel through
which Linux/Open Source vendors can promote and advertise their goods and
services and on which purchasers can identify, evaluate and buy the products and
services they need. In addition, we promote application development, provide
free advertising and broadly support promising new business models to encourage
growth in the market.
The benefits of our solution accrue to both members of the Linux/Open
Source community as well as to vendors who are targeting that community.
Benefits for our community. We have established our network as both the
most popular and most visited meeting place for the Linux/Open Source community
as well as one of the largest cross-platform
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transition networks. We provide editorials, community, commentary, reviews,
products, tools, news, information and services for programmers, software
developers, system engineers, web site designers, web site managers and
corporate technology buyers.
Benefits for vendors. We provide vendors with targeted channels to reach
our highly focused technology community. As our network has grown to become a
central site for members of the Linux/Open Source community, it has likewise
evolved as a unique selling opportunity for advertisers. We believe that our
users represent a large and targeted online community of Internet industry and
IT professionals, web developers, programmers and experienced Internet users. As
a result, our vendors can enhance the effectiveness of their advertising by
customizing advertisements and placing them on targeted pages on our network.
OUR STRATEGY
Our goal is to maintain and enhance our position as the leading destination
for Linux and, more generally, the Open Source movement. Key elements of our
strategy are:
Grow the size and share of our dominant Linux/Open Source position
We are the leading Linux/Open Source destination on the Internet. To grow
this dominant position, we intend to increase our traffic by offering more
viewable pages, high quality content and additional services. In particular, we
are committed to augmenting Slashdot.org, Freshmeat.net and FreeCode, our
leading web sites. We also intend to support the overall growth in the Linux and
Open Source communities. An important distinction between Andover.Net and other
major Linux/Open Source companies is that we support Open Source and all
versions of Linux rather than a single version of that operating system. We
intend to support Linux/Open Source communities through free hosting,
contributions of advertising and trade show space, funding of application
development and benchmark testing, supporting new business models and expanding
our Linux/Open Source partnership programs.
Facilitate and guide the transition of Windows developers to Linux/Open Source
Unique among all major Linux/Open Source companies, our network includes
high-traffic, cross-platform sites for IT professionals, including programmers,
software developers, web designers, and web site managers, many of whom have not
yet adopted Linux. Our cross-platform web sites offer products, online tools,
news and other services which are usable with virtually all major operating
systems including Linux, Windows and Macintosh. To accelerate the growth of our
Linux/Open Source web sites, we intend to educate visitors on these
cross-platform web sites and inform, guide and encourage developers to adopt and
support Linux.
Expand our e-commerce offerings to our targeted, high volume traffic
Our network currently provides content and community to over two million
targeted unique visitors on a monthly basis, and we believe this represents a
significant e-commerce opportunity. We intend to expand our e-commerce offerings
by selling various Linux products such as computer hardware, books or CDs and
services such as installation and support. Moreover, we believe that our
e-commerce offerings will generate increased traffic and encourage longer time
spent on our network.
Acquire complementary Linux/Open Source web sites
We have already acquired and integrated leading Linux/Open Source web sites
such as Slashdot.org and Freshmeat.net. We expect to continue to pursue
strategic acquisitions to strengthen our content offerings and services. We may
also acquire complementary web sites to obtain valuable brands, expertise or
access to new users, advertisers and vendors. We believe that by acquiring
complementary web sites, we can efficiently integrate them into our network, and
thereby improve their traffic and revenue results as well as our own.
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Expand the number and participation of major advertisers
We intend to increase the number of major advertisers on our network by
expanding our media sales force and by increasing our sales promotion to
Linux/Open Source vendors. With our recent Linux/Open Source acquisitions, we
believe that traffic on our network represents over 50% of the visits to Linux
resource sites on the web. This leading position in the Linux/Open Source market
allows us to provide advertisers targeted access to the Linux/Open Source
communities. We believe that Linux/Open Source related vendors will
significantly increase their online advertising in this rapidly growing market.
We also intend to broaden the participation of our major advertisers by offering
several innovative advertising products. Many advertisers have indicated to us
that these advertising products are more effective for branding and sales than
standard banner advertisements.
Strengthen the Andover.Net brand
We intend to strengthen the Andover.Net brand through a combination of
online and offline advertising, sales promotion, trade shows, direct mail,
public relations, syndicated content and events to promote the use of our
network to the technical community, advertisers and vendors. We currently place
over eight million banner advertisements each month on complementary sites and
expect to significantly increase both online and other media advertising in the
future. We also intend to promote the Andover.Net brand with licensing programs
such as our agreement with Lycos, Inc. for the Angelfire and the Tripod
community web sites. We also have partnerships with more than 15 web sites that
link over four million web pages directly to our network.
THE ANDOVER.NET NETWORK
Our closely integrated network consists of web sites that are deep and rich
in content and provide programmers and developers with a leading online
resource. We believe that as sophisticated IT professionals and technology
hobbyists move to Linux and other Open Source-based operating systems, our
network, which includes news and tools for the Windows operating system, will
become an important partner in this transition. Our network will introduce Linux
and other similar operating systems to many of our technology oriented customers
who have not yet migrated to these systems.
The Andover.Net network consists of three categories of web sites:
- Our Linux/Open Source sites attract sophisticated Linux users and
developers for their cutting-edge Open Source content;
- Our cross-platform sites offer visitors a wide range of content including
news, products and online software applications or e-Tools; and
- Our Windows site features daily reviews and updates of Windows software
downloads.
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Each of our main web sites and product offerings are summarized below.
LINUX/OPEN SOURCE SITES
<TABLE>
<S> <C>
LOGO slashdot.org -- Slashdot.org is the largest online community for Open Source
developers providing news, commentary, information and reviews for
everything from Legos to Linux. Slashdot.org focuses on issues of importance
to the Open Source community allowing individuals to post comments and
debate news items and technical issues.
LOGO freshmeat.net -- Freshmeat.net is one of the largest Linux software
application repositories and also contains application news and a community
section. One feature of this web site shows the number of hits each
application has received which allows us to determine which Linux product is
the most popular.
LOGO www.freecode.com -- FreeCode is a comprehensive online resource for
programming source code which offers a constantly updated and expanded
database of free, Internet-related programs. FreeCode contains programs
written in Perl, C++, Java and Visual Basic.
</TABLE>
CROSS-PLATFORM SITES
<TABLE>
<S> <C>
LOGO www.davecentral.com -- DaveCentral has two components, one for Linux and one
for Windows. The site archives over 10,000 free software downloads and
reviews. Both the Linux and Windows web sites group the software by category
which facilitates searches. The site also has a ticker showing recent
updates in all sections of the web site as well as keyword search
capabilities.
LOGO www.andovernews.com -- Andover News provides free, timely and searchable
computer-industry news from multiple sources. IT professionals visit Andover
News for information and editorials about a broad range of technologies and
technology companies.
LOGO www.itmanagersjournal.com -- IT Manager's Journal provides IT news and
advice for professionals and managers. The site features daily editorial
articles on a wide variety of IT topics, survey questions with live results
and discussions about a broad range of IT issues.
LOGO www.mediabuilder.com -- MediaBuilder is an online multimedia resource center
which contains multimedia software; online tools; GIF animations, the most
popular file format for animations on the web; the largest collection of
free images on the Internet; and a font library with over 1,000 free fonts.
With our acquisition of Animation Factory, users can also access and
download over 100,000 images. Some of the more popular web tools found
within MediaBuilder are summarized below:
LOGO - www.gifworks.com -- GIFWorks is a free on-line software application.
With easy-to-use pull down menus, GIFWorks allows user to resize any
GIF animation.
LOGO - www.htmlworks.com -- HTMLWorks is an online application that enables
users to quickly and easily create, edit and improve their web pages
through their web browser.
</TABLE>
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<TABLE>
<S> <C>
LOGO www.techmailings.com -- TechMailings offers the largest collection of
technology mailing lists on the Internet with fifteen categories covering
everything from cyber-culture to Internet marketing.
LOGO www.techsightings.com -- TechSightings searches the Internet for technology
sites and presents informative daily reviews of the best high-tech sites for
IT professionals. Chosen sites include targeted information on topics such
as hardware, software, programming and web building.
LOGO www.internettrafficreport.com -- Internet Traffic Report monitors the flow
of Internet data around the world. The Internet Traffic Report analyzes the
data and displays a value ranging from zero to 100 with higher values
indicating faster, more reliable connections.
</TABLE>
WINDOWS SITE
<TABLE>
<S> <C>
LOGO www.slaughterhouse.com -- Slaughter House ranks and updates a wide variety
of Windows software, including Internet applications, multimedia tools,
utilities and games. Slaughter House also offers daily news updates and a
"Product of the Day Review."
</TABLE>
By combining our Linux/Open Source, cross-platform and Windows web sites
into our network, Andover.Net provides IT professionals with a leading online
resource.
VISITORS
According to an independent survey we commissioned in February 1999 from
the Laredo Group, the typical Andover.Net visitor spends an average of 15.8
hours per week online, excluding time spent corresponding by e-mail, two hours
of which are spent visiting Andover.Net sites. Our visitors, who have an annual
average household income of $61,000, include corporate executives, web
developers and designers, programmers and IT professionals. Over 60% of our
visitors visit our web sites at least once a week.
Furthermore, 68% of our visitors are personally involved in the purchasing
of computer products for their companies. The study also reveals that 74% of our
visitors have already made online purchases compared to an industry average of
22% in 1998, as estimated by Jupiter Communications. In addition, 77% of our
visitors said they are likely to make online purchases within the next year. We
believe that these buying patterns of our user base make our network well suited
for e-commerce.
The main reasons cited in the survey for visiting our network were
up-to-date technology news, including the latest developments in Linux and Open
Source systems, buying information and product downloads for evaluation, how-to
information and the ability to search for computer products and services.
MARKETING AND SALES
Marketing
We employ a combination of online and offline advertising, sales promotion,
trade shows, direct mail, public relations, syndicated content and events to
promote the use of our network to the technical community, advertisers and
vendors. We currently place over eight million banner advertisements online each
month, usually on complementary programmer and developer sites. We use barter,
content licensing and partnerships to extend our online presence to offline
media including technical trade magazines and Internet marketing guides.
Our sales promotion includes seminars at major online media agencies and
forums for presenting our Linux/Open Source marketing opportunities to major
product vendors. We focus our trade show marketing on Linux-related shows, such
as LinuxWorld, and online media planning conferences, such as @d:tech. We
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announce and promote major events and advertising opportunities to media
planners and vendors through direct mail, as well as with advertising campaigns
on the major online web-marketing sites. We also promote our network to over
150,000 subscribers of Andover Update, Autopsy Report and our other online
newsletters and to the over two million unique visitors who visit our network on
a monthly basis.
Andover.Net has received extensive press coverage in both online and print
publications including the Wall Street Journal, Business Week-on-Line, Time
Digital, Rolling Stone, Red Herring and USA Today. Slashdot.org also produces an
online radio show "Geeks in Space" hosted by The Sync, an online radio
syndicator. The show generally occurs once a week or, as the introduction
relates, "Whenever we feel like it".
We use online tools, including the Internet Traffic Report, GIFWorks and
HTMLWorks, to attract technology-oriented visitors. We believe that this
encourages long and repeat visits, adding to our "stickiness." The significance
of these e-Tools extends beyond attracting a large core of users to our own
network. We also use them in a variety of licensing and partnership programs to
extend our promotional frequency and reach. For example, GIFWorks has over four
million links from our Graphics Partnership Program where we provide public
relations and promotion to the partners' sites, and they provide links to
GIFWorks. In addition, with a recent agreement with Lycos with respect to their
Angelfire and Tripod sites, we estimate that we will have links to GIFWorks from
over 150 million pages per month and share in the advertising revenue.
Sales
The core of Andover.Net's online advertising business is a professional
media sales force that makes sales calls on computer product vendors and media
planners at major agencies. We have built and are expanding our nationwide media
sales force with representatives currently in San Francisco, New York, Los
Angeles and Boston. As of September 15, 1999, our direct sales force had 11
members. Our direct sales force is dedicated to increasing the sales of banner
advertising, sponsorships, email newsletters, display advertisements and
megabanners and recruitment advertising. We sell our advertising services to
high technology companies, consumer goods companies, independent software
developers, advertising agencies, high technology recruitment agencies, and
other marketers interested in reaching our highly focused technology community.
We successfully market banner advertising on our web sites because we provide an
efficient medium for advertisers to reach a worldwide audience of Internet
developers. In addition, because of the unique role our visitors play as Linux
and web site developers, they represent an affluent and highly sought after
target audience for high technology and high-end consumer products.
We believe that our competitive advantage is our leading Linux/Open Source
position. We estimate that our Linux/Open Source web sites represent 50% to 60%
of the advertisable online pages in the Linux/Open Source category. Linux/Open
Source computer product vendors must advertise to establish their share of this
early stage but rapidly growing market. We believe that our network is the most
effective channel for that communication due to our category-leading quality and
depth of our web sites.
We have been generating advertising revenue since our DaveCentral web site
went online and accepted advertisements in 1996. In addition to conventional
banner advertisements, Andover.Net has developed several innovative advertising
products, or beyond-the-banner products.
Our current offering of beyond-the-banner products is shown below:
- Display Advertisements -- Appear in the navigation bar on most
Andover.Net web sites and combine visually appealing animations with
text. They are approximately two inches wide and six inches long and
generally contain 100 words of copy and extend down the right hand side
of our web pages. They can be rotated throughout the network to pages
and web sites specified by advertisers just as a regular banner
advertisements.
- Megabanners -- Combine a display advertisement with a large top-of-page
banner resulting in sixteen square inches filled with animations and
text in the top right hand corner of our web page.
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- E-Tools -- Allow advertisers to communicate directly to people in their
workplace for ten to 15 minutes at a time.
- Sponsorships -- Include banners, display advertisements and logo/slogan
design elements on targeted web sites, e-Tools, home pages and
newsletters.
We believe that our advertisers can customize their advertising campaigns
and deliver their message in a highly targeted fashion by choosing specific
placements, or channels, on our network. Because of this ability to target and
deliver a specific audience, we believe that we command higher advertising
rates.
We believe that we enable advertisers to efficiently and effectively reach
targeted Linux/Open Source programmers, developers, engineers, web site
designers and managers, and other buyers of technical products and services. In
addition, since this demographic group has premium income and purchasing power,
it allows us to offer significant advertising opportunities to premium
non-technology advertisers. Based on the Laredo Group survey, 68% of our
visitors are personally involved in purchasing computer products for their
company. They buy for departments or sections with an average of 150 people. As
a result, based on publicly available banner advertisement rate cards, we
believe that our rates are approximately three to four times higher than the
rates of well-known portals that target a more general audience.
Andover.Net's Advertisers
Our customers include high technology and consumer advertisers. Our base of
advertisers has been increasing steadily since March 1999 and we now have over
100 advertisers on our network. Other than IBM, which accounted for
approximately 15.6% of our revenues for the six month period ended August 31,
1999, no single customer accounts for greater than 10% of our revenues. Our five
largest advertisers for the six month period ended August 31, 1999, based upon
percentage of cash revenues, were:
- IBM Corporation
- Compaq Computer Corporation
- Silicon Graphics Inc.
- Hewlett-Packard Company
- Intel Corporation
SOFTWARE ENGINEERING AND DEVELOPMENT
We have invested, and intend to continue to invest, significant resources
in product and technology development. We focus and modify our product
development efforts based on the needs of users and changes in the marketplace.
Our software development efforts are focused on four key areas.
Advertisement and statistics systems. We have created and continually
enhance two software systems necessary for the efficient operation of our web
sites: a banner advertisement system and a page traffic statistics system. Using
an internally developed advertising system has allowed us to create unique
advertising products, such as our megabanner product, and to rapidly adjust to
requests from advertising clients.
Database generated web sites. All of our web sites are created and managed
through centralized, online databases. This allows data entry operators working
both in-house and off-site to enter new content and update existing content for
our sites using password protected web forms. At regular intervals, ranging from
one to 24 hours, a completely new copy of each web site is automatically
generated from these databases using internally developed programs. These web
pages are automatically uploaded to our web servers, providing our visitors with
continually updated versions of each site. This database driven model of web
site creation provides a higher level of efficiency than traditional publishing
models, where large numbers of people are required to write each web page by
hand. Therefore, we believe that we are able to provide a high level of content
at minimal incremental cost with a much smaller staff.
Online web applications, or e-Tools. A unique, and highly popular,
component of our network is our e-Tools which are part of our MediaBuilder site
and include GIFWorks and HTMLWorks. These server-based applications are usable
through any web browser, and provide a high level of functionality, without
requiring the user to download or install any additional software. All of our
e-Tools have been developed and are continually enhanced internally. e-Tools are
another way that we achieve a high level of efficiency, because
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they provide web site content that is continually new and relevant to a visitor,
without requiring any on-going editorial effort.
Technical integration of acquired web sites. We continue to integrate new
acquisitions into our network. All of our web sites are linked into our network
and share traffic as visitors follow links from one of our web sites to another.
Acquired web sites are modified to utilize our statistics and advertising
systems. Some acquired web sites are completely redesigned if necessary to
increase their quality and performance.
All of our software systems have been written in the C++ and Perl
programming languages. These languages are commonly used for Internet
applications and are understood and used by a wide number of software engineers.
As of September 15, 1999, we employed 12 software engineers, three web
design professionals, and two network operations engineers. We intend to
increase our development staff significantly to accommodate the increased
technical demands of acquisitions, new internal systems and additional e-Tools.
SYSTEM TECHNOLOGY AND DATA CENTER ARCHITECTURE
Maintaining a high level of performance and reliability while accommodating
rapid growth in visitors to our web sites is a major focus of our network
operations engineers. To that end we have developed an expandable and
fault-tolerant data center architecture for delivering content and
advertisements on our web sites.
Our web sites are maintained on 16 high-speed, industry-standard Pentium
servers that run on the Linux operating system. These servers are equipped with
a Redundant Array of Interdependent Disks, or RAID, for increased reliability.
Web site requests are distributed among the servers by a pair of Alteon load
balancing switches that allow for maximum throughput and fault tolerance. This
architecture allows us to respond quickly to increased traffic on our web sites
by incorporating additional machines without having to shut down or otherwise
interfere with the existing servers. We lease our servers which provides us with
the flexibility needed to increase the number of machines used or update our
machines quickly and inexpensively.
Our current data center is located on the East coast of the United States.
We intend to add three additional data centers using the same software and
hardware architecture. These will be located on the West coast of the United
States, Europe and Asia. Load balancing routers will be employed to
automatically allocate web site traffic to the closest geographic location,
ensuring our visitors the best possible performance. This multiple data center
architecture will increase the fault tolerance of our network, and insulate us
from localized interruptions of service on the Internet.
We maintain and continually enhance a quality assurance process to monitor
our servers, processes and network connectivity. This process involves both
internal staff and external contractors who run regular system and security
audits of our servers. We currently run automatic monitoring programs which
immediately notify our network operations engineers by email and pager in the
case of any current or potential interruptions in service. We intend to develop
a distributed network of engineers who will personally monitor our data centers
on a 24-hour basis and be prepared to perform any necessary adjustments to the
servers.
INTELLECTUAL PROPERTY
Andover.Net seeks to protect its intellectual property through a
combination of license agreements, service mark, copyright, trade secret laws
and other methods of restricting disclosure and transferring title. We obtain
the majority of our content under license agreements with publishers, through
work for hire arrangements with third parties and from internal staff
development. We have no patents or patents pending for our current online
services and do not anticipate that patents will become a significant part of
our intellectual property in the foreseeable future. Where appropriate, we also
enter into confidentiality agreements with our employees, consultants, vendors
and customers. We generally seek to control access to and distribution of our
technology, documentation and other proprietary information. We pursue the
registration of our trademarks in the United States and internationally, and
have submitted trademark
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registration applications for our Andover.net, Slashdot.org and Freshmeat.net
trademarks. Content created or acquired by us is protected by copyright. The
proprietary software that we use to run our business is protected generally by
restricting third party access, entering into confidentiality agreements with
third parties who do have access and relying on copyright law.
COMPETITION
Competition within the Internet is intense and is expected to increase
significantly in the future. Specifically, the market is rapidly evolving and
barriers to entry are low, enabling newcomers to launch competitive web sites at
relatively low costs.
We believe that we compete on the basis of brand recognition, quality and
quantity of content, product and resource selection, convenience and
reliability. We believe that we are differentiated from our competitors due to:
- our focus on the Linux/Open Source operating systems;
- the fact that we are independent of a particular version of the
Linux/Open Source operating systems; and
- our vertical focus of providing content, community and commerce to
technology professionals.
We compete for advertisers, merchants, users and strategic partners with:
- web sites specifically targeting the Linux/Open Source communities;
- web sites specializing in technology information;
- Internet portals, search sites and content aggregators; and
- traditional media content businesses such as newspapers, magazines,
radio and television.
Increased competition could result in advertising price reductions, reduced
margins or loss of market share, any of which could harm our business.
Competition is likely to increase significantly as new companies enter the
market and current competitors expand their services. Many of our current and
potential competitors have longer operating histories, larger customer bases,
greater brand recognition and significantly greater financial, marketing and
other resources than we have. These competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements and
to devote greater resources to the development, promotion and sale of their
products and services than we can.
Additionally, our success is in large part dependant on the success of
Linux which is in competition with other operating systems. In the market for
operating systems, Linux competes with a number of large and well-established
companies that have significantly greater financial resources, larger
development staffs and more extensive marketing and distribution capabilities.
While we do not directly compete with these companies, our future success may
depend on the ability of Linux to effectively compete with these other more
established operating systems.
EMPLOYEES
As of September 15, 1999, we had a total of 48 employees. Of the total
employees, 27 were in engineering and content development, 17 in sales and
marketing and four in finance and administration. Our future success will depend
in part on our ability to attract, retain and motivate highly qualified
technical and management personnel, for whom competition is intense. From time
to time we also employ independent contractors to support our professional
services, product development, sales, marketing and business development
organizations. Our employees are not represented by any labor union and are not
organized under a collective bargaining agreement, and we have never experienced
work stoppage. We believe our relations with our employees are good.
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FACILITIES
Our headquarters are currently located in a leased facility in Acton,
Massachusetts, consisting of approximately 11,700 square feet under a five year
lease that will expire on April 30, 2004. The current annual rental expense
under this lease is approximately $205,000. We have an option to extend the term
of this lease for another five years at the end of the initial five year term.
We believe that additional space will be required as our business expands and
will be available on acceptable terms.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their respective ages and
positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bruce A. Twickler.......................... 53 President, Chief Executive Officer and
Chairman
Adam B. Green.............................. 43 Chief Technology Officer
James E. Patterson......................... 61 Executive Vice President
William M. Dwyer........................... 47 Vice President, Publishing
Derek V. Carroll........................... 43 Vice President, Business Development
Janet F. Holian............................ 39 Vice President, Communications
Walter M. Bird, III........................ 41 Director
Jonathan M. Goldstein...................... 37 Director
James D. Logan............................. 47 Director
Robert Malda............................... 23 Director
Louis Page................................. 33 Director
Thomas R. Shepherd......................... 69 Director
John E. Trombly............................ 51 Director
</TABLE>
- ---------------
Bruce A. Twickler. Mr. Twickler founded Andover.Net in 1992, has been a
director, President and Chief Executive Officer since its formation and was
elected Chairman of the Board in September 1999. Prior to founding Andover.Net,
Mr. Twickler was a consultant to Dragon Systems and Avid Technologies. From 1988
to 1991, he was Vice President of Microcom. From 1987 to 1988, Mr. Twickler was
President of Shiva Corporation, and from 1983 to 1986 he was President of Hayden
Software. Prior to that time, Mr. Twickler was Vice President of Marketing of
Pioneer Electronics USA.
Adam B. Green. Mr. Green has been Chief Technology Officer of Andover.Net
since July 1996. Prior to July 1996, Mr. Green was Vice President of Internet
Products at Clear Software, Inc. Before joining Clear Software, he was a
consultant and contract trainer for Powersoft and Alpha Software, Inc.
James E. Patterson. Mr. Patterson has been an Executive Vice President of
Andover.Net since May 1999. He is responsible for implementing our e-commerce
strategy. From February 1997 to May 1999, he was Andover.Net's Vice President,
Sales and Marketing, and from November 1995 to February 1997, he was our Vice
President, Sales. Prior to that time, Mr. Patterson was Director of the IBM
Business Unit of Wang Global.
William M. Dwyer. Mr. Dwyer has been Vice President, Publishing of
Andover.Net since May 1999. He is responsible for sales and marketing. Prior to
joining Andover.Net, Mr. Dwyer provided publishing and media sales consulting
services to companies such as Pennwell Publishing and Skinner James Publishing
and launched Back Office Magazine through IT/World, Inc. which he founded in
1994. Prior to founding IT/World, Inc., Mr. Dwyer was Vice President of Sales
for BYTE Magazine at McGraw-Hill, Inc. Previously, Mr. Dwyer held a variety of
positions at Ziff-Davis over a 10 year period including Director of the
Ziff-Davis Magazine Network.
Derek V. Carroll. Mr. Carroll has been Vice President, Business
Development of Andover.Net since February 1999. Prior to joining Andover.Net,
Mr. Carroll was Vice-President of Sales and Marketing of Silent Systems, Inc.
from 1995 to 1999. Prior to that time, Mr. Carroll was Director of Business
Development of MicroTouch Systems, Inc.
Janet F. Holian. Ms. Holian has been Vice President, Communications of
Andover.Net since August 1999. Ms. Holian joined Andover.Net in February 1999 as
Director of Marketing. Before joining Andover.Net, Ms. Holian spent two years as
Vice President of Marketing of PersonalAudio, Inc. Prior to that time, Ms.
Holian was Director of Marketing of MicroTouch Systems, Inc.
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Walter M. Bird, III. Mr. Bird has been a director of Andover.Net since
July 1997. Since 1996, Mr. Bird has been Vice President of Claflin Capital
Management, Inc., a venture capital investment management firm. Prior to that
time, Mr. Bird was a Vice President of BankBoston, N.A.
Jonathan M. Goldstein. Mr. Goldstein has been a director of Andover.Net
since September 1999. Since 1986, he has been associated with TA Associates,
Inc., a venture capital firm, serving as a Vice President from 1990 to 1996 and
as a Principal since January 1994.
James D. Logan. Mr. Logan has been a director of Andover.Net since January
1999. Mr. Logan is the President and Chief Executive Officer of Gotuit Media,
Inc. which he founded in 1999. From 1996 to 1998, Mr. Logan was President and
Chief Executive Officer of PersonalAudio, Inc. which he founded. Prior to that
time, Mr. Logan was President, Chief Executive Officer and Chairman of the Board
of Directors of MicroTouch Systems Inc. He remains Chairman of the Board of
Directors of MicroTouch Systems Inc.
Robert Malda. Mr. Malda has been a director of Andover.Net since July 1999
in connection with our acquisition of Slashdot.org from BlockStackers, Inc. He
is currently the editor of the Slashdot.org web site. Mr. Malda is President of
BlockStackers which he founded in 1996. Mr. Malda served as a web site developer
for The Image Group from 1996 to 1998. Prior to working at The Image Group, Mr.
Malda spent two years as a personal computer technician at the Donnelly
Corporation.
Louis Page, CFA. Mr. Page has been a director of Andover.Net since October
1995. Mr. Page is the President and founder of Window to Wall Street, Inc., a
company that serves as the general partner of a number of venture capital
investment firms.
Thomas R. Shepherd. Mr. Shepherd has been a director of Andover.Net since
July 1999. Mr. Shepherd is a co-founder and the Chairman of The Shepherd Group,
LLC, a private equity investment firm. Additionally, Mr. Shepherd is a Special
Partner, and former Managing Director, of the Thomas H. Lee Company, a private
equity investment firm. Prior to joining the Thomas H. Lee Company in 1986, Mr.
Shepherd was President of the GTE Lighting Products Group of GTE Sylvania from
1983 to 1986, and was President of North American Philips Commercial Electronics
Corporation from 1981 to 1983. Mr. Shepherd is also a director of Rayovac
Corporation and The Vermont Teddy Bear Co., Inc.
John E. Trombly. Mr. Trombly has been a director of Andover.Net since
October 1995. Mr. Trombly is an Executive Vice President of Royalty Capital
Management, Inc., a venture capital management firm, and a General Partner of
Royalty Capital Fund L.P. I, a venture capital investment fund. Prior to
co-founding Royal Capital Fund, Mr. Trombly was President of Foxboro/Octek from
1978 to 1988.
BOARD COMMITTEES
Following the completion of this offering, the compensation committee of
the board of directors of Andover.Net will be comprised of Walter H. Bird, III,
James D. Logan and Jonathan Goldstein. The audit committee of the board of
directors of Andover.Net will be comprised of Louis Page, Thomas R. Shepherd and
Jonathan Goldstein.
ELECTION AND COMPENSATION OF DIRECTORS
Our certificate of incorporation provides for a classified board of
directors divided into three classes. Class I will expire at the annual meeting
of stockholders to be held in 2000, Class II will expire at the annual meeting
of stockholders to be held in 2001 and Class III will expire at the annual
meeting of stockholders to be held in 2002. At each annual meeting of
stockholders, beginning with the 2000 annual meeting, the successors to
directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election and
until their successors have been duly elected and qualified, or until their
earlier resignation or removal, if any. To the extent there is an increase or
reduction in the number of directors, increase or decrease in directorships
resulting therefrom will be distributed among the classes so that, as nearly as
possible, each class will consist of an equal number of directors.
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Our current directors receive no compensation for serving as directors. We
have granted in the past, and intend to grant in the future, non-qualified stock
options to our non-employee directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any other company that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by our Chief
Executive Officer and each of our two other most highly compensated executive
officers (collectively, the "Named Executive Officers") during the year ended
September 30, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
----------------------------------------- ----------------------------------------
OTHER
ANNUAL SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS/SARS (#) COMPENSATION ($)
--------------------------- ---------- --------- ---------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Bruce Twickler................... 108,000 -- -- -- --
President, Chief Executive
Officer and Chairman
Adam Green....................... 105,000 -- -- 40,190 --
Chief Technology Officer
James Patterson.................. 91,000 -- -- 40,190 --
Executive Vice President
</TABLE>
The following table sets forth certain information regarding the option
grants made during the year ended September 30, 1998 to each of the Company's
named executive officers in the Summary Compensation Table above. The Company
issued no stock appreciation rights ("SARs") in year ended September 30, 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
------------------------------------------------------------------------- --------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL MARKET
UNDERLYING OPTIONS GRANTED EXERCISE OR VALUE ON
OPTIONS TO EMPLOYEES IN BASE PRICE DATE OF GRANT EXPIRATION
NAME GRANTED(#) FISCAL YEAR(%) ($/SHARE) ($/SHARE) DATE 5%($) 10%($)
---- ----------- ---------------- ----------- ------------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce Twickler....... -- -- -- -- -- -- --
Adam Green........... 40,190 8.5 0.50 1.50 3/15/08 78,104 136,270
James Patterson...... 40,190 8.5 0.50 1.50 3/15/08 78,104 136,270
</TABLE>
- ---------------
(1) In accordance with the rules of the SEC, shown are the gains or "option
spreads" that would exist for the respective options granted. These gains
are based on the assumed rates of annual compound stock price appreciation
of 5% and 10% from the date the option was granted over the full option
term. These assumed annual compound rates of stock price appreciation are
mandated by the rules of the SEC and do not represent the Company's estimate
or projection of future common stock prices.
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<PAGE> 53
Year End Option Table. The following table sets forth information
regarding exercise of options and the number and value of options held at
September 30, 1998, by each of the Company's named executive officers in the
Summary Compensation Table above:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END (1)
SHARES ACQUIRED VALUE --------------------------------- ----------------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
---- --------------- ----------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Bruce Twickler....... -- -- -- -- -- --
Adam Green........... 0 0 124,746 154,953 1,680,967 2,088,010
James Patterson...... 0 0 46,150 73,721 621,877 993,399
</TABLE>
- ---------------
(1) Value is based on the difference between the option exercise price and the
initial public offering price of the common stock multiplied by the number
of shares of common stock underlying the option. No market existed for the
common stock prior to this offering. Assumed offering price of $13.50 per
share; exercise price is $0.025 per share.
BENEFIT PLANS
1995 Stock Option Plan.
The 1995 Stock Option Plan, or the 1995 plan, provides for the granting of
incentive stock options and non-qualified options defined in Section 422 of the
Internal Revenue Code to Andover.Net's employees, consultants and directors. The
1995 plan may be administered by the board of directors or by a committee. The
board has the authority to take the following actions:
(a) interpret and apply the 1995 plan; and
(b) determine the eligibility of an individual to participate in the
1995 plan.
No incentive stock options may be granted to an employee who, at the time
of the grant, owns more than 10% of the voting power or greater than 10% of each
class of Andover.Net's outstanding stock, unless the purchase price of the stock
is not less than 110% of the stock's fair market value on the date of the grant
and the option, by its terms, shall not be exercisable more than five years from
the date it is granted.
Vested options may be exercised in full at one time or in part from time to
time. The payment of the exercise price may be made by delivery of one of the
following: (a) cash or a check; (b) at the discretion of the board, shares of
Andover.Net's common stock owned by the optionholder having a fair market value
equal in amount to the exercise price of the options being exercised; (c) at the
discretion of the board, by delivery of the optionholder's personal recourse
note; or (d) at the discretion of the board, any combination of (a), (b) and
(c).
The term of any option granted under the 1995 plan is limited to either
five or 10 years, depending on the nature of the option holder. Upon the
termination of an optionholder's employment with Andover.Net, his or her options
will terminate between 60 and 180 days after that optionholder leaves the employ
of Andover.Net.
As of September 15, 1999, 1,000,542 options were outstanding under the 1995
plan. No additional shares will be granted under the plan. Options granted vest
over a term established by the board of directors or committee at the date of
grant. The outstanding options have exercise prices ranging from $0.025 to $1.06
per share.
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1999 Stock Option Plan.
The 1999 Stock Option Plan, or 1999 plan, provides for the granting of
incentive stock options and non-qualified options defined in Section 422 of the
Internal Revenue Code to Andover.Net's employees, directors, advisors or
consultants. The 1999 plan may be administered by Andover.Net's board of
directors or by a committee. The board has the authority to take the following
actions:
(a) interpret and apply the 1999 plan;
(b) determine the eligibility of an individual to participate in the
1999 plan;
(c) approve the assignment of options immediately prior to the
registration of Andover.Net's stock pursuant to the Securities Exchange Act
of 1934, as amended, if such assignment would increase the number of common
stockholders; and
(d) determine and allocate the cancellation or exchange of outstanding
options in the case of a recapitalization, acquisition, merger or change in
control.
No incentive stock options may be granted to an employee who, at the time
of the grant, owns more than 10% of the voting power or greater than 10% of each
class of Andover.Net's outstanding stock, unless the purchase price of the stock
is not less than 110% of the stock's fair market value on the date of the grant
and the option, by its terms, shall not be exercisable more than five years from
the date it is granted.
Vested options may be exercised in full at one time or in part from time to
time in amounts of 50 shares or more. The payment of the exercise price may be
made as determined by the board, and set forth in the option agreement, by
delivery of one of the following: (a) cash or a check; (b) shares of
Andover.Net's common stock owned by the optionholder having a fair market value
equal in amount to the exercise price of the options being exercised; (c) any
combination of (a) and (b); provided, however, that payment of the exercise
price by delivery of shares of common stock owned by such option holder may be
made if the payment does not result in a charge to earnings for financial
accounting purposes as determined by the board; or (d) a properly executed
exercise notice to Andover.Net, together with a copy of irrevocable instruments
to a broker to deliver promptly to Andover.Net the amount of sale or loan
proceeds to pay the exercise price. Andover.Net may delay the issuance of shares
covered by the exercise of an option until the shares for which the option has
been exercised have been registered or qualified under the applicable federal or
state securities laws, or counsel for Andover.Net has opined that the shares are
exempt from the registration requirements of applicable federal or state
securities laws.
The term of any option granted under the 1999 plan is limited to either
five or 10 years, depending on the nature of the option holder. Upon the
termination of an optionholder's employment with Andover.Net, his or her options
will terminate between 60 days and 12 months after that optionholder leaves the
employ of Andover.Net.
As of September 15, 1999, 667,443 options were outstanding under the 1999
plan. Options granted vest over a term established by the board of directors at
the date of grant. The outstanding options have an exercise price ranging from
$0.12 to $1.06 per share.
LIMITATION OF LIABILITY; INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, we have included in
our certificate of incorporation a provision to eliminate the personal liability
of its directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions. In addition, our
bylaws provide that we are required to indemnify our officers and directors
under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and we are required to advance
expenses to its officers and directors as incurred in connection with
proceedings against them for which they may be indemnified. At present, we are
not aware of any pending or threatened litigation or proceeding involving our
directors, officers, employees or agents in which indemnification would be
required or permitted. We believe that our certificate of incorporation
provisions and indemnification agreements are necessary to attract and retain
qualified persons as directors and officers.
47
<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of September 15, 1999, and as adjusted to
reflect the sale of the common stock offered hereby by:
- each person who is known by us to own beneficially more than 5% of the
outstanding shares of our capital stock;
- each of our directors;
- the named executive officers; and
- all directors and executive officers as a group.
Percentage of ownership is calculated as required by the Securities and
Exchange Commission, or SEC. Except as indicated in the footnotes to this table,
the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them. The
table below includes the number of shares underlying options which are
exercisable within 60 days from September 15, 1999. For purposes of calculating
each person's or group's percentage ownership, stock options exercisable within
60 days after September 15, 1999 are included for that person or group, but not
the stock options of any other person or group. Unless otherwise indicated, the
address of each of the beneficial owners identified is 50 Nagog Park, Acton,
Massachusetts 01720.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
----------------------
NUMBER OF SHARES BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------ ------------------ ---------- ---------
<S> <C> <C> <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Bruce A. Twickler(1)....................................... 1,911,005 16.1% 12.7%
Adam B. Green(2)........................................... 304,674 2.7 2.0
James E. Patterson(3)...................................... 80,022 * *
William M. Dwyer(4)........................................ 80,320 * *
Derek V. Carroll(5)........................................ 100,400 * *
Janet F. Holian(6)......................................... 30,120 * *
Walter M. Bird III(7)...................................... 792,692 7.2 5.3
Jonathan M. Goldstein(8)................................... 2,381,345 21.7 15.9
James D. Logan(9).......................................... 203,493 1.7 1.3
Robert Malda(10)........................................... -- -- --
Louis Page(11)............................................. 1,327,180 12.1 8.9
Thomas R. Shepherd(12)..................................... 199,606 1.7 1.3
John E. Trombly(13)........................................ 517,452 4.6 3.4
All Directors and Executive Officers as a Group
(13 persons, including the above)........................ 7,928,309 72.1 52.9
5% STOCKHOLDERS
Massachusetts Technology Development Corp.................. 684,142 6.2 4.6
148 State Street
Boston, MA 02109
James S. Mulhullond, Jr.................................... 926,330 8.4 6.1
One East 66th Street
New York, NY 10021
TA/Advent VIII L.P. ....................................... 1,592,874 14.5 10.6
High Street Tower
125 High Street
Boston, MA 02110
TA/Atlantic and Pacific IV, L.P. .......................... 726,352 6.6 4.8
High Street Tower
125 High Street
Boston, MA 02110
Window to Wall Street, Inc................................. 561,481 5.1 3.7
39 Cedar Hill Road
Dover, MA 02030
Window to Wall Street Limited Partnership.................. 569,197 5.1 3.8
39 Cedar Hill Road
Dover, MA 02030
</TABLE>
48
<PAGE> 56
- ---------------
* Less than one percent
(1) Shares listed as held by Bruce A. Twickler include 617,184 shares which are
currently held by Barbara Twickler, his wife, as to which Mr. Twickler
maintains full voting power. Mr. Twickler disclaims beneficial ownership of
these shares. Shares listed as held by Mr. Twickler also include options to
purchase 147,760 shares Mr. Twickler has the right to acquire within 60
days of September 15, 1999.
(2) Shares listed as held by Adam B. Green include options to purchase 304,674
shares Mr. Green has the right to acquire within 60 days of September 15,
1999.
(3) Shares listed as held by James E. Patterson include options to purchase
49,818 shares Mr. Patterson has the right to acquire within 60 days of
September 15, 1999.
(4) Shares listed as held by William M. Dwyer include options to purchase
80,320 shares Mr. Dwyer has the right to acquire within 60 days of
September 15, 1999.
(5) Shares listed as held by Derek V. Carroll include options to purchase
100,400 shares Mr. Carroll has the right to acquire within 60 days of
September 15, 1999.
(6) Shares listed as held by Janet F. Holian include options to purchase 30,120
shares Ms. Holian has the right to acquire within 60 days of September 15,
1999.
(7) Shares listed as held by Walter M. Bird III include 461,010 shares held by
Claflin Capital VI, L.P. and 331,682 Claflin Capital VII, L.P. of which Mr.
Bird is the general partner. Mr. Bird disclaims beneficial ownership of
these shares.
(8) Shares listed as held by Jonathan M. Goldstein include an aggregate of
1,592,874 shares held by TA/Advent VIII L.P., 726,352 shares held by
TA/Atlantic and Pacific IV, L.P., 30,263 shares held by TA Executives Fund
LLC, and 31,856 shares held by TA Investors LLC. Mr. Goldstein has
beneficial ownership of 6,636 of such shares. Mr. Goldstein disclaims
beneficial ownership of the remaining shares.
(9) Shares listed as held by James D. Logan include 188,172 shares held by the
James D. and Kerry M. Logan Family Trust U/A/D 12/31/98 of which his mother
Bernice C. Logan is a trustee. Mr. Logan disclaims beneficial ownership of
these shares. Shares listed as held by Mr. Logan also include 15,333
options for shares Mr. Logan has the right to acquire within 60 days of
September 15, 1999.
(10) Mr. Malda, a substantial stockholder of BlockStackers, will beneficially
own a certain number of shares of common stock upon the closing of this
offering based upon the initial public offering price. See "Relationships
with Andover.Net and Related Transactions -- Other Transactions with
Management -- Slashdot.org Purchase Agreement."
(11) Shares listed as held by Louis Page include 561,481 shares held by Window
to Wall Street, Inc. of which Mr. Page is the president, 569,197 shares
held by Window to Wall Street Limited Partnership of which Window to Wall
Street Inc. is the general partner and 196,501 shares held by Window to
Wall Street II Limited Partnership of which Window to Wall Street, Inc. is
the general partner. Mr. Page disclaims beneficial ownership of these
shares.
(12) Shares listed as held by Thomas R. Shepherd include an aggregate of 10,188
shares held by The Shepherd Group, LLC of which Mr. Shepherd is the
Chairman and 80,883 shares held by The Shepherd Venture Fund I, L.P. of
which The Shepherd Group, LLC is the general partner. Mr. Shepherd
disclaims beneficial ownership of these shares.
(13) Shares listed as held by John E. Trombly include 334,927 shares held by
Royalty Capital Fund L.P. I, of which Royalty Capital Management, Inc. is
the general partner. Mr. Trombly is the Executive Vice President of Royalty
Capital Management, Inc. Mr. Trombly disclaims beneficial ownership of
these shares.
49
<PAGE> 57
RELATIONSHIPS WITH ANDOVER.NET AND RELATED TRANSACTIONS
SALE OF SERIES B PREFERRED STOCK
Andover.Net issued and sold 600,568 shares of Series B convertible
preferred stock on September 15, 1999. 480,354 shares were sold and issued to
affiliates of TA Associates, Inc. and others and 120,214 shares, in the
aggregate, were issued to holders of convertible promissory notes in exchange
for the cancellation of their notes. The total aggregate proceeds to Andover.Net
in the private placement was approximately $10,100,000. The Series B convertible
preferred stock is immediately convertible into common stock at the option of
the holder and will convert into 3,017,138 shares of common stock upon the
closing of this offering.
EMPLOYMENT AGREEMENTS
Robert Malda
In connection with its acquisition of Slashdot.org, Andover.Net entered
into an employment agreement with Robert Malda, a director of Andover.Net, on
June 28, 1999, for a term of three years. The agreement provides that Mr. Malda
is entitled to a base salary of $90,000 per year. In addition, Mr. Malda is
entitled to customary employee benefits. Mr. Malda's employment agreement may be
terminated by Andover.Net at any time for "cause," which is defined as (a) the
conviction of or plea of no contest to any felony, (b) continued, uncured
insubordination, (c) breach of the non-competition provisions of the employment
agreement or (d) commission of any fraud, embezzlement or similar acts of
dishonesty against Andover.Net. This agreement may also be terminated by
Andover.Net without cause or by Mr. Malda for "good reason," which is defined as
(a) the assignment of any duties inconsistent with those set forth in the
employment agreement, (b) any material reduction in Mr. Malda's salary or
benefits, (c) breach of the employment agreement by Andover.Net or (d) the
requirement by Andover.Net that Mr. Malda perform his duties from any specific
location for a prolonged period of time. If Mr. Malda is terminated without
cause or terminates for "good reason" then Mr. Malda is entitled to continue to
receive his existing base salary and benefits for a period of 12 months and is
entitled to receive the payments set forth in the Slashdot.org purchase
agreement without reduction. See "Other Transactions with Management -
Slashdot.org Purchase Agreement."
Under the terms of the employment agreement, Mr. Malda has agreed that
during the term of the agreement he will not participate in the management of
any entity which is in competition with Andover.Net. In the event that
Andover.Net terminates Mr. Malda without cause or if Mr. Malda terminates for
good reason, this non-competition period will terminate concurrently with the
termination of employment.
OTHER TRANSACTIONS WITH MANAGEMENT
Compensation and Benefits.
Our executive officers receive compensation, bonuses and other benefits
under various employee benefit plan arrangements maintained by us and its
subsidiaries. The executive officers participated in such benefit plans under
the same terms generally made available to our similarly situated employees with
similar responsibilities and levels of compensation.
Our executive officers are eligible for performance bonuses under our
Executive Officer Incentive Plan. Under this plan, each officer is eligible for
a bonus of up to $9,000 per quarter. The amount of each bonus is based on a
consideration of our quarterly revenues and quarterly traffic as well as the
achievement of specific corporate objectives.
Slashdot.org Purchase Agreement
Under the terms of the Asset Purchase Agreement between BlockStackers, Inc.
and Andover.Net, dated as of June 18, 1999, Andover.Net purchased those assets
of BlockStackers relating to the Slashdot.org web site. Andover.Net is obligated
to issue shares of its common stock to BlockStackers over a period of two
50
<PAGE> 58
years following this offering. For the purposes of these issuances, the number
of shares of common stock to be issued is determined using an assumed initial
public offering price of $13.50 per share.
- 148,148 shares issuable upon the closing of this offering;
- 74,074 shares issuable seven months after the closing of this offering;
- 49,383 shares issuable 12 months after the closing of this offering;
- 98,763 shares issuable 12 months after the closing of this offering
provided that the milestones in the agreement have been met;
- 49,383 shares issuable 24 months after the closing of this offering; and
- 98,765 shares issuable 24 months after the closing of this offering
provided that the milestones in the agreement have been met.
Pursuant to this purchase agreement, BlockStackers also agreed not to
compete with Andover.Net or to solicit its personnel, customers or suppliers.
Specifically, BlockStackers may not compete with Andover.Net, its subsidiaries
or affiliates by engaging in any business that involves a real-time or
contemporaneous news web site until June 28, 2004. Prior to June 28, 2001,
BlockStackers may not solicit personnel, customers or suppliers from
Andover.Net, its subsidiaries or affiliates. Mr. Malda, a director of
Andover.Net, is a substantial stockholder of BlockStackers.
Freshmeat.net Purchase Agreement
Under the terms of the Asset Purchase Agreement between Patrick Lenz (the
owner of Freshmeat.net) and Andover.Net, dated August 6, 1999, Andover.Net
purchased those assets relating to the Freshmeat.net web site. Andover.Net is
obligated to issue shares of its common stock to Mr. Lenz over a period of two
years following this offering. For purposes of these issuances, the number of
shares of common stock to be issued is determined using an assumed initial
public offering price of $13.50 per share.
- 8,230 shares issuable upon the closing of this offering;
- 8,230 shares issuable 12 months after the closing of this offering; and
- 8,230 shares issuable 24 months after the closing of this offering.
Mr. Lenz is presently an independent contractor of Andover.Net.
Animation Factory Purchase Agreement
Under the terms of the Asset Purchase Agreement between Eclipse Digital
Imaging, Inc. and Andover.Net, dated as of June 18, 1999, Andover.Net purchased
certain assets of Eclipse Digital Imaging including certain graphical and
artistic web sites known as Animation Factory. Andover.Net is obligated to issue
shares of its common stock to Eclipse Digital Imaging over a period of two years
following this offering. For the purposes of these issuances, the number of
shares of common stock to be issued is determined using an assumed initial
public offering price of $13.50 per share.
- 14,815 shares issuable upon the closing of this offering;
- 14,815 shares issuable 12 months after the closing of this offering; and
- 14,815 shares issuable 24 months after the closing of this offering.
James Maloney and Art Holden, employees of Andover.Net, are substantial
stockholders of Eclipse Digital Imaging.
51
<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $.01 par value per share, of which
15,000,000 shares will be outstanding, and 1,000,000 shares of preferred stock,
$.01 par value per share, none of which will be outstanding. The following
description of our capital stock and certain provisions of our restated
certificate of incorporation, or the certificate of incorporation, and bylaws is
a summary and is qualified in its entirety by the provisions of the certificate
of Incorporation and bylaws, copies of which have been filed as exhibits to this
registration Statement of which this prospectus is a part.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The certificate of incorporation
does not provide for cumulative voting for the election of directors. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the board of directors out of funds legally
available therefor, and shall be entitled to receive, pro rata, all assets of
Andover.Net available for distribution to such holders upon liquidation. Holders
of common stock have no preemptive, subscription or redemption rights.
PREFERRED STOCK
We are authorized to issue "blank check" preferred stock, which may be
issued from time to time in one or more series upon authorization by our board
of directors. The board of directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences and
any other rights, preferences, privileges and restrictions applicable to each
series of the preferred stock. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of common stock and, under certain circumstances, make it more difficult
for a third party to gain control of Andover.Net, discourage bids for our common
stock at a premium or otherwise adversely affect the market price of our common
stock. We currently have no plans to issue any preferred stock.
CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY ANTI-TAKEOVER
PROVISIONS AFFECTING STOCKHOLDERS
Classified Board. Our board of directors is divided into three classes,
each of which, after a transitional period, will serve for three years, with one
class being elected each year. Removal of a member of the board of directors
with or without cause requires a majority vote of the board of directors or of
the stockholders. A majority of the remaining directors then in office, though
less than a quorum, and the stockholders, are empowered to fill any vacancy on
the board of directors. A majority vote of the stockholders is required to
alter, amend or repeal the foregoing provisions.
Section 203 of Delaware Law. We are subject to the "business combination"
statute of the Delaware General Corporation Law. In general, this statute
prohibits 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 (a) the transaction is approved by
the board of directors prior to the date the interested stockholder obtained
such status, (b) upon consummation of the transaction which resulted in the
shareholder becoming an "interested stockholder," the "interested 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 (x) persons who are directors and
also officers and (y) 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 (c) on or
52
<PAGE> 60
subsequent to such date the "business combination" is approved by the board of
directors and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the "interested stockholder." A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
a stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
a corporation's voting stock. By virtue of our decision not to elect out of the
statute's provisions, the statute applies to us. None of our current
stockholders is an "interested stockholder" because their acquisition of shares
was approved by our board of directors. The statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to us and, accordingly, may discourage attempts to acquire us.
Directors Liability. The certificate of incorporation provides that no
director shall be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a director notwithstanding any provision
of law imposing such liability, provided that, to the extent provided by
applicable law, the certificate of incorporation shall not eliminate the
liability of a director for (a) any breach of the director's duty of loyalty to
us or our stockholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) acts or omissions in
respect of certain unlawful dividend payments or stock redemptions or
repurchases or (d) any transaction from which such director derives improper
personal benefit. The effect of this provision is to eliminate the rights of
Andover.Net and our stockholders (through stockholders' derivative suits against
Andover.Net) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (a) through (d) above. The limitations summarized above, however, do not
affect the ability of Andover.Net or our stockholders to seek non-monetary based
remedies, such as an injunction or rescission, against a director for breach of
his fiduciary duty nor would such limitations limit liability under the Federal
securities laws. Our bylaws provide that we shall, to the extent permitted by
Delaware law, as amended from time to time, indemnify and advance expenses to
the currently acting and former directors, officers, employees and agents of
Andover.Net or of another corporation, partnership, joint venture, trust or
other enterprise if serving at our request arising in connection with their
acting in such capacities.
Certain provisions described above may also have the effect of delaying
stockholder actions with respect to certain business combinations and the
election of new members to our board of directors. As such, the provisions could
have the effect of discouraging open market purchases of our common stock
because they may be considered disadvantageous by a stockholder who desires to
participate in a business combination with us or elect a new director to our
board.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Following this offering, the holders of approximately 9,497,449 shares of
common stock will have certain rights to register those shares under the
Securities Act of 1933, as amended, the Securities Act, pursuant to a third
amended and restated registration rights agreement. Subject to certain
limitations in the agreement, the holders of at least 50% of:
- the shares issued upon conversion of the Series B convertible preferred
stock; or
- the shares of common stock held by former holders of Series A redeemable
preferred stock
may require, on a total of three occasions, Andover.Net to use its best efforts
to register all such shares for resale to the public. These holders are
entitled, if Andover.Net registers any of its common stock for its own account
or for the account of other security holders, to include their shares of common
stock in such registration. These holders may also require Andover.Net to
register all or a portion of their shares of common stock in a registration
statement on Form S-3 when Andover.Net is eligible to use that form, provided
that the proposed aggregate price to the public of any offering is at least
$1,000,000. Andover.Net will bear all fees, costs and expenses of these
registrations, other than underwriting discounts and commissions.
53
<PAGE> 61
All of the registration rights described above are subject to conditions
and limitations, among them the right of the underwriters in any underwritten
offering to limit the number of shares of common stock to be included in a
registration. Registrations of any shares of common stock held by holders with
registration rights would result in these shares being freely tradable without
restriction under the Securities Act upon the effective date of the
registration. Under the agreement, Andover.Net has also agreed to indemnify the
holders of registration rights.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
54
<PAGE> 62
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, Andover.Net will have outstanding
15,000,000 shares of common stock. Of these shares, the 4,000,000 shares offered
hereby (4,600,000 shares if the Underwriters' over-allotment option is exercised
in full) will be freely tradable without restriction or further registration
under the Securities Act, unless purchased by "affiliates" of Andover.Net as
that term is defined in Rule 144 described below. The remaining 11,000,000
shares of common stock outstanding upon closing of the offering are "restricted
securities" as that term is defined in Rule 144. Of the remaining 11,000,000
shares, approximately 5,004,838 shares are subject to 180 day lock-up agreements
(described below).
Beginning 90 days after commencement of this offering, approximately
2,946,906 shares will become eligible for sale pursuant to Rule 144 or Rule 701
under the Securities Act ("Rule 701"). Upon expiration of the lock-up
agreements, an aggregate of 7,057,506 shares will become immediately eligible
for sale subject to the timing, volume, and manner of sale restrictions of Rule
144. Commencing , 2001, all outstanding shares not owned by
affiliates of Andover.Net (currently 2,946,906 shares) will be eligible for sale
pursuant to Rule 144(k). In addition, 913,178 additional shares of common stock
subject to outstanding vested stock options could also be sold as of January 1,
2000, subject in some cases to compliance with certain volume limitations as
described below.
In general, under Rule 144, as amended, a person (or persons whose shares
are aggregated) who has beneficially owned shares for at least one year
(including the holding period of any prior owner except an affiliate from whom
such shares were purchased) is entitled to sell in "brokers' transactions" or to
market makers, within any three-month period commencing 90 days after the date
of this Prospectus, a number of shares that does not exceed the greater of (i)
one percent of the number of shares of common stock then outstanding
(approximately 150,000 shares immediately after the completion of this offering)
or (ii) generally, the average weekly trading volume in our common stock during
the four calendar weeks preceding the required filing of a Form 144 with respect
to such sale. Sales under Rule 144 are generally subject to the availability of
current public information about Andover.Net. Under Rule 144(k), a person who is
not deemed to have been an affiliate of Andover.Net at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
other than an affiliate from whom such shares were purchased), is entitled to
sell such shares without having to comply with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Under Rule 701,
persons who purchase shares upon exercise of options granted prior to the
effective date of this offering are entitled to sell such shares 90 days after
the effective date of this offering in reliance on Rule 144, without having to
comply with the holding period requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice provisions of Rule 144.
Each of our directors, executive officers and holders of 5% or more of our
outstanding capital stock has agreed to certain restrictions on their ability to
sell, offer, contract or grant any option to sell, pledge, transfer or otherwise
dispose of shares of our common stock for a period of 180 days after the date of
this prospectus, without the prior written consent of WR Hambrecht + Co. Each of
the holders of less than 5% of our outstanding capital stock has agreed to
identical restrictions covering a period of 90 days from the date of this
prospectus.
The holders of an aggregate of 9,497,449 shares of common stock or their
transferees are entitled to rights with respect to the registration of these
shares under the Securities Act. See "Description of Capital Stock-Registration
Rights of Certain Holders."
Prior to this offering, there has not been any public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect the prevailing market prices and impair
Andover.Net's ability to raise capital through the sale of equity securities.
55
<PAGE> 63
PLAN OF DISTRIBUTION
In accordance with the terms of an underwriting agreement, WR Hambrecht +
Co., LLC, Advest, Inc. and DLJdirect Inc., as underwriters, will purchase from
Andover.Net the following respective number of shares of common stock at the
public offering price less the underwriting discounts and commissions described
on the cover page of this prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
WR Hambrecht + Co., LLC.....................................
Advest, Inc. ...............................................
DLJdirect Inc...............................................
---------
Total............................................. 4,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to conditions, including the absence of any material
adverse change in Andover.Net's business, and the receipt of certificates,
opinions and letters from Andover.Net and its counsel and independent
accountants. Subject to those conditions, the underwriters are committed to
purchase all shares of common stock offered if any of the shares are purchased.
The underwriters propose to offer the shares of common stock directly to
the public at the offering price set forth on the cover page of this prospectus,
as this price is determined by the process described below, and to certain
dealers at this price less a concession not in excess of $ per share. Any
dealers or agents that participate in the distribution of the common stock may
be deemed to be underwriters within the meaning of the Securities Act, and any
discounts, commissions or concessions received by them and any provided by the
sale of the shares by them might be deemed to be underwriting discounts and
commissions under the Securities Act. After the completion of the initial public
offering of the shares, the public offering price and other selling terms may be
changed by the underwriters.
The public offering price described on the cover page of this prospectus
will be based on the results of an auction process, rather than solely through
negotiations between Andover.Net and the underwriters. The plan of distribution
of the offered shares differs somewhat from traditional underwritten public
offerings of equity securities.
The auction process will proceed as follows:
- Prior to the effectiveness of the registration statement relating to this
offering, the underwriters and participating dealers will solicit
conditional offers to purchase from prospective investors through the
Internet as well as by traditional means. The conditional offers to
purchase will specify the number of shares the potential investor
proposes to purchase and the price the investor is willing to pay for the
shares. At least two business days prior to the expected effectiveness of
the registration statement, WR Hambrecht + Co will send an e-mail (the
confirmation e-mail) to or contact by telephone, voice mail or facsimile
investors who have submitted conditional offers, advising them that the
registration statement for the offering may be declared effective
shortly, that investors should carefully consider the conditional offer
that they have transmitted previously, and requesting that the investors
affirmatively confirm their previously transmitted conditional offer to
purchase. An affirmative confirmation from an investor remains valid for
a period of seven business days from the transmission of the confirmation
e-mail. If WR Hambrecht + Co anticipates that the registration statement
will not be effective within this seven business day period, WR Hambrecht
+ Co will send out another confirmation e-mail approximately two business
days prior to the revised time that WR Hambrecht + Co expects the
registration statement to be effective. All conditional offers to
purchase that are not confirmed prior to the time specified by the
underwriters or, if the time is not specified, the pricing of the
offering, will be deemed withdrawn.
- After effectiveness, the underwriters will contact by e-mail, telephone,
voice mail or facsimile all bidders who have affirmatively confirmed
their conditional offers, to notify them that the registration
56
<PAGE> 64
statement is effective and that WR Hambrecht + Co can accept his or her
conditional offer to purchase by notice to the bidder sent after the
auction has closed and the offering has been priced. If the auction is
closed and the offering is priced on the same day that the registration
statement becomes effective, notice of effectiveness will be included in
the notice of acceptance. The bidder has the right to withdraw his or her
conditional offer at any time prior to the time at which WR Hambrecht +
Co sends the notice of acceptance by one of the means specified above.
New conditional offers to purchase may be placed at any time prior to the
close of the auction. After the auction is closed and a clearing price is
set as described below, WR Hambrecht + Co will accept the conditional
offers to purchase from those bidders with conditional offers to purchase
at or above the clearing price.
The public offering price will ultimately be determined by negotiation
between the underwriters and Andover.Net following the close of the auction. The
principal factor in establishing the public offering price will be the price per
share, or clearing price, resulting from the auction that equals the highest
price set forth in valid conditional offers at which all of the shares may be
sold to potential investors. The public offering price may be lower (but will
not be higher) than the clearing price based on negotiations between the
underwriters and Andover.Net. However, the clearing price will always determine
the allocation of shares. Thus, if the public offering price is below the
clearing price, all conditional offers which are below the clearing price will
be rejected even if they are higher than the public offering price. If
sufficient conditional offers are not received or Andover.Net does not consider
the clearing price to be adequate or the underwriters and Andover.Net are not
able to reach agreement on the offering price, Andover.Net and the underwriters
will either postpone or cancel the offering or file a post-effective amendment
and conduct a new auction.
- A simplified example of how the public offering price will be determined
via the auction process is as follows: Company X offers to sell 100
shares in its public offering through this auction process. WR Hambrecht
+ Co, on behalf of Company X, receives five conditional offers to
purchase, all of which are kept confidential until the auction process
ends. The first conditional offer to purchase is to pay $10 per share for
10 shares, the second is for $9 per share for 30 shares, the third for $8
per share for 60 shares, the fourth for $8 per share for 40 shares and
the last for $7 per share for 80 shares. Assuming that all of these
conditional offers to purchase are confirmed and not withdrawn or
modified prior to acceptance by WR Hambrecht + Co, and that no additional
conditional offers to purchase are received, the clearing price used to
determine the public offering price would be $8 a share because $8 equals
the highest price at which all 100 shares may be sold to potential
investors who have submitted valid bids. The two potential investors with
the highest conditional offers to purchase would receive all the shares
they requested, totaling 40 shares. The next two potential investors
would receive the remaining 60 shares in proportion to the amounts they
asked for, or 36 and 24 shares each. The potential investor with the
lowest conditional offer to purchase would receive no shares in this
example.
- Valid conditional offers to purchase are those that meet the
requirements, including eligibility, account status and size, established
by the underwriters or participating dealers. In addition to minimum
account balances, a prospective investor submitting a conditional offer
to purchase through a WR Hambrecht + Co brokerage account may be required
to have an account balance equal to or in excess of an amount specified
by WR Hambrecht + Co. Although funds may be required to be in an account
as a condition to the conditional offer to purchase being considered
valid, the funds will not be transferred to the underwriters until the
closing of the offering. Conditions for valid conditional offers to
purchase, including eligibility standards and account funding
requirements of other underwriters or participating dealers may vary.
- The auction will close on a date estimated and publicly disclosed in
advance by the underwriters on the web site of WR Hambrecht + Co. The
offered shares will be purchased from Andover.Net by the underwriters and
sold through the underwriters and participating dealers to investors who
have submitted offers to purchase at or in excess of the clearing price,
and these investors will be notified by e-mail, telephone, voice mail,
facsimile or mail as soon as practicable following the close of the
auction that their conditional offers to purchase have been accepted. The
number of shares sold to an investor submitting a conditional offer to
purchase precisely at the clearing price may be subject to a
57
<PAGE> 65
pro rata reduction. Each participating dealer has agreed with the
underwriters to sell shares they purchase from the underwriters in this
manner, unless otherwise consented to by the underwriters. The
underwriters reserve the right to reject bids that they deem
manipulative, disruptive or necessary or beneficial to facilitate the
orderly completion of the offering, and reserve the right, in exceptional
circumstances, to alter this method of allocation as they deem necessary
to effect a fair and orderly distribution of the shares. For example,
large orders may be reduced to insure a public distribution and
conditional offers to purchase may be rejected by the underwriters or
participating dealers based on eligibility or creditworthiness criteria.
Price and volume volatility in the market for Andover.Net's common stock
may result from the somewhat unique nature of the proposed plan of distribution.
Price and volume volatility in the market for Andover.Net's common stock after
the completion of this offering may adversely affect the market price of
Andover.Net's common stock.
Andover.Net has granted to the underwriters an option, exercisable no later
than 30 days after the date of this prospectus, to purchase up to an aggregate
of 600,000 additional shares of common stock at the offering price, less the
underwriting discount, set forth on the cover page of this prospectus. To the
extent that the underwriters exercise this option, the underwriters will have a
firm commitment to purchase the additional shares, and Andover.Net will be
obligated to sell the additional shares to the underwriters. The underwriters
may exercise the option only to cover over-allotments made in connection with
the sale of shares offered. The underwriting agreement provides that Andover.Net
will indemnify the underwriters against specified liabilities, including
liabilities under the Securities Act, or contribute to payments that the
underwriters may be required to make.
Andover.Net has agreed not to offer, sell, contract to sell, or otherwise
dispose of any shares of common stock, or any options or warrants to purchase
common stock other than the shares of common stock or options to acquire common
stock issued under Andover.Net's stock option plan(s), for a period of 90 days
after the date of this prospectus, except with the prior written consent of WR
Hambrecht + Co. Each of our directors, executive officers and holders of 5% or
more of our outstanding capital stock has agreed to certain restrictions on
their ability to sell, offer, contract or grant any option to sell, pledge,
transfer or otherwise dispose of shares of our common stock for a period of 180
days after the date of this prospectus, without the prior written consent of WR
Hambrecht + Co. Each of the holders of less than 5% of our outstanding capital
stock has agreed to identical restrictions covering a period of 90 days from the
date of this prospectus.
Prior to the offering, there has been no public market for Andover.Net's
common stock. The initial public offering price for the common stock will be
determined by the process described above and does not necessarily bear any
direct relationship to Andover.Net's assets, current earnings or book value or
to any other established criteria of value, although these factors were
considered in establishing the initial public offering price range. Other
factors considered in determining the initial public offering price range
include:
- market conditions;
- the industry in which Andover.Net operates;
- an assessment of Andover.Net's management;
- Andover.Net's operating results;
- Andover.Net's capital structure;
- the business potential of Andover.Net;
- the demand for similar securities of comparable companies; and
- other factors deemed relevant.
In connection with the offering, persons participating in the offering may
purchase and sell shares of common stock on the open market. These transactions
may include short sales, stabilizing transactions in accordance with Rule 104 of
Regulation M under the Securities Exchange Act of 1934, as amended, the Exchange
Act, and purchases to cover positions created by short sales. Short sales
involve the sale by the underwriters of a greater number of shares than they are
required to purchase in the offering which creates a
58
<PAGE> 66
syndicate short position. Stabilizing transactions consist of certain bids or
purchases made for the purpose of preventing or retarding a decline in the
market price of the common stock. The underwriters also may impose a penalty
bid. This occurs when a particular underwriter repays to the underwriters a
portion of the underwriting discount received by it because the representative
has repurchased shares sold by or for the account of such underwriter in
stabilizing or short covering transactions. These activities by the underwriters
may stabilize, maintain or otherwise affect the market price of the common
stock. As a result, the price of the common stock may be higher than the price
that otherwise might exist in the open market. If these activities are
commenced, they may be discontinued by the underwriters at any time. These
transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise.
Persons participating in this offering may also engage in passive market
making transactions in the common stock on the Nasdaq National Market. Passive
market making consists of displaying bids on the Nasdaq National Market limited
by the prices of independent market makers and affecting purchases limited by
such prices and in response to order flow. Rule 103 of Regulation M promulgated
by the SEC limits the amount of net purchases that each passive market maker may
make and the displayed size of each bid.
Passive market making may stabilize the market price of the common stock at
a level above that which might otherwise prevail in the open market and, if
commenced, may be discontinued at any time.
WR Hambrecht + Co currently intends to act as a market maker for the common
stock following this offering. However, WR Hambrecht + Co is not obligated to do
so and may discontinue any market making at any time.
WR Hambrecht + Co is an investment banking firm formed as a limited
liability company in February 1998. In addition to this offering, WR Hambrecht +
Co has engaged in the business of public and private equity investing and
financial advisory services since its inception. The manager of WR Hambrecht +
Co, William R. Hambrecht, has 40 years of experience in the securities industry.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Andover.Net by Hutchins, Wheeler & Dittmar, A Professional Corporation,
Boston, Massachusetts. Certain members of Hutchins, Wheeler & Dittmar may be
deemed to have a beneficial interest in an aggregate of 5,747 shares of common
stock. David P. Kreisler, a member of Hutchins, Wheeler and Dittmar, is also the
Secretary of Andover.Net. Certain legal matters in connection with the offering
will be passed upon for the underwriters by Willkie Farr & Gallagher, New York,
New York.
EXPERTS
The financial statements of (a) Andover.Net, Inc. as of September 30, 1998
and June 30, 1999, and for each of the two years in the period ending September
30, 1998 and for the nine month period ending June 30, 1999, (b) the financial
statements of BlockStackers, Inc. as of December 31, 1998 and for the period
from Inception (August 24, 1998) through December 31, 1998 and (c) the financial
statements of Eclipse Digital Imaging, Inc. as of December 31, 1998 and for the
year then ended, included in the registration statement of which this prospectus
forms a part have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
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<PAGE> 67
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission, or SEC, for the common stock we are offering by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules thereto. For further
information with respect to us and our common stock, we make reference to the
registration statement and to the exhibits and schedules filed therewith.
Statements contained in this prospectus as to the contents of any contract or
any other document referred to are not necessarily complete, and in each
instance, reference is made to the copy of such contract or other document filed
as an exhibit to the registration statement, each such statement being qualified
in all respects by such reference. A copy of the registration statement may be
inspected by anyone without charge at the SEC's principal office in Washington,
D.C., and copies of all or any part of the registration statement may be
obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain fees prescribed by the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. The SEC maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the web site
is http://www.sec.gov. Upon completion of the offering, we will be subject to
the information reporting requirements of the Securities Exchange Act of 1934,
as amended and, in accordance therewith, will file reports, proxy statements and
other information with the SEC.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent public accountants and quarterly
reports for the first three fiscal quarters of each fiscal year containing
unaudited interim financial information.
60
<PAGE> 68
ANDOVER.NET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANDOVER.NET, INC.
Report of Independent Public Accountants.................... F-2
Balance Sheets as of September 30, 1998 and June 30, 1999... F-3
Statements of Operations for the Years Ended September 30,
1997 and 1998 and for the Nine Months Ended June 30, 1998
(Unaudited) and 1999...................................... F-4
Statements of Stockholders' Equity (Deficit) for the Years
Ended September 30, 1997 and 1998 and the Nine Months
Ended June 30, 1999....................................... F-5
Statements of Cash Flows for the Years Ended September 30,
1997 and 1998 and for the Nine Months Ended June 30, 1998
(Unaudited) and 1999...................................... F-6
Notes to Financial Statements............................... F-7
ANDOVER.NET, INC. PRO FORMA UNAUDITED FINANCIAL INFORMATION
Introduction to Pro Forma Financial Information............. F-21
Pro Forma Combined Statement of Operations for the Year
Ended September 30, 1998.................................. F-22
Pro Forma Combined Statement of Operations for the Nine
Months Ended June 30, 1999................................ F-23
BLOCKSTACKERS, INC.
Report of Independent Public Accountants.................... F-24
Balance Sheet as of December 31, 1998....................... F-25
Statement of Operations for the Period from Inception
(August 24, 1998) through December 31, 1998............... F-26
Statements of Stockholders' Deficit from Inception (August
24, 1998) through December 31, 1998....................... F-27
Statements of Cash Flows for the Period from Inception
(August 24, 1998) through December 31, 1998............... F-28
Notes to Financial Statements............................... F-29
ECLIPSE DIGITAL IMAGING, INC.
Report of Independent Public Accountants.................... F-32
Balance Sheet as of December 31, 1998....................... F-33
Statement of Operations for the Years Ended December 31,
1998...................................................... F-34
Statement of Partners' Capital for the Year Ended December
31, 1998.................................................. F-35
Statement of Cash Flows for the Year Ended December 31,
1998...................................................... F-36
Notes to Financial Statements............................... F-37
</TABLE>
F-1
<PAGE> 69
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Andover.Net, Inc.:
We have audited the accompanying balance sheets of Andover.Net, Inc. (a Delaware
corporation) as of September 30, 1998 and June 30, 1999 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years ended September 30, 1997 and 1998 and for the nine months ended June 30,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Andover.Net, Inc. as of
September 30, 1998 and June 30, 1999 and the results of its operations and cash
flows for the years ended September 30, 1997 and 1998 and for the nine months
ended June 30, 1999, in conformity with generally accepted accounting
principles.
Boston, Massachusetts
September 16, 1999
F-2
<PAGE> 70
ANDOVER.NET, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, 1999
SEPTEMBER 30, ----------------------
1998 ACTUAL PRO FORMA
------------- ------- -----------
(NOTE 2(C))
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 196 $ 1,610 $11,710
Accounts receivable, net of allowance of $13 and $35 as
of September 30, 1998 and June 30, 1999,
respectively........................................ 308 398 398
Other current assets................................... 6 37 37
------- ------- -------
Total current assets........................... 510 2,045 12,145
Property and equipment, net.............................. 23 168 168
Other assets:
Intangible assets...................................... -- 2,922 2,922
Other.................................................. -- 35 35
------- ------- -------
-- 2,957 2,957
------- ------- -------
$ 533 $ 5,170 $15,270
======= ======= =======
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................................... $ 121 $ 134 $ 134
Accrued expenses....................................... 159 303 303
Long-term debt -- current portion...................... -- 664 664
Convertible notes payable to stockholders.............. -- 2,090 --
------- ------- -------
Total current liabilities...................... 280 3,191 1,101
Long-term debt........................................... -- 487 487
Commitments and contingencies (Note 8)
Series A redeemable preferred stock, at redemption value
(Note 9)............................................... 2,362 4,713 4,713
Series B redeemable convertible preferred stock (Note
12(c))................................................. -- -- --
Stockholders' equity (deficit):
Common stock, $0.01 par value -- authorized -- 100,000
shares; issued and outstanding -- 5,119 shares at
September 30, 1998, 7,951 shares at June 30, 1999
and 10,968 pro forma at June 30, 1999............... 51 79 110
Additional paid in capital............................. 105 2,338 28,755
Deferred compensation.................................. -- (863) (863)
Accumulated deficit.................................... (2,265) (4,775) (19,033)
------- ------- -------
Total stockholders' equity (deficit)........... (2,109) (3,221) 8,969
------- ------- -------
$ 533 $ 5,170 $15,270
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 71
ANDOVER.NET, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
-------------------------- ------------------------
1997 1998 1998 1999
----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue:
Advertising................................ $ 469 $ 1,290 $ 986 $ 891
Barter advertising......................... -- -- -- 218
Software................................... 272 -- -- --
--------- --------- --------- ---------
Total revenue...................... 741 1,290 986 1,109
--------- --------- --------- ---------
Cost of revenue:
Editorial content and related.............. 136 327 255 430
Software................................... 167 -- -- --
--------- --------- --------- ---------
Total cost of revenue.............. 303 327 255 430
--------- --------- --------- ---------
Gross profit................................. 438 963 731 679
Operating expenses:
Sales and marketing........................ 496 744 582 1,118
General and administrative................. 338 360 290 678
Research and development................... 194 304 200 472
Amortization of deferred compensation...... -- -- -- 720
--------- --------- --------- ---------
Total operating expenses........... 1,028 1,408 1,072 2,988
--------- --------- --------- ---------
Loss from operations............... (590) (445) (341) (2,309)
Interest income.............................. 1 20 16 59
Interest expense............................. (75) (49) (49) --
--------- --------- --------- ---------
Net loss........................... $ (664) $ (474) $ (374) $ (2,250)
========= ========= ========= =========
Accrued dividends on redeemable preferred
stock...................................... 41 134 89 260
--------- --------- --------- ---------
Net loss attributable to common
stockholders..................... $ (705) $ (608) $ (463) $ (2,510)
========= ========= ========= =========
Basic and diluted net loss per share
applicable to common stockholders (Note
2(j))...................................... $ (0.29) $ (0.12) $ (0.09) $ (0.36)
========= ========= ========= =========
Basic and diluted weighted average shares
outstanding................................ 2,468 5,110 5,106 6,990
========= ========= ========= =========
Pro forma net loss per share (Note 2(j))..... $ (0.12) $ (0.36)
========= =========
Pro forma basic and diluted weighted average
shares outstanding......................... 5,110 6,992
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 72
ANDOVER.NET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
NO PAR VALUE
------------------ ADDITIONAL TOTAL
NUMBER OF DEFERRED PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION CAPITAL DEFICIT EQUITY (DEFICIT)
--------- ------ ------------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996.................. 1,763 $ 18 $ -- $ -- $ (813) $ (795)
Recapitalization of preferred stock........ 1,709 17 -- -- (139) (122)
Issuance of common stock................... 1,206 12 -- 78 -- 90
Issuance costs related to Series A
redeemable preferred stock............... -- -- -- -- (41) (41)
Conversion of convertible promissory notes
to Series A redeemable preferred stock
and common stock......................... 402 4 -- 26 -- 30
Exercise of stock options.................. 15 -- -- -- -- --
Net loss................................... -- -- -- -- (664) (664)
------ ---- ------- ------- -------- -------
Balance, September 30, 1997.................. 5,095 51 -- 104 (1,657) (1,502)
Accrued dividends on Series A redeemable
preferred stock.......................... -- -- -- -- (134) (134)
Exercise of stock options.................. 24 -- -- -- -- --
Net loss................................... -- -- -- -- (474) (474)
------ ---- ------- ------- -------- -------
Balance, September 30, 1998.................. 5,119 51 -- 104 (2,265) (2,110)
Accrued dividends on Series A redeemable
preferred stock.......................... -- -- -- -- (226) (226)
Issuance of common stock................... 2,636 26 -- 651 -- 677
Issuance costs related to Series A
redeemable preferred stock............... -- -- -- -- (34) (34)
Exercise of stock options.................. 196 2 -- -- -- 2
Deferred compensation related to stock
options.................................. -- -- (1,583) 1,583 -- --
Amortization of deferred compensation...... -- -- 720 -- -- 720
Net loss................................... -- -- -- -- (2,250) (2,250)
------ ---- ------- ------- -------- -------
Balance, June 30, 1999....................... 7,951 $ 79 $ (863) $ 2,338 $ (4,775) $(3,221)
====== ==== ======= ======= ======== =======
Conversion of Series B redeemable convertible
preferred stock to common stock
(Unaudited)................................ 3,017 31 -- 26,417 (14,258) 12,190
------ ---- ------- ------- -------- -------
Pro forma balance, June 30, 1999 (Unaudited)
(Note) 2(c)................................ 10,968 $110 $ (863) $28,755 $(19,033) $ 8,969
====== ==== ======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 73
ANDOVER.NET, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE-MONTHS
SEPTEMBER 30, ENDED JUNE 30,
--------------- ----------------------
1997 1998 1998 1999
------ ----- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................... $ (664) $(474) $(374) $(2,250)
Adjustments to reconcile net loss to net cash used
in operating activities --
Depreciation and amortization................... 6 9 6 23
Amortization of deferred compensation........... -- -- -- 720
Changes in operating assets and liabilities --
Accounts receivable........................... (91) (136) (175) (90)
Other current assets.......................... 107 69 72 (32)
Accounts payable.............................. 45 (120) (88) 12
Accrued expenses.............................. 68 78 62 124
------ ----- ----- -------
Net cash used in operating activities...... (529) (574) (497) (1,493)
------ ----- ----- -------
Cash flows from investing activities:
Cash paid for acquisitions......................... -- -- -- (1,750)
Purchases of property and equipment................ (8) (17) (12) (168)
Increase in other assets........................... -- -- -- (35)
------ ----- ----- -------
Net cash used in investing activities...... (8) (17) (12) (1,953)
------ ----- ----- -------
Cash flows from financing activities:
Proceeds from the issuance of AAT Series B
convertible preferred stock..................... 10 -- -- --
Proceeds from the issuance of Series A redeemable
preferred stock, net of issuance costs.......... 769 -- -- 2,091
Proceeds from issuance of common stock............. 90 -- -- 677
Proceeds from exercise of ATT Series B warrants.... 103 -- -- --
Payments on related party notes payable to
stockholders.................................... (26) (50) -- --
Proceeds from convertible notes payable to
stockholders.................................... -- -- -- 2,090
Proceeds from convertible notes payable to
stockholders and issuance of Series A redeemable
preferred stock and common stock................ 300 -- -- --
Exercise of stock options.......................... -- -- 1 2
------ ----- ----- -------
Net cash provided by (used in) financing
activities............................... 1,246 (50) 1 4,860
------ ----- ----- -------
Net increase (decrease) in cash and cash
equivalents........................................ 709 (641) (508) 1,414
Cash and cash equivalents, beginning of period....... 128 837 837 196
------ ----- ----- -------
Cash and cash equivalents, end of period............. $ 837 $ 196 $ 329 $ 1,610
====== ===== ===== =======
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 48 $ 27 $ -- $ --
====== ===== ===== =======
Supplemental disclosure of noncash financing
transactions:
Conversion of notes payable to Series A redeemable
preferred stock and common stock................ $ 100 $ -- $ -- $ --
====== ===== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 74
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS
Andover.Net, Inc. (Andover.Net) (formerly Andover Advanced Technologies,
Inc.) is a commercial internet web site designer and developer. Andover.Net has
developed a network of web sites providing news, information, products and
services to technology-oriented users. Andover.Net sells advertising to
companies whose products and services target these users. Prior to September 30,
1996, Andover.Net was a software publisher of multimedia and Internet tools. In
fiscal 1997, Andover.Net made the transition from a software publisher to web
site publisher, focusing all development and sales efforts on Web publishing
after March 31, 1997. The Company was originally incorporated in Massachusetts
in 1992. In September 1999, Andover Advanced Technologies, Inc. (AAT) was merged
into its wholly owned subsidiary, Andover.Net and changed its fiscal year-end to
December 31.
Andover.Net is subject to the risks associated with emerging,
technology-oriented companies with a limited operating history, including a
developing business model, limited history of commerce on the Internet, initial
and continued market acceptance of Andover.Net's web sites, competition, the
ability to successfully market its current web sites, and the continued ability
to manage and fund Andover.Net's future operations.
Since its inception, Andover.Net has incurred a significant accumulated
deficit and is devoting substantially all of its efforts toward marketing its
web sites and products. Andover.Net's ability to continue operating as a going
concern is dependent upon its ability to raise additional capital and to achieve
budgeted operating results. See Note 12 (c), which describes Andover.Net's
financing in September 1999.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
significant accounting policies as described in this note and elsewhere in the
notes to financial statements.
(a) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of net revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(b) Interim Financial Statements
The accompanying statements of operations and cash flows for the nine
months ended June 30, 1998 are unaudited, but, in the opinion of management,
include all adjustments, consisting or normal recurring adjustments, necessary
for a fair presentation of results for these interim periods. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted, although Andover.Net believes that the disclosures included are
adequate to make the information presented not misleading. The results of
operations for the nine months ended June 30, 1999 are not necessarily
indicative of the results to be expected for the entire fiscal year or any other
interim period.
(c) Unaudited Pro Forma Presentation
The unaudited pro forma balance sheet as of June 30, 1999 and the pro forma
net loss per share for the nine months ended June 30, 1999 gives effect to the
recent issuance and sale of 480,354 shares of Series B redeemable convertible
preferred stock on September 15, 1999 and the concurrent automatic conversion of
all convertible notes payable into 120,214 shares of Series B redeemable
convertible preferred stock equaling an
F-7
<PAGE> 75
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
aggregate of 600,568 shares of Series B redeemable convertible preferred stock
and the automatic conversion of the Series B convertible preferred stock into
3,014,851 shares of common stock upon the closing of the initial public
offering. The effects of the Slashdot.org and Eclipse Digital Imaging
acquisitions are included in the actual June 30, 1999 balance sheet data below,
as such acquisitions were consummated before June 30, 1999.
(d) Revenue Recognition
Advertising revenues are derived from the sale of advertising space on the
Company's various online services. Advertising revenues are recognized over the
period in which the advertisements are displayed, provided that no significant
Company obligations remain and collection of the receivable is reasonably
assured. Company obligations typically include guarantees of a minimum number of
"impressions" (times that an advertisement is viewed by users of the Company's
online services over a specified period of time). To the extent that minimum
guaranteed impressions are not met, the Company defers recognition of the
corresponding revenues until the guaranteed impressions are achieved.
Revenues from barter transactions are recorded at the lower of the
estimated fair value of the advertisements, goods or services received or the
estimated fair value of the advertisements given. Andover.Net records barter
revenues only on the portion of the barter transactions which could be paid for
in cash if a barter arrangement was not in place. Otherwise, barter revenue is
not recognized. Revenues from barter transactions, representing advertising
space given, is recognized as income when advertisements are delivered on
Andover.Net's web site. Barter expense, representing advertising space received,
is recognized when our advertisements are run on other companies' web sites,
which is typically in the same period when the related barter revenue is
recognized. Andover.Net did not recognize any barter revenue for the years ended
September 30, 1997 and 1998 and recognized $218,000 of barter revenue for the
nine months ended June 30, 1999.
Andover.Net derived revenue from web related software products during 1997
for use on desktop computers. Revenue from the licensing of software products
was recognized when the products were shipped, as there were no significant post
delivery obligations. Andover.Net provided for estimated returns and warranty
costs at the time of sale. Andover.Net did not offer maintenance and support on
its products. There were no significant software sales after fiscal 1997.
(e) Sales and Marketing Expenses
Sales and marketing expenses consist primarily of costs, including salaries
and sales commissions, of all personnel involved in the sales process and
related expenses. Sales and marketing expenses also include costs of advertising
and trade shows including barter advertising of $218,000 in 1999. All costs of
advertising are expensed as incurred. Advertising expense totaled approximately
$241,000, $546,000 and $421,000 for the years ended September 30, 1997, 1998 and
the nine months ended June 30, 1999, respectively.
(f) Research and Development
Research and Development expenses include all research and development
related direct costs, primarily salaries for Andover.Net research and
development personnel and outside contractors related to the development of new
web sites, improved design of existing web sites and related infrastructure.
(g) Cash and Cash Equivalents
Cash equivalents are stated at cost, which approximates fair market value.
Andover.Net considers highly liquid investments with original maturities of
ninety days or less to be cash equivalents and includes money market accounts
and commercial paper that are readily convertible to cash.
F-8
<PAGE> 76
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(h) Property and Equipment
Andover.Net provides for depreciation using the straight-line method, by
charges to operations in amounts estimated to allocate the cost of property and
equipment over their estimated useful lives.
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -------------
<S> <C>
Computer equipment..................................... 3 years
Furniture and fixtures................................. 7 years
Office equipment....................................... 5 years
Leasehold improvements................................. Life of lease
</TABLE>
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999
------------- --------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment.................................... $ 43 $119
Furniture and fixtures................................ 13 36
Office equipment...................................... -- 24
Leasehold improvements................................ -- 44
---- ----
56 223
Less -- Accumulated depreciation...................... (33) (55)
---- ----
$ 23 $168
==== ====
</TABLE>
(i) Concentration of Credit Risk
Andover.Net has no significant off-balance sheet concentration of credit
risks such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. Financial instruments that potentially expose Andover.Net
to concentrations of credit risk consist primarily of cash equivalents, accounts
receivable, accounts payable, notes payable and redeemable preferred stock.
Concentrated credit risk with respect to accounts receivable is limited to
certain customers to whom Andover.Net makes substantial sales. Andover.Net
performs periodic evaluations of its customers and generally does not require
collateral.
The following table summarizes the number of customers that individually
comprise greater than 10% of total accounts receivable and total net revenue for
the periods presented:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30, NINE MONTHS
-------------- ENDED
1997 1998 JUNE 30, 1999
----- ----- -------------
<S> <C> <C> <C>
Revenue --
Customer A.............................................. * 26% 14%
Customer B.............................................. * 20% *
Customer C.............................................. 21% 10% *
Customer D.............................................. * * *
Customer E.............................................. * * 20%
</TABLE>
F-9
<PAGE> 77
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1997 1998 JUNE 30, 1999
----- ----- -------------
<S> <C> <C> <C>
Accounts Receivable --
Customer A.............................................. 17% 21% 18%
Customer B.............................................. * * 12%
Customer C.............................................. * 35% *
Customer D.............................................. 42% * *
Customer E.............................................. * * *
</TABLE>
- ------------------------------
* Less than 10%
(j) Net Loss Per Share
Basic and diluted net loss per common share is computed using the weighted
average number of shares of common stock outstanding during the period.
Potentially dilutive shares outstanding have been excluded because their effect
would be antidilutive.
Pro forma net loss per share is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the conversion
of the convertible notes payable (Note 6) into Series B redeemable convertible
preferred stock and the automatic conversion of the Series B redeemable
convertible preferred stock into shares of Andover.Net's common stock, effective
upon the closing of Andover.Net's proposed initial public offering as if such
conversion occurred on the date of the original issuance.
The weighted average common shares outstanding, the pro forma weighted
average number of common shares outstanding and the shares under option plans
and convertible notes payable which were antidilutive for all periods presented
are as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, JUNE 30,
1998 1999
------------- -----------
<S> <C> <C>
Net loss attributable to common stockholders used in basic
and diluted net loss per share calculation................ $ (608) $(2,510)
====== =======
Weighted average common shares used in basic and diluted EPS
calculation............................................... 5,110 6,990
Weighted average convertible notes payable assumed to
convert to common shares.................................. -- 2
------ -------
Weighted average common shares used in pro forma basic and
diluted EPS calculations.................................. 5,110 6,992
====== =======
Shares under option plans and convertible notes payable
excluded in computation of diluted earnings per share due
to antidilutive effects................................... 723 1,001
====== =======
</TABLE>
(k) Stock-Based Compensation for Employees
Andover.Net has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 defines a
fair-value-based method of accounting for employee stock options and other
stock-based compensation. The compensation expense related to employee stock
based compensation arising from this method of accounting can be included in the
statements of operations or, alternatively, the pro forma net loss and loss per
share effect of the fair-value-based accounting can be disclosed in the
financial statement footnotes. Andover.Net has elected the disclosure-only
alternative (see Note 11).
F-10
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ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(l) Comprehensive Income
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. Under SFAS No. 130, companies are
required to report comprehensive income as a measure of overall performance.
Comprehensive income includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. For the
years ended September 30, 1997 and 1998 and for the nine-month periods ended
June 30, 1998 and 1999, Andover.Net's comprehensive loss is the same as its
reported net loss.
(m) Segment and Geographic Information
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision making group, in making decisions how to allocate
resources and assess performance. Andover.Net's chief decision-maker, as defined
under SFAS No. 131, is the Chief Executive Officer. At June 30, 1999,
Andover.Net views its operations and its business as principally one segment,
Internet publishing. For all periods presented, Andover.Net did not have
international sales greater than 10% of total net revenues.
(n) Fair Value of Financial Instruments
Financial instruments consist principally of cash equivalents, accounts
receivable, accounts payable, notes payable and preferred stock. The estimated
fair value of these instruments approximates their carrying value.
(o) Impairment of Long-Lived Assets
Andover.Net applies SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. SFAS No. 121
requires Andover.Net to continually evaluate whether events or circumstances
have occurred that indicate that the estimated remaining useful life of
long-lived assets and certain identifiable intangibles and goodwill may warrant
revision or that the carrying value of these assets may be impaired. To compute
whether assets have been impaired, the estimated gross cash flows for the
estimated remaining useful life of the assets are compared to the carrying
value. To the extent that the gross cash flows are less than the carrying value,
the assets are written down to the estimated fair value of the asset.
Andover.Net does not believe that its long-lived assets have been impaired.
(p) New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for 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. Pursuant to SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133, SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is
not expected to have a material impact on Andover.Net's financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires computer
software costs associated with internal use software to be charged to operations
F-11
<PAGE> 79
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
as incurred until certain capitalization criteria are met. SOP 98-1 is effective
beginning January 1, 1999. The adoption of this statement did not have a
material impact on Andover.Net's financial position or consolidated results of
operations.
(3) ACQUISITIONS
(a) Slashdot.org
On June 28, 1999, Andover.Net entered in an asset purchase agreement (the
Purchase) to acquire the web site www.slashdot.org, the assets required to run
the web site, and all trademarks from BlockStackers, Inc. (BlockStackers or
Seller). The web site and related assets essentially made up the entire business
of BlockStackers. The web site provides a forum among programmers to discuss
current issues regarding the Linux operating system.
Andover.Net paid $1,500,000 in cash on June 28, 1999 for the assets
described above. The purchase agreement also contains additional cash payments
and common stock consideration contingent upon certain future events. Maximum
future cash payments are $3,500,000 payable over the next two years contingent
on two key employees continued employment. Maximum future stock consideration of
$7,000,000 is payable over two years, contingent upon the closing of an initial
public offering by Andover.Net in the next two years as defined in the purchase.
The number of shares paid will be calculated based on the price per share
offered in the public offering and are contingent upon the continued employment
of two key employees and other performance milestones relating to the web site.
In the event that an initial public stock offering does not occur within 18
months of the closing of the acquisition, the Seller has the one time option, to
accept cash consideration instead of the stock consideration as follows:
$1,500,000 five days following the election of cash payment, $1,500,000
twenty-four months after the acquisition closing and $1,500,000 thirty months
after the acquisition closing. This cash election is subject to the same
employment requirement and milestones of the stock election. This option expires
21 months from the closing of the acquisition.
The acquisition has been accounted for under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16 (APB
16) "Business Combinations" and Emerging Issues Task Force Issue 95-08, (EITF
95-08) Accounting for Contingent Consideration Paid to the Shareholders of an
Acquired Enterprise in a Purchase Business Combination. The purchase price of
$1,500,000 was allocated to the acquired assets based on the fair value of
assets acquired as determined by a valuation performed by an independent
appraiser. Of the purchase price, $242,000 was allocated to the covenant not to
compete, $23,000 was allocated to trademarks and $1,235,000 was allocated to
goodwill. The goodwill can primarily be attributed to the value of the work
force acquired. Trademarks and goodwill will be amortized over two years which
is their estimated useful life. The covenant not to compete will be amortized
over five years, which is the life of the agreement. There was no amortization
expense recorded in the statement of operations for the nine months ended June
30, 1999. The future cash and stock payments which are contingent solely on
future employment in the amount of $6.3 million will be recognized as
compensation expense ratably over the term of the payments as they are directly
linked to the continued employment of the two key employees. The remaining
contingent payments, which are based on performance milestones, will be
recognized as expense once those milestones are reached. To the extent that
there is any appreciation in the market value, the compensation charges could be
materially higher than as disclosed.
(b) Animation Factory
Concurrently on June 28, 1999, Andover.Net acquired certain assets and
assumed certain liabilities related to the web site Animation Factory from
Eclipse Digital Imaging, Inc. (Eclipse). Eclipse develops, markets and sells
computer animation via its web site.
F-12
<PAGE> 80
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price is $1,500,000 in cash for the net assets acquired, of
which $250,000 was paid on the closing of the acquisition and $1,250,000 will be
paid in 15 equal monthly installments beginning in October 1999. The future
payments have been discounted to their present value using an imputed interest
rate of prime (8% at June 28, 1999) plus 1% for a present value of 1,151,000.
The discount will be amortized as interest expense over the term of the
payments. The purchase agreement also contains stock consideration of $600,000
payable over two years contingent upon continued employment of the two
principals of Eclipse, Andover.Net completing an initial public offering and
other milestones relating to the creation of new animation images. Any stock
consideration given, when the contingencies are resolved, will be accounted for
as compensation expense over the period earned as they are directly related to
the continued employment and performance of these two key employees. The number
of shares paid will be calculated based on the price per share offered in the
initial public offering.
In the event that an initial public stock offering does not occur within 18
months of the closing of the acquisition, the seller has the one time option to
accept cash consideration instead of the stock consideration as follows:
$200,000 five days following the election of cash payment, $200,000 twenty-four
months after the acquisition closing and $200,000 thirty-six months after the
acquisition closing. This option expires 19 months from the closing of the
acquisition.
The acquisition has been accounted for under APB 16 and EITF 95-08 and the
purchase price of $1,421,000 was allocated to the acquired assets based on the
fair value of the assets acquired as determined by a valuation performed by an
independent appraiser. Of the purchase price, $177,000 was allocated to the
covenant not to compete, $213,000 was allocated to the animation library,
$14,000 was allocated to trademarks and $1,017,000 was allocated to goodwill
which is the estimated useful life. The animation library, the trademarks and
the goodwill will be amortized over two years. The covenant not to compete will
be amortized over five years, which is the life of the agreement. There was no
amortization expense for the nine months ended June 30, 1999. The future cash
and stock payments which are contingent solely on future employment in the
amount of $200,000 will be recognized as compensation expense ratably over the
term of the payments as they are directly linked to the continued employment of
the two key employees. The remaining contingent payments, which are based on
performance milestones, will be recognized as expense once those milestones are
reached. To the extent that there is any appreciation in the market value, the
compensation charges could be materially higher than as disclosed.
The unaudited pro forma results below assume the two acquisitions occurred
on October 1 of each period and therefore have been considered with
Andover.Net's historical results.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
1999 1998
-------- -------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.............................................. $ 1,617 $ 1,539
Operating loss........................................ (5,630) (4,892)
Net loss applicable to common shareholders............ (7,595) (6,315)
Net loss per share applicable to common
shareholders -- basic and diluted................... (1.06) (1.19)
</TABLE>
F-13
<PAGE> 81
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) ACCOUNTS RECEIVABLE
Accounts receivable, which result primarily from advertising sales, are
presented net of an allowance for doubtful accounts. The activity in
Andover.Net's allowance for doubtful accounts for the years ended September 30,
1997 and 1998 and for the nine months ended June 30, 1999 is presented in the
following table:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF CHARGED TO END OF
PERIOD EXPENSE DEDUCTIONS(A) PERIOD
------------ ---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended September 30, 1997....... $ -- $ -- $ -- $ --
Year ended September 30, 1998....... -- 13 -- 13
Nine months ended June 30, 1999..... 13 28 6 35
</TABLE>
- ------------------------------
(a) Represents amounts written off as uncollectable accounts receivable
(5) ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999
------------- --------
<S> <C> <C>
Accrued vendor commissions............................ $ 80 $ 63
Other................................................. 79 240
---- ----
$159 $303
==== ====
</TABLE>
(6) CONVERTIBLE NOTES PAYABLE TO STOCKHOLDERS
On June 30, 1999, Andover.Net received proceeds of $2,090,000 from the
issuance of convertible notes payable in a private placement to various
investors, some of whom are Andover.Net stockholders and certain outsiders (the
Notes). The Notes bear interest at the prime rate (8% at June 30, 1999) per
annum and are due on December 31, 1999. Upon the closing of the financing by
Andover.Net in September 1999 these Notes converted into 120,214 shares of
Series B Convertible Preferred Stock issued under the new capital structure of
Andover.Net (See Note 12b). Upon the closing of an initial public offering, this
Series B Convertible Preferred Stock automatically converts into 603,474 shares
of common stock.
The original terms of the Notes provided for a formula based conversion
price. Pursuant to the conversion terms, whereby the Noteholders were guaranteed
beneficial conversion features depending on the amount of time the Notes were
held before conversion, Andover.Net recorded an original discount of $2,124,000,
which represents the difference between the offering price and the effective
purchase price. This discount will be amortized to interest expense over 76
days, which is the period from issuance of the Notes to the period in which the
offering occurs. Since the Notes were issued on June 30, 1999, there is no
amortization in any period presented. (See Note 12(c))
(7) INCOME TAXES
Andover.Net accounts for income taxes using the liability method which
requires the recognition of the amount of current and deferred income taxes at
the date of the financial statements as a result of all differences in the tax
basis and financial statement carrying amounts of assets and liabilities, as
measured by enacted tax laws.
F-14
<PAGE> 82
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
No provision for federal or state income taxes has been recorded, as
Andover.Net has incurred net operating losses for all periods presented. As of
June 30, 1999, Andover.Net had net operating loss carryforwards for federal and
state income tax purposes of approximately $3,109,000 available to reduce future
federal and state income taxes, if any. These carryforwards expire at various
dates through 2019 and are subject to review and possible adjustment by the
Internal Revenue Service. Due to the uncertainty surrounding the realization of
the net deferred tax asset, Andover.Net has provided a full valuation allowance
against this amount.
U.S. tax rules impose annual limitations on the use of net operating losses
following substantial changes in ownership. Andover.Net has completed several
financings since its inception and has incurred an ownership change as defined
by the U.S. tax rules. Andover.Net believes that this change in ownership will
not have a material impact on its ability to utilize its net operating loss
carryforwards.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
1997 1998 1999
------------- ------------- --------
<S> <C> <C> <C>
Net operating loss carryforwards................ $ 530 $ 674 $ 1,252
Non deductible expenses and reserves............ 20 37 89
Valuation allowance............................. (550) (711) (1,341)
----- ----- -------
Net deferred tax asset................ $ -- $ -- $ --
===== ===== =======
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
(a) Operating Leases
Andover.Net leases its office facility and equipment under operating leases
that expire at various dates through April 30, 2004.
Future minimum lease payments at June 30, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
- ------------------------
<S> <C>
1999........................................................ $ 53
2000........................................................ 212
2001........................................................ 205
2002........................................................ 215
2003........................................................ 229
Thereafter.................................................. 134
------
$1,048
======
</TABLE>
Rent expense included in the accompanying statements of operations was
approximately $33,000 and $20,000 for the years ended September 30, 1997 and
1998, respectively. Rent expense for the nine months ended June 30, 1998 and
June 30, 1999 was $24,000 and $62,000, respectively.
(b) Litigation
Currently, Andover.Net is not a party to any litigation.
F-15
<PAGE> 83
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) REDEEMABLE PREFERRED STOCK
Redeemable preferred stock consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1999
------------- --------
<S> <C> <C>
Series A redeemable preferred stock (Series A) -- $13.50
redemption value plus accrued dividends; authorized -- 900
shares, issued and outstanding -- 322 and 165 shares at
September 30, 1998 and June 30, 1999, respectively (at
redemption value)......................................... $2,228 $4,353
Accrued dividends on Series A (see Dividends)............... 134 360
------ ------
$2,362 $4,713
====== ======
</TABLE>
In connection with the recapitalization of Andover.Net in September 1999,
all the Series C redeemable preferred stock of AAT was converted to Series A
redeemable preferred stock of Andover.Net. This new Series A redeemable
preferred stock has all of the same rights, privileges and preferences of the
AAT Series C redeemable preferred stock. The following reflects that conversion
on a retroactive basis.
During fiscal 1997, Andover.Net amended its bylaws to change its capital
structure and to authorize Series A redeemable preferred stock. Each stockholder
of AAT Series A convertible preferred stock and AAT Series B convertible
preferred stock received one share of Series A redeemable preferred stock and
one share of common stock in a recapitalization. The Series A redeemable
preferred stock has been stated at the redemption value of $13.50 plus accrued
dividends. An adjustment to accumulated deficit of approximately $122,000 is
reflected in the accompanying statements of stockholders' equity (deficit) to
account for the issuance of the Series A redeemable preferred stock at
redemption value.
In fiscal 1997, Andover.Net sold an additional 80,001 shares of Series A
redeemable preferred stock at a price of $13.50 per share, less stock issuance
costs of approximately $41,000, for aggregate net proceeds of approximately
$1,039,000. During fiscal 1999, Andover.Net sold 157,438 shares of Series A
redeemable preferred stock, and 2,634,436 shares of common stock at a price of
$0.26 per share, less stock issuance costs of $33,000, for aggregate net
proceeds of approximately $2,770,000.
The Series A redeemable preferred stock (Preferred Stock) holders have the
following rights, preferences and privileges:
Voting Rights
The Preferred Stock does not entitle the holder to any voting rights on any
action taken by the stockholders of Andover.Net.
Dividends
Beginning January 1, 1998, the holders of Preferred Stock are entitled to
receive cumulative dividends, which will accrue and will be due and payable at
an annual rate, or portion thereof for partial periods, in an amount equal to
the greater of (i) the applicable percentage, as defined, of Andover.Net's
pre-tax earnings or (ii) 8.0% of the original purchase price paid for the number
of shares of Preferred Stock outstanding on the last day of the applicable year.
Dividends are not payable until approved by the Board of Directors and do not
accrue interest. As of June 30, 1999, approximately $360,000 of dividends have
been accrued.
Liquidation Preference
In certain events, including liquidation, dissolution or winding up of
Andover.Net, the holders of Preferred Stock are entitled to $13.50 per share
plus all accumulated and unpaid dividends due before any distribution may be
made to common stockholders. If the assets of Andover.Net shall be insufficient
to permit
F-16
<PAGE> 84
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
payment in full to the holders of preferred stock, then the entire assets of
Andover.Net that are available for distribution shall be distributed ratably.
Redemption
At any time on or after June 2003, at the election of the holders of 70% of
the shares of Preferred Stock, Andover.Net may be required to redeem the
Preferred Stock at a redemption price in an amount equal to the liquidation
payment for the Preferred Stock and shall be paid in cash.
Andover.Net is required to redeem all shares of the Preferred Stock
outstanding upon the closing of an initial public offering in which the
valuation of Andover.Net is at least $20 million or a qualified acquisition, as
defined.
The following table summarizes the activity for the AAT Series A, AAT
Series B and Andover.Net Series A Preferred Stock (in thousands, except for
share data):
<TABLE>
<CAPTION>
AAT AAT ANDOVER.NET
SERIES A CONVERTIBLE SERIES B CONVERTIBLE SERIES A REDEEMABLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ---------------------- ---------------------- TOTAL
NUMBER OF REDEMPTION NUMBER OF REDEMPTION NUMBER OF REDEMPTION REDEMPTION
SHARES VALUE SHARES VALUE SHARES VALUE VALUE
--------- ---------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1996............ 50,000 $ 500 27,500 $ 413 -- $ -- $ 913
Exercise of AAT Series B warrants.... -- -- 6,875 103 -- -- 103
Issuance AAT Series B convertible
preferred stock.................... -- -- 666 10 -- -- 10
Recapitalization of preferred
stock.............................. (50,000) (500) (35,041) (526) 85,041 1,148 122
Issuance of Series A Redeemable
preferred stock.................... -- -- -- -- 60,001 810 810
Conversion of convertible promissory
notes and issuance of Series A
Redeemable preferred stock and
common stock....................... -- -- -- -- 20,000 270 270
------- ----- ------- ----- -------- ------ ------
Balance, September 30, 1997............ -- -- -- -- 165,042 2,228 2,228
Accrued dividends on Series A
Redeemable preferred stock......... -- -- -- -- -- 134 134
------- ----- ------- ----- -------- ------ ------
Balance, September 30, 1998............ -- -- -- -- 165,042 2,362 2,362
Accrued dividends on Series A
Redeemable preferred stock......... -- -- -- -- -- 226 226
Issuance of Series A Redeemable
preferred stock.................... -- -- -- -- 157,438 2,125 2,125
------- ----- ------- ----- -------- ------ ------
Balance, June 30, 1999................. -- $ -- -- $ -- 322,480 $4,713 $4,713
======= ===== ======= ===== ======== ====== ======
</TABLE>
(10) STOCKHOLDERS' EQUITY
(a) Common Stock
In November 1998, the board of directors authorized an additional 3,697,523
shares of Andover.Net's no par value common stock for an aggregate authorization
of 10,987,069 shares. The board of directors also authorized an additional
184,000 shares of preferred stock for an aggregate authorization of 409,000
shares.
Also in November 1998, the board of directors approved an increase in the
number of authorized options under the Andover.Net 1995 Stock Option Plan to
1,507,142 options.
In September 1999, the board of directors approved a 4-for-1 stock split of
Andover.Net's $0.01 par value common stock. Also, in September, the board of
directors and anticipate a Andover.Net 5.02 for 1 stock split of Andover.Net's
$0.01 par value common stock upon the effectiveness of this offering. All
references to the number of shares in the accompanying financial statements have
been adjusted to reflect both stock splits on a retroactive basis.
F-17
<PAGE> 85
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(b) Stock Warrants
During the fiscal year 1996, Andover.Net issued warrants to the
stockholders of the previously issued Series B convertible preferred stock. A
total of 6,875 warrants were issued to purchase Series B Convertible preferred
stock at an exercise price of $15.00 share. The value of the warrants when
issued was determined to be immaterial. The warrants were exercised during
fiscal 1997 for total proceeds of approximately $103,000.
(c) Convertible Notes Payable to Stockholders
In May 1997, Andover.Net issued convertible promissory notes to certain
stockholders (the Notes) in the sum of $100,000. The notes were mandatorily
convertible upon the additional financing of $200,000 (the conversion financing)
which was completed during fiscal 1997. The notes were converted into shares
identical to the shares sold in the conversion financing. The investors received
a total of 401,905 common shares and 20,000 Series C Preferred shares in
exchange for the notes and an additional $200,000 in cash.
(11) STOCK OPTION PLAN
On October 12, 1995, Andover.Net's board of directors (the Board) approved
the adoption of the 1995 Stock Option Plan (the Plan), as amended, which
provides for a maximum of 1,507,142 shares of common stock to be issued as
incentive stock option (ISOs) and nonqualified options. The options under the
Plan may be granted to directors, officers, employees, consultants and related
corporations. ISOs may be granted at no less then fair market value (FMV) on the
date of grant, as determined by the Board (no less than 110% of FMV on the date
of grant for 10% or greater stockholders). Options under the Plan expire between
5 to 10 years from the date of grant. Vesting is determined by the Board and can
be fully exercisable on the date of grant or in installments, as approved.
Stock option activity for the years ended September 30, 1998 and 1997 and
the nine months ended June 30, 1999 is as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
EXERCISE PRICE
NUMBER OF PRICE PER PER
SHARES SHARE SHARE
--------- --------------- --------
<S> <C> <C> <C>
Outstanding, September 30, 1996............... 196 $ $0.005 $0.005
Granted..................................... 482 0.025 0.025
Exercised................................... (15) 0.025 0.025
Canceled.................................... (25) 0.025 0.025
----- --------------- ------
Outstanding, September 30, 1997 638 0.005 - 0.025 0.019
Granted..................................... 165 0.025 0.025
Exercised................................... (24) 0.025 0.025
Canceled.................................... (56) 0.025 0.025
----- --------------- ------
Outstanding, September 30, 1998 723 0.005 - 0.025 0.019
Granted..................................... 474 0.025 - 1.063 0.124
Exercised................................... (196) 0.005 0.005
Canceled.................................... -- -- --
----- --------------- ------
Outstanding, June 30, 1999.................... 1,001 $0.025 - $1.063 $0.083
===== =============== ======
Exercisable, June 30, 1999.................... 513 $0.025 - $1.063 $0.026
===== =============== ======
</TABLE>
At June 30, 1999, 352,310 options to purchase shares of common stock were
available for future grants under the Plan.
F-18
<PAGE> 86
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
measurement of the fair value of stock options to be included in the statements
of operations or disclosed in the notes to the financial statements. Andover.Net
has determined that it will continue to account for stock-based compensation for
employees under the Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under SFAS No. 123. Fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
-------------------------- --------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Risk free interest rate................ 6.18%-6.53% 5.62%-6.11% 5.62%-6.11% 4.45%-5.15%
Expected dividend yield................ -- -- -- --
Expected lives (years)................. 5.00 5.00 5.00 5.00
Expected volatility.................... 70% 70% 70% 70%
Weighted average fair value per share
of options granted................... $1.48 $2.91 $2.91 $3.26
Weighted average remaining contractual
life of options outstanding
(years).............................. 6.12 8.25 6.60 8.72
</TABLE>
In connection with certain stock option grants during the nine months ended
June 30, 1999, Andover.Net recorded deferred compensation of $1.6 million in
connection with stock option grants totaling 472,632 which represents the
aggregate difference between the exercise price and the fair market value of the
common stock as determined for accounting purposes. The deferred compensation
will be recognized as an expense over the vesting period of the underlying stock
options. Andover.Net recorded compensation expense of $720,000 for the nine
months ended June 30, 1999 related to these options. In addition, the Company
anticipates recording additional deferred compensation of approximately $4.5
million related to the options granted in September 1999 totaling 430,759
options which will be recognized as an expense over the vesting period of these
options.
Certain options contain provisions that accelerate the vesting to 100% upon
an initial public offering. Upon this event, additional compensation expense of
approximately $800,000 relating to 260,459 options will be recorded as
compensation expense. The remaining deferred compensation will be amortized over
the remaining vesting period.
Had compensation expense for the options been determined consistent with
SFAS No. 123, Andover.Net's net loss and net loss per share would have been
affected as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------- -----------------
1997 1998 1998 1999
------ ------ ------ -------
<S> <C> <C> <C> <C>
Net loss applicable to common shareholders --
As reported........................................... $ (705) $ (608) $ (463) $(2,510)
Pro forma............................................. $ (884) $ (902) $ (684) $(3,549)
Basic and diluted net loss per share applicable to
common shareholders --
As reported........................................... $(0.29) $(0.12) $(0.09) $ (0.36)
Pro forma............................................. $(0.36) $(0.18) $(0.13) $ (0.51)
</TABLE>
(12) OTHER EVENTS
(a) Recapitalization
In September 1999, Andover Advanced Technologies, Inc. was merged into its
wholly owned subsidiary, Andover.Net. In connection with this recapitalization,
the Board authorized 100 million shares of Andover.Net's $0.01 par value common
stock and 2 million shares of Preferred Stock, of which 900,000
F-19
<PAGE> 87
ANDOVER.NET, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
shares were designated as Series A redeemable preferred stock, 700,000 shares
were designated as Series B redeemable convertible preferred stock and 400,000
shares remained undesignated.
(b) Acquisition
In August 1999, Andover.Net purchased certain assets related to the web
site Freshmeat. Andover.Net paid $367,000 of cash at the closing and has
guaranteed future payments aggregating $300,000 payable monthly through November
2000. Future stock consideration of $333,000 is contingent upon meeting certain
milestones as defined in the asset purchase agreement. No pro forma information
has been presented as the acquisition is not material to Andover.Net.
(c) Sale of Series B redeemable convertible preferred stock
On September 15, 1999, Andover.Net issued 600,568 shares of Series B
redeemable convertible preferred stock at $21.03 per share to private investors
for total consideration of $12,224,000. This includes $10,100,000 of originally
issued shares and the conversion of $2,124,000 of principal and accrued interest
from the June 1999 convertible notes into 120,214 shares of Series B redeemable
convertible preferred stock of which 19,195 shares were issued pursuant to a
beneficial conversion feature (See Note 6).
The Series B redeemable convertible preferred stock is voting. Dividends
accrue annually and are cumulative at a rate of 8% of the original purchase
price of $21.03 per share, on a per share basis. Dividends must be paid before
any other dividends can be declared or paid on any common stock. The Series B
redeemable convertible preferred stock is convertible at any time by the
holders, at the then applicable conversion rate as adjusted from time to time.
The Series B redeemable convertible preferred stock is redeemable at the option
of the holder beginning in September 2003 if Andover.Net has not made a
qualified initial public offering of its common stock, as defined. Upon
liquidation, holders of Series B redeemable convertible preferred stock are
entitled to receive, out of funds then generally available, 21.03 per share,
plus all accrued and unpaid dividends.
Upon the closing of this offering, all outstanding shares of Series B
redeemable convertible preferred stock will automatically convert into 3,014,851
shares of common stock, resulting in an effective purchase price of $4.05 per
common share. The difference between the offering price and the deemed effective
purchase price resulted in a beneficial conversion feature of $2,124,000, which
will be reflected as interest expense in the statement of operations in the
period in which this offering occurs.
(d) 1999 Stock Option Plan
In August 1999, Andover.Net approved the adoption of the 1999 Stock Option
Plan (the Plan), which provides for a maximum of 1,736,228 shares of common
stock to be issued as incentive stock option (ISOs) and nonqualified options.
The options under the Plan may be granted to directors, officers, employees,
consultants and related corporations. ISOs may be granted at no less than fair
market value (FMV) on the date of grant, as determined by the Board (no less
than 110% of FMV on the date of grant for 10% or greater stockholders). Options
under the Plan expire no more than 10 years from the date of grant. Vesting is
determined by the Board and can be fully exercisable on the date of grant or in
installments as approved.
F-20
<PAGE> 88
INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Statements of Operations for the year
ended September 30, 1998, and the nine months ended June 30, 1999 give effect to
the acquisitions by Andover.Net, Inc. of certain assets of BlockStackers, Inc.
and Eclipse Digital Imaging, Inc. as if each had occurred at the beginning of
the earliest period presented. The unaudited Pro Forma Combined Statement of
Operations does not include the effects of the Andover.Net, Inc. acquisition of
the assets related to Freshmeat as of August 6, 1999 as Andover.Net, Inc. has
determined that its effects are immaterial. The unaudited Pro Forma Combined
Statement of Operations gives effect to the issuance of the convertible notes
payable and their subsequent conversion into Series B Redeemable Convertible
Preferred Stock as these notes were used to finance the acquisitions. These
statements do not take into effect the issuance of the Series B Redeemable
Convertible Preferred Stock in September 1999.
The unaudited Pro Forma Combined Statements of Operations have been prepared
using the purchase method of accounting for the Acquisitions whereby the total
cost of each acquisition is allocated to the tangible and intangible assets
acquired and liabilities assumed based upon their respective fair values at the
effective dates of such acquisitions. Such allocations have been made based upon
currently available information and management's estimates. Final allocations
will be determined upon completion of the analysis of the assets acquired and
liabilities assumed.
The unaudited Pro Forma Combined Statement of Operations for the year ended
September 30, 1998 is based on the audited financial statements for the year
ended September 30, 1998 of the Company and the unaudited operating results of
Eclipse Digital Imaging, Inc. for the year ended September 30, 1998 and the
unaudited operating results of BlockStackers, Inc. for the period form inception
(August 24, 1998) to September 30, 1998. The unaudited Pro Forma Combined
Statement of Operations for the nine months ended June 30, 1999 is based on the
audited financial statements for the nine months ended June 30, 1999 of
Andover.Net, Inc. and the unaudited operating results for the nine months ended
June 30, 1999 of Eclipse Digital Imaging, Inc. and BlockStackers, Inc. The
unaudited financial statements reflect all adjustments, consisting of normal
recurring adjustments, which in the opinion of management are necessary for a
presentation of results for the respective periods in accordance with the basis
of presentation described in Note 2 of the Notes to Andover.Net, Inc.'s
Financial Statements and similar statements found in the other entities'
financial statements.
The unaudited Pro Forma Combined Statements of Operations do not purport to
represent what the results of operations or financial position of Andover.Net,
Inc. would actually have been if any of the transactions had occurred on such
dates or to project the results of operations or financial positions of
Andover.Net, Inc. for any future date or period. The unaudited Pro Forma
Combined Statements of Operations set forth below should be read in conjunction
with the respective Financial Statements and Notes thereto of the Andover.Net,
Inc. included elsewhere in this Prospectus, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
F-21
<PAGE> 89
ANDOVER.NET, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------ PRO FORMA
ECLIPSE DIGITAL COMBINED FOR THE
ANDOVER.NET BLOCKSTACKERS(A) IMAGING(A) ADJUSTMENTS ACQUISITIONS
----------- ---------------- --------------- ----------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Advertising............................. $ 1,290 $ -- $ -- $ -- $ 1,290
Product................................. -- -- 249 -- 249
--------- ---- ---- ------- ---------
Total revenues................... 1,290 -- 249 -- 1,539
Cost of revenues:
Advertising............................. 327 -- -- -- 327
Product................................. -- -- 64 -- 64
--------- ---- ---- ------- ---------
Total cost of revenues........... 327 -- 64 -- 391
--------- ---- ---- ------- ---------
Gross profit.............................. 963 -- 185 -- 1,148
--------- ---- ---- ------- ---------
Operating expenses........................ 1,408 1 54 1,325(b) --
3,252(c) 6,040
--------- ---- ---- ------- ---------
Operating income.......................... (445) (1) 131 (4,577) (4,892)
Interest income (expense)................. (29) -- -- (178)(e)
(1,083)(f) (1,290)
Other (expense) income.................... -- (1) 2 -- 1
--------- ---- ---- ------- ---------
Income (loss) before taxes................ (474) (2) 133 (5,838) (6,181)
Income tax benefit (expense).............. -- -- -- -- --
--------- ---- ---- ------- ---------
Net income (loss)......................... $ (474) $ (2) $133 $(5,838) $ (6,181)
========= ==== ==== ======= =========
Accretion on preferred stock.............. 134 -- -- -- 134
Net income (loss) applicable to common
shareholders............................ $ (608) $ (2) $133 $(5,838) $ (6,315)
========= ==== ==== ======= =========
Basic and diluted net loss per share
applicable to common stockholders....... $ (0.12) $ (1.19)
========= =========
Basic and diluted weighted average shares
outstanding............................. 5,110 194(d) 5,304
========= ======= =========
Other operating data:
Depreciation and amortization........... $ 9 $ -- $ 14 $ -- $ 23
========= ==== ==== ======= =========
</TABLE>
- ------------------------------
(a) Includes the results of operations of the acquired businesses from the
beginning of the period reporting through the respective dates of
acquisition by Andover.Net (both entities on June 28, 1999)
(b) Reflects the amortization of goodwill and intangible assets associated with
the acquisition of BlockStackers and Eclipse Digital Imaging
(c) Reflects additional compensation payments required with the purchase
agreements. These payments, which are solely contingent upon the continued
employment of two key employees, are payable over two years and are
comprised of $3.5 million of cash and $3.0 million in stock compensation.
Andover.Net is recognizing this compensation expense ratably over the two
year period. The remaining contingent payments of $4.6 million in stock
compensation are not reflected as they are contingent upon performance
milestones. At this time, it is uncertain if or when these milestones will
be met.
(d) Reflects weighted shares to be issued as compensation associated with the
acquisitions of BlockStackers and Eclipse Digital Imaging at an assumed
offering price of $13.50. These shares are to be issued within the first
year after the offering
(e) Reflects interest expense on debt used to finance the acquisitions
calculated using an assumed interest rate of 8.5% per annum on the
convertible notes payable
(f) Reflects the additional charge recorded as interest expense for the
beneficial conversion effect of the convertible notes payable. The charge
was computed assuming the issuance of the convertible notes payable at the
beginning of the period presented and the conversion at the actual date in
September 1999.
F-22
<PAGE> 90
ANDOVER.NET, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------ PRO FORMA
ECLIPSE DIGITAL COMBINED FOR THE
ANDOVER.NET BLOCKSTACKERS(A) IMAGING(A) ADJUSTMENTS ACQUISITIONS
----------- ---------------- --------------- ----------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Advertising............................ $ 1,109 $293 $ -- $ -- $ 1,402
Product................................ -- -- 215 -- 215
------- ---- ---- ------- -------
Total revenues.................. 1,109 293 215 -- 1,617
Cost of Revenues:
Editorial content and related.......... 430 118 -- -- 548
Product................................ -- -- 155 -- 155
------- ---- ---- ------- -------
Total cost of revenues.......... 430 118 155 -- 703
------- ---- ---- ------- -------
Gross Profit............................. 679 175 60 -- 914
------- ---- ---- ------- -------
Operating Expenses....................... 2,988 55 68 994(b)
2,439(c) 6,544
------- ---- ---- ------- -------
Operating Income (Loss).................. (2,309) 120 (8) (3,433) (5,630)
Interest Income (Expense)................ 59 -- -- (129)(e)
(1,658)(f) (1,728)
Other (Expense) Income................... -- -- 23 -- 23
------- ---- ---- ------- -------
Income (Loss) before Taxes............... (2,250) 120 15 (5,220) (7,335)
Income Tax Benefit
(Expense).............................. -- -- -- -- --
------- ---- ---- ------- -------
Net Income (Loss)........................ $(2,250) $120 $ 15 $(5,220) $(7,335)
======= ==== ==== ======= =======
Accretion on Preferred Stock............. 260 -- -- -- 260
Net Income (Loss) Applicable to Common
Shareholders........................... $(2,510) $120 $ 15 $(5,220) $(7,595)
======= ==== ==== ======= =======
Basic and Diluted Net Loss per Share
Applicable to Common Stockholders...... $ (0.36) (1.06)
------- -------
Basic and Diluted Weighted Average Shares
Outstanding............................ 6,990 179(d) 7,169
======= ======= =======
Other Operating Data:
Depreciation and amortization.......... $ 6 $ -- $ 14 $ -- $ 20
======= ==== ==== ======= =======
</TABLE>
- ------------------------------
(a) Includes the results of operations of the acquired businesses from the
beginning of the period reporting through the respective dates of
acquisition by Andover.Net (both entities on June 28, 1999)
(b) Reflects the amortization of goodwill and intangible assets associated with
the acquisition of BlockStackers and Eclipse Digital Imaging
(c) Reflects additional compensation payments required with the purchase
agreements. These payments, which are solely contingent upon the continued
employment of two key employees, are payable over two years and are
comprised of $3.5 million of cash and $3.0 million in stock compensation.
Andover.Net is recognizing this compensation expense ratably over the two
year period. The remaining contingent payments of $4.6 million in stock
compensation are not reflected as they are contingent upon performance
milestones. At this time, it is uncertain if or when these milestones will
be met.
(d) Reflects weighted shares to be issued as compensation associated with the
acquisitions of BlockStackers and Eclipse Digital Imaging at an assumed
offering price of $13.50. These shares are to be issued within the first
nine months after the offering
(e) Reflects interest expense on debt used to finance the acquisitions
calculated using an assumed interest rate of 8.5% per annum on the
convertible notes payable
(f) Reflects the additional charge recorded as interest expense for the
beneficial conversion effect of the convertible notes payable. The charge
was computed assuming the issuance of the convertible notes payable at the
beginning of the period presented and the conversion at the actual date in
September 1999.
F-23
<PAGE> 91
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BlockStackers, Inc.:
We have audited the accompanying balance sheet of BlockStackers, Inc. (a
Michigan corporation) as of December 31, 1998, and the related statements of
operations, stockholders' deficit and cash flows for the period from inception
(August 24, 1998) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BlockStackers, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (August 24, 1998) to December 31, 1998, in conformity with
generally accepted accounting principles.
Boston, Massachusetts
September 16, 1999
F-24
<PAGE> 92
BLOCKSTACKERS, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
1998
------------
ASSETS
Current assets:
Cash...................................................... $ 3
Other current assets...................................... 1
----
Total current assets.............................. 4
----
Total assets...................................... $ 4
====
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 5
Accrued expenses.......................................... 4
----
Total current liabilities......................... 9
Stockholders' deficit:
Common stock, no par value --
Authorized -- 60,000 shares
Issued -- 2,500 shares
Outstanding -- 2,000 shares............................ 5
Accumulated deficit....................................... (10)
----
Total stockholders' deficit....................... (5)
----
Total liabilities and stockholders' deficit....... $ 4
====
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 93
BLOCKSTACKERS, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(AUGUST 24, 1998)
THROUGH
DECEMBER 31, 1998
---------------------
<S> <C>
Net revenues................................................ $ 18
Cost of revenues............................................ 17
----
Gross profit...................................... 1
Operating expenses:
Selling expenses.......................................... 6
General and administrative expenses....................... 5
----
Total operating expenses.......................... 11
====
Net loss.......................................... $(10)
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 94
BLOCKSTACKERS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
NO TOTAL
NUMBER OF PAR ACCUMULATED STOCKHOLDERS'
SHARES VALUE DEFICIT DEFICIT
--------- ----- ----------- -------------
<S> <C> <C> <C> <C>
August 24, 1998 (Inception)........................ -- $-- $ -- $ --
Contributed capital.............................. 2,500 5 -- 5
Repurchase and retirement of common stock........ (500) -- -- --
Net loss......................................... -- -- (10) (10)
----- --- ---- ----
Balance, December 31, 1998......................... 2,000 $ 5 $(10) $ (5)
===== === ==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE> 95
BLOCKSTACKERS, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(AUGUST 24, 1998)
THROUGH
DECEMBER 31, 1998
---------------------
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(10)
Adjustments to reconcile net loss to net cash provided by
operating activities --
Donated services....................................... 4
Changes in operating assets and liabilities --
Other current assets................................. (1)
Accounts payable..................................... 5
Accrued expense...................................... 4
----
Net cash provided by operating activities......... 2
----
Cash flows from investing activities........................ --
----
Cash flows from financing activities:
Contributed capital....................................... 1
----
Net cash provided by financing activities......... 1
----
Net increase in cash........................................ 3
Cash, beginning of period................................... --
----
Cash, end of period......................................... $ 3
====
</TABLE>
The accompanying notes are an integral part of these financial statements
F-28
<PAGE> 96
BLOCKSTACKERS, INC.
NOTES TO FINANCIAL STATEMENTS
(1) OPERATIONS
BlockStackers, Inc. (BlockStackers) was incorporated in Michigan on August
24, 1998 as an S Corporation. BlockStackers creates and hosts a web site,
Slashdot.org that acts as a forum for Linux software users to discuss
developments and events. Revenues are generated through advertising banners
placed on BlockStackers' web site and through consulting work.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
significant accounting policies described in this note and elsewhere in the
notes to financial statements.
(a) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Revenue Recognition
Revenues are recognized ratably in the period in which the advertisement is
displayed providing BlockStackers has no significant remaining obligations.
(c) Concentrations of Credit Risk
BlockStackers has no significant off-balance sheet concentration of credit
risks such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. Financial instruments that substantially expose
BlockStackers to concentrations of credit risk consist primarily of cash.
BlockStackers maintains its cash balances with a financial institution.
BlockStackers operates in one industry segment and derives substantially all of
its revenues from U.S. customers.
The following table summarizes the number of customers that individually
comprise greater than 10% of total revenues for the period presented:
<TABLE>
<S> <C>
Revenue --
Customer A................................................ 33%
Customer B................................................ 23%
</TABLE>
(d) Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income. Under SFAS No. 130, companies are required to report
comprehensive income as a measure of overall performance. Comprehensive income
includes all changes in equity during a period, except those resulting from
investments by owners and distributions to owners. For the period ended December
31, 1998, BlockStackers' comprehensive loss is the same as its reported net
loss.
(e) Fair Value of Financial Instruments
Financial instruments consist principally of cash and accounts payable. The
estimated fair value of these instruments approximates their carrying value.
F-29
<PAGE> 97
BLOCKSTACKERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(f) New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for 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. Pursuant to SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133, SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is
not expected to have a material impact on BlockStackers' financial statements.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
computer software costs associated with internal use software to be charged to
operations as incurred until certain capitalization criteria are met. SOP 98-1
is effective for financial statements for fiscal years beginning after December
15, 1998. The adoption of this statement did not have a material impact on
BlockStackers' financial statements.
In April 1998, AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-up Activities (SOP 98-5). SOP 98-5 provides guidance on the
financial reporting of start-up activities and organization costs to be expensed
as incurred. SOP 98-5 did not have a material impact on BlockStackers' financial
statements.
(3) INCOME TAXES
BlockStackers has elected to be taxed as an S corporation for federal
income tax purposes, which results in taxable income of BlockStackers being
reported on the individual tax returns of its stockholders for federal income
taxes.
(4) STOCKHOLDERS' DEFICIT
(a) Common Stock
At December 31, 1998, BlockStackers has authorized 60,000 shares of common
stock at no par value.
(b) Retired Common Stock
In December 1998, BlockStackers acquired and retired 500 shares of its
common stock at a purchase price of $.10 per share.
(c) Donated Services
During 1998, certain shareholders provided services valued at approximately
$4,000 for no charge. This amount was recorded as a contribution to capital in
the accompanying statement of stockholders' deficit.
(5) RELATED PARTY TRANSACTIONS
During 1998, BlockStackers operated its business from one of the
shareholders' homes. Therefore, BlockStackers did not incur rent and utilities
expenses.
F-30
<PAGE> 98
BLOCKSTACKERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) SUBSEQUENT EVENT
(a) Operating Lease
On May 1, 1999, BlockStackers entered into an operating lease for its
headquarters. The approximate future minimum lease payments due under the
operating lease agreement are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999........................................................ $ 7
2000........................................................ 4
---
$11
===
</TABLE>
(b) Sale of Assets
On June 28, 1999, BlockStackers sold substantially all of its business
assets, including the Web site www.slashdot.org and all related trademarks,
software code and hardware required to run the Web site for $1,500,000. The
purchase agreement contains additional cash payments of $3,500,000 and stock
consideration of $7,000,000 contingent upon certain events, as defined.
F-31
<PAGE> 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Eclipse Digital Imaging, Inc.:
We have audited the accompanying balance sheet of Eclipse Digital Imaging, Inc.
(a South Dakota corporation) as of December 31, 1998, and the related statements
of operations, partners' capital and cash flows for the year then ended. These
financial statements are the responsibility of Eclipse Digital Imaging, Inc.'s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eclipse Digital Imaging, Inc.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
Boston, Massachusetts
September 16, 1999
F-32
<PAGE> 100
ECLIPSE DIGITAL IMAGING, INC.
BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
ASSETS
Current assets:
Cash...................................................... $ 10
Accounts receivable....................................... 27
----
Total current assets.............................. 37
Property and equipment, at cost:
Office equipment.......................................... 3
Computer equipment........................................ 51
----
54
Less -- accumulated depreciation.......................... (20)
----
34
----
Total assets...................................... $ 71
====
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable.......................................... $ 6
Line of credit............................................ 5
Accrued expenses.......................................... 1
----
Total current liabilities......................... 12
Partners' capital........................................... 59
----
Total liabilities and partners' capital........... $ 71
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 101
ECLIPSE DIGITAL IMAGING, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Net revenue................................................. $291
Cost of revenue............................................. 100
----
Gross profit...................................... 191
Operating expenses:
Sales and marketing expenses.............................. 14
General and administrative expenses....................... 36
----
Income from operations............................ 141
Other income................................................ 10
----
Net income........................................ $151
====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE> 102
ECLIPSE DIGITAL IMAGING, INC.
STATEMENT OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
BALANCE, DECEMBER 31, 1997 (UNAUDITED)...................... $ 52
Contributed capital....................................... 8
Member distribution....................................... (152)
Net income................................................ 151
-----
BALANCE, DECEMBER 31, 1998.................................. $ 59
=====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE> 103
ECLIPSE DIGITAL IMAGING, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 151
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization.......................... 14
Changes in operating assets and liabilities --
Accounts receivable.................................. (15)
Accounts payable..................................... 3
Accrued expenses..................................... 1
-----
Net cash provided by operating activities......... 154
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of equipment..................................... (13)
-----
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions............................................. (152)
Borrowings under line of credit........................... 5
-----
Net cash used in financing activities............. (147)
-----
NET DECREASE IN CASH........................................ (6)
CASH, BEGINNING OF YEAR..................................... 16
-----
CASH, END OF YEAR........................................... $ 10
=====
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING TRANSACTIONS:
Contributed capital....................................... $ 8
=====
</TABLE>
The accompanying notes are an integral part of these financial statements
F-36
<PAGE> 104
ECLIPSE DIGITAL IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) OPERATIONS
Eclipse Digital Imaging, Inc. (Eclipse Digital Imaging) was incorporated on
November 25, 1998. From September 1996 through December 1998, Eclipse Digital
Imaging operated was organized as four individual sole proprietors, who were
operating the business. On January 1, 1999, 400 shares of stock were granted to
stockholders at $100 per share in exchange for assets of Eclipse Digital
Imaging, Inc. As such, the period presented reflects the entity as a
partnership. Eclipse Digital Imaging develops and sells animated graphics
software through its Web site.
Eclipse Digital Imaging, Inc. is subject to risks common to rapidly growing
technology-based companies, including a limited operating history, dependence on
key personnel, and the need for successful development and marketing of
services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements reflect the application of certain
significant accounting policies, described in this note and elsewhere in the
notes to financial statements.
(a) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Revenue Recognition
Revenue from the sale of software animation products, for which no
technical support is provided, are generally recognized upon shipment of the
products, net of estimated returns.
(c) Property and Equipment
Eclipse Digital Imaging, Inc. provides for depreciation using the
straight-line method, by charges to operations in amounts estimated to allocate
the cost of property and equipment over their estimated useful lives.
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -----------
<S> <C>
Computer equipment/software....................... 3 years
Office equipment.................................. 5 years
</TABLE>
(d) Concentrations of Credit Risk
Eclipse Digital Imaging, Inc. has no significant off-balance sheet
concentration of credit risks such as foreign exchange contracts, options
contracts, or other foreign hedging arrangements. Financial instruments that
potentially expose Eclipse Digital Imaging, Inc. to concentrations of credit
risk consist primarily of cash and accounts receivable. Eclipse Digital Imaging,
Inc. maintains the majority of its cash balances with financial institutions.
Concentrated credit risk with respect to accounts receivable is limited to
certain customers to whom Eclipse Digital Imaging, Inc. makes substantial sales.
To reduce risk, Eclipse Digital Imaging, Inc. routinely assesses the financial
strength of its customers and, as a consequence, believes that its
F-37
<PAGE> 105
ECLIPSE DIGITAL IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
accounts receivable credit risk exposure is limited. Eclipse Digital Imaging,
Inc. operates in one industry segment and derives substantially all of its
revenues from U.S. customers.
During the year ended December 31, 1998, one customer accounted for
approximately 52% of net sales. This customer's accounts receivable balance
represented approximately 98% of accounts receivable as of December 31, 1998.
(e) Fair Value of Financial Instruments
Financial instruments consist principally of cash, accounts receivable and
accounts payable. The estimated fair value of these instruments approximates
their carrying value.
(f) New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for 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.
Pursuant to SFAS No. 137, Deferral of the Effective Date, SFAS No. 133,
Accounting For Derivative Instruments and Hedging Activities, this statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS No. 133 is not expected to have a material impact on Eclipse Digital
Imaging's financial statements.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires
computer software costs associated with internal use software to be charged to
operations as incurred until certain capitalization criteria are met. SOP 98-1
is effective for financial statements for fiscal years beginning after December
15, 1998. The adoption of this statement did not have a material impact on
Eclipse Digital Imaging's financial statements.
In April 1998, AICPA issued Statement of Position 98-5, Reporting on the
Costs of Start-Up Activities (SOP 98-5). SOP 98-5 provides guidance on the
financial reporting of start-up activities and organization costs to be expensed
as incurred. SOP 98-5 did not have a material impact on Eclipse Digital
Imaging's financial statements.
(3) INCOME TAXES
Eclipse Digital Imaging is treated as a partnership for Federal and State
income tax purposes, whereby the individual members are taxed on their
proportionate share of Eclipse Digital Imaging, Inc.'s income. As a result,
Eclipse Digital Imaging, Inc. does not provide for Federal or State income
taxes.
(4) COMMITMENTS
(a) Operating Leases
Eclipse Digital Imaging leased certain office space from a related party.
Included in the accompanying statements of operations for the year ended
December 31, 1998 is rent expense of approximately $5,460.
The approximate future minimum annual rent due under the operating lease
agreement as of December 31, 1998 is $4,000 for the year ending December 31,
1999.
F-38
<PAGE> 106
ECLIPSE DIGITAL IMAGING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(b) Litigation
In the ordinary course of business, Eclipse Digital Imaging is party to
various types of litigation. Eclipse Digital Imaging believes it has meritorious
defenses to all claims and, in its opinion, all litigation currently pending or
threatening will not have a material adverse effect on Eclipse Digital Imaging's
financial position or results of operations.
(5) LINE OF CREDIT
On October 2, 1998, Eclipse Digital Imaging entered into a $20,000 line of
credit with the bank secured by substantially all of its business assets. The
line bears interest at 9.5%. At December 31, 1998, approximately $5,000 was
outstanding under the line. The line of credit expires on October 2, 1999. There
are no financial, negative or affirmative covenants.
(6) SUBSEQUENT EVENT
On June 28, 1999, Eclipse Digital Imaging sold substantially all the assets
and assumed certain liabilities for $1,500,000. The purchase agreement contains
additional stock consideration of $1,000,000 contingent upon certain events, as
defined.
F-39
<PAGE> 107
[ANDOVER.NET LOGO]
Over 2 million unique visitors and
40 million page views on a
monthly basis.
[LINUX LOGO]
[SLASHDOT LOGO]
[FRESHMEAT.NET LOGO]
[FREECODE LOGO]
[CROSS PLATFORM SITES LOGO]
[DAVE CENTRAL LOGO]
[MEDIA BUILDER LOGO]
[ANDOVER NEWS LOGO]
[IT MANAGER'S JOURNAL LOGO]
[INTERNET TRAFFIC REPORT LOGO]
[WINDOWS SITE LOGO]
[SLAUGHTERHOUSE LOGO]
<PAGE> 108
4,000,000 shares of common stock
OPEN IPO WR HAMBRECHT & CO [LOGO]
WR HAMBRECHT & CO [LOGO]
ADVEST, INC.
ANDOVER NET DLJdirect INC.
THE LEADING LINUX DESTINATION
[LOGO]
Until , 1999, which is 25 days after the date of this
prospectus, all dealers that buy, sell, or trade Andover.Net's common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE> 109
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses (other than the underwriting discount) payable in
connection with the sale of the common stock offered hereby are as follows, all
of which will be paid by the Company:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC Registration fee........................................ $ 19,182
NASD filing fee............................................. 7,400
Nasdaq National Market fee.................................. 5,000
Printing expenses........................................... 100,000
Legal fees and expenses..................................... 300,000
Accounting Fees and expenses................................ 200,000
Transfer agent and registrar fees and expenses.............. 25,000
Miscellaneous............................................... $ 343,418
----------
Total....................................................... $1,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides as follows:
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact the he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent or another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suite or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interest
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and a manner he
reasonably believed to in or not opposed to the best interest of the corporation
and except that no indemnification shall be made in respect to any claim, issue
or matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
In addition, pursuant to our certificate of incorporation and bylaws, we
shall indemnify our directors and officers against expenses (including judgments
or amounts paid in settlement) incurred in any action, civil
II-1
<PAGE> 110
or criminal, to which any such person is a party by reason of any alleged act or
failure to act in his capacity as such, except as to a matter as to which such
director or officer shall have been finally adjudged not to have acted in good
faith in the reasonable belief that his action was in the best interest of the
corporation.
The underwriting agreement between Andover.Net and the underwriters of this
offering provides that the underwriters are obligated, under certain
circumstances, to indemnify our directors, officers and controlling persons
against certain liabilities, including liabilities under the Securities Act.
Reference is made to the form of Underwriting Agreement filed at Exhibit 1.1
hereto.
We maintain directors and officers liability insurance for the benefit of
our directors and certain of our officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the three year period ending September 15, 1999, Andover.Net has
issued the following securities, none of which has been registered under the
Securities Act:
1. In June and July 1997, we issued and sold an aggregate of 46,667 shares
of Series C preferred stock for $630,000 and 934,987 shares of common
stock for $70,000, or $0.07 per share, for an aggregate purchase price
of approximately $700,000 to a total of three accredited investors.
2. On September 24, 1997, we issued and sold an aggregate of 33,334 shares
of Series C preferred stock for $450,000 and 667,856 shares of common
stock for $50,000, or $0.07 per share, for an aggregate purchase price
of approximately $500,000 to a total of 14 accredited investors.
3. On November 13, 1998, we issued and sold an aggregate of 157,438 shares
of Series C preferred stock for $2.1 million and 2,628,569 shares of
common stock for $677,000, or $0.26 per share, for an aggregate purchase
price of approximately $2.8 million to a total of 24 accredited
investors.
4. On June 30, 1999, we issued and sold an aggregate of $2,090,000 in
convertible notes to a total of 17 accredited investors.
5. On September 15, 1999, we issued and sold an aggregate of 480,354 shares
of Series B convertible preferred stock for an aggregate purchase price
of approximately $10.1 million, or $21.0261753 per share, to 6
accredited investors. In addition, we issued 120,214 shares of Series B
convertible preferred stock upon conversion of the principal and accrued
interest of the convertible notes referred to in item 4 above.
6. From October 1, 1998 to June 30, 1999, we issued to our employees,
officers, directors and consultants options to purchase an aggregate of
471,294 shares of our common stock, at exercise prices ranging from
$0.03 per share to $1.07 per share.
The sales of securities set forth in paragraphs one to five above were
deemed to be exempt from the registration requirements of the Securities Act in
reliance on Section 4(2) thereof, or Regulation D promulgated thereunder, as
transactions by an issuer not involving a public offering. The sale of
securities set forth in paragraph 6 above was deemed to be exempt from the
registration requirements of the Securities Act in reliance on Rule 701
promulgated under Section 3(b) of the Securities Act as transactions by an
issuer pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The granting of stock options
described in paragraph 6 above did not require registration under the Securities
Act, or an exemption therefrom, insofar as such grants did not involve a "sale"
of securities as such term is used in Section 2(3) of the Securities Act.
During fiscal 1996, the Company issued warrants to the holders of the
previously issued Series B convertible preferred stock. A total of 6,875
warrants were issued to purchase Series B convertible preferred stock at an
exercise price of $15.00 per share. The warrants were exercised during fiscal
1997 for total proceeds of approximately $103,000.
In May 1997, the Company issued convertible promissory notes in the sum of
$100,000 to investors. The notes were mandatorily convertible upon the
additional financing of $200,000 which was completed in June
II-2
<PAGE> 111
1997. The investors received a total of 20,000 shares of common stock and 20,000
shares of Series C preferred stock in exchange for the notes and an additional
$200,000.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENTS
--- ------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Form of Amended and Restated Bylaws of the Registrant
5.1 Opinion of Hutchins, Wheeler & Dittmar, A Professional
Corporation*
10.1 Third Amended and Restated Registration Rights Agreement,
dated as of September 15, 1999 among the Registrant and
certain of its stockholders.
10.2 Asset Purchase Agreement, between the Registrant and
BlockStackers, Inc., dated as of June 18, 1999.
10.3 Asset Purchase Agreement, between the Registrant and Eclipse
Digital Imaging, Inc., dated as of June 18, 1999.
10.4 Asset Purchase Agreement, between the Registrant and Patrick
Lenz (d/b/a Freshmeat), dated as of August 6, 1999.
10.5 Lease dated March 23,1999 between the Registrant and Nagog
Park Investors, L.L.C.
10.6 Form of Advertising Insertion Order
10.7 Employment Agreement between the Registrant and Robert
Malda, dated as of June 28, 1999.
10.8 1995 Stock Option Plan, as amended
10.9 1999 Stock Option Plan
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1)*
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
All other schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing of this offering specified in the underwriting agreement
certificates in such denomination and registered in such names as required by
the underwriters to permit proper delivery to each purchaser.
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; and (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-3
<PAGE> 112
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Acton, Massachusetts, on September
16, 1999.
ANDOVER.NET, INC.
By: /s/ BRUCE A. TWICKLER
------------------------------------
Bruce A. Twickler, President
We, the undersigned officers and directors of Andover.Net, Inc., hereby
severally constitute and appoint Bruce A. Twickler, to sign for us and in our
names in the capacities indicated below, the Registration Statement on Form S-1
filed herewith and any and all pre-effective and post-effective amendments to
said Registration Statement, and, in connection with any registration of
additional securities pursuant to Rule 462(b) under the Securities Act of 1933,
to sign any abbreviated registration statement and any and all amendments
thereto, and to file the same, with all exhibits thereto and other documents in
connection therewith, in each case, with the Securities and Exchange Commission,
and generally to do all such things in our names and on our behalf in our
capacities with the provisions of the Securities Act of 1933, as amended, and
all requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BRUCE A. TWICKLER President and Chief Executive September 16, 1999
- --------------------------------------------------- Officer and Chairman of the
Bruce A. Twickler Board (Principal Executive
Officer and Principal
Financial Officer)
/s/ WALTER H. BIRD, III Director September 16, 1999
- ---------------------------------------------------
Walter H. Bird, III
/s/ JAMES D. LOGAN Director September 16, 1999
- ---------------------------------------------------
James D. Logan
/s/ LOUIS PAGE Director September 16, 1999
- ---------------------------------------------------
Louis Page
/s/ JOHN E. TROMBLY Director September 16, 1999
- ---------------------------------------------------
John E. Trombly
/s/ THOMAS R. SHEPHERD Director September 16, 1999
- ---------------------------------------------------
Thomas R. Shepherd
/s/ ROBERT MALDA Director September 16, 1999
- ---------------------------------------------------
Robert Malda
/s/ JONATHAN M. GOLDSTEIN Director September 16, 1999
- ---------------------------------------------------
Jonathan M. Goldstein
</TABLE>
II-5
<PAGE> 114
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION OF DOCUMENTS
--- ------------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.2 Form of Amended and Restated Bylaws of the Registrant
5.1 Form of Opinion of Hutchins, Wheeler & Dittmar, A
Professional Corporation*
10.1 Third Amended and Restated Registration Rights Agreement,
dated as of September 15, 1997 among the Registrant and
certain of its stockholders.
10.2 Asset Purchase Agreement, between the Registrant and
BlockStackers, Inc., dated as of June 18, 1999.
10.3 Asset Purchase Agreement, between the Registrant and Eclipse
Digital Imaging, Inc., dated as of June 18, 1999.
10.4 Asset Purchase Agreement, between the Registrant and Patrick
Lenz (d/b/a Freshmeat), dated as of August 6, 1999.
10.5 Lease dated March 23, 1999, between the Registrant and Nagog
Park Investors, L.L.C.
10.6 Form of Advertising Insertion Order
10.7 Employment Agreement between the Registrant and Robert
Malda, dated as of June 28, 1999.
10.8 1995 Stock Option Plan, as amended
10.9 1999 Stock Option Plan
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Hutchins, Wheeler & Dittmar, A Professional
Corporation (included in Exhibit 5.1)*
24.1 Power of Attorney (included on page II-4)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
Exhibit 1.1
4,000,000 SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
__________, 1999
WR HAMBRECHT + Co., LLC
DLJ direct Inc.
ADVEST, INC.
c/o WR Hambrecht + Co., LLC
550 Fifteenth Street
San Francisco, CA 94103
Ladies and Gentlemen:
Andover.Net, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell up to an aggregate of 4,000,000 shares of its authorized but
unissued common stock, par value $.01 per share (the "Common Stock") (said
4,000,000 shares of Common Stock being herein called the "Underwritten Stock")
to the Underwriters (as hereinafter defined) and to grant the Underwriters an
option to purchase up to an aggregate of 600,000 additional shares of Common
Stock (the "Option Stock" and collectively with the Underwritten Stock, the
"Shares"). The Common Stock is more fully described in the Registration
Statement and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Shares by the underwriters, for whom you are acting as
representatives, named in Schedule I hereto (herein collectively called the
"Underwriters," which term shall also include any underwriter purchasing Shares
pursuant to Section 3(b) hereof). You represent and warrant that you have been
authorized by each of the other Underwriters to enter into this Agreement on its
behalf and to act for it in the manner herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities
and Exchange Commission (the "Commission") a registration statement on Form S-1
(No. 333-_____, including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (the "Act"), of the
Shares. Copies of such registration statement and of each amendment thereto, if
any, including the related preliminary prospectus (meeting the requirements of
Rule 430A of the rules and regulations of the
- ----------
(1) Plus an option to purchase from the Company up to an aggregate of
600,000 additional shares to cover over-allotments.
<PAGE> 2
Commission) heretofore filed by the Company with the Commission have been
delivered to you.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective, and
any registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Shares (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the "Effective
Date"), shall also mean (from and after the effectiveness of such amendment)
such registration statement as so amended (including any rule 462(b)
registration statement). The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares first filed with the Commission
pursuant to Rule 424(b) and Rule 430A (or if no such filing is required, as
included in the Registration Statement) and, in the event of any supplement or
amendment so such prospectus after the Effective Date, shall also mean (from and
after the filing with the Commission of such supplement or the effectiveness of
such amendment) such prospectus as so supplemented or amended. The term
"Preliminary Prospectus" as used in this Agreement shall mean each preliminary
prospectus included in such registration statement prior to the time it becomes
effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Underwriters as follows:
(a) Neither the Commission nor any state securities commission
has issued any order preventing or suspending the use of any Preliminary
Prospectus or has instituted or, to the Company's knowledge, threatened to
institute any proceedings with respect to such an order. The Registration
Statement and the Prospectus comply, and on the Closing Date (as hereinafter
defined) and any later date on which the Option Stock is to be purchased, the
Prospectus will comply, in all material respects, with the provisions of the Act
and the rules and regulations of the Commission thereunder. On the Effective
Date, the Registration Statement did not contain any untrue statement of a
material fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading, and
on the Effective Date the Prospectus did not and, on the Closing Date and any
later date on which the Option Stock
2
<PAGE> 3
is to be purchased, will not contain any untrue statement of a material fact and
did not omit to state any material fact required to be stated therein, or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties in this subparagraph (a) shall
apply to statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon and in conformity with information herein or
otherwise furnished in writing to the Company by or on behalf of the
Underwriters expressly for use in the Registration Statement or Prospectus.
(b) Each of the Company and its subsidiaries (i) has been duly
organized and is validly existing and in good standing under the laws of its
jurisdiction of incorporation or formation, as the case may be, having full
power and corporate authority, to own or lease its properties and to conduct its
business as described in the Registration Statement and the Prospectus; and (ii)
is duly qualified to do business as a foreign corporation or limited liability
company, as the case may be, and is in good standing in all jurisdictions in
which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary (except where the
failure to be so qualified would not have a material adverse effect on the
business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole). The Company and its
subsidiaries do not own any capital stock or other equity securities in any
entity.
(c) The Company has the duly authorized and validly issued
outstanding capitalization set forth under the caption "Capitalization" in the
Prospectus and will have the adjusted capitalization set forth therein on the
Closing Date and any later date on which the Option Stock is to be purchased,
based on the assumptions set forth therein. The securities of the Company
conform to the descriptions thereof contained in the Prospectus. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction of
the Company's incorporation. The outstanding shares of Common Stock (other than
the Shares) have been duly authorized and validly issued by the Company and are
fully paid and nonassessable. Except as created hereby or referred to in the
Prospectus, there are no outstanding options, warrants, rights or other
arrangements requiring the Company at any time to issue any capital stock. No
holders of outstanding shares of capital stock of the Company are entitled as
such to any preemptive or other rights to subscribe for any of the Shares, and
neither the filing of the Registration Statement nor the offering or sale of the
Shares as contemplated by this Agreement gives rise to any rights, other than
those which have been waived or satisfied, for or relating to, the registration
of any securities of the Company. The Shares are duly authorized, and will be,
when sold to the Underwriters as provided herein, validly issued, fully paid and
nonassessable and conform to the description thereof contained in the
Prospectus. No further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the issuance and sale of the
Shares as contemplated herein.
3
<PAGE> 4
The outstanding shares of capital stock or ownership interests of each of its
subsidiaries have been duly authorized and validly issued, are fully paid and
non-assessable, and are solely owned by the Company free and clear of all liens,
encumbrances and equities and claims; and no options, warrants or other rights
to purchase, agreements or other obligations to issue or other rights to convert
any obligations into shares of capital stock or ownership interests in such
subsidiary are outstanding.
(d) The Company has full legal right, power and authority to
enter into this Agreement and to consummate the transactions provided for
herein. This Agreement has been duly authorized, executed and delivered by the
Company and, assuming it is a binding agreement of the Underwriters, constitutes
a legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles relating to the
availability of remedies and except as rights to indemnity or contribution may
be limited by federal or state securities laws and the public policy underlying
such laws), and none of the Company's execution or delivery of this Agreement,
its performance hereunder, its consummation of the transactions contemplated
herein, its application of the net proceeds of the offering in the manner set
forth under the caption "Use of Proceeds" or the conduct of its business as
described in the Prospectus, conflicts or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, causes or will cause (or permits
or will permit) the maturation or acceleration of any liability or obligation or
the termination of any right under, or result in the creation or imposition of
any lien, charge, or encumbrance upon, any property or assets of the Company or
any of its subsidiaries pursuant to the terms of (i) the certificate of
incorporation or bylaws of the Company or any of its subsidiaries, (ii) any
indenture, mortgage, deed of trust, voting trust agreement, stockholders'
agreement, note agreement or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which it is or may be bound or to
which its respective property is or may be subject or (iii) any statute,
judgment, decree, order, rule or regulation applicable to the Company or any of
its subsidiaries of any government, arbitrator, court, regulatory body or
administrative agency or other governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries, or their
activities or properties, which would materially and adversely affect the
business or properties of the Company and its subsidiaries taken as a whole.
(e) The Common Stock is approved for quotation on The Nasdaq
National Market and, prior to the Closing Date, (i) the Common Stock shall be
listed and duly admitted to trading on The Nasdaq National Market and (ii) the
Shares will be authorized for inclusion in The Nasdaq National Market.
4
<PAGE> 5
(f) The financial statements of the Company and its
subsidiaries and the related notes and schedules thereto included in the
Registration Statement and the Prospectus fairly present the financial position,
results of operations, stockholders' equity and cash flows of the Company and
its subsidiaries at the dates and for the periods specified therein. Such
financial statements and the related notes and schedules thereto have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as otherwise noted
therein) and all adjustments necessary for a fair presentation of results for
such periods have been made; provided, however, that the unaudited financial
statements are subject to normal year-end audit adjustments (which are not
expected to be material) and do not contain all footnotes required under
generally accepted accounting principles. The summary and selected financial and
statistical data included in the Registration Statement and the Prospectus
present fairly the information shown therein and such data have been prepared on
a basis consistent with the financial statements contained therein and in the
books and records of the Company.
(g) Arthur Andersen LLP, who have certified the financial
statements filed with the Commission as part of the Registration Statement, are
independent public accountants as required by the Act and the rules and
regulations promulgated thereunder.
(h) Each of the Company and its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(i) The Company and its subsidiaries have filed all necessary
federal, state and local income, franchise and other material tax returns and
has paid all taxes shown as due thereunder, and the Company and its subsidiaries
have no tax deficiency that has been or, to their knowledge, which might be
assessed against the Company and its subsidiaries which, if so assessed, would
materially and adversely affect the business or properties of the Company and
its subsidiaries, taken as a whole. All tax liabilities accrued through the date
hereof have been adequately provided for on the books of the Company and its
subsidiaries.
(j) The Company and its subsidiaries maintain insurance
underwritten by insurers of recognized financial responsibility of the types and
in amounts and with
5
<PAGE> 6
such deductibles as customary for companies in the same or similar business, all
of which insurance is in full force and effect.
(k) Except as disclosed in the Prospectus, there is no action,
suit, claim, proceeding or investigation pending or, to the Company's knowledge,
threatened against the Company or any of its subsidiaries before or by any
court, regulatory body or administrative agency or any other governmental agency
or body, domestic or foreign, which (i) questions the validity of the capital
stock of the Company or this Agreement or of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement, (ii) is required
to be disclosed in the Registration Statement which is not so disclosed (and
such proceedings, if any, as are summarized in the Registration Statement are
accurately summarized in all material respects), or (iii) may have a material
adverse affect upon the business operations, financial conditions or income of
the Company and its subsidiaries, taken as a whole.
(l) All executed agreements or copies of executed agreements
filed or incorporated by reference as exhibits to the Registration Statement to
which the Company or any of its subsidiaries is a party or by which it is or may
be bound or to which its assets, properties or businesses are or may be subject
have been duly and validly authorized, executed and delivered by the Company or
such subsidiary and constitute the legal, valid and binding agreements of the
Company or such subsidiary enforceable by and against it in accordance with
their respective terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws relating
to enforcement of creditors' rights generally, and general equitable principles
relating to the availability of remedies, and except as rights to indemnity or
contribution may be limited by federal or state securities laws and the public
policy underlying such laws). The descriptions in the Registration Statement of
contracts and other documents are accurate and fairly present the information
required to be shown with respect thereto by the Act and the rules and
regulations promulgated thereunder, and there are no contracts or other
documents which are required by the Act or the rules and regulations promulgated
thereunder to be described in the Registration Statement or filed as exhibits to
the Registration Statement which are not described or filed as required and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(m) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as expressly
contemplated therein, neither the Company nor any of its subsidiaries has
incurred, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent, purchased any of its
outstanding capital stock, paid or declared any dividends or other distributions
on its capital stock or entered into any material transactions, and there has
been no material change in capital stock or debt or any material adverse change
in the
6
<PAGE> 7
business, properties, assets, net worth, condition (financial or other), or
results of operations or prospects of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business.
(n) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or lapse of time or both, will be, in violation of or
in default under, any term or provision of (i) its certificate of incorporation,
bylaws or operating agreement, (ii) any indenture, mortgage, deed of trust,
voting trust agreement, stockholders' agreement, note agreement or other
agreement or instrument to which it is a party or by which it is or may be bound
or to which any of its property is or may be subject, or any indebtedness, the
effect of which breach or default singly or in the aggregate may have a material
adverse effect on the business, management, properties, assets, rights,
operations, or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole, or (iii) any statute, judgment, decree, order,
rule or regulation applicable to the Company or such subsidiary or of any
arbitrator, court, regulatory body, administrative agency or any other
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or such subsidiary or its activities or properties and the effect of
which breach or default singly or in the aggregate may have a material adverse
effect on the business, management, properties, assets, rights, operations, or
condition (financial or otherwise) of the Company and its subsidiaries, taken as
a whole.
(o) The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a broker or
finder in connection with the transactions contemplated by this Agreement other
than as contemplated hereby.
(p) No labor disturbance by the employees of the Company or
any of its subsidiaries exists or, to the Company's knowledge, is imminent.
(q) Each of the Company and its subsidiaries owns, is licensed
or otherwise possesses all rights to use, all patents, patent rights,
inventions, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names, copyrights and other intellectual
property rights (collectively, the "Rights") necessary for the conduct of its
business as described in the Prospectus. To the Company's knowledge, no claims
have been asserted against the Company or any of its subsidiaries by any person
with respect to the use of any such Rights or challenging or questioning the
validity or effectiveness of any such Rights. The continued use of the Rights in
connection with the business and operations of the Company and its subsidiaries
does not, to the knowledge of the Company and its subsidiaries, infringe on the
rights of any person, which, if the subject of an unfavorable decision, ruling
or filing, would have a material adverse effect on the condition, business or
properties of the Company and its subsidiaries, taken as a whole.
7
<PAGE> 8
(r) The Company and its subsidiaries are conducting their
businesses in compliance with all applicable laws, ordinances or governmental
rules or regulations of the jurisdictions in which they are conducting business,
except where the failure to be so in compliance would not materially and
adversely affect the business or properties of the Company and its subsidiaries,
taken as a whole. Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the National
Association of Securities Dealers, Inc. (the "NASD"), the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or to qualify or exempt
the Shares for public offering by the Underwriters under state securities or
Blue Sky laws) has been obtained or made and is in full force and effect.
(s) Neither the Company nor, to the Company's knowledge, any
of its officers, directors or affiliates (within the meaning of the rules and
regulations promulgated under the Act) has taken or may take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock of the Company, to
facilitate the sale or resale of the Shares or otherwise.
(t) Neither the Company nor any of its subsidiaries is, or
after giving effect to the issuance and sale of the Shares by the Company will
be, an "investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended, and the rules and regulations of the Commission
promulgated thereunder.
(u) The Company and its subsidiaries have good and marketable
title to all properties and assets described in the Prospectus as owned by them,
free and clear of all liens, encumbrances, security interests, equities, claims
and defects, except such as are described in the Registration Statement and
Prospectus, or such as are not materially important in relation to the business
of the Company and its subsidiaries when taken in the aggregate. The Company has
valid and enforceable leases for the properties described in the Prospectus as
leased by it, free and clear of all liens, encumbrances, security interests,
equities, claims and defects, except such as are not material and do not
interfere with the use made by the Company and its subsidiaries thereof. The
Company and its subsidiaries own or lease all such properties as are necessary
to their operations as now conducted, as set forth in the Registration Statement
and the Prospectus and the properties and business of the Company and its
subsidiaries conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
(v) Each of the Company and its subsidiaries holds all
franchises, licenses, permits, approvals, certificates and other authorizations
from federal, state and
8
<PAGE> 9
other governmental or regulatory authorities necessary to the ownership, leasing
and operation of its properties or required for the present conduct of its
business, and such franchises, licenses, permits, approvals, certificates and
other governmental authorizations are in full force and effect and the Company
and its subsidiaries are in compliance therewith in all material respects,
except where the failure so to obtain, maintain or comply with would not have a
materially adverse effect on the business, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole.
(w) The Company and its subsidiaries are in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder (herein called "ERISA"); no "reportable
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company or any of its subsidiaries would have
any liability; the Company and its subsidiaries have not incurred and do not
expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "Pension Plan"
for which the Company and its subsidiaries would have liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
(x) No relationship, direct or indirect, exists between or
among the Company or its subsidiaries, on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or its
subsidiaries, on the other hand, which is required to be described in the
Prospectus that is not so described.
(y) Neither the Company nor any of its subsidiaries, nor to
the Company's knowledge any director, officer, agent, employee or other person
associated with or acting on behalf of the Company or any of its subsidiaries,
has used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expense relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provisions of
the Foreign Corrupt Practices Act of 1972; or made any bribe, rebate, payoff,
influence, payment, kickback or other unlawful payment.
(z) The business, operations and facilities of the Company and
each of its subsidiaries have been and are being conducted or operated in
compliance with all applicable laws, ordinances, rules, regulations, licenses,
permits, approvals, plans, authorizations or requirements relating to
occupational safety and health, pollution,
9
<PAGE> 10
protection of health or the environment (including, without limitation, those
relating to emissions, discharges, release or threatened releases of pollutants,
contaminants or hazardous or toxic substances, materials or wastes into ambient
air, surface water, groundwater or land, or relating to the manufacture,
processing, distribution, use treatment, storage, disposal, transport or
handling of chemical substances, pollutants, contaminants or hazardous or toxic
substances, materials or wastes, whether solid, gaseous or liquid in nature) or
otherwise relating to remediating real property in which the Company or any of
its subsidiaries has or has had any interest, whether owned or leased, of any
governmental department, commission, board, bureau, agency or instrumentality of
the United States, any state or political subdivision thereof and all applicable
judicial or administrative agency or regulatory decrees, awards, judgments and
orders relating thereto, except for such failures to so comply as would not,
individually or in the aggregate, have a material adverse effect on the business
of the Company and its subsidiaries taken as a whole, and neither the Company
nor any of its subsidiaries has received any notice from a governmental
instrumentality or any third party alleging any violation thereof or liability
thereunder (including, without limitation, liability for costs of investigating
or remediating sites containing hazardous substances or damage to natural
resources).
(aa) Neither the Company nor any of its subsidiaries, nor to
the Company's knowledge any officer or employee of the Company or any of its
subsidiaries, is a party to any contract or commitment that restricts in any
material respect the ability of the Company, any of its subsidiaries or such
individual to engage in the business of the Company or such subsidiary as
described in the Registration Statement and the Prospectus.
3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company shall issue
and sell the Underwritten Stock to the Underwriters, and the Underwriters agree
to purchase from the Company the Underwritten Stock. The price at which such
shares of Underwritten Stock shall be sold by the Company and purchased by the
Underwriters shall be $______ per share (the "Purchase Price"). In making this
Agreement, each Underwriter is contracting severally and not jointly; except as
provided in paragraphs (b) and (c) of this Section 3, the agreement of each
Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
(b) If for any reason one of the Underwriters shall fail or
refuse (other than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 7 or 12 hereof) to purchase and pay
for the number of shares of the Common Stock agreed to be purchased by such
Underwriter, the Company shall
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<PAGE> 11
immediately give notice thereof to you, and the non-defaulting Underwriter shall
have the right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter
and upon the terms herein set forth, all or any part of the shares of the Common
Stock which such defaulting Underwriter agreed to purchase. If the
non-defaulting Underwriter fails so to make such arrangements with respect to
all such shares and portion, the number of shares of the Common Stock which the
non-defaulting Underwriter is otherwise obligated to purchase under this
Agreement shall be automatically increased on a pro rata basis to absorb the
remaining shares and portion which the defaulting Underwriter agreed to
purchase; provided, however, that the non-defaulting Underwriter shall not be
obligated to purchase the shares and portion which the defaulting Underwriter
agreed to purchase if the aggregate number of such shares of Common Stock
exceeds 10% of the total number of Shares which the Underwriters agreed to
purchase under this Agreement. If the total number of shares of the Common Stock
which the defaulting Underwriter agreed to purchase shall not be purchased or
absorbed in accordance with the two preceding sentences, the Company shall have
the right, within 24 hours next succeeding the 24-hour period above referred to,
to make arrangements with other underwriters or purchasers satisfactory to you
for purchase of such shares and portion on the terms herein set forth. In any
such case, either you or the Company shall have the right to postpone the
Closing Date determined as provided in Section 5 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
said Section 5 in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made. If
the non-defaulting Underwriter does not make arrangements within the 24-hour
periods stated above for the purchase of all the shares of the Common Stock
which the defaulting Underwriter agreed to purchase hereunder, this Agreement
shall be terminated without further act or deed and without any liability on the
part of the Company to the non-defaulting Underwriter and without any liability
on the part of the non-defaulting Underwriter to the Company. Nothing in this
paragraph (b), and no action taken hereunder, shall relieve the defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company grants an option to the Underwriters to purchase, severally
and not jointly, the Option Stock at the Purchase Price. Said option may be
exercised only to cover over-allotments in the sale of the Underwritten Stock by
the Underwriters and may be exercised in whole or in part at any time (but not
more than once) on or before the thirtieth day after the date of this agreement
upon written or telegraphic notice by the Underwriters to the Company setting
forth the aggregate number of shares of Option Stock as to which the
Underwriters are exercising the option. Delivery of the certificates for the
shares of Option Stock, and payment therefor shall be made as provided in
Section 5 hereof. The number of shares of
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the Option Stock to be purchased by each Underwriter shall be in such amounts as
the Underwriters shall agree upon prior to the exercise of the option set forth
hereunder.
4. OFFERING BY THE UNDERWRITERS.
(a) The terms of the initial public offering by the
Underwriters of the Shares to be purchased by them shall be as set forth in the
Prospectus. The Underwriters may from time to time change the public offering
price after the closing of the initial public offering and increase or decrease
the concessions and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the
front cover page and under the caption "Plan of Distribution" in the
Registration Statement, any Preliminary Prospectus and the Prospectus relating
to the Shares filed by the Company (insofar as such information relates to the
Underwriters or related persons) constitutes the only information furnished by
the Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the
Underwriters represent and warrant to the Company that the statements made
therein (insofar as they relate to the Underwriters or related persons) are
correct and do not omit any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the shares of the
Underwritten Stock and the Option Stock (if the option granted by Section 3(c)
hereof shall have been exercised not later than 7:00 A.M., San Francisco time,
on the date two business days preceding the Closing Date), and payment therefor,
shall be made at the office of Hutchins Wheeler & Dittmar, 101 Federal Street,
Boston, MA 02110, on the third business day after the date of this Agreement, or
at such time on such other day, not later than seven full business days after
such third business day, as shall be agreed upon in writing by the Company and
you. The date and hour of such delivery and payment are herein called the
Closing Date.
(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 A.M., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Option
Stock, and payment therefor, shall be made at the office of Hutchins Wheeler &
Dittmar, 101 Federal Street, Boston, MA 02110 at 7:00 A.M., San Francisco time,
on the third business day after the exercise of such Option.
(c) Payment for the Shares purchased from the Company shall be
made to the Company or its order by wire transfer or one or more certified or
official bank
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<PAGE> 13
check or checks in same day funds. Such payment shall be made upon delivery of
certificates for the Shares to you against receipt therefor signed by you.
Certificates for the Shares to be delivered to you shall be registered in the
name or names and shall be in such denominations as you may request at least one
business day before the Closing Date, in the case of Underwritten Stock, and at
least one business day prior to the purchase thereof, in the case of Option
Stock. Such certificates will be made available to the Underwriters for
inspection, checking and packaging by BHC Securities, Inc. on the business day
preceding the Closing Date or, in the case of Option Stock, by 12:00 P.M., San
Francisco time, on the business day preceding the date of purchase.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the
Commission under 424(b) a Prospectus containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance on Rule
430A and (ii) not file with the Commission any amendment to the Registration
Statement or supplement to the Prospectus (A) of which the Underwriters shall
not previously have been advised and furnished with a copy a reasonable period
of time prior to the proposed filing and as to which filing the Underwriters
shall not have given their consent or (B) which is not in compliance with the
Act or the rules and regulations of the Commission thereunder.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriters (i) of any request made by the
Commission for amendment of the Registration Statement, for supplement to the
Prospectus or for additional information, (ii) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration Statement, or
the institution or threat of any action, investigation or proceeding for that
purpose, or (iii) the receipt by the Company of any notification with respect to
the suspension of the qualification of the Shares for sale in any jurisdiction,
or the receipt by it of notice of the initiation or threatening of any
proceeding for that purpose. The Company will use its best efforts to prevent
the issuance of any such order and, if issued, to obtain the lifting or
withdrawal thereof as soon as possible.
(c) The Company will (i) on or before the Closing Date,
deliver to the Underwriters a signed copy of the Registration Statement as
originally filed and of each amendment thereto filed prior to the time the
Registration Statement becomes effective and, promptly upon the filing thereof,
a signed copy of each post-effective amendment, if any to the Registration
Statement (together with, in each case, all exhibits thereto unless previously
delivered to the Underwriter), (ii) as promptly as possible deliver to the
Underwriters, at such office as the Underwriters may designate, as many copies
of the Prospectus as the Underwriters may reasonably request, and (iii)
thereafter from time to
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<PAGE> 14
time during the period in which a prospectus is required by law to be delivered
by an Underwriter or dealer, likewise send to the Underwriters as many
additional copies of the Prospectus and as many copies of any supplement to the
Prospectus and of any amended prospectus, filed by the Company with the
Commission, as the Underwriters may reasonably request for the purposes
contemplated by the Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised by in
writing by the Underwriters, shall occur as a result of which it is necessary,
in the opinion of counsel for the Company or of counsel for the Underwriters, to
supplement or amend the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser of the Shares, the Company will forthwith prepare and
file with the Commission a supplement to the Prospectus or an amended prospectus
so that the Prospectus as so supplemented or amended will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances existing
at the time such Prospectus is delivered to such purchaser, not misleading. If,
after the initial public offering of the Shares by the Underwriters and during
such period, the Underwriters shall propose to vary the terms of the offering
thereof by reason of changes in general market conditions or otherwise, you will
advise the Company in writing of the proposed variation, and, if in the opinion
either of counsel for the Company or of counsel for the Underwriters such
proposed variation requires that the Prospectus be supplemented or amended, the
Company will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The Company
authorizes the Underwriters and all dealers to whom any of the Shares may be
sold by the Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Shares in accordance with the
applicable provisions of the Act and the applicable rules and regulations
thereunder for such period.
(e) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus or
any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you,
in the qualification of the Shares for offer and sale under the securities or
blue sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter or a
dealer, in keeping such qualifications in good standing under said securities or
blue sky laws; provided, however, that the Company shall not be required to
qualify as a foreign corporation or file any general consent to service of
process in any jurisdiction in which it is not so qualified.
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<PAGE> 15
The Company will from time to time, prepare and file such statements, reports,
and other documents as are or may be required to continue such qualifications in
effect for so long a period as you may reasonably request for distribution of
the Shares.
(g) The Company agrees to pay all costs and expenses incident
to the performance of the obligations of the Company under this Agreement,
including, without limitation, all costs and expenses incident to (i) the
preparation, printing and filing with the Commission and the NASD of the
Registration Statement, any Preliminary Prospectus and the Prospectus, (ii) the
furnishing to the Underwriters of copies of any Preliminary Prospectus and of
the several documents required by paragraph (c) of this Section 6 to be so
furnished, (iii) the printing of this Agreement and related documents delivered
to the Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d) of
this Section 6, (v) the furnishing to you of the reports and information
referred to in paragraph (j) of this Section 6, and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees.
(h) The Company agrees to reimburse you, for the account of
the several Underwriters, for blue sky fees and related disbursements (including
counsel fees and disbursements and cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their counsel in
qualifying the Shares under state securities or blue sky laws and in the review
of the offering by the NASD.
(i) As soon as practicable, but in any event not later than 45
days after the end of the first fiscal quarter first occurring after the first
anniversary of the Effective Date, the Company will make generally available to
its security holders, in the manner specified in Rule 158(b) of the rules and
regulations promulgated under the Act, an earnings statement which will be in
the detail required by, and will otherwise comply with, the provisions of
Section 11(a) of the Act and Rule 158(a) of the rules and regulations
promulgated thereunder.
(j) During a period of three years after the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission.
(k) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(l) The Company will not, directly or indirectly, without the
prior written consent of WR Hambrecht + Co., LLC on behalf of the Underwriters,
issue, offer, sell, grant any option to purchase or otherwise dispose (or
announce any issuance, offer, sale, grant of any option to purchase or other
disposition) of any shares of Common Stock
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<PAGE> 16
or any securities convertible into, or exchangeable or exercisable for, shares
of Common Stock for a period of 180 days following the commencement of the
public offering of the Shares by the Underwriters, except pursuant to this
Agreement and except for issuances pursuant to the exercise of stock options
outstanding on or granted subsequent to the date hereof, pursuant to a stock
option or other employee benefit plan in existence on the date hereof and except
as contemplated by the Prospectus.
(m) The Company will cause the Shares to be duly included for
quotation on the Nasdaq National Market prior to the Closing Date.
(n) The Company will not take, directly or indirectly, and
will use its best efforts to cause its officers, directors or affiliates not to
take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(o) The Company will apply the net proceeds of the offering
received by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(p) The Company will timely file all such reports, forms or
other documents as may be required from time to time, under the Act, the rules
and regulations promulgated thereunder, the Exchange Act and the rules and
regulations promulgated thereunder, and all such reports, forms and documents
filed will comply as to form and substance with the applicable requirements
under the Act, the rules and regulations promulgated thereunder, the Exchange
Act and the rules and regulations promulgated thereunder.
(q) The Company is familiar with the Investment Company Act of
1940, as amended, and has in the past conducted its affairs, and will in the
future conduct its affairs, in such a manner to ensure that the Company was not
and will not be an "investment company" or a "company" controlled by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(r) The Company either has caused to be delivered to you or
will cause to be delivered to you prior to the effective date of the
Registration Statement a letter (the "Lock-Up Agreement") from (i) each of the
Company's directors, officers and holders of 5% or more of the outstanding
capital stock of the Company stating that such person agrees that he or she will
not, without the prior written consent of WR Hambrecht + Co., LLC, directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a - 1 (h) under the Exchange Act or
otherwise dispose of (or enter into any transaction which is designed to, or
could be expected to, result in the disposition by any person of) any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable
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<PAGE> 17
or exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (within the meaning of Rule
13d-3 under the Exchange Act) by him or her, or publicly announce his or her
intention to do any of the foregoing, prior to the date of the Prospectus for a
period of 180 days after the first date any Underwritten Stock is released by
the Underwriters for sale to the public and (ii) each of the Company's other
stockholders containing identical restrictions to the Lock-Up Agreements
referred to in (i) above but covering a period of 90 days from the date of
prospectus.
7. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the
several Underwriters under this Agreement are subject to the performance by the
Company on and as of the Closing Date or any later date on which Option Stock is
to be purchased, as the case may be, of its covenants and agreements hereunder,
and the following additional conditions:
(a) The Registration Statement shall have become effective,
and no stop order suspending the effectiveness of the Registration Statement
shall have been issued, and no proceedings for that purpose shall have been
instituted or threatened or, to the knowledge of the Company or the Underwriter,
shall be contemplated by the Commission.
(b) The Underwriters shall be satisfied that (i) as of the
Effective Date, the statements made in the Registration Statement and the
Prospectus were true and correct and neither the Registration Statement nor the
Prospectus omitted to state a fact required to be stated therein or is necessary
to make the statements therein not misleading, (ii) since the Effective Date, no
event has occurred which should have been set forth in a supplement or amendment
to the Prospectus which has not been set forth in an effective supplement or
amendment, (iii) since the respective dates as of which information is given in
the Registration Statement in the form in which it originally became effective
and the Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change in the
business, properties, financial condition or results of operations of the
Company and its subsidiaries, taken as a whole, whether or not arising from
transactions in the ordinary course of business, and since such dates, except in
the ordinary course of business, neither the Company nor any of its subsidiaries
has entered into any material transaction not referred to in the Registration
Statement in the form in which it originally became effective and the Prospectus
contained therein, (iv) neither the Company nor any of its subsidiaries has any
material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus, (v) there are not pending or known threatened
legal proceedings to which the Company or any of its subsidiaries is a party or
of which property of the Company or any of its subsidiaries is subject which are
material and which are not disclosed in the Registration Statement and the
Prospectus, (vi) there are not any franchises, contracts, leases or other
documents which are required to be filed as exhibits to the Registration
Statement which have not been filed as required, and (vii) the representations
and warranties of the Company herein are true and correct in all material
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respects as of the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be.
(c) On or prior to the Closing Date, the legality and
sufficiency of the sale of the Shares hereunder and the validity and form of the
certificates representing the Shares, all corporate proceedings and other legal
matters incident to the foregoing, and the form of the Registration Statement
and of the Prospectus (except as to the financial statements contained therein),
shall have been approved at or prior to the Closing Date by Willkie Farr &
Gallagher, counsel for the Underwriters. The Underwriters shall have received
from counsel to the Underwriters, such opinion or opinions with respect to the
issuance and sale of the Shares, the Registration Statement and the Prospectus
and such other related matters as the Underwriters reasonably may request and
such counsel shall have received such documents and other information as they
request to enable them to pass upon such matters.
(d) On the Closing Date, and if Option Stock is purchased at
any date after the Closing Date, on such later date, the Underwriters shall have
received an opinion addressed to the Underwriters, dated the Closing Date or, if
related to the later sale of Option Stock, such later date, of Hutchins Wheeler
& Dittmar, counsel to the Company, to the effect set forth below:
(i) Each of the Company and its subsidiaries has been
duly organized and is validly existing and in good standing
under the laws of its jurisdiction of incorporation or
formation, as the case may be, with full power and corporate
authority to own or, lease its properties and to conduct its
business as described in the Registration Statement and the
Prospectus and is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in
which the ownership or leasing of property or the conduct of
its business requires such qualification (except for those
jurisdictions in which the failure so to qualify would not
have a material adverse effect on the Company and its
subsidiaries, taken as a whole);
(ii) Upon the closing of the sale of the Underwritten
Stock, the authorized capital stock of the Company consists of
1,000,000 shares of Preferred Stock, $.01 par value, of which
there are no outstanding shares, and 100,000,000 shares of
Common Stock, $0.01 par value, of which there are outstanding
________ shares (including the Underwritten Stock and any
shares of Option Stock issued on the date hereof). The
securities of the Company conform in all material respects to
the description thereof contained in the Prospectus. Proper
corporate proceedings have been validly taken to authorize the
Company's authorized capital stock and all outstanding shares
of such capital stock (including the Underwritten Stock
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<PAGE> 19
have been duly authorized and validly issued by the Company,
are fully paid and nonassessable. Any Option Stock purchased
after the Closing Date has been duly authorized and when
issued and delivered to and paid for by the Underwriters as
provided in the Underwriting Agreement, will have been duly
and validly issued and be fully paid and nonassessable. No
preemptive rights, rights of first refusal or other rights
exist with respect to the Shares, or the issue and sale
thereof, pursuant to the Company's certificate of
incorporation or bylaws and, there are to the knowledge of
such counsel no contractual preemptive rights that have not
been waived, right of first refusal or rights of co-sale which
exist with respect to the Shares.
(iii) The outstanding shares of capital stock or
ownership interests of each of the Company's subsidiaries have
been duly authorized and validly issued, are fully paid and
non-assessable, and are solely owned by the Company free and
clear of all liens, encumbrances and equities and claims; and
no options, warrants or other rights to purchase, agreements
or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership
interests in such subsidiary are outstanding.
(iv) To such counsel's knowledge, there are no rights
of any holders of the Company's securities, not effectively
satisfied or waived, to require registration under the Act of
any of the Company's securities or other securities of the
Company in connection with the filing of the Registration
Statement or with the offer or sale of the Shares;
(v) The Company has full legal right, power, and
authority to enter into the Underwriting Agreement and to
consummate the transactions provided for therein. The
Underwriting Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and
binding agreement of the Company, enforceable in accordance
with its terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws now or
hereafter in effect relating to or affecting creditors' rights
generally or by general principles of equity relating to the
availability of remedies and except as rights to indemnity and
contribution may be limited by federal or state securities
laws or the public policy underlying such laws.
(vi) None of the Company's execution or delivery of
the Underwriting Agreement, its performance thereof, its
consummation of the transactions contemplated therein or its
application of the net proceeds of
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the offering in the manner set forth under the caption "Use of
Proceeds," conflicts or will conflict with or results or will
result in any breach or violation of any of the terms or
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance
upon, any property or assets of the Company pursuant to the
terms of the certificate of incorporation, bylaws or operating
agreement of the Company or any of its subsidiaries; the terms
of any indenture, mortgage, deed of trust, voting trust
agreement, stockholder's agreement, note agreement or other
agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which it
is or may be bound or to which its properties may be subject;
any statute, rule or regulation of any regulatory body or
administrative agency or other governmental agency or body,
domestic or foreign, having jurisdiction over the Company or
any of its subsidiaries or any of their activities or
properties, which would materially and adversely affect the
business or properties of the Company and its subsidiaries
taken as a whole; or any judgment, decree or order, known to
such counsel of any government, arbitrator, court, regulatory
body or administrative agency or other governmental agency or
body, domestic or foreign, having such jurisdiction, which
would materially and adversely affect the business or
properties of the Company and its subsidiaries taken as a
whole;
(vii) No consent, approval, authorization or order of
any court, regulatory body or administrative agency or other
governmental agency or body, domestic or foreign, has been or
is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as
have been obtained under the Act or may be required under
state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the Underwriters;
(viii) To the best of such counsel's knowledge, the
conduct of the business of the Company and its subsidiaries is
not in violation of any federal, state or local statute,
administrative regulation or other law, which violation is
likely to have a material adverse effect on the Company and
its subsidiaries, taken as a whole; and each of the Company
and its subsidiaries has obtained all licenses, permits,
franchises, certificates and other authorizations from state,
federal and other regulatory authorities as are necessary or
required for the ownership, leasing and operation of its
properties and the conduct of its business as presently
conducted and as contemplated in the Prospectus;
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(ix) The Registration Statement is effective under
the Act; any required filing of the Prospectus pursuant to
Rule 424(b) has been made in the manner and within the time
period required by Rule 424(b); and no stop order suspending
the effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the
knowledge of such counsel, are threatened or contemplated by
the Commission;
(x) The Registration Statement and the Prospectus
(except for the financial statements, schedules and other
financial data included therein, as to which such counsel need
not express any opinion), complied as to form in all material
respects with the requirements of the Act and the rules and
regulations of the Commission thereunder;
(xi)The descriptions contained and summarized in the
Registration Statement and the Prospectus of franchises,
contracts, leases, documents, or any threatened legal or
governmental actions, suits or proceedings, are accurate and
fairly represent in all material respects the information
required to be shown by the Act and the rules and regulations
of the Commission thereunder. To the knowledge of such
counsel, there are no franchises, contracts, leases,
documents, or any threatened legal or governmental actions,
suits or proceedings, which are required by the Act and the
rules and regulations of the Commission thereunder to be
described in the Registration Statement or the Prospectus or
to be filed as exhibits to the Registration Statement which
are not described or filed as required;
(xii) The statements (1) in the Prospectus under the
captions "Risk Factors - Our Efforts To Protect Our Trademarks
May Not Be Adequate To Prevent Third Parties From
Misappropriating Our Intellectual Property Rights," "Business
- Intellectual Property," Management," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible for Future
Sale" and (2) in the Registration Statement in Part II, Items
14 and 15 in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information required
under the Act and the rules and regulations promulgated
thereunder (the "Act and Rules") with respect to such legal
matters, documents and proceedings and fairly summarize the
matters referred to therein to the extent required by the Act
and Rules;
(xiii) Good and marketable title to the Shares sold
under the Underwriting Agreement, free and clear of all liens,
encumbrances, equities, security interests and claims of which
counsel has knowledge, has
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been transferred to the Underwriters, assuming for the purpose
of this opinion that the Underwriters purchased the same in
good faith without notice of any liens, encumbrances,
equities, security interests or adverse claims; and
(xiv) The Shares have been duly authorized for
inclusion in The Nasdaq National Market upon official notice
of issuance.
In addition, such counsel shall state that in the course of the
preparation of the Registration Statement and the Prospectus, such counsel has
participated in conferences with officers and representatives of the Company and
with the Company's independent public accountants, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Registration Statement and the Prospectus and
(without taking any further action to verify independently the statements made
in the Registration Statement and the Prospectus and, except as stated in the
foregoing opinion, without assuming responsibility for the accuracy,
completeness or fairness of such statements) nothing has come to such counsel's
attention that causes such counsel to believe that either the Registration
Statement as of the date it is declared effective and as of the Closing Date (or
if related to the later sale of the Option Stock, such later date) or the
Prospectus as of the date thereof and as of the Closing Date (or if related to
the later sale of the Option Stock, such later date) contained or contains any
untrue statement of a material fact or omitted or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading (it being understood that such counsel need not express any opinion
with respect to the financial statements, schedules and other financial data
included in the Registration Statement or the Prospectus).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials. References to the Registration
Statement and the Prospectus in this paragraph (d) shall include any amendment
or supplement thereto at the date of such opinion.
(e) You shall have received from Arthur Andersen LLP a letter
or letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the meaning of
the Act and the applicable published rules and regulations thereunder and based
upon the procedures described in their letter delivered to the Underwriters
concurrently with the execution of this Agreement (the "Original Letter"), but
carried out to a date not more than three business days prior to the Closing
Date or such later date on which Option Stock is purchased (i) confirming, to
the extent true, that the statements and conclusions set forth
22
<PAGE> 23
in the Original Letter are accurate as of the Closing Date or such later date,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company or any of its subsidiaries, which in your
sole judgment, makes it impractical or inadvisable to proceed with the public
offering of the Shares or the purchase of the Option Stock as contemplated by
the Prospectus.
(f) You shall have from Arthur Andersen LLP a letter stating
that their review of the Company's internal accounting controls, to the extent
they deemed necessary in establishing the scope of their examination of the
Company's financial statements as at June 30, 1999, did not disclose any
weakness in internal controls that they considered to be material weaknesses.
(g) On the Closing Date, and on any later date on which Option
Stock is purchased, you shall have received a certificate, dated the Closing
Date or such later date, as the case may be, signed by the Chief Executive
Officer and Chief Financial Officer of the Company stating that the respective
signers of said certificate have carefully examined the Registration Statement
in the form in which it originally became effective and the Prospectus contained
therein and any amendments or supplements thereto and this Agreement, and that
the statements included in clauses (i) through (xiii) of paragraph (d) of this
Section 7 are true and correct.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Shares shall have been duly
authorized for inclusion on the Nasdaq National Market upon official notice of
issuance.
In case any of the conditions specified in this Section 7 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (g) and (h) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
23
<PAGE> 24
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
8. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
(a) The obligations of the Company to deliver the Shares shall
be subject to the conditions that (i) the Registration Statement shall have
become effective and (ii) no stop order suspending the effectiveness thereof
shall be in effect and no proceedings therefor shall be pending or threatened by
the Commission.
(b) In case either of the conditions specified in paragraph
(a) of this Section 8 shall not be fulfilled, this Agreement may be terminated
by the Company by giving notice to you. Any such termination shall be without
liability of the Company to the Underwriters and without liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (g) and (h) of Section 6 hereof.
9. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (d) of this Section
9, the Company agrees to indemnify and hold harmless each Underwriter (and any
person participating in the distribution who is deemed to be an underwriter (as
defined in Section 2(11) of the Act) and each person (including each member or
officer thereof), if any, who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages or liabilities, joint or several (and actions in
respect thereof), to which such indemnified parties or any of them may become
subject, under the Act, the Exchange Act or other federal or state statutory law
or regulation, at common law or otherwise, and the Company agrees to reimburse
each such Underwriter and controlling person for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages, or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-
24
<PAGE> 25
effective amendment thereto (including any Rule 462(b) registration statement)
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
(ii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto) or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstance under which they were made, not
misleading; provided, however, that (i) the indemnity agreement of the Company
contained in this paragraph (a) shall not apply to any such loss, claim, damage,
liability or action if such statement or omission was made in reliance upon and
in conformity with information furnished as herein stated or otherwise furnished
in writing to the Company by or on behalf of any Underwriter expressly for use
in any Preliminary Prospectus or the Registration Statement or the Prospectus or
any such amendment thereof or supplement thereto, and (ii) that the indemnity
agreement contained in this paragraph (a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or such persons)
if the person asserting any such loss, claim, damage, liability or action
purchased Shares which are the subject thereof to the extent that any such loss,
claim, damage, liability or action (A) results from the fact that such
Underwriter failed to send or give a copy of the Prospectus (as amended or
supplemented) to such person at or prior to the confirmation of the sale of such
Shares to such person in any case where such delivery is required by the Act and
(B) arises out of or is based upon an untrue statement or omission of a material
fact contained in such Preliminary Prospectus that was corrected in the
Prospectus (as amended and supplemented), unless such failure resulted from
non-compliance by the Company with paragraph (c) of Section 6 hereof. The
indemnity agreements of the Company contained in this paragraph (a) and the
representations and warranties of the Company contained in Section 2 hereof
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery and payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the Registration Statement, each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and the
other Underwriters against any and all losses, claims, damages or liabilities,
joint or several, to which such indemnified parties or any of them may become
subject, under the Act, the Exchange Act or other federal or state statutory law
or regulation, at common law or otherwise and to reimburse each of them for any
legal or other expenses (including, except as otherwise hereinafter provided,
reasonable fees and disbursements of counsel) incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case
25
<PAGE> 26
arising out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of any material fact contained in any Preliminary Prospectus or the Prospectus
(as amended or as supplemented if the Company shall have filed with the
Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstance under
which they were made, not misleading, in each case to the extent, but only to
the extent, that such statement or omission was made in reliance upon and in
conformity with information furnished as herein stated or otherwise furnished in
writing by or on behalf of such indemnifying Underwriter to the Company
expressly for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto, and will reimburse, as incurred, all
legal or other expenses reasonably incurred by the Company or any such director,
officer or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action. The indemnity agreement of each
Underwriter contained in this paragraph (b) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party and shall survive the delivery and payment for the Shares.
(c) Each party indemnified under the provisions of paragraph
(a) or (b) of this Section 9 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against it, in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, such indemnified party will promptly notify any party or parties
from whom indemnification may be sought hereunder of the commencement thereof in
writing. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give such notice if the party to whom such
notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which such notice would have related and was prejudiced by the
failure to give the notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party or parties against which a claim is
to be made will be entitled, at its own expense, to participate in the defense
of such action, suit, investigation or inquiry of, an indemnified party. Any
indemnifying party shall be entitled, if it so elects within a reasonable time
after receipt of notice from the indemnified party or parties of an action,
suit, investigation or inquiry to which indemnity
26
<PAGE> 27
may be sought, to assume the entire defense thereof (alone or in conjunction
with any other indemnifying party or parties), at its own expense, in which case
such defense shall be conducted by counsel reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties has reasonably concluded that there may be a conflict between
the positions of the indemnifying party or parties and of the indemnified party
or parties in conducting the defense of such action, suit, investigation,
inquiry or proceeding or that there may be legal defenses available to such
indemnified party or parties different from or in addition to those available to
the indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct such defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. Upon receipt of notice
from the indemnifying party to such indemnified party of its election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 9 for any legal or other expenses (other than the reasonable
costs of investigation) subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party has
employed such counsel in connection with the assumption of different or
additional legal defenses in accordance with the proviso to the immediately
preceding sentence, or (ii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying party. If no such notice to assume the defense of such action has
been given within a reasonable time of the indemnified party's or parties'
notice to such indemnifying party or parties, the indemnifying party or parties
shall be responsible for any legal or other expenses incurred by the indemnified
party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 9 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) above in respect of any losses, claims, damages, expenses
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
referred to in paragraphs (a) and (b) above (i) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified, on the other hand in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative
27
<PAGE> 28
benefits received by the Company, on the one hand, and the Underwriters, on the
other, shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Shares (before deducting expenses) and the total
underwriting discount received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus, bear to the aggregate public
offering price of the Shares. Relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by each indemnifying party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable consideration referred to above. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this paragraph (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph (d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discount applicable to the Shares purchased by the Underwriter hereunder. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this paragraph (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect to which a claim for contribution may be made against another
party or parties under this paragraph (d), it will promptly notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any other obligation it may have hereunder or otherwise
(except as specifically provided in paragraph (c) of this Section 9). The
contribution agreement set forth above shall be in addition to any liabilities
which any indemnifying party may have at common law or otherwise.
(e) No indemnifying party will, without the prior written
consent of the indemnified party, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not such
indemnified party or any person who controls such Underwriter within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding) unless
28
<PAGE> 29
such settlement, compromise or consent includes an unconditional release of such
indemnified party and each such controlling person from all liability arising
out of such claim, action, suit or proceeding.
10. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 9 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 9 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 10 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent that any such payment
is ultimately held to be improper, the Underwriters shall promptly refund it and
(ii) the Underwriters shall provide to the Company, upon request, reasonable
assurances of their ability to effect any refund, when and if due.
11. REPRESENTATIONS, ETC. TO SURVIVE DELIVERY. The respective
representations, warranties, agreements, covenants, indemnities and statements
of, and on behalf of, the Company and its officers, and the Underwriters,
respectively, set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
the Underwriters, and will survive delivery of and payment for the Shares. Any
successors to the Underwriters shall be entitled to the indemnity, contribution
and reimbursement agreements contained in this Agreement.
12. TERMINATION.
(a) This Agreement (except for the provisions of Section 9
hereof) may be terminated by you by notice to the Company at any time prior to
the Closing Date if: (i) the Company shall have sustained a loss by strike,
fire, flood, accident or other calamity of such a character as to interfere
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss was insured; (ii) trading in the Common
Stock shall have been suspended or trading in securities generally on the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National Market
shall have been suspended or limitations on such trading shall have been imposed
or limitations on prices shall have been established on any such exchange or
market system; (iii) the engagement in hostilities or an escalation of major
hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof shall have occurred;
(iv) any outbreak of hostilities or other national or international calamity or
crisis or material adverse change in economic or political conditions shall have
occurred if the effect of such outbreak, calamity, crisis or change in economic
or political conditions in the financial markets of the United States would, in
29
<PAGE> 30
your reasonable judgment, make the offering or delivery of the Shares
impracticable; (v) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of, or commencement of
any proceeding or investigation by, any court, legislative body, agency or other
governmental authority shall have occurred which in the Underwriter's reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company; (vi) a banking moratorium shall have
been declared by New York or United States authorities; or (vii) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs shall have occurred which in your reasonable judgment
has a material adverse effect on the securities markets in the United States.
(b) If this Agreement is terminated pursuant to this Section
12, there shall be no liability of the Company to the Underwriters and no
liability of the Underwriters to the Company; provided, however, that in the
event of any such termination, the Company agrees to indemnify and hold harmless
the Underwriters from all costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in paragraphs (g) and (h) of Section 6. Notwithstanding any
termination of this agreement, the provisions of Section 9 hereof shall survive
and remain in full force and effect.
13. NOTICES. All communications hereunder shall be in writing and if
sent to the Underwriters shall be mailed or delivered or telegraphed and
confirmed by letter or telecopied and confirmed by letter to WR Hambrecht + Co.,
LLC at 550 Fifteenth Street, San Francisco, California 94103 or, if sent to the
Company, shall be mailed or delivered or telegraphed and confirmed to the
Company at 50 Nagog Park, Acton, MA 01720.
14. SUCCESSORS. This agreement shall incur to the benefit of and be
binding upon the Company and the Underwriters and, with respect to the
provisions of Section 9 hereof, the several parties (in addition to the Company
and the Underwriters) indemnified under the provisions of said Section 9, and
their respective personal representatives successors and assigns. Nothing in
this agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this agreement,
or any provisions herein contained. The term "successors and assigns" as herein
used shall not include any purchaser, as such purchaser, of any of the Shares
from the Underwriters.
15. COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
together shall be deemed to be one and the same instrument.
30
<PAGE> 31
If the foregoing correctly sets forth our understanding, please
indicate the Underwriters' acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
ANDOVER.NET, INC.
By:_____________________________________
Name: Bruce Twickler
Title: Chief Executive Officer and President
Accepted as of the date first above written:
WR HAMBRECHT + CO., LLC
DLJ DIRECT INC.
ADVEST, INC.
By: WR Hambrecht + Co., LLC
By:_________________________________________________
Title:______________________________________________
31
<PAGE> 32
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ to be Purchased
----------------
<S> <C>
WR Hambrecht + Co., LLC.....................................
DLJ direct Inc.
Advest, Inc.................................................
</TABLE>
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ANDOVER.NET, INC.
Andover.Net, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as follows:
The date of filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was July 19, 1999.
The Board of Directors of the Corporation, by unanimous written consent,
duly adopted resolutions setting forth the Amended and Restated Certificate of
Incorporation herein contained, declaring its advisability and directing that
such Amended and Restated Certificate of Incorporation be submitted to the
holders of the issued and outstanding capital stock for approval in accordance
with the applicable provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware and the Corporation's Certificate of
Incorporation, as previously amended.
The Amended and Restated Certificate of Incorporation was duly adopted,
after having been declared advisable by the Board of Directors of the
Corporation by the stockholders of the Corporation by written consent in
accordance with Sections 228 and 242 of the General Corporation Law of the State
of Delaware, and prompt written notice of the taking of the action without a
meeting by less than unanimous written consent has been given in accordance with
section 228(d) to the stockholders who did not consent in writing.
The text of the Amended and Restated Certificate of Incorporation of the
Corporation, as restated and amended (herein called the "Restated Certificate of
Incorporation") shall read in its entirety as follows:
FIRST: The name of the Corporation shall be:
ANDOVER.NET, INC.
SECOND: The registered office of the Corporation in the State of Delaware
is located at 1209 Orange Street, in the City of Wilmington, County of New
Castle, 19801, and its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose or purposes of the Corporation shall be to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware and to possess and exercise all of the
powers and privileges granted by such law and any other law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 101,000,000 shares, which shares shall be divided
into two classes
<PAGE> 2
consisting of: (i) 100,000,000 shares of Common Stock (with $.01 par value per
share) ("Common Stock") and (ii) 1,000,000 shares of Preferred Stock (with $.01
par value per share) ("Blank Check Preferred Stock").
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the Common Stock and the
Preferred Stock shall be as follows:
A. COMMON STOCK
1. VOTING RIGHTS. Except as otherwise required by law or this Amended and
Restated Certificate of Incorporation, each holder of Common Stock shall have
one vote in respect of each share of Common Stock held by him of record on the
books of the Corporation for the election of directors and on all matters
submitted to a vote of stockholders of the Corporation. There shall be no
cumulative voting.
2. DIVIDENDS. The holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of capital stock, subject, however, to the
limitations contained in Part B below.
3. DISSOLUTION, LIQUIDATION OR WINDING UP. After distribution in full of
the preferential amount, if any, to be distributed to the holders of series of
the Blank Check Preferred Stock (in accordance with the relative preferences
among such series) in the event of involuntary liquidation, distribution,
dissolution or winding-up, of the Corporation, the holders of the Common Stock
shall be entitled to receive all of the remaining assets of the Corporation,
tangible and intangible, or whatever kind available for distribution to
stockholders, ratably in proportion to the number of shares of Common Stock held
by them respectively.
B. BLANK CHECK PREFERRED STOCK
1. ISSUANCE. Shares of Blank Check Preferred Stock may be issued from
time to time in one or more series as may from time to time be determined by the
Board of Directors, each of said series to be distinctly designated. All shares
of any one series of the Blank Check Preferred Stock shall be alike in every
particular, except that there may be different dates from which dividends, if
any, thereon shall be cumulative, if made cumulative. The voting powers, if any,
and the designations, relative preferences, participating, optional or other
special rights or privileges of each such series, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding.
2. AUTHORITY OF THE BOARD OF DIRECTORS. The Board of Directors is
authorized, subject to limitations prescribed by law and the provisions of this
Article FOURTH, to provide for the issuance of the shares of the Blank Check
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix in the
resolution or resolutions providing for the issue of such stock adopted by the
Board of Directors of the Corporation the voting powers, if any, and the
designations, relative preferences, participating, optional or other
- 2 -
<PAGE> 3
special rights or privileges, and the qualifications, limitations or
restrictions of such series, including, but without limiting the generality of
the foregoing, the following:
(a) The distinctive designation of, and the number of shares of the
Blank Check Preferred Stock which shall constitute such series. The
designation of a series of preferred stock need not include the words
"preferred" or "preference" and may be designated "special" or other
distinctive term. Unless otherwise provided in the resolution issuing
such series, the number of shares of any series of the Blank Check
Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the Board of Directors
in the manner prescribed by law;
(b) The rate and times at which, and the terms and conditions upon
which, dividends, if any, on the Blank Check Preferred Stock of such
series shall be paid, the extent of the preference or relation, if
any, of such dividends to the dividends payable on any other class or
classes, or series of the same or other classes of stock and whether
such dividends shall be cumulative or non-cumulative and, if
cumulative, the date from which such dividends shall be cumulative;
(c) Whether the series shall be convertible into, or exchangeable
for, at the option of the holders of the Blank Check Preferred Stock
of such series or the Corporation or upon the happening of a specified
event, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the Corporation, and
the terms and conditions of such conversion or exchange, including
provisions for the adjustment of any such conversion rate in such
events as the Board of Directors shall determine;
(d) Whether or not the Blank Check Preferred Stock of such series
shall be subject to redemption at the option of the Corporation or the
holders of such series or upon the happening of a specified event, and
the redemption price or prices and the time or times at which, and the
terms and conditions upon which, the Blank Check Preferred Stock of
such series may be redeemed;
(e) The rights, if any, of the holders of the Blank Check Preferred
Stock of such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets, dissolution or
winding-up, of the Corporation;
(f) The terms of the sinking fund or redemption or purchase account,
if any, to be provided for the Blank Check Preferred Stock of such
series; and
(g) Subject to subparagraph 5 of Paragraph C hereof, whether such
series of the Blank Check Preferred Stock shall have full, limited or
no voting powers including, without limiting the generality of the
foregoing, whether such series shall have the right, voting as a
series by itself or together with other series of the Blank Check
Preferred Stock or all series of the Blank Check Preferred Stock as a
class, to elect one or more directors of the Corporation if there
shall have been a default in the payment of dividends on any one or
more series of the Blank Check
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<PAGE> 4
Preferred Stock or under such other circumstances and on such
conditions as the Board of Directors may determine.
C. OTHER PROVISIONS.
1. No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series or any
additional shares of any class or series to be issued by reason of any increase
of the authorized capital stock of the Corporation of any class or series, or
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock of the Corporation of any class or series, or
carrying any right to purchase stock of any class or series, but any such
unissued stock, additional authorized issue of shares of any class or series of
stock or securities convertible into or exchangeable for stock, or carrying any
right to purchase stock, may be issued and disposed of pursuant to resolution of
the Board of Directors to such persons, firms, corporations or associations
(including such holders or others) and upon such terms as may be deemed
advisable by the Board of Directors in the exercise of its sole discretion.
2. The relative powers, preferences and rights of each series of the
Blank Check Preferred Stock in relation to the powers, preferences and rights of
each other series of the Blank Check Preferred Stock shall, in each case, be as
fixed from time to time by the Board of Directors in the resolution or
resolutions adopted pursuant to authority granted in Paragraph B hereof. The
consent, by class or series vote or otherwise, of the holders of such of the
series of the Blank Check Preferred Stock as are from time to time outstanding
shall not be required for the issuance by the Board of Directors of any other
series of the Blank Check Preferred Stock whether or not the powers, preferences
and rights of such other series shall be fixed by the Board of Directors as
senior to, or on a parity with, the powers, preferences and rights of such
outstanding series, or any of them; provided, however, that the Board of
Directors may provide in the resolution or resolutions as to any series of the
Blank Check Preferred Stock adopted pursuant to Paragraph B hereof, the
conditions, if any, under which the consent of the holders of a majority (or
such greater proportion as shall be fixed therein) of the outstanding shares of
such series shall be required for the issuance of any or all other series of the
Blank Check Preferred Stock.
3. Subject to the provisions of subparagraph 2 of this Paragraph C,
shares of any series of the Blank Check Preferred Stock may be issued from time
to time as the Board of Directors of the Corporation shall determine and on such
terms and for such consideration as shall be fixed by the Board of Directors.
4. Shares of authorized Common Stock may be issued from time to time as
the Board of Directors of the Corporation shall determine and on such terms and
for such consideration as shall be fixed by the Board of Directors.
5. The number of authorized shares of Common Stock and of the Blank Check
Preferred Stock, without a class or series vote, may be increased or decreased
from time to time
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<PAGE> 5
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the stock of the Corporation entitled to
vote thereon.
FIFTH:
A. NUMBER, ELECTION AND TERMS OF DIRECTORS. The number of directors shall
be fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by the Board of Directors. The Directors of the Corporation
shall be divided into three classes: Class I, Class II and Class III. Each class
shall consist, as nearly as may be possible, of one-third of the whole number of
the Board of Directors. If the Board of Directors is not evenly divisible by
three, the Board of Directors shall determine the number of Directors to be
elected to each class. The initial members of Class I shall be ____________ and
they shall hold office for a term to expire at the Annual Meeting of the
Stockholders to be held in 2000; the initial members of Class II shall be
_________________ and they shall hold office for a term to expire at the Annual
Meeting of the Stockholders to be held in 2001; the initial members of Class III
shall be _______________ and they shall hold office for a term to expire at the
Annual Meeting of the Stockholders to be held in 2002, and in the case of each
class, until their respective successors are duly elected and qualified. At each
annual election held commencing with the annual election in 2000, the Directors
elected to succeed those whose terms expire shall be identified as being of the
same class as the Directors they succeed and shall be elected to hold office for
a term to expire at the third Annual Meeting of the Stockholders after their
election, and until their respective successors are duly elected and qualified.
If the number of Directors changes, any increase or decrease in Directors shall
be apportioned among the classes so as to maintain all classes as equal in
number as possible, and any additional Director elected to any class shall hold
office for a term which shall coincide with the terms of the other Directors in
such class and until his successor is duly elected and qualified.
B. REMOVAL. Any Director or the entire Board of Directors may be removed
with or without cause by the holders of a majority of the shares then entitled
to vote at an election of Directors, or a majority vote of the Board of
Directors.
C. AMENDMENT, REPEAL OR ALTERATION. Notwithstanding any other provisions
of the Restated Certificate of Incorporation or the Restated By-laws of the
Corporation or the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of greater than fifty percent (50%) of the
combined voting power of the outstanding stock of the Corporation entitled to
vote generally in the election of Directors, voting together as a single class,
shall be required to amend, alter, adopt any provision inconsistent with or to
repeal this Article FIFTH.
SIXTH: The Corporation hereby elects in this Restated Certificate of
Incorporation to be governed by Section 203 of the General Corporation Law of
Delaware.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of section 291 of Title 8 of the Delaware Code or on the
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<PAGE> 6
application of trustees in dissolution or of any receiver or receivers appointed
for the Corporation under the provisions of section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of the Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
EIGHTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director
notwithstanding any provision of law imposing such liability; provided that, to
the extent provided by applicable law, this provision shall not eliminate the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for
any transaction from which the director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
NINTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware.
A. The Board of Directors of the Corporation is expressly authorized to
adopt, amend, or repeal the By-laws of the Corporation.
B. Elections of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place within or
without the State of Delaware as the By-laws of the Corporation may provide or
as may be designated from time to time by the Board of Directors of the
Corporation.
TENTH: Except as otherwise stated elsewhere in this Restated Certificate of
Incorporation, the Corporation reserves the right to amend or repeal any
provision contained in this Restated Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon a
stockholder herein are granted subject to this reservation.
ELEVENTH: The Corporation is to have perpetual existence.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 7
IN WITNESS WHEREOF, Andover.Net, Inc. has caused its corporate seal to be
hereunto affixed and this Restated Certificate of Incorporation to be signed by
Bruce Twickler, its President, who hereby acknowledges under penalties of
perjury that the facts herein stated are true and that this Restated Certificate
of Incorporation is his act and deed, and attested by ________, its Secretary,
as of the _____ day of _________, 1999.
ANDOVER.NET, INC.
By: _______________________
Name: Bruce Twickler
Title: President
ATTEST:
By:________________
Name: ___________
Title: Secretary
[SEAL]
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
ANDOVER.NET, INC.
(A Delaware Corporation)
Effective Date: ____________
<PAGE> 2
AMENDED AND RESTATED
BY-LAWS
OF
ANDOVER.NET, INC.
(A Delaware Corporation)
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1 4
SECTION 1.1 CONTENTS 4
SECTION 1.2 CERTIFICATE IN EFFECT 4
ARTICLE 2 4
SECTION 2.1 PLACE 4
SECTION 2.2 ANNUAL MEETING 5
SECTION 2.3 NOTICE OF STOCKHOLDER BUSINESS 5
SECTION 2.4 SPECIAL MEETINGS 6
SECTION 2.5 NOTICE OF MEETINGS 7
SECTION 2.6 AFFIDAVIT OF NOTICE 7
SECTION 2.7 QUORUM 7
SECTION 2.8 VOTING REQUIREMENTS 8
SECTION 2.9 PROXIES AND VOTING 8
SECTION 2.10 ACTION WITHOUT MEETING 8
SECTION 2.11 STOCKHOLDER LIST 9
SECTION 2.12 RECORD DATE 10
ARTICLE 3 11
SECTION 3.1 NUMBER; ELECTION AND TERM OF OFFICE 11
SECTION 3.2 DUTIES 11
SECTION 3.3 COMPENSATION 12
SECTION 3.4 RELIANCE ON BOOKS 12
ARTICLE 4 12
SECTION 4.1 PLACE 12
SECTION 4.2 ANNUAL MEETING 12
SECTION 4.3 REGULAR MEETINGS 13
SECTION 4.4 SPECIAL MEETINGS 13
SECTION 4.5 QUORUM 13
SECTION 4.6 ACTION WITHOUT MEETING 13
SECTION 4.7 TELEPHONE MEETINGS 14
ARTICLE 5 15
SECTION 5.1 DESIGNATION 15
SECTION 5.2 RECORDS OF MEETINGS 16
ARTICLE 6 16
SECTION 6.1 METHOD OF GIVING NOTICE 16
SECTION 6.2 WAIVER 16
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 7 16
SECTION 7.1 IN GENERAL 16
SECTION 7.2 ELECTION OF PRESIDENT, SECRETARY AND TREASURER 16
SECTION 7.3 ELECTION OF OTHER OFFICERS 16
SECTION 7.4 SALARIES 16
SECTION 7.5 TERM OF OFFICE 16
SECTION 7.6 DUTIES OF PRESIDENT AND CHAIRMAN OF THE BOARD 16
SECTION 7.7 DUTIES OF VICE PRESIDENT 17
SECTION 7.8 DUTIES OF SECRETARY 17
SECTION 7.9 DUTIES OF ASSISTANT SECRETARY 18
SECTION 7.10 DUTIES OF TREASURER 18
SECTION 7.11 DUTIES OF ASSISTANT TREASURER 19
ARTICLE 8 19
SECTION 8.1 DIRECTORS 20
SECTION 8.2 OFFICERS 21
ARTICLE 9 21
SECTION 9.1 ISSUANCE OF STOCK 21
SECTION 9.2 RIGHT TO CERTIFICATE; FORM 21
SECTION 9.3 FACSIMILE SIGNATURE 21
SECTION 9.4 LOST CERTIFICATES 22
SECTION 9.5 TRANSFER OF STOCK 22
SECTION 9.6 REGISTERED STOCKHOLDERS 22
ARTICLE 10 23
SECTION 10.1 THIRD PARTY ACTIONS 23
SECTION 10.2 DERIVATIVE ACTIONS 24
SECTION 10.3 EXPENSES 24
SECTION 10.4 AUTHORIZATION 24
SECTION 10.5 ADVANCE PAYMENT OF EXPENSES 25
SECTION 10.6 NON-EXCLUSIVENESS 25
SECTION 10.7 INSURANCE 26
SECTION 10.8 CONSTITUENT CORPORATIONS 26
SECTION 10.9 ADDITIONAL INDEMNIFICATION 26
ARTICLE 11 26
ARTICLE 12 27
ARTICLE 13 27
ARTICLE 14 27
ARTICLE 15 27
</TABLE>
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<PAGE> 4
ANDOVER.NET, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE 1
CERTIFICATE OF INCORPORATION
SECTION 1.1 CONTENTS. The name, location of principal office and purposes
of the Corporation shall be as set forth in its Certificate of Incorporation.
These By-laws, the powers of the Corporation and of its Directors and
stockholders, and all matters concerning the conduct and regulation of the
business of the Corporation shall be subject to such provisions in regard
thereto, if any, as are set forth in said Certificate of Incorporation. The
Certificate of Incorporation is hereby made a part of these By-laws.
SECTION 1.2 CERTIFICATE IN EFFECT. All references in these By-laws to the
Certificate of Incorporation shall be construed to mean the Certificate of
Incorporation of the Corporation as from time to time amended, including (unless
the context shall otherwise require) all certificates and any agreement of
consolidation or merger filed pursuant to the Delaware General Corporation Law,
as amended.
ARTICLE 2
MEETINGS OF STOCKHOLDERS
SECTION 2.1 PLACE. All meetings of the stockholders may be held at such
place either within or without the State of Delaware as shall be designated from
time to time by the Board of Directors, the Chairman of the Board of Directors
or the President and stated in the notice of the meeting or in any duly executed
waiver of notice thereof.
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<PAGE> 5
SECTION 2.2 ANNUAL MEETING. Annual meetings of stock holders, shall be held
on the 2nd Tuesday of April in each year, if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 10:00 A.M., or at such other
date and time as shall be designated from time to time by the Board of
Directors, the Chairman of the Board of Directors or the President and stated in
the notice of the meeting. If such annual meeting has not been held on the day
herein provided therefor, a special meeting of the stockholders in lieu of the
annual meeting may be held, and any business transacted or elections held at
such special meeting shall have the same effect as if transacted or held at the
annual meeting, and in such case all references in these By-laws, except in this
Section 2.2, to the annual meeting of the stockholders shall be deemed to refer
to such special meeting.
SECTION 2.3 NOTICE OF STOCKHOLDER BUSINESS. To be properly brought before
the meeting, business must be of a nature that is appropriate for consideration
at an Annual Meeting and must be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, or
(ii) otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before the Annual Meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, each such notice must be given either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than (1) with respect to a matter to be brought before an
Annual Meeting of Stockholders or a Special Meeting in Lieu of an Annual
Meeting, sixty (60) days prior to the date set forth in the By-laws for the
Annual Meeting and (2) with respect to a
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<PAGE> 6
matter to be brought before a Special Meeting of the Stockholders not in lieu of
an Annual Meeting, the close of business on the tenth day following the date on
which notice of such meeting is first given to stockholders. The notice shall
set forth (i) information concerning the stockholder, including his or her name
and address, (ii) a representation that the stockholder is entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
present the matter specified in the notice, and (iii) such other information as
would be required to be included in a proxy statement soliciting proxies for the
presentation of such matter to the meeting.
Notwithstanding anything in these By-laws to the contrary, no business
shall be transacted at the Annual Meeting except in accordance with the
procedures set forth in this section; provided, however, that nothing in this
section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the Annual Meeting in accordance with these
By-laws.
SECTION 2.4 SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President, the Chairman of
the Board, or by the Board of Directors and shall be called by the President or
Secretary at the request in writing of a majority of the Directors then in
office. Such request shall state the purpose or purposes of the proposed
meeting, which need not be the exclusive purposes for which the meeting is
called. The stockholder shall not have the right, in their capacity as
stockholders, to call a special meeting of the stockholders.
SECTION 2.5 NOTICE OF MEETINGS. A written notice of all meetings of
stockholders stating the place, date and hour of the meeting and, in the case of
a special meeting, the purpose or
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<PAGE> 7
purposes for which the special meeting is called, shall be given to each
stockholder entitled to vote at such meeting. Except as otherwise provided by
law, such notice shall be given not less than ten nor more than sixty days
before the date of the meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
SECTION 2.6 AFFIDAVIT OF NOTICE. An affidavit of the Secretary or an
Assistant Secretary or the transfer agent of the Corporation that notice of a
stockholders meeting has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
SECTION 2.7 QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present or
represented by proxy at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, except as hereinafter provided, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 2.8 VOTING REQUIREMENTS. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock having voting power present
in person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon
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<PAGE> 8
which by express provision of any applicable statute or of the Certificate of
Incorporation, a different vote is required in which case such express provision
shall govern and control the decision of such question.
SECTION 2.9 PROXIES AND VOTING. Unless otherwise provided in the
Certificate of Incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of the
capital stock having voting power held by such stockholder, but no proxy shall
be voted on after three years from its date, unless the proxy provides for a
longer period. Persons holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and persons whose stock is pledged shall be entitled
to vote the pledged shares, unless in the transfer by the pledgor on the books
of the Corporation he shall have expressly empowered the Pledgee to vote said
shares, in which case only the pledgee, or his proxy, may represent and vote
such shares. Shares of the capital stock of the Corporation owned by the
Corporation shall not be voted, directly or indirectly.
SECTION 2.10 ACTION WITHOUT MEETING. Unless otherwise provided in the
Certificate of Incorporation, until the closing of an underwritten public
offering of the Corporation's Common Stock (a "Public Offering") any action
referred or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without
vote, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote on such action were present and voted. Prompt
notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
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<PAGE> 9
Effective upon the closing of a Public Offering, any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without vote, only if all
stockholders entitled to vote on the matter consent to the action in writing and
written consents are filed with the records of the meetings of the stockholders.
Such consents shall be treated for all purposes as a vote at a meeting.
SECTION 2.11 STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The original or duplicate stock ledger shall be the only evidence as to
who are the stockholders entitled to examine such list, the stock ledger or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
SECTION 2.12 RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
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<PAGE> 10
in respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
If no record date is fixed by the Board of Directors:
(a) The record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed.
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
ARTICLE 3
DIRECTORS
SECTION 3.1 NUMBER; ELECTION AND TERM OF OFFICE. There shall be a Board of
Directors of the Corporation consisting of not less than one member, the number
of members to be determined by resolution of the Board of Directors, unless the
Certificate of Incorporation fixes
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<PAGE> 11
the number of Directors, in which case a change in the number of Directors shall
be made only by amendment of the Certificate. The Board of Directors shall be
divided into such classes for such terms as are provided for in the Certificate
of Incorporation. Subject to any limitation which may be contained within the
Certificate of Incorporation, the number of the Board of Directors may be
increased at any time by vote of a majority of the Directors then in office. The
Directors shall be elected at the annual meeting of the stockholders at which
the term of office of the class to which they have been elected expires, except
as provided in paragraph (c) of Section 8.1, and each Director elected shall
hold office until his successor is elected and qualified or until his earlier
resignation or removal. Directors need not be stockholders.
SECTION 3.2 DUTIES. The business of the Corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation or by these By-laws directed or required
to be exercised or done by the stockholders.
SECTION 3.3 COMPENSATION. Unless otherwise restricted by the Certificate of
Incorporation or these By-laws, the Board of Directors shall have the authority
to fix the compensation of Directors. The Directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as Directors. No such payment shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
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<PAGE> 12
SECTION 3.4 RELIANCE ON BOOKS. A member of the Board of Directors or a
member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
books of account or reports made to the Corporation by any of its officers, or
by an independent certified public accountant, or by an appraiser selected with
reasonable care by the Board of Directors or by any committee, or in relying in
good faith upon other records of the Corporation.
ARTICLE 4
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4.1 PLACE. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
SECTION 4.2 ANNUAL MEETING. The first meeting of each newly elected Board
of Directors shall be held immediately following the annual meeting of
stockholders or any special meeting held in lieu thereof, and no notice of such
meeting shall be necessary to the newly elected Directors in order legally to
constitute the meeting.
SECTION 4.3 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board.
SECTION 4.4 SPECIAL MEETINGS. Special meetings of the Board may be called
by the President on two days' notice to each Director either personally or by
mail or by telegram; special meetings shall be called by the President or
Secretary in like manner and on like notice on the written request of two
Directors unless the Board consists of only one Director, in which
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<PAGE> 13
case special meetings shall be called by the President or Secretary in like
manner and on like notice on the written request of the sole Director.
SECTION 4.5 QUORUM. At all meetings of the Board a majority of the
Directors then in office shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum shall not be Present at any meeting of the Board of
Directors, the Directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
SECTION 4.6 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
SECTION 4.7 TELEPHONE MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
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ARTICLE 5
COMMITTEES OF DIRECTORS
SECTION 5.1 DESIGNATION.
(a) The Board of Directors may, by resolution passed by a majority of
the whole Board, designate one or more committees, each committee to consist of
one or more of the Directors of the Corporation. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee.
(b) In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
(c) Any such committee, to the extent provided in the resolution of
the Board of Directors designating the committee, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-laws of the Corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or
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authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
SECTION 5.2 RECORDS OF MEETINGS. Each committee shall keep regular minutes
of its meetings and report the same to the Board of Directors when required.
ARTICLE 6
NOTICES
SECTION 6.1 METHOD OF GIVING NOTICE. Whenever, under any provision of the
law or of the Certificate of Incorporation or of these By-laws, notice is
required to be given to any Director or stockholder, such notice shall be given
in writing by the Secretary or the person or persons calling the meeting by
leaving such notice with such Director or stockholder at his residence or usual
place of business or by mailing it addressed to such Director or stockholder, at
his address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to Directors may
also be given by telegram.
SECTION 6.2 WAIVER. Whenever any notice is required to be given under any
provision of law or of the Certificate of Incorporation or of these By-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.
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ARTICLE 7
OFFICERS
SECTION 7.1 IN GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall include a President, a Secretary and a
Treasurer. The Board of Directors may also choose a Chairman of the Board, one
or more Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any
number of offices may be held by the same person, unless the Certificate of
Incorporation or these By-laws otherwise provide.
SECTION 7.2 ELECTION OF PRESIDENT, SECRETARY AND TREASURER. The Board of
Directors at its first meeting after each annual meeting of stockholders shall
choose a President, a Secretary and a Treasurer.
SECTION 7.3 ELECTION OF OTHER OFFICERS. The Board of Directors may appoint
such other officers and agents as it shall deem appropriate who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
SECTION 7.4 SALARIES. The salaries of all officers and agents of the
Corporation may be fixed by the Board of Directors.
SECTION 7.5 TERM OF OFFICE. The officers of the Corporation shall hold
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time in the manner specified in Section 8.2.
SECTION 7.6 DUTIES OF PRESIDENT AND CHAIRMAN OF THE BOARD. The President
shall be the chief executive officer of the Corporation, shall preside at all
meetings of the stockholders and, if
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he is a Director, at all meetings of the Board of Directors if there shall be no
Chairman of the Board or in the absence of the Chairman of the Board, shall have
general and active management of the business of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation. The Chairman of the
Board, if any, shall make his counsel available to the other officers of the
Corporation, shall be authorized to sign stock certificates on behalf of the
Corporation, shall preside at all meetings of the Directors at which he is
present, and, in the absence of the President at all meetings of the
stockholders, and shall have such other duties and powers as may from time to
time be conferred upon him by the Directors.
SECTION 7.7 DUTIES OF VICE PRESIDENT. In the absence of the President or in
the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated by the Directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President not otherwise
conferred upon the Chairman of the Board, if any, and when so acting, shall have
all the powers of and be subject to all the restrictions upon the President. The
Vice Presidents shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
SECTION 7.8 DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of
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the Corporation and of the Board of Directors in a book to be kept for that
purpose and shall perform like duties for the standing committees when required.
He shall give, or cause to be given, notice of all meetings of the stockholders
and special meetings of the Board of Directors, except as otherwise provided in
these By-laws, and shall perform such other duties as may be prescribed by the
Board of Directors or President, under whose supervision he shall be. He shall
have charge of the stock ledger (which may, however, be kept by any transfer
agent or agents of the Corporation under his direction) and of the corporate
seal of the Corporation.
SECTION 7.9 DUTIES OF ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
SECTION 7.10 DUTIES OF TREASURER. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all of his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, he shall give the
Corporation a bond in such
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sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of this office and for the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his possession or under his control belonging to the
Corporation.
SECTION 7.11 DUTIES OF ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the Treasurer and shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
ARTICLE 8
RESIGNATIONS, REMOVALS AND VACANCIES
SECTION 8.1 DIRECTORS.
(a) RESIGNATIONS. Any Director may resign at any time by giving
written notice to the Board of Directors or the President or the Secretary. Such
resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
(b) REMOVALS. Subject to any provisions of the Certificate of
Incorporation, any Director or the entire Board of Directors may be removed with
or without cause, at any meeting called for the purpose, by vote of the holders
of a majority of the shares entitled to vote for the election of Directors, or a
majority vote of the Board of Directors. This Section 8.1(b) may not
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be altered, amended or repealed except by the holders of a majority of the
shares of stock issued and outstanding and entitled to vote for the election of
the Directors.
(c) VACANCIES. Vacancies occurring in the office of Director and
newly created Directorships resulting from any increase in the authorized number
of Directors shall be filled by a majority of the Directors then in office,
though less than a quorum, unless previously filled by the stockholders entitled
to vote for the election of Directors, and the Directors so chosen shall hold
office subject to the By-laws until the next annual meeting of Stockholders at
which the term of office of the class to which they have been elected expires
and until their successors are duly elected and qualify or until their earlier
resignation or removal. If there are no Directors in office, then an election of
Directors may be held in the manner provided by statute.
SECTION 8.2 OFFICERS. Any officer may resign at any time by giving written
notice to the Board of Directors or the President or the Secretary. Such
resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective. The Board of Directors may, at any meeting
called for the purpose, by vote of a majority of their entire number, remove
from office any officer of the Corporation or any member of a committee, with or
without cause. Any vacancy occurring in the office of President, Secretary or
Treasurer shall be filled by the Board of Directors and the officers so chosen
shall hold office subject to the By-laws for the unexpired term in respect of
which the vacancy occurred and until their successors shall be elected and
qualify or until their earlier resignation or removal.
ARTICLE 9
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CERTIFICATE OF STOCK
SECTION 9.1 ISSUANCE OF STOCK. The Directors may, at any time and from time
to time, if all of the shares of capital stock which the Corporation is
authorized by its Certificate of Incorporation to issue have not been issued,
subscribed for, or otherwise committed to be issued, issue or take subscriptions
for additional shares of its capital stock up to the amount authorized in its
Certificate of Incorporation. Such stock shall be issued and the consideration
paid therefor in the manner prescribed by law.
SECTION 9.2 RIGHT TO CERTIFICATE; FORM. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the Chairman of the Board, the President or a Vice
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation; provided that the Directors may provide by one or more
resolutions that some or all of any or all classes or series of the
Corporation's stock shall be uncertified shares. Certificates may be issued for
partly paid shares and in such case upon the face or back of the certificates
issued to represent any such partly paid shares, the total amount of the
consideration to be paid therefor, and the amount paid thereon shall be
specified.
SECTION 9.3 FACSIMILE SIGNATURE. Any of or all 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 upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
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<PAGE> 22
SECTION 9.4 LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 9.5 TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 9.6 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE 10
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INDEMNIFICATION
SECTION 10.1 THIRD PARTY ACTIONS. The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a Director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 10.2 DERIVATIVE ACTIONS. The Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is or was a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation,
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partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 10.3 EXPENSES. To the extent that a Director, officer, employee or
agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 10.1 and 10.2,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
SECTION 10.4 AUTHORIZATION. Any indemnification under Sections 10.1 and
10.2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
Director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 10.1 and 10.2.
Such determination shall be made (a) by the Board of Directors by a majority
vote of a quorum consisting of Directors who were not parties to such action,
suit or proceeding, or (b) if
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such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested Directors so directs, by independent legal counsel in a written
opinion, or (c) by the stockholders.
SECTION 10.5 ADVANCE PAYMENT OF EXPENSES. Expenses incurred by an officer
or Director in defending a civil or criminal action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding as authorized by the Board of Directors in the specific case upon
receipt of an undertaking by or on behalf of such officer or Director to repay
such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article 10. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors deems appropriate.
SECTION 10.6 NON-EXCLUSIVENESS. The indemnification provided by this
Article 10 shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any by-law, agreement, vote of
stockholders or disinterested Directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a Director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 10.7 INSURANCE. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a Director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out
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of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article 10.
SECTION 10.8 CONSTITUENT CORPORATIONS. The Corporation shall have power to
indemnify any person who is or was a director, officer, employee or agent of a
constituent corporation absorbed in a consolidation or merger with this
Corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, in the same manner as hereinabove
provided for any person who is or was a Director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
SECTION 10.9 ADDITIONAL INDEMNIFICATION. In addition to the foregoing
provisions of this Article 10, the Corporation shall have the power, to the full
extent provided by law, to indemnify any person for any act or omission of such
person against all loss, cost, damage and expense (including attorney's fees) if
such person is determined (in the manner prescribed in Section 10.4 hereof) to
have acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interest of the Corporation.
ARTICLE 11
EXECUTION OF PAPERS
Except as otherwise provided in these By-laws or as the Board of Directors
may generally or in particular cases otherwise determine, all deeds, leases,
transfers, contracts, bonds, notes, checks, drafts and other instruments
authorized to be executed on behalf of the Corporation shall be executed by the
President or the Treasurer.
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ARTICLE 12
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE 13
SEAL
The Corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the word "Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE 14
OFFICES
In addition to its principal office, the Corporation may have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE 15
AMENDMENTS
Except as otherwise provided herein, these By-laws may be altered, amended
or repealed or new By-laws may be adopted by the stockholders or by the Board of
Directors, when such power is conferred upon the Board of Directors by the
Certificate of Incorporation, at any regular meeting of the stockholders or of
the Board of Directors, or at any special meeting of the stockholders or of the
Board of Directors if notice of such alteration, amendment, repeal or adoption
of new By-laws is contained in the notice of such special meeting, or by the
written consent of a majority in interest of the outstanding voting stock of the
Corporation or by the
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unanimous written consent of the Directors. If the power to adopt, amend or
repeal by-laws is conferred upon the Board of Directors by the Certificate of
Incorporation, it shall not divest or limit the power of the stockholders to
adopt, amend or repeal by-laws.
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EXHIBIT 10.1
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is dated as of the 15th day of September, 1999, by and among
Andover.Net, Inc. a Delaware corporation and successor in interest to Andover
Advanced Technologies, Inc. (the "Company"), the persons designated as
Management Stockholders on the signature pages hereto (the "Management
Stockholders"), the persons designated as Series A Investors on the signature
pages hereto (the "Series A Investors"), the persons designated as Series B
Investors on the signature pages hereto (the "Series B Investors"), and any
assignees or transferees of a Series A Investor and Series B Investor (each
assignee or transferee, respectively, a Series A Investor or Series B Investor,
as the case may be). For purposes of this Agreement, the Management Stockholders
and the Series A Investors shall be collectively referred to as the "Original
Investors".
WHEREAS, the Series B Investors have entered into a certain Stock
Purchase Agreement, dated as of September , 1999 (the "Purchase Agreement"),
pursuant to which the Series B Investors have agreed to purchase from the
Company 600,568 shares of Series B Convertible Participating Preferred Stock,
par value $.01 per share, of the Company (the "Convertible Preferred Stock"),
which are convertible into 3,017,138 shares of Common Stock, par value $.01 per
share (the "Common Stock"), of the Company; and
WHEREAS, the Series A Investors are collectively the holders of 322,480
shares of Series A Redeemable Preferred Stock, par value $.01 per share (the
"Redeemable Preferred Stock"), of the Company and 6,480,311 shares of Common
Stock; and
WHEREAS, the Original Investors and the Company have previously entered
into a Second Amended and Restated Registration Rights Agreement, dated as of
June 25, 1997 (the "Old Registration Rights Agreement"), which may be amended
with the consent of the Company and the holders of the two-thirds of the
outstanding Registrable Shares (as such term is defined in the Old Registration
Rights Agreement); and
WHEREAS, the Original Investors who are signing this Agreement
constitute the holders of two-thirds of the outstanding Registrable Shares as of
the date hereof and before giving effect to the transactions contemplated by the
Purchase Agreement; and
WHEREAS, it is a condition precedent to the obligations of the Series B
Investors under the Purchase Agreement that this Agreement be executed by the
parties hereto to replace and supersede the Old Registration Rights Agreement,
and the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises of the parties herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company, the Original Investors
<PAGE> 2
and the Series B Investors hereby amend and restate the Old Registration Rights
Agreement in its entirety and covenant and agree with each other as follows:
A. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the following respective meanings:
"BOARD" means the Board of Directors of the Company.
"COMMISSION" shall mean the United States Securities and
Exchange Commission, or any other federal agency at the time administering the
Securities Act and the Exchange Act.
"COMMON STOCK" shall mean the Common Stock and any other
common equity securities issued by the Company, and any other shares of stock
issued or issuable with respect thereto (whether by way of a stock dividend or
stock split or in exchange for or upon conversion of such shares,
recapitalization, merger, consideration or other corporate reorganization).
"COMPANY" shall refer to the Company and any successor or
successors thereto.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any similar successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
"MAJORITY INTEREST" means the Original Investors or the Series
B Investors, as the case may be, holding not less than a majority in interest of
the Registrable Securities held by all such Original Investors or Series B
Investors, respectively.
"PERSON" shall mean an individual, a corporation, an
association, a joint venture, a partnership, a limited liability company, an
estate, a trust, an unincorporated organization, and any other entity or
organization, governmental or otherwise.
"REGISTRABLE SECURITIES" shall mean (i) any shares of Common
Stock held by the Original Investors or Series B Investors, or their respective
transferees, or issuable upon conversion of the Convertible Preferred Stock (it
being understood that for purposes of this Agreement, a Person will be deemed to
be a holder of Registrable Securities whenever such Person has the right to then
acquire or obtain from the Company any Registrable Securities, whether or not
such Registrable Securities have actually been issued), or (ii) any other
securities issued or issuable with respect to any such shares described in
clause (i) above by way of a stock dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization; provided, however, that notwithstanding anything to the contrary
contained herein, "Registrable Securities" shall not at any time include any
securities (i) registered and sold pursuant to the Securities Act, (ii) sold to
the public pursuant to Rule 144 promulgated under the Securities Act or (iii)
which could then be sold in their
<PAGE> 3
entirety pursuant to Rule 144(k) promulgated under the Securities Act without
limitation or restriction.
"REGISTRATION EXPENSES" shall mean the expenses so described
in Section 6 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933 or any
similar successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
B. DEMAND REGISTRATIONS.
1. DEMAND REGISTRATIONS BY SERIES B INVESTORS. At any time
after the earlier of (i) the third anniversary of the date hereof or (ii) the
date that is one hundred eighty (180) days after the initial public offering of
the Common Stock pursuant to an effective registration under the Securities Act,
a Majority Interest of the Series B Investors may notify the Company that they
intend to offer or cause to be offered for public sale, and request that the
Company register under the Securities Act for public sale, all or any portion of
the Registrable Securities held by the Series B Investors in the manner
specified in such notice, provided that in the case of a request pursuant to
clause (ii) such registration may not become effective prior to the date which
is nine (9) months after the effective date of the Company's initial
registration statement. Upon receipt of such request, the Company shall promptly
deliver notice of such request to all Persons holding Registrable Securities,
who shall then have thirty (30) days to notify the Company in writing of their
desire to have Registrable Securities held by them included in such
registration. If the request for registration contemplates an underwritten
public offering, the Company shall state such in the written notice, and in such
event the right of any Person to include Registrable Securities in such
registration shall be conditioned upon such Person's participation in such
underwritten public offering and the inclusion of such Person's Registrable
Securities in the underwritten public offering to the extent provided herein.
The Company will use its commercially reasonable efforts to expeditiously effect
the registration under the Securities Act of all Registrable Securities of each
holder who requested inclusion of such holders Registrable Securities in such
registration and to qualify such Registrable Securities for sale under any state
blue sky law; provided, however, that the Company shall not be required to
effect a registration pursuant to a request under this Section 2(a) more than
two (2) times. Notwithstanding anything to the contrary contained herein, no
request may be made under this Section 2(a) within one hundred eighty (180) days
after the effective date of a registration statement filed by the Company
covering a firm commitment underwritten public offering. The Company may
postpone the filing or the effectiveness of any registration statement required
to be filed pursuant to this Section 2 for a reasonable time period, provided
that the Company may not initiate a postponement on more than two occasions
during any twelve (12) month period and any such postponement shall not exceed
ninety (90) days, if (i) the Company has been advised by legal counsel that such
filing or effectiveness would require disclosure of a material financing,
acquisition or other corporate transaction, and the Board determines in good
faith that such disclosure is not in the best interests of the Company and its
stockholders or (ii) the Board determines in good faith that there is a valid
business purpose or reason for delaying such filing or
<PAGE> 4
effectiveness. A registration will not count as a requested registration under
this Section 2(a) unless and until the registration statement relating to such
registration has been declared effective by the Commission at the request of the
initiating holders; provided, however, that a Majority Interest of the Series B
Investors holding Registrable Securities to be included in the offering may
request, in writing, that the Company withdraw a registration statement which
has been filed under this Section 2(a) but not yet been declared effective, and
may thereafter request the Company to reinstate such Registration Statement, if
permitted under the Securities Act, or to file another registration statement,
in accordance with the procedures set forth herein and without reduction in the
number of demand registrations permitted under this Section 2(a) if the
participating holders reimburse the Company for all Registration Expenses
incurred in connection with such withdrawn registration.
2. DEMAND REGISTRATIONS BY ORIGINAL INVESTORS. At any time
after one hundred eighty (180) days after the initial public offering of the
Common Stock pursuant to an effective registration under the Securities Act, the
Original Investors holding not less than 50% of the Registrable Shares held by
all such Original Investors may notify the Company that they intend to offer or
cause to be offered for public sale, and request that the Company register under
the Securities Act for public sale, all or any portion of the Registrable
Securities held by such Original Investors in the manner specified in such
notice, provided that in no case shall such request for registration become
effective prior to the date which is nine (9) months after the effective date of
the Company's initial registration statement filed for the initial public
offering of the Company's Common Stock. Upon receipt of a request for
registration under this Section 2(b), the Company shall promptly deliver notice
of such request to all Persons holding Registrable Securities, who shall then
have thirty (30) days to notify the Company in writing of their desire to have
Registrable Securities held by them included in such registration. If the
request for registration contemplates an underwritten public offering, the
company shall state such in the written notice, and in such event the right of
any Person to include Registrable Securities in such registration shall be
conditioned upon such Person's participation in such underwritten public
offering and the inclusion of such Person's Registrable Securities in the
underwritten public offering to the extent provided herein. The Company will use
its commercially reasonable efforts to expeditiously effect the registration
under the Securities Act of all Registrable Securities of each holder who
requested inclusion of such holders Registrable Securities in such registration
and to qualify such Registrable Securities for sale under any state blue sky
law; provided, however, that the Company shall not be required to effect a
registration pursuant to a request under this Section 2(b) more than one (1)
time. Notwithstanding anything to the contrary contained herein, no request may
be made under this Section 2(b) within one hundred eighty (180) days after the
effective date of a registration statement filed by the Company covering a firm
commitment underwritten public offering. The Company may postpone the filing or
the effectiveness of any registration statement required to be filed pursuant to
this Section 2(b) for a reasonable time period, provided that the Company may
not initiate a postponement on more than two occasions during any twelve (12)
month period and any such postponement shall not exceed ninety (90) days, if (i)
the Company has been advised by legal counsel that such filing or effectiveness
would require disclosure of a material financing, acquisition or other corporate
transaction, the
<PAGE> 5
Board determines in good faith that such disclosure is not in the best interests
of the Company and its stockholders or (ii) the Board determines in good faith
that there is a valid business purpose of reason for delaying such filing or
effectiveness. A registration will not count as a requested registration under
this Section 2(b) unless and until the registration statement relating to such
registration has been declared effective by the Commission at the request of the
initiating holders; provided, however, that a majority in interest of the
participating Original Investors may request, in writing, that the Company
withdraw a registration statement which has been filed under this Section 2(b)
but not yet been declared effective, and a majority in interest of such Original
Investors may thereafter request the Company to reinstate such Registration
Statement, if permitted under the Securities Act, or to file another
registration statement, in accordance with the procedures set forth herein and
without reduction in the number of demand registrations permitted under this
Section 2(b) if the participating holders reimburse the Company for all
Registration Expenses incurred in connection with such withdrawn registration.
a. If a requested registration involves an
underwritten public offering and the managing underwriter of such offering
determines in good faith that the number of securities sought to be offered
should be limited due to market conditions, then the number of securities to be
included in such underwritten public offering shall be reduced to a number,
reasonably deemed satisfactory by such managing underwriter, provided that the
securities to be excluded shall be determined in the following sequence: (i)
first, securities held by any other Persons (other than Persons holding
Registrable Securities) having contractual incidental or "piggyback"
registration rights, (ii) second, securities sought to be registered by the
Company, (iii) third, holders of Registrable Securities of holders other than
the parties who initiated the request for registration pursuant to this Section
2, and (iv) fourth, Registrable Securities held by the parties requesting
registration pursuant to this Section 2 (the "Requesting Investors"), it being
understood that no shares shall be registered for the account of the Company or
any shareholder other than the Requesting Investors unless all Registrable
Securities for which Investors have requested registration have been registered.
If there is a reduction in the number of shares of Common Stock or Registrable
Securities to be registered pursuant to clauses (i), (ii), (iii) or (iv) above,
such reduction shall be made within each tranche on a pro rata basis (based upon
the aggregate number of shares of Common Stock or Registrable Securities held by
the holders in each such tranche and subject to the priorities set forth in the
preceding sentence).
b. With respect to a request for
registration pursuant to this Section 2 which is for an underwritten public
offering, the managing underwriter shall be chosen by not less than a majority
in interest of the Registrable Securities held by the Requesting Investors and
to be included in such registration, subject to the Company's consent, which
consent shall not be unreasonably withheld. The Company may not cause any other
registration of securities for sale for its own account (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 of the Securities Act is applicable) to become
effective within one hundred eighty (180) days following the effective date of
any registration required pursuant to this Section 2.
<PAGE> 6
C. FORM S-3. After the first public offering of its securities registered under
the Securities Act, the Company shall use its commercially reasonable efforts to
qualify and remain qualified to register securities on Form S-3 (or any
successor form) under the Securities Act. A Holder or Holders of Registrable
Securities with an anticipated aggregate sale price (net of underwriting
discounts and commissions, if any) in excess of $1,000,000 shall have the right,
on one or more occasions, to request registration on Form S-3 (or any successor
form) for the Registrable Securities held by such holder or holders. Such
requests shall be in writing and shall state the number of shares of Registrable
Securities to be disposed of and the intended method of disposition of such
securities by such holder or holders. The Company shall give notice to all other
holders of Registrable Securities of the receipt of a request for registration
pursuant to this Section 3, and such other holders of Registrable Securities
shall then have thirty (30) days to notify the Company in writing of their
desire to participate in the registration, subject to the limitations set forth
in Section 4. The Company may postpone the filing or the effectiveness of any
registration statement pursuant to this Section 3 for a reasonable period of
time, provided that the Company may not initiate a postponement on more than two
(2) occasions during any twelve (12) month period and any such postponement
shall not exceed ninety (90) days, if (i) the Company has been advised by legal
counsel that such filing or effectiveness would require disclosure of a material
financing, acquisition or other corporate transaction, and the Board determines
in good faith that such disclosure is not in the best interests of the Company
and its stockholders or (ii) the Board determines in good faith that there is a
valid business purpose or reason for delaying filing or effectiveness.
D. PIGGYBACK REGISTRATION. If the Company at any time proposes to register any
of its Common Stock under the Securities Act for sale to the public (except
pursuant to a demand registration under Section 2 hereof, which demand
registration shall be governed by the terms of said Section 2, and except with
respect to registration statements on Forms S-4, S-8 or any other form not
available for registering the Registrable Securities for sale to the public),
each such time it will promptly give written notice to each holder of
Registrable Securities of its intention to effect such registration. Upon the
written request of any such holder of Registrable Securities given within thirty
(30) days after receipt by such holder of such notice, the Company will, subject
to the limits contained in this Section 4, use its commercially reasonable
efforts to cause all Registrable Securities of such holder that such holder so
requests to be registered under the Securities Act and qualified for sale under
any state blue sky law, all to the extent required to permit such sale or other
disposition of said Registrable Securities; provided, however, that if the
Company is advised in writing in good faith by the managing underwriter of the
Company's securities being offered in an underwritten public offering pursuant
to such registration statement that the amount to be sold by persons other than
the Company (collectively, the "Selling Stockholders") is greater than the
amount which can be offered without adversely affecting the marketability of the
offering, the Company may reduce the amount offered for the accounts of Selling
Stockholders (including any holders of Registrable Securities) to a number
reasonably deemed satisfactory by such managing underwriter; and provided,
further, that the securities to be excluded shall be determined in the following
sequence: (i) first, securities held by any Persons not having any contractual
incidental or "piggy back" registration rights, (ii) second, securities held by
<PAGE> 7
any Persons having contractual incidental or "piggy back" registration rights
pursuant to an agreement which is not this Agreement, and (iii) third,
Registrable Securities other than those held by the Original Investors and the
Series B Investors, and (iv) fourth, Registrable Securities held by the Original
Investors and the Series B Investors. If there is a reduction in the number of
shares of Common Stock or Registrable Securities to be registered pursuant to
clauses (i), (ii), (iii) or (iv) above, such reduction shall be made within each
tranche on a pro rata basis (based upon the aggregate number of shares of Common
Stock or Registrable Securities held by the holders in each such tranche and
subject to the priorities set forth in the preceding sentence).
E. REGISTRATION PROCEDURES. If and whenever the Company is required by the
provisions of this Agreement to effect the registration of any of its securities
under the Securities Act, the Company will, as soon as practicable:
1. use its commercially reasonable efforts to prepare and file
with the Commission a registration statement on the appropriate form under the
Securities Act with respect to such securities, which form shall comply as to
form in all material respects with the requirements of the applicable form and
include all financial statements required by the Commission to be filed
therewith, and use its reasonable best efforts to cause such registration
statement to become and remain effective until completion of the proposed
offering (but not for more than one hundred eighty (180) days);
2. use its commercially reasonable efforts to prepare and file
with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective until the completion of the offering
(but not for more than one hundred fifty (150) days) and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities covered by such registration statement whenever the seller or
sellers of such securities shall desire to sell or otherwise dispose of the
same, but only to the extent provided in this Agreement;
3. furnish to each selling holder and the underwriters, if
any, such number of copies of such registration statement, any amendments
thereto, any documents incorporated by reference therein, the prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such selling holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such selling holder;
4. use its commercially reasonable efforts to register or
qualify the securities covered by such registration statement under and to the
extent required by such other securities or state blue sky laws of such
jurisdictions as each selling holder shall reasonably request, and do any and
all other acts and things which may be necessary under such securities or blue
sky laws to enable such selling holder to consummate the public sale or other
disposition in such jurisdictions of the securities owned by such selling
holder, except that the Company shall not for any such purpose be required to
qualify to do business as a foreign corporation in any jurisdiction wherein it
is not so
<PAGE> 8
qualified or submit to service of process in any jurisdiction in which it is not
already subject;
5. within a reasonable time before each filing of the
registration statement or prospectus or amendments or supplements thereto with
the Commission, furnish to a single counsel selected by the holders of
Registrable Securities proposing to include shares in such registration in
accordance with Section 6 herein copies of such documents proposed to be filed,
which information in such documents pertaining to such holders shall be subject
to the reasonable approval of such counsel;
6. promptly notify each selling holder of Registrable
Securities, such selling holders' counsel and any underwriter and (if requested
by any such Person) confirm such notice in writing, of the happening of any
event which makes any statement made in the registration statement or related
prospectus untrue or which requires the making of any changes in such
registration statement or prospectus so that they will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in the light of the
circumstances under which they were made not misleading; and, as promptly as
practicable thereafter, prepare and file with the Commission and furnish a
supplement or amendment to such prospectus so that, as thereafter deliverable to
the purchasers of such Registrable Securities, such prospectus will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
7. use its commercially reasonable efforts to prevent the
issuance of any order suspending the effectiveness of a registration statement,
and if one is issued use its commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of a registration statement
at the earliest possible moment;
8. f requested by the managing underwriter or underwriters (if
any), any selling holder, or counsel to the selling holders, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as such Person requests to be included therein with respect to the
selling holder or the securities being sold, including, without limitation, with
respect to the securities being sold by such selling holder to such underwriter
or underwriters, the purchase price being paid therefor by such underwriter or
underwriters and with respect to any other terms of an underwritten offering of
the securities to be sold in such offering, and promptly make all required
filings of such prospectus supplement or post-effective amendment;
9. make available to each selling holder, any underwriter
participating in any disposition pursuant to a registration statement, and a
single attorney and accountant retained by any such selling holders or
underwriters (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively, the
"Records"), as shall be reasonably necessary to enable them to exercise their
due diligence responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any
<PAGE> 9
such Inspector in connection with such registration statement subject, in each
case, to such confidentiality agreements as the Company shall reasonably
request;
10. in connection with a registration statement pursuant to
Section 2 or 3 above, enter into a reasonable underwriting agreement required by
the proposed underwriter(s) (if approved by the Company) for the selling holders
and use its commercially reasonable efforts to facilitate the public offering of
the securities;
11. request that each prospective selling holder be furnished
a signed counterpart, addressed to the prospective selling holder, of (i) an
opinion of counsel for the Company, dated the effective date of the registration
statement, and (ii) if and to the extent permitted by applicable professional
standards, a "comfort" letter signed by the independent public accountants who
have certified the Company's financial statements included in the registration
statement, covering substantially the same matters with respect to the
registration statement (and the prospectus included therein) and (in the case of
the accountants' letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered (at the time of such
registration) in opinions of the Company's counsel and in accountants' letters
delivered to the underwriters in underwritten public offerings of securities;
12. use its commercially reasonable efforts to cause the
securities covered by such registration statement to be listed on the securities
exchange or quoted on the quotation system on which the Common Stock is then
listed or quoted (or, if the Common Stock is not yet listed or quoted, then on
such exchange or quotation system as the selling holders of Registrable
Securities and the Company shall determine);
13. otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the Commission and make
generally available to its security holders, in each case as soon as
practicable, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement of the Company which will satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or
any comparable successor provisions); and
14. otherwise cooperate with the underwriter(s), if any, the
Commission and other regulatory agencies and take all reasonable actions and
execute and deliver or cause to be executed and delivered all documents
reasonably necessary to effect the registration of any securities under this
Agreement.
F. EXPENSES. All reasonable expenses incurred by the Company, the Original
Investors and the Series B Investors in effecting the registrations provided for
in Section 2, Section 3 and Section 4, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company and one counsel for the Series B Investors and the
Original Investors as a group (selected (i) by a majority in interest of the
Original Investors and Series B Investors who participate in a registration
pursuant to Sections 3 or 4 hereof or (ii) by a majority in interest of the
Requesting Investors who participate in a registration pursuant to Section 2
hereof), underwriting expenses (other than fees, commissions or discounts of
selling holders),
<PAGE> 10
expenses of any audits incident to or required by any such registration and
expenses of complying with the securities or blue sky laws of any jurisdiction
pursuant to Section 5(d) hereof (all of such expenses referred to as
"Registration Expenses"), shall be paid by the Company.
G. INDEMNIFICATION.
1. The Company shall indemnify and hold harmless the selling
holder of Registrable Securities, each underwriter (as defined in the Securities
Act), and each other Person who participates in the offering of such securities
and each other Person, if any, who controls (within the meaning of the
Securities Act) such seller, underwriter or participating Person (individually
and collectively, the "Indemnified Persons") against any losses, claims, damages
or liabilities (collectively, the "liability"), severally and not jointly, to
which such Indemnified Persons may become subject under the Securities Act or
any other statute or at common law, insofar as such liability (or action in
respect thereof) arises out of or is based upon (i) any untrue statement or
alleged untrue statement of any material fact contained, on the effective date
thereof, in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (ii)
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading.
Except as otherwise provided in Section 7(d), the Company shall reimburse each
such Indemnified Person in connection with investigating or defending any such
liability as expenses in connection with the same are incurred; provided,
however, that the Company shall not be liable to any Indemnified Person in any
such case to the extent that any such liability arises out of or is based upon
any untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, preliminary or final prospectus, or
amendment or supplement thereto in reliance upon and in conformity with
information furnished in writing to the Company by such Indemnified Person
specifically for use therein. Each selling holder of any securities included in
such registration being effected shall indemnify and hold harmless each other
selling holder of any securities, the Company, its directors and officers, each
underwriter and each other Person, if any, who controls any such selling holder,
the Company or such underwriter (individually and collectively, the "Indemnified
Persons"), against any liability, severally and not jointly, to which any such
Indemnified Person may become subject under the Securities Act or any other
statute or at common law, insofar as such liability (or actions in respect
thereof) arises out of or is based upon (i) any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which securities were registered under the
Securities Act at the request of such selling holder, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereto,
or (ii) any omission or alleged omission by such selling holder to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in the case of (i) and (ii) to the extent,
but only to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in such registration statement,
preliminary or final prospectus, amendment or supplement thereto in reliance
upon and in conformity with information furnished in writing to the Company by
such selling holder specifically for
<PAGE> 11
use therein. Such selling holder shall reimburse any Indemnified Person for
expenses (including, without limitation, legal fees) incurred in investigating
or defending any such liability; provided, however, that such selling holder's
obligations hereunder shall be limited to an amount equal to the proceeds to
such selling holder of the securities sold in any such registration.
2. Indemnification similar to that specified in Section 7(a)
and Section 7(b) shall be given by the Company and each selling holder (with
such modifications as may be appropriate) with respect to any required
registration or other qualification of their securities under any federal or
state law or regulation of governmental authority other than the Securities Act.
3. If the indemnification provided for in this Section 7 for
any reason is held by a court of competent jurisdiction to be unavailable to an
Indemnified Person in respect of any losses, claims, damages, expenses or
liabilities referred to therein, then each indemnifying party under this Section
7, in lieu of indemnifying such Indemnified Person thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages, expenses or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, the
selling holders and the underwriters from the offering of the Registrable
Securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above, but also the
relative fault of the Company, the other selling holders and the underwriters in
connection with the statements or omissions which resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company, the
selling holders and the underwriters shall be deemed to be in the same
respective proportions that the net proceeds from the offering (before deducting
expenses) received by the Company and the selling holders and the underwriting
discount received by the underwriters, in each case as set forth in the table on
the cover page of the applicable prospectus, bear to the aggregate public
offering price of the Registrable Securities. The relative fault of the Company,
the selling holders and the underwriters shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company, the selling holders or the underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct such statement or omission.
The Company, the selling holders and the underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata or per capita allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to in the immediately preceding paragraph. In no event, however, shall
a selling holder be required to contribute any amount under this Section 7(d) in
excess of the lesser of (i) that proportion of the total of such losses, claims,
damages or liabilities indemnified against equal to the proportion of the total
Registrable Securities sold under such registration statement which are being
sold by such selling holder or (ii) the net proceeds received by such selling
holder from its sale of Registrable Securities under such registration
statement. No person found guilty of
<PAGE> 12
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
found guilty of such fraudulent misrepresentation.
4. In the event that holders of Registrable Shares shall
register Registrable Shares in any underwritten public offering initiated by the
Company, the Company shall use commercially reasonable efforts to negotiate
indemnification terms for such holders with the underwriters of such offering
which provide: (i) that each such holder shall only be obligated to indemnify
such underwriters severally, and not jointly; (ii) that each such holder shall
provide indemnification to such underwriters only against any liability to which
any such underwriters may become subject under the Securities Act or any other
statute or at common law, insofar as such liability (or actions in respect
thereof) arises out of or is based upon (A) any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which securities were registered under the
Securities Act at the request of such holder, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, or
(B) any omission or alleged omission by such holder to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in the case of (A) and (B) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement, preliminary or final
prospectus, amendment or supplement thereto in reliance upon and in conformity
with information furnished in writing to the Company by such holder specifically
for use therein; and (iii) that each such holder's obligations to the
underwriters for indemnification shall be limited to an amount equal to the
proceeds to such holder of the securities sold in such offering. The Company
also agrees in connection with any underwritten public offering in which the
holders of Registrable Shares participate to provide commercially reasonable
representations and warranties to such underwriters and to provide commercially
reasonable indemnification to such underwriters with respect to any breach of
such representations and warranties.]
H. COMPLIANCE WITH RULE 144. In the event that the Company (i) registers a class
of securities under Section 12 of the Exchange Act or (ii) shall commence to
file reports under Section 13 or 15(d) of the Exchange Act, the Company will use
its commercially reasonable efforts thereafter to file with the Commission such
information as is required under the Exchange Act for so long as there are
holders of Registrable Securities; and in such event, the Company shall use its
commercially reasonable efforts to take all action as may be required as a
condition to the availability of Rule 144 under the Securities Act (or any
comparable successor rules). The Company shall furnish to any holder of
Registrable Securities upon request a written statement executed by the Company
as to the steps it has taken to comply with the current public information
requirement of Rule 144 (or such comparable successor rules). After the
occurrence of the first underwritten public offering of Common Stock pursuant to
an offering registered under the Securities Act on Form S-1 or Form SB-1 (or any
comparable successor forms), subject to the limitations on transfers imposed by
this Agreement, the Company shall use its commercially reasonable efforts to
facilitate and expedite transfers of Registrable
<PAGE> 13
Securities pursuant to Rule 144 under the Securities Act, which efforts shall
include timely notice to its transfer agent to effect such transfers of
Registrable Securities.
I. AMENDMENTS. The provisions of this Agreement may be amended, and the Company
may take any action herein prohibited or omit to perform any act herein required
to be performed by it, only with the written consent of the Company, a Majority
Interest of the Series B Investors and a Majority Interest of the Original
Investors.
J. TRANSFERABILITY OF REGISTRATION RIGHTS. The registration rights set forth in
this Agreement are transferable to each transferee of at least [10,000] shares
of Registrable Securities, subject, in the case of the Original Investors, to
the terms of the Third Amended and Restated Stockholders Agreement, dated as of
the date hereof, by and between the Company, the Original Investors and the
Series B Investors. Each subsequent holder of Registrable Securities must
consent in writing to be bound by the terms and conditions of this Agreement in
order to acquire the rights granted pursuant to this Agreement.
K. RIGHTS WHICH MAY BE GRANTED TO SUBSEQUENT INVESTORS. Other than transferees
of Registrable Securities under Section 10 hereof, the Company shall not,
without the prior written consent of a Majority Interest of the Series B
Investors (a) allow subsequent purchasers of the Company's securities to become
a party to this Agreement or (b) grant any other registration rights to any
third parties other than subordinate piggyback registration rights.
L. DAMAGES. The Company recognizes and agrees that each holder of Registrable
Securities will not have an adequate remedy if the Company fails to comply with
the terms and provisions of this Agreement and that damages will not be readily
ascertainable, and the Company expressly agrees that, in the event of such
failure, it shall not oppose an application by any holder of Registrable
Securities or any other Person entitled to the benefits of this Agreement
requiring specific performance of any and all provisions hereof or enjoining the
Company from continuing to commit any such breach of this Agreement.
M. MISCELLANEOUS.
1. All notices, requests, demands and other communications
provided for hereunder shall be in writing and mailed (by first class registered
or certified mail, postage prepaid), telegraphed, sent by express overnight
courier service or electronic facsimile transmission (with a copy by mail), or
delivered to the applicable party at the addresses indicated below such parties
name on the signature page hereto or, as to each of the foregoing, at such other
address as shall be designated by such Person in a written notice to other
parties complying as to delivery with the terms of this subsection (a). All such
notices, requests, demands and other communications shall, when mailed,
telegraphed or sent, respectively, be effective (i) two days after being
deposited in the mails or (ii) one day after being delivered to the telegraph
company, deposited with the express overnight courier service or sent by
electronic facsimile transmission, respectively, addressed as aforesaid.
<PAGE> 14
2. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to
conflict of laws principles thereof.
3. 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.
4. If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
N. DISPUTE RESOLUTION. All disputes, claims, or controversies arising out of or
relating to (i) this Agreement or the negotiation, validity or performance
hereof or the transactions contemplated hereby, (ii) the rights of the Original
Investors and Series B Investors and their respective successors and the
obligations of the Company set forth herein shall be finally settled by binding
arbitration conducted expeditiously in accordance with Section 7.7, Section 7.8
and Section 7.9, as applicable, of the Purchase Agreement.
O. LOCK-UP AGREEMENT. In the event that the Company files a registration
statement under the Securities Act with the Commission covering a firm
commitment public offering at a time when any of the Original Investors or
Series A Investors hold Registrable Securities, each of the Original Investors
and Series A Investors agrees (and all transferees of Registrable Securities
shall agree), if and to the same extent agreed to by the Board of Directors of
the Company, to enter into an agreement with the underwriter(s) to the effect
that such Original Investor or Series A Investor, as applicable, will not offer,
sell, contract to sell, pledge, grant any option to purchase, make any short
sale, hedge or otherwise dispose of any shares of Common Stock or any securities
of the Company which are substantially similar to, or derivative of, Common
Stock, or any options or warrants to purchase any shares of Common Stock of the
Company, or which are convertible into or exchangeable or exercisable for, or
that otherwise represent the right to receive Common Stock or any such other
securities of the Company, whether now or hereinafter acquired, directly or
indirectly, without the prior written consent of the underwriters of such
offering, for a period of time following the date of the final prospectus, such
period of time to be determined by agreement between the Board of Directors of
the Company and such underwriters; provided, however, that such period shall not
exceed 180 days with the consent of such Original Investor or Series A Investor,
as applicable. In furtherance of this Section 15, each of the Original Investors
and Series A Investors hereby grants to the Company its irrevocable power of
attorney will full power of substitution for purposes of entering into an
agreement with such underwriters on its behalf in substantially the form
described in this Section 15 so long as the Board of Directors of the Company
shall have approved the terms of such agreement.
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have caused this Third Amended
and Restated Registration Rights Agreement to be duly executed as of the date
first set forth above.
COMPANY:
ANDOVER.NET, INC.
/s/ Bruce A. Twickler
By:__________________________________
Title: President
MANAGEMENT STOCKHOLDERS:
/s/ Bruce A. Twickler
_____________________________________
Bruce Twickler
SERIES B INVESTORS:
TA/ADVENT VIII, L.P.
By: TA Associates VIII LLC, its General Partner
By: TA Associates, Inc., its Manager
/s/ Jonathan Goldstein
By:__________________________________
TA/ATLANTIC AND PACIFIC IV L.P.
By: TA Associates AP IV L.P., its General Partner
By: TA Associates, Inc., its General Partner
/s/ Jonathan Goldstein
By:__________________________________
TA EXECUTIVES FUND LLC
By: TA Associates, Inc., its Manager
/s/ Jonathan Goldstein
By:____________________________________
<PAGE> 16
TA INVESTORS LLC
By: TA Associates, Inc., its Manager
/s/ Jonathan Goldstein
By:____________________________________
1998 GPH FUND, LLC
/s/ John R. LeClaire
By:___________________________________
GPH A.N. PARTNERS
/s/ John R. LeClaire
By:____________________________________
/s/ Gregory T. Wyler
_______________________________________
Gregory T. Wyler
SERIES A INVESTORS:
/s/ James S. Mulholland, Jr.
_______________________________________
James S. Mulholland, Jr.
/s/ John Trombly
_______________________________________
John Trombly
/s/ James D. Logan
_______________________________________
James D. Logan
/s/ Thomas R. Shepherd
_______________________________________
Thomas R. Shepherd
/s/ William Peabody
_______________________________________
William Peabody
<PAGE> 17
CLAFLIN CAPITAL VI, L.P.
By:/s/ Walter M. Bird, III
____________________________________
General Partner
CLAFLIN CAPITAL VII, L.P.
By:/s/ Walter M. Bird, III
____________________________________
General Partner
MASSACHUSETTS TECHNOLOGY
DEVELOPMENT CORPORATION
By:/s/ Robert Crowley
____________________________________
WINDOW TO WALL STREET, INC.
By:/s/ Louis Page
____________________________________
WINDOW TO WALL STREET,
LIMITED PARTNERSHIP
By:/s/ Louis Page
____________________________________
ROYALTY CAPITAL FUND LIMITED
PARTNERSHIP I
By: Royalty Capital Management, Inc.
Its General Partner
By:/s/ John Trombly
____________________________________
<PAGE> 18
JAMES D. AND KERRY M. LOGAN
FAMILY TRUST U/A/D 12/31/98
By: /s/ Bernice C. Logan
_________________________________
Trustee
THE SHEPHERD VENTURE FUND I, L.P.
By: /s/ Thomas R. Shepherd
_________________________________
Title: Chairman of The Shepherd Group LLC,
Its General Partner
THE SHEPHERD GROUP LLC
By: /s/ Thomas R. Shepherd
_________________________________
Title: Chairman
THE SHEPHERD GROUP LLC AS PROXY FOR:
Jerry Horn William Maxfield
Soren Oberg Edwin Kozlowski
Charles W. Robins as Custodian for Jesse Lee under the
Massachusetts Uniform Transfer to Minors Act
1988 Robert Schiff Lee Irrevocable Trust
Ronald Rossetti Stephen Zachary Lee
Scott Schoen David Lucas
T. Nathanael Shepherd Sean Marsh
Clifton Smith William Watts
Harrison Wellford Richard Perkins
By: /s/ Thomas R. Shepherd
______________________________________
Name: Thomas R. Shepherd
Title: Chairman
<PAGE> 1
EXHIBIT 10.2
EXECUTION COPY
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") dated as of June 18, 1999,
between Blockstackers, Inc., a Michigan corporation ("Seller") and Andover
Advanced Technologies, Inc., a Massachusetts corporation ("Purchaser"). Seller
and Purchaser are sometimes individually or collectively referred to as "Party"
or "Parties."
WHEREAS, Seller desires to sell and transfer to Purchaser, and
Purchaser desires to acquire from Seller, subject to the terms and conditions of
this Agreement, the Acquired Assets (as defined herein).
NOW, THEREFORE, in consideration of the promises and the mutual
covenants set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
"Acquired Assets" means the assets described in EXHIBIT A, and all
proprietary rights therein, including all patent, copyright and trade secret
rights, all patent applications, if any, relating thereto, and all technical
information, documents, data, content, designs, prototypes and software
necessary for the operation of the Website. The Acquired Assets shall not
include the Excluded Assets.
"Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement, dated as of the Closing Date, in a form to be mutually
acceptable to Purchaser and Seller.
"Bill of Sale" means a Bill of Sale, dated as of the Closing Date, in a
form to be mutually acceptable to Purchaser and Seller.
"Closing" and "Closing Date" are defined in Section 3.1.
"Court Order" means any judgement, decree, injunction, order, writ,
award, determination or ruling of any Governmental Entity or arbitrator.
"Excluded Assets" is defined in Section 2.5.
"Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign.
"Governmental Rule" is defined in Section 4.3.
<PAGE> 2
"Intellectual Property" means any and all patents, patent applications,
copyrights, trademarks, applications for trademark registration, service marks,
applications for service mark registration, proprietary information and data,
source code, confidential information and data, trade secrets, all other
recognizable intellectual property rights, inventions, creations, technical
documentation, protectable subject matter, and all claims and rights to the
foregoing.
"Intellectual Property Rights" is defined in Section 4.10(a).
"Lien" means any mortgage, claim, charge, lien, security interest,
easement, right of way, pledge, restriction or other encumbrance.
"Person" means any individual, corporation, partnership, joint venture,
trust, business, association or other entity.
"Retained Liabilities" is defined in Section 2.4.
"Taxes" means all Federal, state, local and foreign taxes, charges,
fees, levies and other assessments, including any income, alternative or add-on
minimum tax, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, withholding, payroll, employment, excise, stamp, property,
environmental or other tax, together with all interest, penalties and additions
with respect thereto.
"Third Party Intellectual Property" means any and all software (in any
form), databases or other Intellectual Property owned by a third party, licensed
to Seller and utilized in the business of the Seller, including any software
used in or included in the use of the Acquired Assets.
"Transferred Contracts" means the contracts listed on Schedule 4.4, all
of which are to be assigned by Seller to Purchaser.
"Website" mean the internet Website known as Slashdot, located at the
URL "www.slashdot.org."
ARTICLE II
PURCHASE AND SALE OF ACQUIRED ASSETS
2.1 PURCHASE AND SALE. Subject to the terms and conditions of this
Agreement, Seller shall sell, assign, transfer, convey and deliver to Purchaser,
effective as of the Closing (as defined below), and Purchaser shall purchase,
acquire and assume, as of the Closing, all of Seller's right, title and interest
in, to and under the Acquired Assets.
2.2 PURCHASE PRICE. Upon the terms and subject to the conditions
contained in this Agreement, and in consideration of the sale, assignment,
transfer and delivery of the Acquired Assets, Purchaser will deliver to the
Company the consideration in the amounts and at the times specified in SCHEDULE
1 attached hereto and incorporated herein (the "Purchase Price").
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<PAGE> 3
2.3 DELIVERY OF ACQUIRED ASSETS. (a) At Closing, Seller shall\
deliver to Purchaser: (i) a master copy of all content and any software (in both
source and object code form) that is included among the Acquired Assets in
electronic form; and (ii) all system and user documentation in Seller's
possession pertaining to the Acquired Assets, including without limitation
design or development specifications. The Seller shall not have any obligation
to deliver the Excluded Assets to the Purchaser.
(b) The Acquired Assets shall specifically include, and Seller
shall deliver to Purchaser at or prior to Closing, a list of all material
required to run the Website. To the extent that such information has not been
reduced to writing, the Seller will make the necessary persons available to
provide such information to Purchaser at or prior to Closing.
(c) Notwithstanding anything to the contrary in this Agreement, to
the extent that the assignment hereunder of any of the Acquired Assets shall
require the consent of any other party (or in the event that any of the same
shall be non-assignable), neither this Agreement nor any action taken pursuant
to its provisions shall constitute an assignment or an agreement to assign if
such assignment or attempted assignment would constitute a breach thereof or
result in the loss or diminution thereof; provided, however, that in each such
case, Seller shall use all reasonable efforts to obtain the consent of such
other party to an assignment to Purchaser. If such consent is not obtained prior
to the Closing, (i) Purchaser shall not be obligated to close the transactions
contemplated hereby unless and until such consent or assignment is obtained,
although Purchaser may waive such requirement (it being agreed that this clause
(i) shall only apply to the agreements by and between the Seller and each of CMP
Media, Inc., Red Hat Software, Inc. and Jon David Katz), (ii) if Purchaser
elects to consummate the Closing despite the failure to obtain such consent or
assignment, Seller shall continue to use all reasonable efforts to obtain such
consent after the Closing and, until such consent is obtained, to cooperate with
Purchaser to provide Purchaser with the same economic benefits as if such
consent or assignment had been obtained.
2.4 ASSUMED OBLIGATIONS. At the Closing, the Purchaser will assume
those liabilities of the Seller (the "Assumed Liabilities") specifically set
forth on EXHIBIT 2.4 attached hereto, as well as those liabilities which arise
from the ownership, use and operation of the Acquired Assets, including the
Website, after the Closing. The Seller expressly understands and agrees that,
except for the Assumed Liabilities and the obligations under this Agreement, the
Purchaser has not agreed to pay, will not be required to assume and will have no
liability or obligation for any liabilities of the Seller, whether known or
unknown and whether existing as of the Closing or arising thereafter, which
liabilities will remain the sole responsibility of, and will be satisfied by,
the Seller (the "Retained Liabilities").
2.5 EXCLUDED ASSETS. Purchaser acknowledges that Seller has other
property which it is not selling or assigning to Purchaser at the Closing (the
"Excluded Assets"). For purposes of this Agreement, the term "Excluded Assets"
means the "Ad-Fu adserver" and all other assets set forth on EXHIBIT D.
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<PAGE> 4
ARTICLE III
THE CLOSING
3.1 CLOSING DATE. The consummation of the sale and transfer of the
Acquired Assets as contemplated in this Agreement shall take place at the
offices of Hutchins, Wheeler & Dittmar, A Professional Corporation located at
101 Federal Street, Boston, MA 02110 on June 28, 1999, at 10:00 a.m., or at such
other time, date and place as shall be fixed by agreement among the Parties (the
"Closing," such date of the Closing being the "Closing Date").
3.2 EXECUTION AND DELIVERY OF DOCUMENTS BY SELLER. At the Closing,
Seller shall execute and deliver to Purchaser: (a) the Bill of Sale; (b) the
Assignment and Assumption Agreement; and (c) such other documents as Purchaser
or its counsel may reasonably request to demonstrate compliance with the
provisions set forth in this Agreement.
3.3 EXECUTION AND DELIVERY OF DOCUMENTS BY PURCHASER. At the
Closing, Purchaser shall: (a) execute and deliver to Seller the Bill of Sale;
(b) the Assignment and Assumption Agreement; (c) deliver the Purchase Price as
provided on SCHEDULE 1 attached hereto; and (d) shall execute and deliver such
other documents as Seller or its counsel may reasonably request to demonstrate
compliance with the provisions set forth in this Agreement
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants, except as set forth on the
Disclosure Schedules hereto (it being agreed that any matter disclosed on any
schedule is deemed disclosed for all schedules for which it is reasonably
apparent that such information is relevant), as of the date hereof to and for
the benefit of Purchaser as follows:
4.1 ORGANIZATION, STANDING AND POWER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan, and has the requisite power and authority to own, operate and transfer
its properties. Seller is qualified or registered to do business and is in good
standing in each state in which property is owned or operated if registration or
qualification is required.
4.2 AUTHORITY AND ENFORCEABILITY OF AGREEMENT. Seller has the full
corporate power and authority to enter into and execute this Agreement and any
ancillary agreements required by this Agreement and to carry out the
transactions contemplated hereby in accordance with its terms. Except for the
Assumed Liabilities, Seller is not a party to any outstanding contracts,
demands, commitments or other agreements or arrangements under which Seller is
or may become obligated to sell, transfer or assign any of the Acquired Assets
to any party other than to Purchaser, nor has Seller made any representations or
entered into any contracts, commitments or other agreements with third parties
which purport to so bind or obligate Purchaser. The execution, delivery and
performance of this Agreement and all of the transactions required hereunder to
be performed by Seller have been duly and validly authorized and approved by all
necessary corporate and stockholder action. This Agreement has been duly and
validly executed and delivered on behalf of Seller by duly authorized officers.
This Agreement constitutes the
-4-
<PAGE> 5
valid and legally binding obligation, subject to general equity principles, of
Seller, enforceable in accordance with its terms, except as the same may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting the
rights of creditors generally.
4.3 NO VIOLATION. Except as set forth on Schedule 4.3, the
execution, delivery and performance of this Agreement by Seller does not, and
the consummation of the transactions contemplated hereby and the compliance with
the terms hereof will not: (a) violate any law, judgement, order, decree,
statute, ordinance, rule or regulation of any governmental subdivision or agency
applicable to it ("Governmental Rule"); (b) conflict with any provision of
Seller's Articles of Incorporation or Bylaws; or (c) require any consent,
approval, order or authorization of, or the registration, declaration or filing
with, any Governmental Entity or other entity or Person.
4.4 TRANSFERRED CONTRACTS. Schedule 4.4 sets forth the contracts
necessary for the operation of the Website as presently operated (the
"Transferred Contracts"). The Seller intends to assign all of the Transferred
Contracts to the Purchaser at the Closing.
4.5 INTENTIONALLY OMITTED.
4.6. INTENTIONALLY OMITTED.
4.7 ABSENCE OF CHANGES. Except as set forth on Schedule 4.7
attached hereto, since December 31, 1998, the Seller has owned and operated the
Acquired Assets in the ordinary course of business and consistent with past
practice. Without limiting the generality of the foregoing, subject to the
foregoing exceptions:
(a) the Seller has not suffered any material loss,
damage, destruction of property or Acquired Assets or other casualty to
property or Acquired Assets (whether or not covered by insurance); and
(b) the Seller has not suffered any loss of officers,
directors, partners, employees, dealers, distributors, independent
contractors, customers or suppliers which had or may reasonably be
expected to result in a material adverse effect on the Seller.
4.8 TITLE TO AND CONDITION OF ACQUIRED ASSETS. Except as set forth
on Schedule 4.8 attached hereto, the Seller has good and marketable title to all
of the Acquired Assets, free and clear of any Lien. The Seller has full right
and power to, and at the Closing will, deliver to the Purchaser good title to
all of the Acquired Assets, free and clear of any Liens, other than those Liens
which are Assumed Liabilities. The tangible Acquired Assets are in good
operating condition and repair, normal wear and tear excepted, and fit for the
intended purposes thereof, and no material maintenance, replacement or repair
has been deferred or neglected.
4.9 LITIGATION. There are no material actions, suits, claims,
demands or proceedings pending or, to the knowledge of Seller, threatened
against or by Seller relating directly to the Acquired Assets in any court or
before any arbitrator, private alternative dispute resolution system or
governmental agency, nor has Seller been charged with, nor, to the knowledge of
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<PAGE> 6
Seller, is it under investigation with respect to any charge concerning any
violation of any provision of any federal, state or other applicable law, rule,
regulation, ordinance, order, decree or governmental restriction with respect to
the Acquired Assets. There are no unsatisfied judgments against Seller or any
consent decrees, writs, restraining orders, or preliminary or permanent
injunctions to which any of the Acquired Assets are subject.
4.10 INTELLECTUAL PROPERTY RIGHTS.
(a) Schedule 4.10 contains a listing of all (i) patents, patent
applications (collectively the "Patents"), (ii) registered copyrights (the
"Copyrights"), (iii) tradenames, registered and common law trademarks, trademark
applications (the "Trademarks"), (iv) service marks, service mark applications
(the "Service Marks"), and (v) computer programs and other computer software,
trade secrets, plans and specifications, inventions, know-how, technology,
proprietary processes and formulae (the "Trade Secrets") used in connection with
the Acquired Assets and necessary for the operation of the Website (the Patents,
Copyrights, Trademarks, Service Marks and Trade Secrets are collectively
referred to as "Intellectual Property Rights"). The Intellectual Property
Rights, together with the Acquired Assets, are sufficient to operate the Website
as presently operated.
(b) Except as set forth on Schedule 4.10, the Seller owns, has the
unrestricted right to use and has sole and exclusive possession of and has good
and valid title to, or sufficient license or other rights to, all of the
Intellectual Property Rights, free and clear of all Liens. Except as set forth
on Schedule 4.10, no Person other than Seller owns, has any rights in, or claims
any ownership of, any of the Intellectual Property Rights. The use of all
Intellectual Property Rights necessary or required for the operation of the
Website as presently conducted does not and will not infringe or violate any
trade secrets, patents, copyrights, tradenames, registered and common law
trademarks, trademark applications, service marks, service mark applications,
computer programs and other computer software, inventions, know-how, technology,
proprietary processes and formulae or other intellectual property rights of any
other person or entity (the "Third Party Intellectual Property Rights"). The
Seller is not using any confidential information or trade secrets of others in
the operation of the Website.
(c) All Intellectual Property Rights which are registered are in
compliance with formal legal requirements (including the payment of filing,
examination and maintenance fees and proofs of working or use), are valid,
enforceable and subsisting and are not subject to any maintenance fees or taxes
or actions falling due within 90 days after the Closing Date. All Patents are
valid, enforceable and subsisting and no Patents have been or are now involved
in any interference, reissue, reexamination, opposition, declaratory judgment or
other invalidating proceeding, nor, to the Seller's knowledge is any such action
threatened with respect to any of the Patents. To the Seller's knowledge, no
application for a potentially infringing patent has been filed and no
potentially infringing patent has been issued. No Trademarks have been or are
involved in any opposition, invalidation or cancellation proceeding and, there
is no basis for the commencement of any such proceeding. The Trademarks are
valid and enforceable, no person holds any infringing or potentially infringing
trademark and, to the Seller' knowledge, no application for any infringing or
potentially infringing trademark has been made.
-6-
<PAGE> 7
(d) A copy of all documentation relating to the Trade Secrets have
been furnished to the Purchaser. Such documentation is current, accurate,
complete in all material respects and in sufficient detail and content to
explain all material aspects of the Trade Secrets and to allow its full and
proper use without reliance on the memory of others. To the Seller's knowledge,
the Trade Secrets are not part of the public domain or literature nor have they
been used, divulged or appropriated for the benefit of any person or entity
other than the Seller or to the detriment of the Seller. The Seller has taken
reasonable measures and precautions to protect the secrecy, confidentiality and
value of the Trade Secrets.
(e) All agreements relating to licenses of Intellectual Property
Rights granted by or to the Seller are set forth on Schedule 4.10. All such
licenses are in good standing, valid and effective in accordance with their
respective terms and there is not, under any of such licenses, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default, or would constitute a basis for a claim of
force majeure or other claim of excusable delay or non-performance), in each
case by either the Seller or to the Seller's knowledge, by any other party
thereto. There are no outstanding and, to the Seller's knowledge, no threatened
disputes or disagreements with respect to any such agreement.
(f) Except as set forth on Schedule 4.10, the Seller is not
obligated to make any payments by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any Intellectual Property Rights or
Third Party Intellectual Property Rights.
(g) Except as set forth on Schedule 4.10, to the Seller's
knowledge, the software and hardware which are a part of the Acquired Assets, as
well as the software, hardware and firmware used by the Seller's suppliers,
vendors and customers is Year 2000 Compliant. The term "Year 2000 Compliant" as
used in the preceding sentence, means that no operational, financial, data
transmission, communication or process is materially affected or materially
interrupted by dates prior to, during or after the Year 2000, and in particular,
without prejudice to the generality of the foregoing that: (i) no value for
current date will cause any interruption in operation; (ii) all manipulation of
time related data will produce the required results for all valid date values
prior to, during and after the Year 2000; (iii) if the date elements in
interfaces and data storage specify the century, they will permit specifying the
correct century either explicitly or by unambiguous algorithms or inferencing
rules; and where any date element is represented without a century, the correct
century shall be unambiguous for all manipulations involving that element; and
(iv) Year 2000 must be recognized as a leap year.
(h) Neither Seller nor, to the Seller's knowledge, any of the
employees of Seller are in violation of any non-competition, non-disclosure or
other similar agreements which would prohibit (i) Seller from entering into or
consummating the transactions contemplated hereby or (ii) any employee of Seller
from becoming an employee of Purchaser.
(i) Except as reflected in any documentation of any Intellectual
Property Rights, neither Seller nor the Website have any submission policy or
privacy policy and Seller makes no representation or warranty regarding the
existence of any such submission policy or privacy policy or Seller's rights in
or to items submitted to the Website.
-7-
<PAGE> 8
4.11 COMPLIANCE WITH LAWS. The assets, properties, business and
operations of the Seller relating to the Website, are and have been in
compliance in all material respects with all laws applicable thereto. Except as
set forth on Schedule 4.5, the Seller does not require the consent of any person
or entity to permit it to operate the Website in the manner in which it is
presently being operated. The Seller possesses all permits, licenses and other
authorizations from all persons or entities necessary to permit it to operate
the Website in the manner in which it presently is conducted.
4.12 BROKERS AND FINDERS. Neither the Seller nor any of the
Seller's directors, officers, shareholders or employees have employed any
broker, finder, or financial advisor or incurred any liability for any brokerage
fee or commission, finder's fee or financial advisory fee, in connection with
the transactions contemplated hereby, nor is there any basis known to the Seller
for any such fee or commission to be claimed by any person or entity.
4.13 ACCURACY OF INFORMATION. No representation or warranty made by
the Seller in this Agreement, the disclosure schedules attached hereto, or in
any agreement, instrument, document, certificate, statement or letter furnished
or to be furnished to the Purchaser at the Closing by or on behalf of the Seller
in connection with any of the transactions contemplated by this Agreement
contains or will contain any untrue statement of material fact or omit or will
omit to state any material fact necessary in order to make the statements herein
or therein not misleading in light of the circumstances in which they are made,
and all of the foregoing completely and correctly present the information
required or purported to be set forth herein or therein.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants as of the date hereof to and
for the benefit of Seller as follows:
5.1 ORGANIZATION, STANDING AND POWER. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Delaware. Purchaser is qualified or registered to do business and is in
good standing in each state in which property is owned or operated if
registration or qualification is required. Purchaser has all requisite corporate
power and authority to carry on its business as now being conducted and to own,
operate and lease its properties and assets. Purchaser is qualified or
registered to do business and is in good corporate standing in each state or
other jurisdiction in which such qualification or registration is required.
5.2 CAPITALIZATION. All of the issued and outstanding shares of
capital stock of Purchaser are duly authorized, validly issued, and are without,
and were not issued in violation of, preemptive rights, and are owned free and
clear of any lien, security interest, pledge, charge, claim, option, right to
acquire, restriction on transfer or encumbrance of any nature whatsoever. There
are no outstanding rights to purchase or acquire any capital stock of the
Purchaser or any securities convertible into or exchangeable for such capital
stock and there are no contracts,
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commitments, understandings, arrangements or restrictions by which the Purchaser
is bound to issue or to acquire any additional securities or other rights to
purchase or acquire any capital stock of the Purchaser.
5.3 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on the
Financial Statements, other than in the ordinary course of business, the
Purchaser does not have any debt, liability or obligation, known or unknown,
secured or unsecured, whether accrued, absolute, contingent, unasserted or
otherwise, of any nature whatsoever, including without limitation any foreign or
domestic tax liabilities or deferred tax liabilities incurred in respect of or
measured by the Purchaser's income, or any other debts, liabilities or
obligations relating to or arising out of any act, omission, transaction,
circumstance, sale of goods or services, state of facts or other condition which
occurred or existed on or before the date hereof, whether or not known, due or
payable.
5.4 ABSENCE OF CHANGES. Since December 31, 1998:
(a) the Purchaser has not suffered any material loss,
damage, destruction of property or other casualty to property (whether
or not covered by insurance); and
(b) the Purchaser has not suffered any loss of officers,
directors, partners, employees, dealers, distributors, independent
contractors, customers or suppliers which had or may reasonably be
expected to result in a material adverse effect on the Purchaser.
5.5 AUTHORITY. Purchaser has the corporate power and authority to
execute this Agreement and the ancillary agreements to which it is or will be a
party and to consummate the transactions contemplated thereby and by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and thereby have been (or by Closing will
be) duly authorized by all necessary corporate action on the part of Purchaser.
5.6 NO VIOLATION. The execution, delivery and performance by
Purchaser of this Agreement and the consummation of the transaction contemplated
by this Agreement do not: (a) violate any law, judgement, order, decree,
statute, ordinance, rule or regulation applicable to it; (b) conflict with any
provision of Purchaser's organizational documents; (c) conflict in any material
respect with any contract or permit to which Purchaser is a party.
5.7 CONSENTS AND APPROVALS. No Consent of any individual or entity
is required in connection with the execution, delivery or performance of this
Agreement by the Purchaser or the consummation by the Purchaser of the
transactions contemplated herein.
5.8 LITIGATION. There are no material actions, suits, claims,
demands or proceedings pending or, to the knowledge of Purchaser, threatened
against or by Purchaser in any court or before any arbitrator, private
alternative dispute resolution system or governmental agency, nor has Purchaser
been charged with, nor, to the knowledge of Purchaser, is it under investigation
with respect to any material charge concerning any violation of any provision of
any federal, state or other applicable law, rule, regulation, ordinance, order,
decree or governmental
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restriction. There are no unsatisfied judgments against Purchaser or any consent
decrees, writs, restraining orders, or preliminary or permanent injunctions to
which Purchaser is subject.
5.9 COMPLIANCE WITH LAWS. The assets, properties, business and
operations of the Purchaser, are and have been in compliance in all material
respects with all laws applicable to the Purchaser's assets, properties,
business and operations. The Purchaser does not require the consent of any
person or entity to permit it to operate in the manner in which it is presently
being operated. The Purchaser possesses all permits, licenses and other
authorizations from all persons or entities necessary to permit it to operate
its business in the manner in which it presently is conducted and the
consummation of the transactions contemplated by this Agreement will not prevent
the Purchaser from being able to continue to use such permits and operating
rights.
5.10 BROKERS AND FINDERS. Neither the Purchaser nor any of the
Purchaser's directors, officers, shareholders or employees have employed any
broker, finder, or financial advisor or incurred any liability for any brokerage
fee or commission, finder's fee or financial advisory fee, in connection with
the transactions contemplated hereby, nor is there any basis known to the
Purchaser for any such fee or commission to be claimed by any person or entity.
5.11 FINANCIAL STATEMENTS. The Purchaser has provided the Seller
with true and complete copies of audited balance sheets of the Purchaser as of
December 31, 1997 and 1998, and the related statements of operations (or income
or loss), changes in cash flow for each of the respective fiscal years then
ended, and the report thereon of Arthur Andersen, LLP, independent certified
public accountants. Except as disclosed therein, the foregoing financial
statements (i) are in accordance with the books and records of the Purchaser and
have been prepared in conformity with generally accepted accounting principals
applied on a consistent basis ("GAAP"); and (ii) fairly present the financial
position of the Purchaser as of the respective dates thereof, and the results of
operations (or income or loss) and changes in cash flow for the periods then
ended, all in accordance with GAAP.
5.12 ACCURACY OF INFORMATION. No representation or warranty made by
the Purchaser in this Agreement, the disclosure schedules attached hereto, or in
any agreement, instrument, document, certificate, statement or letter furnished
or to be furnished to the Purchaser at the Closing by or on behalf of the
Purchaser in connection with any of the transactions contemplated by this
Agreement contains or will contain any untrue statement of material fact or omit
or will omit to state any material fact necessary in order to make the
statements herein or therein not misleading in light of the circumstances in
which they are made, and all of the foregoing completely and correctly present
the information required or purported to be set forth herein or therein.
ARTICLE VI
COVENANTS
6.1 COVENANTS OF THE SELLER. The Seller shall keep, perform and
fully discharge the following covenants and agreements:
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(a) INTERIM CONDUCT OF BUSINESS. From the date hereof
until the Closing, the Seller shall operate its business as a going concern
consistent with prior practice and in the ordinary course of business.
(b) ACCESS. From the date hereof until the Closing, the
Seller shall, upon reasonable notice, give Purchaser and its representatives
full and free access to all properties, assets, books, contracts, commitments
and records of the Seller relating to the Website during reasonable business
hours and shall promptly furnish Purchaser with all financial and operating data
and other information as to the history, ownership, business, operations and
properties of the Website as the Purchaser may from time to time reasonably
request.
(c) NO SOLICITATION, CONFIDENTIALITY, ETC. Prior to the
termination of this Agreement pursuant to Article XI hereof, the Seller shall
not solicit or negotiate with respect to any inquiries or proposals relating to
(x) the possible direct or indirect acquisition of any shares of the capital
stock of the Seller or of all or a portion of the Acquired Assets or its
business or (y) any merger, consolidation, joint venture or business combination
with the Seller. Prior to the termination of this Agreement pursuant to Article
XI hereof, neither Purchaser nor Seller will discuss or disclose either the
existence of this Agreement or other confidential information pertaining to the
other party with any Person (except as may be required by law or except as may
be required in connection with the transactions contemplated by this Agreement
to officers, directors, employees and agents of the other party or any of its
stockholders) without the prior written approval of the other party.
(d) ACCURACY OF REPRESENTATIONS AND WARRANTIES. Without
the prior written consent of Purchaser, the Seller will not take any action from
the date hereof to the Closing Date that would cause any representation or
warranty of the Seller contained in this Agreement to become untrue or cause the
breach of any agreement hereof or covenant contained herein. The Seller will
promptly bring to the attention of Purchaser any facts which come to its
attention that would cause any of the representations and warranties of the
Seller to be untrue in any material respect.
6.2 COVENANTS OF THE PURCHASER.
(a) VALIDITY OF SHARES. Purchaser will take all necessary
actions to permit it to make the Stock Payments required pursuant to SCHEDULE 1.
The shares of common stock to be issued pursuant to SCHEDULE 1 will, when
issued, be validly issued, fully paid and nonassessable, free and clear of any
Lien and no shareholder of Purchaser has or will have any rights of subscription
or purchase in respect thereof.
(b) INTERIM CONDUCT OF BUSINESS. From the date hereof
until the Closing, the Purchaser shall operate its business as a going concern
consistent with prior practice and in the ordinary course of business.
(c) ACCURACY OF REPRESENTATIONS AND WARRANTIES. Without
the prior written consent of Seller, the Purchaser will not take any action from
the date hereof to the Closing Date that would cause any representation or
warranty of the Purchaser contained in this Agreement to
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become untrue or cause the breach of any agreement hereof or covenant contained
herein. The Purchaser will promptly bring to the attention of Seller any facts
which come to its attention that would cause any of the representations and
warranties of the Purchaser to be untrue or materially misleading in any
respect.
(d) INITIAL PUBLIC OFFERING. It is the present intention
of the Purchaser to pursue an initial public offering of its common stock (the
"IPO") within the next 12 months and shall take all actions reasonable in light
of the facts and circumstances to pursue such public offering.
(e) BOARD OF DIRECTORS. Following the Closing and until
the consummation of the IPO, in the event that either Rob Malda, Jeff Bates or
such other designee of the Seller as is reasonably acceptable to the Purchaser
is no longer serving on the Purchaser's Board of Directors (unless such failure
to serve is at the direction of the Seller), the Milestones set forth on
Schedule 1 attached hereto shall be deemed to have been achieved.
6.3 NON-COMPETITION AND NON-SOLICITATION.
(a) For a period of five (5) years from the Closing Date,
the Seller will not anywhere in the world engage or participate in, directly or
indirectly, as principal, agent, employee, employer, consultant, investor or
partner, or assist in the management of, or own any stock or any other ownership
interest in, any business which is Competitive (as defined below); provided that
the ownership of not more than 5% of the outstanding securities of any class
listed on an exchange or regularly traded in the over-the-counter market shall
not constitute a violation of this Section 6.3(a). For purposes of this
Agreement, a business shall be considered "Competitive" only if it involves a
real-time or contemporaneous news website. The parties agree that Seller is
specifically permitted to continue to develop "DJ Hernandez," "Ad-Fu" and
"Everything" which activities the Purchaser agrees are not Competitive.
(b) For a period of two (2) years from the Closing Date
(the "Non-Solicitation Period"), Seller will not solicit, or attempt to solicit,
any officer, director, consultant or employee of the Purchaser or any of its
subsidiaries or affiliates engaged in the operations relating to the Website to
leave his or her engagement with the Purchaser or such subsidiary or affiliate
nor will it call upon, solicit, divert or attempt to solicit or divert from the
Purchaser or any of its affiliates or subsidiaries any of their customers or
suppliers, provided, however, that nothing in this Section 6.3(b) shall be
deemed to prohibit the Seller from calling upon or soliciting a customer or
supplier during the Non-Solicitation Period if such action relates solely to a
business which is not Competitive with the Purchaser; and provided, further,
however, that nothing in this Section 6.3(b) shall be deemed to prohibit the
Seller from placing advertisements in newspapers or other media of general
circulation advertising employment opportunities.
(c) It is specifically understood and agreed that any
breach of the provisions of this Section 6.3 is likely to result in irreparable
injury to the Purchaser and that the remedy at law alone will be an inadequate
remedy for such breach, and that in addition to any other remedy it may have,
the Purchaser shall be entitled to enforce the specific performance of this
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Agreement by the Seller and to seek both temporary and permanent injunctive
relief (to the extent permitted by law) without the necessity of proving actual
damages.
6.4 AD-FU ADSERVER LICENSE. Seller hereby grants to Purchaser a
perpetual, fully paid up, unlimited use license for the Ad-Fu adserver.
Purchaser hereby agrees that it will pay for the charges related to bandwidth
requirements for the Ad-Fu adserver.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER. The
obligation of the Purchaser to consummate the purchase of the Acquired Assets
under this Agreement is subject to the fulfillment, prior to or at the Closing,
of each of the following conditions:
(a) All representations and warranties of the Seller to
the Purchaser contained in this Agreement or in any schedule, certificate, or
document delivered by the Seller to the Purchaser pursuant to the provisions
hereof shall be true and correct in all material respects as of the time of the
Closing with the same effect as though made at and as of that time; and the
Seller shall have delivered to Purchaser a certificate executed on behalf of the
Seller dated the Closing Date to such effect;
(b) The Seller shall have performed and complied in all
material respect with all obligations and covenants required by this Agreement
to be performed or complied with by the Seller prior to or at the Closing;
(c) On the Closing Date, no action is threatened or
pending challenging or otherwise relating to the transactions provided for
herein or which may affect the business of the Seller in a manner which is
materially adverse;
(d) The Seller shall have delivered to Purchaser:
(i) a certificate of the Secretary of the Seller
certifying (x) the incumbency and genuineness of signatures of all
officers of the Seller executing this Agreement, any document delivered
by the Seller at the Closing and any other document, instrument or
agreement executed in connection herewith and (y) the truth and
correctness of resolutions of the Seller and the Seller's stockholders,
if applicable, authorizing the entry by the Seller into this Agreement
and the transactions contemplated hereby; and
(ii) a certificate of corporate good standing and
legal existence of the Seller as of a recent date from the Secretary of
State of the State of Michigan.
(e) The Seller shall have received all consents,
approvals, assignments, licenses, permits, orders and other authorizations
necessary to consummate the transactions contemplated by this Agreement
including the sale of the Acquired Assets, and the transfer of the Transferred
Contracts, unless waived by Purchaser.
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(f) Each of Jeffrey Bates and Robert Malda shall have
executed and delivered to Purchaser an employment agreement in substantially the
form of EXHIBIT E attached hereto (the "Employment Agreements").
7.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER. The
obligation of the Seller to consummate the sale of Acquired Assets under this
Agreement is subject to the fulfillment, prior to or at the Closing, of each of
the following conditions (any or all of which may be waived by the Seller in
writing);
(a) All representations and warranties of the Purchaser
to the Seller contained in this Agreement or in any schedule, certificate, or
document delivered by the Purchaser to the Seller pursuant to the provisions
hereof shall be true and correct in all material respects at and as of the time
of the Closing with the same effect as though those representations and
warranties had been made at and as of that time; and the Purchaser shall have
delivered to Seller a certificate executed on behalf of the Purchaser dated the
Closing Date to such effect;
(b) The Purchaser shall have performed and complied in
all material respects with all obligations and covenants required by this
Agreement to be performed or complied with by Purchaser prior to or at the
Closing;
(c) On the Closing Date, no action is threatened or
pending challenging or otherwise relating to the transactions provided for
herein or which may affect the business of the Purchaser in a manner which is
materially adverse;
(d) The Purchaser shall have delivered to Seller:
(i) a certificate of the Clerk or Assistant
Clerk of the Purchaser certifying (x) the incumbency and genuineness of
signatures of all officers of the Purchaser executing this Agreement,
any document delivered by the Purchaser at the Closing and any other
document, instrument or agreement executed in connection herewith and
(y) the truth and correctness of resolutions of the Purchaser
authorizing the entry by the Purchaser into this Agreement and the
transactions contemplated hereby; and
(ii) a certificate of corporate good standing and
legal existence of the Purchaser as of a recent date from the Secretary
of State of the Commonwealth of Massachusetts;
(e) The Purchaser shall have executed and delivered to
each of Jeffrey Bates and Robert Malda an Employment Agreement;
(f) The Board of Directors and shareholders of Purchaser
shall have approved the expansion of the Board of Directors by one (1) member
and Rob Malda shall have been elected as the person to fill the vacancy so
created; and
(g) The Purchase Price shall be paid to the Seller as set
forth on SCHEDULE 1.
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ARTICLE VIII
MUTUAL COVENANTS
8.1 FURTHER ASSURANCES. Each Party agrees, at any time and from
time to time, upon the request of the other Party, to do, execute, acknowledge
and deliver, or to cause to be done, executed, acknowledged and delivered, all
such further acts, assignments, transfers and conveyances as may be reasonably
required, without enlarging or extending any obligation or liability of any
Party beyond what is otherwise contemplated by this Agreement, to facilitate the
transactions contemplated by this Agreement.
8.2 EXPENSES. All expenses incurred by Purchaser or Seller in
connection with the negotiation, authorization, preparation, execution and
performance of this Agreement, including, without limitation, all fees and
expenses of agents, representatives, counsel and accountants for Purchaser or
Seller as applicable, shall be paid by the Party incurring such expense.
ARTICLE IX
TAX MATTERS
9.1 GENERAL. Notwithstanding anything to the contrary in this
Agreement, Purchaser shall pay any and all sales, use, transfer, documentary,
registration, and similar Taxes relating to the Acquired Assets that arise by
reason of the transactions contemplated by this Agreement. Seller shall be
responsible for and pay all income tax liability attributable to it as a result
of the sale of the Acquired Assets. Each party shall be responsible for filing
its own tax returns of whatever sort deemed appropriate and necessary by the
filing party.
9.2 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated among the Acquired Assets as set forth in Schedule 1 attached hereto.
The Purchaser and Seller shall be bound by such allocation for all purposes and
to account for and report the purchase and sale contemplated hereby for all
financial, accounting and tax purposes in accordance with such allocation.
ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION OF PURCHASER. Seller agrees to indemnify,
defend and hold harmless Purchaser and its officers, directors, employees and
agents from and against any and all losses, damages of any kind, liabilities,
costs, and expenses, including without limitation all fines, penalties, amounts
paid in settlement, and reasonable attorneys' fees (collectively, "Losses")
incurred or sustained by Purchaser as a result of:
(a) any breach by Seller of any of its representations or
warranties in this Agreement;
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(b) any breach or nonfulfillment or non-performance,
partial or total, of any covenant or any agreement of Seller contained in this
Agreement or in any ancillary agreement delivered to Purchaser by or on behalf
of Seller pursuant to the express provisions of this Agreement;
(c) except for the Assumed Liabilities, all obligations
and liabilities of Seller, whether direct or indirect, fixed or contingent,
known or unknown; or
(d) except for the Assumed Liabilities, any claims
arising from the Seller's use of the Acquired Assets prior to the Closing Date.
10.2 INDEMNIFICATION OF SELLER. Purchaser agrees to indemnify,
defend and hold harmless Seller, its affiliates and their respective officers,
directors, employees and agents from and against any and all losses, damages of
any kind, liabilities, costs, and expenses, including without limitation all
fines, penalties, amounts paid in settlement and reasonable attorneys' fees
(collectively, "Losses") incurred or sustained by Seller as a result of:
(a) any breach by Purchaser of any of its representations
or warranties made in this Agreement;
(b) any breach or nonfulfillment or non-performance,
partial or total, of any covenant or any agreement of Purchaser contained in
this Agreement or in any ancillary agreement delivered to Seller by or on behalf
of Purchaser pursuant to the express provisions of this Agreement;
(c) the failure of Purchaser to perform any of the
agreements or undertakings made by Purchaser in this Agreement; or
(d) any claims arising from Purchaser's use of the
Acquired Assets after Closing Date.
10.3 LIMITATIONS ON INDEMNIFICATION. Rights to indemnification
hereunder are subject to the following limitations:
(a) If Purchaser has knowledge of facts which would form
the basis for a claim for indemnification as described in Section 10.1, and
closes the transaction contemplated hereto, Purchaser shall be deemed to have
waived Purchaser's right to assert any claim for indemnification with respect to
such matter after the Closing.
(b) If Seller has knowledge of facts which would form the
basis for a claim for indemnification as described in Section 10.2 and closes
the transaction contemplated hereto, Seller shall be deemed to have waived
Seller's right to assert any claim for indemnification with respect to such
matter after the Closing.
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(c) Any claim for indemnification hereunder which is not
asserted by notice given as herein provided which identifies a breach and the
underlying facts and actual or reasonably estimated Losses related thereto in
the time periods set forth in Section 10.5 hereof may not be pursued and shall
be deemed irrevocably waived after such time.
(d) The maximum liability of Seller for Purchaser's
claims for indemnification under this Agreement shall be limited to the
aggregate purchase price received by Seller. Nothing contained herein shall
limit the Purchaser's rights to pursue an action in, or recover damages for.
fraud.
(e) Neither party shall be entitled to indemnification
hereunder with respect to any claim for indemnification unless the aggregate
amount of all Losses with respect to such claim or claims exceeds $25,000, in
which event the party seeking indemnification shall be entitled to receive only
those Losses in excess of $25,000.
10.4 COOPERATION. Notwithstanding anything to the contrary
contained in this Article X, the parties shall cooperate with each other to
maximize the availability of insurance coverage for claims or actions by third
parties which may be subject to indemnification pursuant to this Article X, and
if any insurance carrier for any Party agrees to defend such claim or action,
such defense shall be tendered to such insurance carrier and the rights of the
Parties between themselves regarding the assumption and control of such defense
shall be subject to the reasonable requirements of such insurance carrier.
10.5 SURVIVAL. The representations and warranties of the parties
contained in this Agreement or in any writing delivered pursuant to the express
provisions of this Agreement shall survive any investigation heretofore or
hereafter made by Purchaser or Seller and the consummation of the transactions
contemplated herein and shall continue in full force and effect for the period
(a "Survival Period") beginning on the Closing Date and continuing until the
expiration of eighteen (18) months thereafter; provided, however, that the
Survival Period shall be extended automatically to include any time period
necessary to resolve a specific claim for indemnification which was made before
expiration of the Survival Period but not resolved prior to its expiration; and
provided, further, that any such extension shall apply as to claims asserted and
not so resolved within the Survival Period; provided further, that the
representations in Sections 4.1, 4.2, 4.8, 5.1 and 5.5 shall continue without
limitation.
ARTICLE XI
TERMINATION
11.1 TERMINATION OF AGREEMENT. This Agreement and the transactions
contemplated hereby may (at the option of the party having the right to do so)
be terminated at any time on or prior to the Closing Date:
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(a) MUTUAL CONSENT. By mutual written consent of
Purchaser and the Seller;
(b) COURT ORDER. By Purchaser or the Seller if any court
of competent jurisdiction shall have issued an order pursuant to the request of
a third party restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement;
(c) FAILURE TO CLOSE BY JULY 15, 1999. By Purchaser or
the Seller if the transactions contemplated hereby shall not have been
consummated on or before July 15, 1999, provided, however, that such right to
terminate this Agreement shall not be available to any party whose failure to
fulfill any obligation of this Agreement has been the cause of, or resulted in,
the failure of the transactions contemplated hereby to be consummated on or
before such date.
(d) BREACH OF REPRESENTATION OR WARRANTY. (i) By
Purchaser, if Seller has breached in any material respect any representation or
warranty contained in Article IV or any covenant or undertaking contained
herein, and any such breach has not been cured by the close of business on the
10th day after the date on which Seller has been notified in writing of such
breach, provided that if the Seller informs the Purchaser in writing within such
10 day period that the Seller is working diligently and in good faith to cure
such breach but that such breach cannot be cured within such 10 day period, the
cure period may be extended as necessary to cure the breach.
(ii) By Seller if Purchaser has breached in any
material respect any representation or warranty contained in Article V or any
covenant or undertaking contained herein, and any such breach has not been cured
by the close of business on the 10th day after the date on which Purchaser has
been notified in writing of such breach, provided that if Purchaser informs
Seller in writing within such 10 day period that Purchaser is working diligently
and in good faith to cure such breach but that such breach cannot be cured
within such 10 day period, the cure period may be extended as necessary to cure
the breach.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 AMENDMENT AND WAIVER. This Agreement may be amended, modified
and supplemented only by written agreement of each of the Parties hereto. By an
instrument in writing, either Party may waive compliance by the other Party with
any term or provision of this Agreement that such other Party was or is
obligated to comply with or perform.
12.2 NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or mailed, first class
certified mail with postage paid:
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If to Seller:
Blockstackers, Inc.
13268 Riley Street
Holland, MI 49424
Attn: Jeffrey Bates
Facsimile: (708) 575-4227
with a copy to:
Baker & Hostetler LLP
3200 National City Center
Cleveland, OH 44114
Attn: Catherine M. Kilbane, Esq.
Facsimile: (216) 696-0740
If to Purchaser:
Andover Advanced Technologies, Inc.
50 Nagog Office Park
Acton, MA 01720
Attn: Bruce Twickler, President
Facsimile: (978) 635-5326
with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attn: David P. Kreisler, Esq.
Facsimile: (617) 951-6740
or to such other person or address as any Party hereto shall furnish to the
other Parties hereto in writing pursuant to this Section 12.2.
12.3 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by either party hereto without the
prior written consent of the other; provided however, that the Purchaser may
assign its rights and obligations under this Agreement to any person who
acquires all or substantially all of the assets, stock or business of the
Purchaser (whether by sale, merger or otherwise) without the consent of Seller;
provided further however that such assignee assumes all obligations of the
Purchaser hereunder. Following the Closing, the Seller may assign its rights
hereunder without the Purchaser's prior written consent.
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12.4 GOVERNING LAW. This Agreement shall be governed by the law of
the Commonwealth of Massachusetts regardless of the laws that might otherwise
govern applicable conflicts of laws.
12.5 COUNTERPARTS; FACSIMILE. This Agreement may be signed and
delivered either originally or by facsimile, and in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12.6 HEADINGS. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.7 INTERPRETATION. When a reference is made in this Agreement to
a Section or Exhibit, such reference shall be to a Section or Exhibit of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"included," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the phrase "without limitation." When used in this
Agreement, the word "primarily" shall be deemed to be followed by the phrase "or
exclusively". All accounting terms not defined in this Agreement shall have the
meanings determined by GAAP.
12.8 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding of the Parties hereto in respect of the subject matter
contained herein. This Agreement supersedes all prior agreements and
understandings among the Parties hereto with respect to such subject matter.
12.9 THIRD PARTIES. Except for the indemnity provisions of
Article X, which are also for the benefit of the Parties identified therein,
nothing in this Agreement, whether express or implied, is intended to: (a)
confer any rights or remedies on any person other than the Seller and Purchaser,
and their respective successors and permitted assignees; (b) relieve or
discharge the obligation or liability of any third party; or (c) give any third
party any right of subrogation or action against Seller or Purchaser.
12.10 PUBLICITY OF TRANSACTION. So long as this Agreement is in
effect, neither Seller nor Purchaser shall issue or cause the publication of any
press release or other public announcement with respect to the transactions
contemplated by this Agreement, including any statement as to the terms and
conditions of this Agreement, without the prior written consent of the other
Party, except that such prior approval shall not be required as to any
disclosure required under law nor shall this prohibition limit Purchaser from
normal and customary advertisement of its business. In the event that any
disclosure is required by law, the disclosing party will notify the other party
of the required disclosure at least five (5) business days prior to disclosure
in
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order to give the other party an opportunity to seek protective orders or other
lawful preventive or restrictive measures.
12.11 EXHIBITS. All Exhibits referred to herein are intended to be
and hereby are specifically made a part of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Parties, acting through their duly authorized
representative, have executed this Agreement as of the day and year first above
written.
ANDOVER ADVANCED TECHNOLOGIES, INC.
By: /s/ Bruce A. Twickler
-----------------------------
Title: President
BLOCKSTACKERS, INC.
By: /s/ Robert Malda
-----------------------------
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<PAGE> 23
EXHIBIT A
Acquired Assets
The assets necessary for the operation of the website known as
"Slashdot," located at the URL "www.slashdot.org" (the "Website"), including the
URL www.slashdot.org., all trademarks attached to such URL, all content
including text and graphics (to the extent Seller has the rights to the same),
all design elements including look and feel, all advertising systems and
advertising information including banners and site statistics, all software code
(including source and object code) including HTML code, Java scripts, CGI
scripts and links (to the extent Seller has the rights to the same), and all
brands and commercial identification including logos, trademarks, service marks
and trade names. All rights in income related to the Website, including without
limitation advertising revenues. Notwithstanding the foregoing, the Acquired
Assets do not include the Excluded Assets.
The domain name "slashdot.org" and the trademark or service mark
"SLASHDOT" and all rights and interests of Seller therein, together with the
goodwill of all business symbolized by such mark.
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<PAGE> 24
EXHIBIT 2.4
ASSUMED LIABILITIES
1. Transferred Contracts
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<PAGE> 25
SCHEDULE 1
CONSIDERATION
1. CASH CONSIDERATION
(a) At Closing, Purchaser shall pay to Seller a cash
payment of $1,500,000. In addition, following Closing, the Purchaser shall pay
to Seller an additional aggregate amount equal to $3,500,000 on the following
schedule: (i) $1,500,000 on the date that is seven (7) months after the Closing;
(ii) $1,000,000 on the date that is twelve (12) months after the Closing; and
(iii) $1,000,000 on the date that is twenty-four (24) months after the Closing.
All such payments shall be made by wire transfer of immediately available funds.
(b) If, as of the time of the payments described in
clauses (i), (ii) and (iii) of Section 1(a) above, the employment of either Jeff
Bates or Rob Malda with the Purchaser has been terminated "for Cause" (as that
term is defined in the Employment Agreements between the Purchaser and each such
individual) or voluntarily by the individual, such payments shall be reduced as
follows:
(i) if the employment of Mr. Bates has so ceased, the
payments described in Section 1(a)(i), (ii) or (iii),
as the case may be shall be decreased by 25%.
(ii) if the employment of Mr. Malda has so ceased, the
payments described in Section 1(a)(i), (ii) or (iii),
as the case may be shall be decreased by 75%.
In the event that the employment of both Mr. Bates and Mr. Malda has
been terminated for Cause, or voluntarily by the individual, the Purchaser shall
have no obligation to make any of the remaining payments described in clauses
(i), (ii) or (iii) of Section 1(a) above. In all other instances, including the
death of either Mr. Bates or Mr. Malda, the payments set forth above shall be
made.
(c) On the 1st day of each month following the Closing
until the date which is twelve (12) months following the Closing, Purchaser
shall pay to Seller an amount equal to 50% of the total rent due for the
Seller's office space.
2. STOCK CONSIDERATION.
(a) In the event that the Purchaser completes an initial
public offering of its common stock (the "Offering"), in addition to the
consideration set forth above, the Purchaser shall issue shares of its common
stock to the Seller with an aggregate value as set forth below (each, a "Stock
Payment"). The number of shares of common stock to be issued to the Seller in
Stock Payments shall be calculated using the price per share initially offered
to the public in the Offering:
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AGGREGATE VALUE TIMING
- --------------- ------
$2,000,000 Upon closing of Offering
$1,000,000 Seven (7) Months after closing of Offering
$ 666,667 Twelve (12) Months after closing of Offering
$1,333,333 Twelve (12) Months after closing of Offering;
provided that the Milestones (as defined below) are
achieved
$ 666,667 Twenty-four (24) Months after closing of Offering
$1,333,333 Twenty-four (24) Months after closing of Offering;
provided that the Milestones are achieved
(b) If, as of the time of the Stock Payments described in
Section 2(a) above, the employment of either Jeff Bates or Rob Malda with the
Purchaser has been terminated "for Cause" (as that term is defined in the
Employment Agreements between the Purchaser and each such individual) or
voluntarily by the individual, the remaining Stock Payments shall be reduced as
follows:
(i) if the employment of Mr. Bates has so ceased, the
Stock Payments described in Section 2(a) shall be
decreased by 25%.
(ii) if the employment of Mr. Malda has so ceased, the
Stock Payments described in Section 2(a) shall be
decreased by 75%.
In the event that the employment of both Mr. Bates and Mr. Malda has
been terminated for Cause, or voluntarily by the individual, the Purchaser shall
have no obligation to make any of the remaining Stock Payments. In all other
instances, including the death of either Mr. Bates or Mr. Malda, the Stock
Payments set forth above shall be made.
(c) MILESTONES. The Stock Payments are subject to the
achievement of the following (the "Milestones"):
(i) Forty percent (40%) of each Stock Payment
subject to the achievement of Milestones
shall be due and payable provided that both
Mr. Bates and Mr. Malda remain employed by
the Purchaser; provided however that unless
both Mr. Bates and Mr. Malda have been
terminated for Cause, or voluntarily by the
individual, this Milestone shall be deemed
to have been achieved.
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<PAGE> 27
(ii) An additional thirty percent (30%) of each
Stock Payment subject to the achievement of
Milestones shall become due and payable in
the event that the average number of stories
posted on the Website are maintained at
least at the level as of Closing.
(iii) An additional thirty percent (30%) of each
Stock Payment subject to the achievement of
Milestones shall become due and payable in
the event that (A) in the first year after
Closing, the One Year Amount (as defined
below) is 150% of the Base Amount (as
defined below) and (b) in the second year
after Closing, the Two Year Amount is 225%
of the Base Amount. For purposes hereof, the
number of page views to the Website in the
two weeks preceding the Closing and the two
weeks after the Closing shall be the
"Monthly Base Amount." The number of page
views to the Website for the one year period
after the Closing divided by 12 shall be the
"One Year Amount." The number of page views
to the Website for the two year period after
the Closing divided by 24 shall be the "Two
Year Amount."
If traffic during the applicable period
increases by less than the fifty percent
(50%), the applicable Stock Payment shall be
reduced by 2% for each 1% by which the
target is missed. This Milestone will not be
achieved if the traffic growth is less than
twenty-five percent (25%) in any applicable
period.
(c) Purchaser will take all good faith efforts (including
commitment of reasonable resources) to permit the Website to achieve the
foregoing Milestones. Messrs. Bates and Malda will retain creative control over
the vision, look and feel of the Website ("Creative Control"). Creative Control
shall include editorial control over the content of the Website and full
discretion in making decisions regarding the content, vision, look and feel of
the Website. Notwithstanding the foregoing, if the Purchaser determines to
change its strategic focus or otherwise alter the Website or remove Creative
Control from Messrs. Bates and Malda, all of the Milestones in Section 2(b) will
be deemed to have been achieved. In addition, Messrs. Malda and Bates shall have
the authority to hire, on behalf of the Purchaser, the following individuals at
the following annual salaries: John Pater, $60,000; Justin Maurer, $20,000;
Clifton Woods, $20,000; and Jesse Schrieve, $20,000.
3. ALTERNATE CASH CONSIDERATION. In the event that an Offering
does not occur within eighteen (18) months from the Closing, the Seller shall
have a one time option which must be exercised in writing not less than eighteen
(18) months after the Closing and not more than twenty-one (21) months after the
Closing, to forgo the consideration set forth in Section 2 above and to receive
in lieu thereof the following cash payments: (i) $1,500,000 paid on the date
which
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is 5 days following the receipt by the Purchaser of the Seller's election
hereunder; (ii) $1,500,000 to be paid on the date which is twenty-four (24)
months after the Closing; and (iii) $2,000,000 on the date which is thirty
months after the Closing. In all cases, forty percent (40%) of the foregoing
cash payments shall be made provided that Jeff Bates and Rob Malda remain
employed by the Purchaser and the remaining sixty percent (60%) of such payment
shall be subject to the Milestones in Section 2(b) above.
4. PURCHASE PRICE ALLOCATION.
To be agreed upon by the parties prior to the Closing.
5. The parties agree that all payments hereunder shall be deemed
purchase price payable for the purchase of the Acquired Assets and not
compensation to any shareholder of the Seller.
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<PAGE> 1
Exhibit 10.3
EXECUTION COPY
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") dated as of June 18, 1999,
between Eclipse Digital Imaging, Inc., a South Dakota corporation ("Seller") and
Andover Advanced Technologies, Inc., a Massachusetts corporation ("Purchaser").
Seller and Purchaser are sometimes individually or collectively referred to as
"Party" or "Parties."
WHEREAS, Seller desires to sell and transfer to Purchaser, and Purchaser
desires to acquire from Seller, subject to the terms and conditions of this
Agreement, substantially all of the assets of the Seller's business (the
"Business").
NOW, THEREFORE, in consideration of the promises and the mutual covenants
set forth in this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
"Assumption Agreement" means the Assumption Agreement dated as of the
Closing Date, in the form of EXHIBIT B.
"Bill of Sale" means the Bill of Sale of Seller, dated as of the Closing
Date, in the form of EXHIBIT C.
"Closing" and "Closing Date" are defined in Section 3.1.
"Court Order" means any judgement, decree, injunction, order, writ, award,
determination or ruling of any Governmental Entity or arbitrator.
"Excluded Assets" is defined in Section 2.5.
"Governmental Entity" means any court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign.
"Governmental Rule" is defined in Section 4.3.
"Intellectual Property" means any and all art work and animations, patents,
patent applications, copyrights, trademarks, applications for trademark
registration, service marks, applications for service mark registration,
proprietary information and data, source code, confidential information and
data, trade secrets, all other recognizable intellectual property rights,
inventions, creations, technical documentation, protectable subject matter, and
all claims and rights to the foregoing.
<PAGE> 2
"Lien" means any mortgage, claim, charge, lien, security interest,
easement, right of way, pledge, restriction or other encumbrance.
"Person" means any individual, corporation, partnership, joint venture,
trust, business, association or other entity.
"Taxes" means all Federal, state, local and foreign taxes, charges, fees,
levies and other assessments, including any income, alternative or add-on
minimum tax, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, withholding, payroll, employment, excise, stamp, property,
environmental or other tax, together with all interest, penalties and additions
with respect thereto.
"Third Party Intellectual Property" means any and all software (in any
form), databases or other Intellectual Property owned by a third party, licensed
to Seller and utilized in the business of the Seller, including any software
used in or included in the use of the Acquired Assets.
ARTICLE II
PURCHASE AND SALE OF ACQUIRED ASSETS
2.1 PURCHASE AND SALE. Upon the terms and subject to the conditions of
this Agreement, the Seller will sell, transfer, convey, assign and deliver to
the Purchaser, and the Purchaser will purchase, as a going concern, from the
Seller, at the Closing, all of the businesses, assets, properties, goodwill and
rights of the Seller, of every nature, kind and description, tangible and
intangible, real, personal or mixed, wheresoever located and whether or not
carried or reflected on the books and records of the Seller, including, without
limitation, (i) Ad art work and animations; (ii) the web site described in
EXHIBIT A (the "Website"), and all proprietary rights therein, including all
patent, copyright and trade secret rights, all patent applications, if any,
relating thereto, and all technical information, documents, data, content,
designs, prototypes and software relating to the Website; (iii) all rights to
commercialize the Website in any manner; (iv) any domain names and trademarks
listed on EXHIBIT A, together with the goodwill symbolized by such domain names
and trademarks, and all registrations or applications for registration thereof;
(v) all materials required to operate the Website in the same manner that it is
currently being operated; (vi) all right, title and interest in and to the use
of Seller's corporate or entity names and any derivatives or combinations
thereof; (vii) logos, trademarks, trademark registrations and trademark
applications or registrations thereof, including the goodwill associated
therewith; (viii) the goodwill of the Seller's business; (ix) copyrights,
copyright applications and copyright registrations, patents and patent
applications; rights under or pursuant to licenses by or to the Seller; (x)
development and prototype hardware, software, processes, formula, trade secrets,
inventories and royalties, including all rights to sue for past infringements;
leaseholds and other interests in land, inventory (accumulated costs of jobs and
supplies), equipment, machinery, furniture, fixtures, motor vehicles and
supplies; (xi) accounts receivables; (xii) prepaid expenses; (xiii) insurance
policies, contracts, purchase orders, customers, lists of customers and
suppliers, sales representative agreements, and all favorable business
relationships, causes of action, judgments, claims and demands of whatever
nature; (xiv)
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telephone, telefax and telex numbers, including all listings in all telephone
books and directories; (xv) files, papers and records relating to the Seller's
businesses and assets; and all of the Seller's assets with only such
dispositions of such assets as shall have occurred in the ordinary course of
Seller's business between the date thereof and the Closing and which are
permitted by the terms hereof (the foregoing are sometimes collectively called
the "Assets").
2.2 PURCHASE PRICE. Upon the terms and subject to the conditions contained
in this Agreement, and in consideration of the sale, assignment, transfer and
delivery of the Assets, Purchaser will deliver to the Seller the consideration
in the amounts and at the times specified in Schedule 1 attached hereto and
incorporated herein (the "Purchase Price").
2.3 DELIVERY OF ASSETS. At the Closing, the Seller will deliver to the
Purchaser such bills of sale, endorsements, assignments, deeds and other good
and sufficient instruments of conveyance and transfer, in form and substance
reasonably satisfactory to the Purchaser and its counsel, as will be required to
vest in the Purchaser title to the Assets, including without limitation:
(a) bills of sale executed by the Seller vesting in the Purchaser
good and marketable title to all of the Assets;
(b) appropriate endorsements and assignments of the contracts,
licenses, agreements, permits, plans, commitments and other binding arrangements
included in the Assets;
(c) all data relating to the Assets, property, goodwill and business
included in the Seller' business; and
(d) all copies of the source code and object code and all
documentation relating thereto for all computer software programs included in
the Assets.
The Seller will take all other actions necessary to put the Purchaser in actual
possession and operating control of the Assets.
2.4 ASSUMED OBLIGATIONS. Upon satisfaction of all conditions to the
obligations of the parties contained herein (other than such conditions as have
been made in accordance with the terms hereof), the Purchaser will assume those
liabilities of the Seller which relate to the Assets (the "Assumed Liabilities")
specifically set forth on Exhibit 2.4 attached hereto. The Seller expressly
understands and agrees that, except for the Assumed Liabilities, the Purchaser
has not agreed to pay, will not be required to assume and will have no liability
or obligation, direct or indirect, absolute or contingent, for the liabilities
of the Seller or any respective affiliates or associates, whether known or
unknown and whether existing as of the Closing or arising thereafter, which
liabilities will remain the sole responsibility of, and will be satisfied by,
the Seller (the "Retained Liabilities").
2.5 EXCLUDED ASSETS. Notwithstanding the foregoing, the Seller will not
sell, transfer, convey, assign or deliver to the Purchaser, and the Purchaser
will not purchase from the Seller, the following assets (collectively, the
"Excluded Assets"):
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(a) the consideration delivered to the Seller pursuant to this
Agreement for the Assets;
(b) the minute books (and any documents related to the Seller's
organization or foreign qualification contained in such minute books), corporate
seal and corporate records;
(c) stock or other interests representing the ownership of the
Seller;
(d) all documentation pertaining to any liability of the Seller not
assumed by Purchaser; and
(e) the assets, if any, specifically described on Exhibit 2.5 hereto.
2.6 PURCHASE PRICE ALLOCATION. The Purchase Price will be allocated among
the Assets in the manner required by Section 1060 of the Internal Revenue Code
of 1986, as amended to date. In making such allocation, the allocations set
forth in Schedule 2.6 attached hereto will apply. In preparing Schedule 2.6, the
Purchaser and the Seller will negotiate in good faith the values of the Assets
and the resulting allocation of the Purchase Price among the various Assets; it
being understood that such determination will be binding on the Purchaser only
for the purposes of U.S. Federal, state and local taxation. The Purchaser and
the Seller (or the beneficial owners of the Seller, if applicable) will file all
Tax Returns and tax reports (including IRS Form 8594) in accordance with and
based upon such allocation and will take no position in any return, proceeding
or audit which is inconsistent with such allocation.
ARTICLE III
THE CLOSING
3.1 CLOSING DATE. The consummation of the sale and transfer of the Assets
as contemplated in this Agreement shall take place at the offices of Hutchins,
Wheeler & Dittmar, A Professional Corporation located at 101 Federal Street,
Boston, MA 02110 on June 28, 1999 at 10:00 a.m., or at such other time, date and
place as shall be fixed by agreement among the Parties (the "Closing", such date
of the Closing being the "Closing Date").
3.2 EXECUTION AND DELIVERY OF DOCUMENTS BY SELLER. At the Closing, Seller
shall execute and deliver to Purchaser: (a) the Bill of Sale; (b) the Assumption
Agreement; and (c) such other documents as Purchaser or its counsel may
reasonably request to demonstrate compliance with the provisions set forth in
this Agreement.
3.3 EXECUTION AND DELIVERY OF DOCUMENTS BY PURCHASER. At the Closing,
Purchaser shall: (a) execute and deliver to Seller the Assumption Agreement; and
(b) deliver the Purchase Price as provided on Schedule 1 attached hereto.
ARTICLE IV
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REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants as of the date hereof to and for the
benefit of Purchaser as follows:
4.1 ORGANIZATION, STANDING AND POWER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
South Dakota, and has the requisite power and authority to own, operate and
transfer its properties. Seller is qualified or registered to do business and is
in good standing in each state in which property is owned or operated if
registration or qualification is required.
4.2 AUTHORITY AND ENFORCEABILITY OF AGREEMENT. Seller has the full
corporate power and authority to enter into and execute this Agreement and any
ancillary agreements to which it is a Party and to carry out the transactions
contemplated hereby in accordance with its terms. There are no outstanding
contracts, demands, commitments or other agreements or arrangements under which
Seller is or may become obligated to sell, transfer or assign any of the Assets
to any party other than to Purchaser, nor has Seller made any representations or
entered into any contracts, commitments or other agreements with third parties
which purport to bind or obligate Purchaser in any manner. The execution,
delivery and performance of this Agreement and all of the transactions required
hereunder to be performed by Seller have been duly and validly authorized and
approved by all necessary corporate and stockholder action. This Agreement has
been duly and validly executed and delivered on behalf of Seller by duly
authorized officers. This Agreement constitutes the valid and legally binding
obligation, subject to general equity principles, of Seller, enforceable in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the rights of creditors
generally.
4.3 NO VIOLATION. The execution, delivery and performance of this
Agreement by Seller does not, and the consummation of the transactions
contemplated hereby and the compliance with the terms hereof will not: (a)
violate any law, judgement, order, decree, statute, ordinance, rule or
regulation applicable to it ("Governmental Rule"); (b) conflict with any
provision of Seller's Certificate or Articles of Incorporation or Bylaws; or (c)
require any consent, approval, order or authorization of, or the registration,
declaration or filing with, any Governmental Entity or other entity or Person.
4.4 CAPITALIZATION. Schedule 4.4 hereto sets forth the record and
beneficial ownership of the shares of capital stock of Seller. All of the issued
and outstanding shares of capital stock of Seller are duly authorized, validly
issued, and are without, and were not issued in violation of, preemptive rights,
and are owned free and clear of any lien, security interest, pledge, charge,
claim, option, right to acquire, restriction on transfer or encumbrance of any
nature whatsoever. There are no outstanding rights to purchase or acquire any
capital stock of the Seller or any securities convertible into or exchangeable
for such capital stock and there are no contracts, commitments, understandings,
arrangements or restrictions by which the Seller is bound to issue or to acquire
any additional securities or other rights to purchase or acquire any capital
stock of the Seller.
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4.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule
4.5 attached hereto, other than in the ordinary course of business, the Seller
does not have any debt, liability or obligation, known or unknown, secured or
unsecured, whether accrued, absolute, contingent, unasserted or otherwise, of
any nature whatsoever, including without limitation any foreign or domestic tax
liabilities or deferred tax liabilities incurred in respect of or measured by
the Seller's income, or any other debts, liabilities or obligations relating to
or arising out of any act, omission, transaction, circumstance, sale of goods or
services, state of facts or other condition which occurred or existed on or
before the date hereof, whether or not known, due or payable (collectively
"Liability").
4.6 ABSENCE OF CHANGES. Except as set forth on Section 4.6 attached
hereto, since December 31, 1998, the Seller has owned and operated the Assets in
the ordinary course of business and consistent with past practice. Without
limiting the generality of the foregoing, subject to the foregoing exceptions:
(a) the Seller has not suffered any material loss, damage,
destruction of property or the Assets or other casualty to property or the
Assets (whether or not covered by insurance); and
(b) the Seller has not suffered any loss of officers, directors,
partners, employees, dealers, distributors, independent contractors,
customers or suppliers which had or may reasonably be expected to result in
a material adverse effect on the Business or the Seller.
4.7 TITLE TO AND CONDITION OF ASSETS. The Seller has good and marketable
title to all of the Assets, free and clear of any mortgage, pledge, lien,
security interest, conditional or installment sales agreement, encumbrance,
claim, easement, right of way, tenancy, covenant, encroachment, restriction or
charge of any kind of nature (whether or not of record) (collectively, "Liens").
The Seller has full right and power to, and at the Closing will, deliver to the
Purchaser good title to all of the Assets, free and clear of any Liens. The
Assets are in good operating condition and repair, normal wear and tear
excepted, and fit for the intended purposes thereof, and no material
maintenance, replacement or repair has been deferred or neglected.
4.8 LITIGATION. There are no actions, suits, claims, demands or
proceedings pending or, to the knowledge of Seller, threatened against or by
Seller relating directly to the Assets or the Business in any court or before
any arbitrator, private alternative dispute resolution system or governmental
agency, nor has Seller been charged with, nor, to the knowledge of Seller, is it
under investigation with respect to any charge concerning any violation of any
provision of any federal, state or other applicable law, rule, regulation,
ordinance, order, decree or governmental restriction with respect to the
Business or the Assets. There are no unsatisfied judgments against Seller or any
consent decrees, writs, restraining orders, or preliminary or permanent
injunctions to which any of the Assets are subject.
4.9 INTELLECTUAL PROPERTY RIGHTS.
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(a) Section 4.9 of the Disclosure Schedule contains a listing of all (i)
patents, patent applications (collectively the "Patents"), (ii) copyrights (the
"Copyrights"), (iii) tradenames, registered and common law trademarks, trademark
applications (the "Trademarks"), (iv) service marks, service mark applications
(the "Service Marks"), (v) computer programs and other computer software, trade
secrets, plans and specifications, inventions, know-how, technology, proprietary
processes and formulae (the "Trade Secrets"), and (vi) art work and animations
necessary or used in connection with the conduct of the Business by the Seller
(the Patents, Copyrights, Trademarks, Service Marks and Trade Secrets are
collectively referred to as "Intellectual Property Rights"). The Intellectual
Property Rights are sufficient to conduct the Business as presently conducted
and as proposed to be conducted.
(b) The Seller owns, has the unrestricted right to use and has sole and
exclusive possession of and has good and valid title to, or sufficient license
or other rights to, all of the Intellectual Property Rights, free and clear of
all Liens. Except as set forth on Schedule 4.9 attached hereto, no Person other
than Seller owns, has any rights in, or claims any ownership of, any of the
Intellectual Property Rights. The use of all Intellectual Property Rights
necessary or required for the conduct of the business of the Seller with respect
to the Acquired Assets as presently conducted and as proposed to be conducted
does not and will not infringe or violate any trade secrets, plans and
specifications, patents, copyrights, tradenames, registered and common law
trademarks, trademark applications, service marks, service mark applications,
computer programs and other computer software, inventions, know-how, technology,
proprietary processes and formulae or other intellectual property rights of any
other person or entity (the "Third Party Intellectual Property Rights"). The
Seller is not using any confidential information or trade secrets of others.
(c) All Intellectual Property Rights which are registered are in
compliance with formal legal requirements (including the payment of filing,
examination and maintenance fees and proofs of working or use), are valid,
enforceable and subsisting and are not subject to any maintenance fees or taxes
or actions falling due within 90 days after the Closing Date. All Patents are
valid, enforceable and subsisting and no Patents have been or are now involved
in any interference, reissue, reexamination, opposition, declaratory judgment or
other invalidating proceeding, nor, to the Seller's knowledge is any such action
threatened with respect to any of the Patents. No application for a potentially
infringing patent has been filed and no potentially infringing patent has been
issued. No Trademarks have been or are involved in any opposition, invalidation
or cancellation proceeding and, there is no basis for the commencement of any
such proceeding. The Trademarks are valid and enforceable and no person holds
any infringing or potentially infringing trademark and, to the Seller'
knowledge, no application for any infringing or potentially infringing trademark
has been made.
(d) A copy of all documentation relating to the Trade Secrets have been
furnished to the Purchaser. Such documentation is current, accurate, complete in
all material respects and in sufficient detail and content to explain all
material aspects of the Trade Secrets and to allow its full and proper use
without reliance on the memory of others. To the Seller's knowledge, the Trade
Secrets are not part of the public domain or literature nor have they been used,
divulged or appropriated for the benefit of any person or entity other than the
Seller or to the detriment of the
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Seller. The Seller has taken reasonable measures and precautions to protect the
secrecy, confidentiality and value of the Trade Secrets.
(e) All agreements relating to licenses of Intellectual Property Rights
granted by or to the Seller are set forth on Schedule 4.9 attached hereto. All
such licenses are in good standing, valid and effective in accordance with their
respective terms and there is not, under any of such licenses, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default, or would constitute a basis for a claim of
force majeure or other claim of excusable delay or non-performance), in each
case by either the Seller or by any other party thereto. There are no
outstanding and, to the Seller's knowledge, no threatened disputes or
disagreements with respect to any such agreement.
(f) The Seller is not obligated whatsoever to make any payments by way of
royalties, fees or otherwise to any owner of, licensor of, or other claimant to,
any Intellectual Property Rights or Third Party Intellectual Property Rights.
(g) Except as set forth on Schedule 4.9 attached hereto, to the Seller's
knowledge, the software, hardware and firmware which comprise the Acquired
Assets, as well as the software, hardware and firmware used by the Seller's
suppliers, vendors and customers is Year 2000 Compliant. The term "Year 2000
Compliant" as used in the preceding sentence, means that no operational,
financial, data transmission, communication or process is materially affected or
materially interrupted by dates prior to, during or after the Year 2000, and in
particular, without prejudice to the generality of the foregoing that: (i) no
value for current date will cause any interruption in operation; (ii) all
manipulation of time related data will produce the required results for all
valid date values prior to, during and after the Year 2000; (iii) if the date
elements in interfaces and data storage specify the century, they will permit
specifying the correct century either explicitly or by unambiguous algorithms or
inferencing rules; and where any date element is represented without a century,
the correct century shall be unambiguous for all manipulations involving that
element; and (iv) Year 2000 must be recognized as a leap year.
(h) Neither Seller nor, to the Seller's knowledge, any of the employees of
Seller are in violation of any non-competition, non-disclosure or other similar
agreements which would prohibit (i) Seller from entering into or consummating
the transactions contemplated hereby or (ii) any employee of Seller from
becoming an employee of Purchaser.
4.10 COMPLIANCE WITH LAWS. The assets, properties, Business and operations
of the Seller, are and have been in compliance in all material respects with all
laws applicable to the Seller's assets, properties, business and operations. The
Seller does not require the consent of any person or entity to permit it to
operate in the manner in which it is presently being operated. The Seller
possesses all permits, licenses and other authorizations from all persons or
entities necessary to permit it to operate its business in the manner in which
it presently is conducted and the consummation of the transactions contemplated
by this Agreement will not prevent the Seller from being able to continue to use
such permits and operating rights.
4.11 BROKERS AND FINDERS. Neither the Seller nor any of the Seller's
directors, officers, shareholders or employees have employed any broker, finder,
or financial advisor or incurred
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any liability for any brokerage fee or commission, finder's fee or financial
advisory fee, in connection with the transactions contemplated hereby, nor is
there any basis known to the Seller for any such fee or commission to be claimed
by any person or entity.
4.12 ACCURACY OF INFORMATION. No representation or warranty made by the
Seller in this Agreement, the disclosure schedules attached hereto, or in any
agreement, instrument, document, certificate, statement or letter furnished or
to be furnished to the Purchaser at the Closing by or on behalf of the Seller in
connection with any of the transactions contemplated by this Agreement contains
or will contain any untrue statement of material fact or omit or will omit to
state any material fact necessary in order to make the statements herein or
therein not misleading in light of the circumstances in which they are made, and
all of the foregoing completely and correctly present the information required
or purported to be set forth herein or therein. There is no material fact as of
the date hereof which has not been disclosed in writing to the Purchaser to
which the Seller has knowledge related to the Seller, its operations,
properties, financial condition or prospects which has a material adverse effect
or, to the knowledge of the Seller, in the future may have a material adverse
effect on the Seller.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants as of the date hereof to and for
the benefit of Seller as follows:
5.1 ORGANIZATION, STANDING AND POWER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware. Purchaser has all requisite corporate power and authority to carry on
its business as now being conducted.
5.2 AUTHORITY. Purchaser has the corporate power and authority to execute
this Agreement and the ancillary agreements to which it is or will be a party
and to consummate the transactions contemplated thereby and by this Agreement.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Purchaser.
5.3 NO VIOLATION. The execution, delivery and performance by Purchaser of
this Agreement and the consummation of the transaction contemplated by this
Agreement do not: (a) violate any law, judgement, order, decree, statute,
ordinance, rule or regulation applicable to it; (b) conflict with any provision
of Purchaser's organizational documents; (c) conflict in any material respect
with any contract or permit to which Purchaser is a party.
5.4 CONSENTS AND APPROVALS. No Consent of any individual or entity is
required in connection with the execution, delivery or performance of this
Agreement by the Purchaser or the consummation by the Purchaser of the
transactions contemplated herein.
5.5 LITIGATION. There are no material actions, suits, claims, demands or
proceedings pending or, to the knowledge of Purchaser, threatened against or by
Purchaser in any court or
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before any arbitrator, private alternative dispute resolution system or
governmental agency, nor has Purchaser been charged with, nor, to the knowledge
of Purchaser, is it under investigation with respect to any material charge
concerning any violation of any provision of any federal, state or other
applicable law, rule, regulation, ordinance, order, decree or governmental
restriction. There are no unsatisfied judgments against Purchaser or any consent
decrees, writs, restraining orders, or preliminary or permanent injunctions to
which Purchaser is subject.
5.6 COMPLIANCE WITH LAWS. The assets, properties, business and operations
of the Purchaser, are and have been in compliance in all material respects with
all laws applicable to the Purchaser's assets, properties, business and
operations. The Purchaser does not require the consent of any person or entity
to permit it to operate in the manner in which it is presently being operated.
The Purchaser possesses all permits, licenses and other authorizations from all
persons or entities necessary to permit it to operate its business in the manner
in which it presently is conducted and the consummation of the transactions
contemplated by this Agreement will not prevent the Purchaser from being able to
continue to use such permits and operating rights.
5.7 BROKERS AND FINDERS. Neither the Purchaser nor any of the Purchaser's
directors, officers, shareholders or employees have employed any broker, finder,
or financial advisor or incurred any liability for any brokerage fee or
commission, finder's fee or financial advisory fee, in connection with the
transactions contemplated hereby, nor is there any basis known to the Purchaser
for any such fee or commission to be claimed by any person or entity.
ARTICLE VI
COVENANTS
6.1 COVENANTS OF THE SELLER. The Seller shall keep, perform and fully
discharge the following covenants and agreements:
(a) INTERIM CONDUCT OF BUSINESS. From the date hereof until the
Closing, the Seller shall (i) operate the Business as a going concern consistent
with prior practice and in the ordinary course of business, (ii) use its best
efforts to preserve substantially intact its business organizations and (iii)
use its best efforts to preserve its current relationships with customers,
employees, suppliers and other persons with which it has significant business
relations.
(b) ACCESS. The Seller shall, upon reasonable notice, give Purchaser
and its representatives full and free access to all properties, assets, books,
contracts, commitments and records of the Seller during reasonable business
hours and shall promptly furnish Purchaser with all financial and operating data
and other information as to the history, ownership, business, operations and
properties of the Seller as Purchaser may from time to time reasonably request.
(c) ACCURACY OF REPRESENTATIONS AND WARRANTIES. Without the prior
written consent of Purchaser, the Seller will not take any action from the date
hereof to the Closing Date that would cause any representation or warranty of
the Seller contained in this Agreement to become untrue or cause the breach of
any agreement hereof or covenant contained herein. The Seller will promptly
bring to the attention of Purchaser any facts which come to its attention that
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would cause any of the representations and warranties of the Seller to be untrue
or materially misleading in any respect.
6.2 NON-COMPETITION AND NON-SOLICITATION.
(a) For a period of five (5) years from the Closing Date, the Seller
will not anywhere in the world engage or participate in, directly or indirectly,
as principal, agent, employee, employer, consultant, investor or partner, or
assist in the management of, or own any stock or any other ownership interest
in, any business which is in direct competition with the business of the
Purchaser; provided that the ownership of not more than 5% of the outstanding
securities of any class listed on an exchange or regularly traded in the
over-the-counter market shall not constitute a violation of this Section 6.2(a).
(b) For a period of two (2) years from the Closing Date (the
"Non-Solicitation Period"), Seller will not solicit, or attempt to solicit, any
officer, director, consultant or employee of the Purchaser or any of its
subsidiaries or affiliates to leave his or her engagement with the Purchaser or
such subsidiary or affiliate nor will it call upon, solicit, divert or attempt
to solicit or divert from the Purchaser or any of its affiliates or subsidiaries
any of their customers or suppliers, or potential customers or suppliers, of
names he was aware during the term of his employment with the Seller; provided,
however, that nothing in this Section 6.2(b) shall be deemed to prohibit the
Seller from calling upon or soliciting a customer or supplier during the
Non-Solicitation Period if such action relates solely to a business which is not
Competitive with the Purchaser; and provided, further, however, that nothing in
this Section 6.2(b) shall be deemed to prohibit the Seller from placing
advertisements in newspapers or other media of general circulation advertising
employment opportunities.
(c) It is specifically understood and agreed that any breach of the
provisions of this Section 6.2 is likely to result in irreparable injury to the
Purchaser and that the remedy at law alone will be an inadequate remedy for such
breach, and that in addition to any other remedy it may have, the Purchaser
shall be entitled to enforce the specific performance of this Agreement by the
Seller and to seek both temporary and permanent injunctive relief (to the extent
permitted by law) without the necessity of proving actual damages.
6.3 COVENANT OF THE PURCHASER. Purchaser represents and warrants to Seller
that it will take all necessary actions to permit it to issue the number of
shares of capital stock required to be issued pursuant to Schedule 1. The
capital stock issued pursuant to Schedule 1 will, when issued, be validly
issued, fully paid and nonassessable and no shareholder of Purchaser has or will
have any rights of subscription or purchase in respect thereof.
ARTICLE VII
CONDITIONS TO CLOSING
7.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER. The obligation
of the Purchaser to consummate the purchase of the Acquired Assets under this
Agreement is subject to the fulfillment, prior to or at the Closing, of each of
the following conditions:
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(a) All representations and warranties of the Seller to the Purchaser
contained in this Agreement or in any schedule, certificate, or document
delivered by the Seller to the Purchaser pursuant to the provisions hereof shall
be true and correct in all material respects as of the time of the Closing with
the same effect as though made at and as of that time;
(b) The Seller shall have performed and compiled in all material
respect with all obligations and covenants required by this Agreement to be
performed or complied with by the Seller prior to or at the Closing;
(c) On the Closing Date, no action is threatened or pending
challenging or otherwise relating to the transactions provided for herein or
which may affect the Seller, the Business or the Assets in a manner which is
materially adverse;
(d) All corporate and other actions and proceedings by the Seller in
connection with the transactions contemplated hereby, and all board and
shareholder resolutions, documents and instruments incidental thereto, shall be
reasonably satisfactory in form and substances to counsel for the Purchaser, and
the Purchaser shall have received all such resolutions, documents and
instruments, or copies thereof, as its counsel shall have reasonably requested;
(e) The Seller shall have received (and there shall be in full force
and effect) all consents, approvals, licenses, permits, orders and other
authorizations of, and shall have made (and there shall be in full force and
effect) all such filings, registrations, qualifications and declarations with,
any Person pursuant to any applicable law, statute, ordinance regulation or rule
or pursuant to any agreement, order or decree to which the Seller is a party or
to which it is subject, in connection with the transactions contemplated by this
Agreement and the sale of the Acquired Assets including but not limited to the
consent of Xoom Software, Inc. and Digital River, Inc.
(f) Each of Art Holden and James Maloney shall have executed and
delivered to Purchaser an employment agreement in substantially the form of
Exhibit D attached hereto (the "Employment Agreements").
(g) The Purchaser shall have completed to its satisfaction its legal,
financial and accounting due diligence of the Seller, the Assets and the
Business.
(h) There shall not have been, in the Purchaser's reasonable
judgment, any material adverse change in the Business, operations, assets,
financial condition or prospects of the Seller, the Business or the Assets.
7.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER. The obligation of
the Seller to consummate the sale of Assets under this Agreement is subject to
the fulfillment, prior to or at the Closing, of each of the following conditions
(any or all of which may be waived by the Seller in writing);
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(a) all representations and warranties of the Purchaser to the Seller
contained in this Agreement or in any schedule, certificate, or document
delivered by the Purchaser to the Seller pursuant to the provisions hereof shall
be true and correct in all material respects at and as of the time of the
Closing with the same effect as though those representations and warranties had
been made at and as of that time;
(b) the Purchaser shall have performed and compiled in all material
respects with all obligations and covenants required by this Agreement to be
performed or complied with by it prior to or at the Closing;
(c) on the Closing Date, no Action is pending or threatened,
challenging or otherwise relating to the transactions provided for herein;
(d) all corporate and other actions and proceedings by the Purchaser
in connection with the transactions contemplated hereby, and all resolutions,
documents, and instruments incidental thereto, shall be reasonably satisfactory
in form and substance to counsel for the Seller, and the Seller shall have
received all such resolutions, documents, and instruments, or copies thereof, as
its counsel shall have reasonably requested; and
(e) the Purchase Price shall be paid to the Seller as set forth on
Schedule 1.
ARTICLE VIII
MUTUAL COVENANTS
8.1 FURTHER ASSURANCES. Each Party agrees, at any time and from time to
time, upon the request of the other Party, to do, execute, acknowledge and
deliver, or to cause to be done, executed, acknowledged and delivered, all such
further acts, assignments, transfers and conveyances as may be reasonably
required, without enlarging or extending any obligation or liability of any
Party beyond what is otherwise contemplated by this Agreement, to facilitate the
transactions contemplated by this Agreement.
8.2 EXPENSES. All expenses incurred by Purchaser or Seller in connection
with the negotiation, authorization, preparation, execution and performance of
this Agreement, including, without limitation, all fees and expenses of agents,
representatives, counsel and accountants for Purchaser or Seller as applicable,
shall be paid by the Party incurring such expense.
ARTICLE IX
TAX MATTERS
9.1 Notwithstanding anything to the contrary in this Agreement, Purchaser
shall pay any and all sales, use, transfer, documentary, registration, and
similar Taxes relating to the Assets that arise by reason of the transactions
contemplated by this Agreement. Seller shall be responsible for and pay all
income tax liability attributable to it as a result of the sale of the Assets.
Each party shall be responsible for filing its own tax returns of whatever sort
deemed appropriate and necessary by the filing party.
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ARTICLE X
INDEMNIFICATION
10.1 INDEMNIFICATION OF PURCHASER. Seller agrees to indemnify, defend and
hold harmless Purchaser and its officers, directors, employees and agents from
and against any and all losses, damages of any kind, liabilities, costs, and
expenses, including without limitation all fines, penalties, amounts paid in
settlement, and reasonable attorneys' fees (collectively, "Losses") incurred or
sustained by Purchaser as a result of:
(a) any breach of any warranty or the inaccuracy of any
representation, made by Seller in this Agreement;
(b) any breach or nonfulfillment or non-performance, partial or
total, of any covenant or any agreement of Seller contained in this Agreement or
in any ancillary agreement delivered to Purchaser by or on behalf of Seller
pursuant to the express provisions of this Agreement;
(c) all obligations and liabilities of Seller, whether direct or
indirect, fixed or contingent, known or unknown; or
(d) any claims arising from the Seller's use of the Assets prior to
the Closing Date.
10.2 INDEMNIFICATION OF SELLER. Purchaser agrees to indemnify, defend and
hold harmless Seller, its affiliates and their respective officers, directors,
employees and agents from and against any and all losses, damages of any kind,
liabilities, costs, and expenses, including without limitation all fines,
penalties, amounts paid in settlement and reasonable attorneys' fees
(collectively, "Losses") incurred or sustained by Seller as a result of:
(a) any breach by Purchaser of any of its representations or
warranties made in this Agreement;
(b) any breach or nonfulfillment or non-performance, partial or
total, of any covenant or any agreement of Purchaser contained in this Agreement
or in any ancillary agreement delivered to Seller by or on behalf of Purchaser
pursuant to the express provisions of this Agreement;
(c) the failure of Purchaser to perform any of the agreements or
undertakings made by Purchaser in this Agreement; or
(d) any claims arising from Purchaser's use of the Assets after
Closing Date.
10.3 COOPERATION. Notwithstanding anything to the contrary contained in
this Article X, the parties shall cooperate with each other to maximize the
availability of insurance coverage for claims or actions by third parties which
may be subject to indemnification pursuant to this Article X, and if any
insurance carrier for any Party agrees to defend such claim or action, such
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defense shall be tendered to such insurance carrier and the rights of the
Parties between themselves regarding the assumption and control of such defense
shall be subject to the reasonable requirements of such insurance carrier.
10.4 SURVIVAL OF REPRESENTATIONS. The representations, warranties,
covenants, agreements and indemnifications of the parties contained in this
Agreement or in any writing delivered pursuant to the express provisions of this
Agreement shall survive any investigation heretofore or hereafter made by
Purchaser or Seller and the consummation of the transactions contemplated herein
for a period of three years from the Closing Date.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 AMENDMENT AND WAIVER. This Agreement may be amended, modified and
supplemented only by written agreement of each of the Parties hereto. By an
instrument in writing, either Party may waive compliance by the other Party with
any term or provision of this Agreement that such other Party was or is
obligated to comply with or perform.
11.2 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or mailed, first class certified mail
with postage paid:
If to Seller:
Eclipse Digital Imaging, Inc.
2000 West 42nd Street
Sioux Falls, SD 57104
Attn: Art Holden
Facsimile: (605) 335-1554
with a copy to:
Abbott & Abbott
1401 E. Rushmore
P.O. Box 650
Brandon, SD 57005
Attn: John P. Abbott, Esq.
Facsimile: (605) 582-6076
If to Purchaser:
Andover Advanced Technologies, Inc.
50 Nagog Office Park
Acton, MA 01720
Attn: Bruce Twickler, President
Facsimile: (978) 635-5326
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with a copy to:
Hutchins, Wheeler & Dittmar
101 Federal Street
Boston, MA 02110
Attn: David P. Kreisler, Esq.
Facsimile: (617) 951-6740
or to such other person or address as any Party hereto shall furnish to the
other Parties hereto in writing pursuant to this Section 11.2.
11.3 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their respective successors and permitted
assigns. This Agreement may not be assigned by the Seller without the prior
written consent of the Purchaser. The Purchaser may assign its rights and
obligations under this Agreement (whether by sale, merger or otherwise) without
the consent of Seller.
11.4 GOVERNING LAW. This Agreement shall be governed by the law of the
Commonwealth of Massachusetts regardless of the laws that might otherwise govern
applicable conflicts of laws.
11.5 COUNTERPARTS; FACSIMILE. This Agreement may be signed and delivered
either originally or by facsimile, and in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
11.6 HEADINGS. The Article and Section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.7 INTERPRETATION. When a reference is made in this Agreement to a
Section or Exhibit, such reference shall be to a Section or Exhibit of this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"included", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the phrase "without limitation." When used in this
Agreement, the word "primarily" shall be deemed to be followed by the phrase "or
exclusively". All accounting terms not defined in this Agreement shall have the
meanings determined by GAAP.
11.8 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the Parties hereto in respect of the subject matter contained
herein. This Agreement supersedes all prior agreements and understandings among
the Parties hereto with respect to such subject matter.
11.9 THIRD PARTIES. Except for the indemnity provisions of Article X, which
are also for the benefit of the Parties identified therein, nothing in this
Agreement, whether express or implied, is intended to: (a) confer any rights or
remedies on any person other than the Seller and
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Purchaser, and their respective successors and permitted assignees; (b) relieve
or discharge the obligation or liability of any third party; or (c) give any
third party any right of subrogation or action against Seller or Purchaser.
11.10 PUBLICITY OF TRANSACTION. So long as this Agreement is in effect,
neither Seller nor Purchaser shall issue or cause the publication of any press
release or other public announcement with respect to the transactions
contemplated by this Agreement, including any statement as to the terms and
conditions of this Agreement, without the prior written consent of the other
Party, except that such prior approval shall not be required as to any
disclosure required under law nor shall this prohibition limit Purchaser from
normal and customary advertisement of its business. In the event that any
disclosure is required by law, the disclosing party will notify the other party
of the required disclosure at least five (5) business days prior to disclosure
in order to give the other party an opportunity to seek protective orders or
other lawful preventive or restrictive measures.
11.11 EXHIBITS. All Exhibits referred to herein are intended to be and
hereby are specifically made a part of this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Parties, acting through their duly authorized
representative, have executed this Agreement as of the day and year first above
written.
ANDOVER ADVANCED TECHNOLOGIES, INC.
By: /s/ Bruce A. Twickler
-----------------------------
Title: President
ECLIPSE DIGITAL IMAGING, INC.
By: /s/ Art Holden
-----------------------------
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EXHIBIT A
Assets
The AnimationFactory, EclipseDigital, JavaArt, AnimOutlet, GifArtist and
AnimFactory websites and all URL's owned by the Seller (collectively, the
"Website"), including without limitation all content including text and
graphics, all design elements including look and feel, all advertising systems
and advertising information including banners and site statistics, all software
code (including source and object code) including HTML code, Java scripts, CGI
scripts and links, and all brands and commercial identification including logos,
trademarks, service marks and trade names. All rights in income related to the
Website, including without limitation advertising revenues.
The domain names "www.eclipsedigital.com", "www.javaart.com",
"www.animfactory.com", "www.gifartist.com" and "www.animationfactory.com" and
all related trademarks or service marks and all rights and interests of Seller
therein, together with the goodwill of all business symbolized by such mark.
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EXHIBIT 2.4
ASSUMED LIABILITIES
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<PAGE> 21
SCHEDULE 1
CONSIDERATION
1. CASH CONSIDERATION. Total cash consideration to be paid shall be
$1,500,000, which shall be paid as follows:
(a) At Closing, Purchaser shall pay to Seller a cash payment of
$250,000.
(b) On October 18, 1999 (date which is four months after Closing),
and every month thereafter until December 18, 2000 (date which is 18 months
after Closing), Purchaser shall pay to Seller a cash payment of $83,333.
2. STOCK CONSIDERATION.
(a) In the event that the Purchaser completes an initial public
offering of its common stock (an "Offering"), in addition to the consideration
set forth above, the Purchaser shall issue shares of its common stock to the
Seller with an aggregate value as set forth below. The number of shares of
common stock to be issued to the Seller in each instance shall be calculated
using the price per share initially offered to the public in such Offering:
Aggregate Value Timing
--------------- ------
$200,000 Upon closing of Offering
$200,000 Twelve (12) months after closing of Offering
$200,000 Twenty-four (24) months after closing of Offering
In the event that the employment of either Art Holden or Jim Maloney with
the Purchaser is terminated for Cause or voluntarily by the individual, the
payments remaining to be made by the Purchaser after the date of termination
shall be reduced by 50%. In the event that the employment of both Mr. Holden and
Mr. Maloney with the Purchaser is terminated for Cause or voluntarily by the
individual, the Purchaser shall not be required to issue any shares remaining to
be issued to the Seller following the date of such termination.
(b) MILESTONES The payments described in Section 2(a) above (the
"Stock Payments") are subject to the achievement of the following (the
"Milestones"):
(i) Thirty four percent (34%), or $66,667 in value, of each
Stock Payment shall be due and payable so long as both
Mr. Holden and Mr. Maloney remain employed with the
Purchaser pursuant to the terms of their employment
agreements.
(ii) An additional twenty-two percent (22%), or $44,000 in
value, of each Stock Payment shall become due and
payable in the event that the Website's traffic
increases by 50% per year from the
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traffic as of the Closing. The increase to be measured
and verified by an independent auditor reasonably
acceptable to the Purchaser and the Seller. The parties
agree that the traffic figures in this Milestone are
not to be compounded on an annual basis.
(iii) An additional twenty-two percent (22%), or $44,000 in
value, of each Stock Payment shall become due and
payable in the event that at least two new Animation
Content discs each year are prepared for sale to the
public.
(iv) An additional twenty-two percent (22%), or $44,000 in
value, of each Stock Payment shall become due and
payable in the event that at least 2,500 new animation
images per month are completed. If the Purchaser, in
its sole discretion, elects to terminate this segment
of its business, the percentage of each Stock Payment
determined by this clause (iv) shall automatically be
earned by the Seller.
(c) Purchaser will take all good faith efforts (including commitment
of reasonable resources) to permit the foregoing Milestones to be achieved.
Notwithstanding the foregoing, if the Purchaser determines to change its
strategic focus or abandon the business being acquired, all of the Milestones in
Section 2(b) will be deemed to have been achieved.
3. ALTERNATE CASH CONSIDERATION. In the event that an Offering does not
occur within eighteen (18) months from the Closing, the Seller shall have a one
time option which must be exercised in writing not less than eighteen (18)
months after the Closing and not more than nineteen (19) months after the
Closing, to forgo the consideration set forth in Section 2 above and to receive
in lieu thereof the following cash payments: (i) $200,000 to be paid on the date
which is 5 days following the receipt by the Purchaser of the Seller's election
hereunder; (ii) $200,000 to be paid on the date which is twenty-four (24) months
after the Closing; and (iii) $200,000 on the date which is thirty-six (36)
months after the Closing. In all cases, the Milestones set forth in Section 2(a)
above shall apply to the cash payments in this Section 3, if the Seller elects
to receive these cash payments in lieu of the Stock Payments set forth above.
- 22 -
<PAGE> 1
EXHIBIT 10.4
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement") dated as of August 6, 1999 (the
"Effective Date") by and between Patrick Lenz (d/b/a Freshmeat), an individual
residing at Friedhofstrasse 28, 65510 Huenstetten, Federal Republic of Germany
("Owner"), and Andover Advanced Technologies, Inc., a Massachusetts corporation,
with its principal offices at 50 Nagog Park, Acton, Massachusetts 01720, the
United States of America ("Purchaser").
1. CONVEYANCE OF RIGHTS.
(a) On the Effective Date, Owner hereby transfers, grants, assigns, and
relinquishes exclusively to Purchaser all of Owner's right, title, and interest
in and to (i) the web site described in Schedule 1 attached hereto (the
"Website"), and all proprietary rights therein, including all patent, copyright
and trade secret rights, all patent applications, if any, relating thereto, and
all technical information, documents, data, content, designs, prototypes and
software relating to the Website; (ii) all rights to commercialize the Website
in any manner; (iii) any domain names and trademarks listed in Schedule 1,
(collectively, the "Trademarks"), together with the goodwill symbolized by the
Trademarks, and all registrations or applications for registration thereof, and
(iv) any other assets listed in Schedule 1 (all such items listed in Schedule 1,
collectively, the "Purchased Assets").
(b) In the event the transfer or assignment of Owner's rights in the
Purchased Assets is not permissible under applicable German laws, Owner shall
grant to Purchaser the irrevocable and exclusive right to exercise all of
Owner's bundle of rights in the Purchased Assets.
2. DELIVERY OF PHYSICAL OBJECTS. Concurrently with execution of this
Agreement, Owner has delivered to Purchaser: (a) a master copy of all content
and any software (in both source and object code form) that is included among
the Purchased Assets in electronic form; and (b) all system and user
documentation pertaining to the Purchased Assets, including without limitation
design or development specifications.
3. PURCHASE PRICE. In consideration of the conveyance to Purchaser of the
Purchased Assets, Purchaser shall deliver to Owner the consideration in the
amounts and at the times specified in Schedule 2 attached hereto (the "Purchase
Price").
4. FURTHER ASSURANCES. In each case, at the request of Purchaser without
further cost or expense to Owner, Owner shall execute and deliver such further
conveyance instruments and take such further actions as may be necessary or
desirable to evidence more fully the transfer of ownership of all of the
Purchased Assets to Purchaser. Subject to the foregoing sentence, Owner
therefore agrees (a) to execute, acknowledge, and deliver any affidavits or
documents of assignment and conveyance regarding the Purchased Assets; (b) to
provide testimony in connection with any proceeding affecting the right, title,
or interest of Purchaser in the Purchased
<PAGE> 2
Assets; and (c) to perform any other acts deemed necessary to carry out the
intent of this Agreement.
5. PROTECTION OF TRADE SECRETS. For purposes of this Agreement, "Trade Secret"
means the whole or any portion or phase of any scientific or technical
information, design, process, procedure, formula, or improvement included in the
Purchased Assets that is valuable and not generally known to the business
concerns engaged in the development or marketing of products competitive with
the Purchased Assets. From and after the date of execution hereof, and for so
long thereafter as the data or information remain Trade Secrets, Owner shall not
use, disclose, or permit any person not authorized by Purchaser to obtain any
Trade Secrets (whether or not the Trade Secrets are in written or tangible
form), except as specifically authorized by Purchaser.
6. ACKNOWLEDGMENT OF RIGHTS. In furtherance of this Agreement, Owner hereby
acknowledges that, from and after the Effective Date of this Agreement,
Purchaser has acceded to all of Owner's right, title, and standing to (a)
receive all rights and benefits pertaining to the Purchased Assets; (b)
institute and prosecute all suits and proceedings and take all actions that
Purchaser, in its sole discretion, may deem necessary or proper to collect,
assert, or enforce any claim, right, or title of any kind in and to any and all
of the Purchased Assets; and (c) defend and compromise any and all such actions,
suits, or proceedings relating to such transferred and assigned rights, title,
interest, and benefits, and perform all other such acts in relation thereto as
Purchaser, in its sole discretion, deems advisable.
7. REPRESENTATIONS AND WARRANTIES. Owner represents and warrants to Purchaser
as follows:
(a) Except as set forth in Schedule 7(a) attached hereto, Purchaser shall
receive, pursuant to this Agreement, complete and exclusive right, title and
interest in and to all tangible and intangible property rights existing in the
Purchased Assets. Owner has developed the Purchased Assets entirely through his
own efforts for his own account. The Purchased Assets are free and clear of all
liens, claims, encumbrances, rights or equities whatsoever of any third party.
(b) Except for third party software, applications and information to which
the Website provides links, the Purchased Assets do not infringe any patent,
copyright, trade secret or other intellectual property right of any third party;
the Purchased Assets are fully eligible for protection under applicable
copyright law; and the source code, if any, for the Purchased Assets have been
maintained in confidence.
(c) To the best of Owner's knowledge and except for third party software,
applications and information to which the Website provides links, the Purchased
Assets do not contain any material that is libelous, slanderous, defamatory,
obscene or illegal. There is no action, suit, claim, or proceeding pending or,
to the best of Owner's knowledge, threatened against or affecting Owner, arising
from the use of the Purchased Assets prior to the Effective Date.
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<PAGE> 3
(d) To the best of Owner's knowledge and except for third party software,
applications and information to which the Website provides links, the software,
hardware and firmware which comprise the Purchased Assets is Year 2000
Compliant. The term "Year 2000 Compliant", as used in the preceding sentence,
means that no operational function, financial function, data transmission,
communication or process is materially affected or materially interrupted by
dates prior to, during or after the Year 2000, and in particular, without
prejudice to the generality of the foregoing that: (i) no value for current date
will cause any interruption in operation; (ii) all manipulation of time related
data will produce the required results for all valid date values prior to,
during and after the Year 2000; (iii) if the date elements in interfaces and
data storage specify the century, they will permit specifying the correct
century either explicitly or by unambiguous algorithms or inferencing rules; and
where any date element is represented without a century, the correct century
shall be unambiguous for all manipulations involving that element; and (iv) Year
2000 must be recognized as a leap year.
8. INDEMNIFICATION.
(a) Owner shall indemnify Purchaser from and against, and shall defend or
settle at Owner's own expense, any action against Purchaser based on a claim
that the use of the Purchased Assets constitutes an infringement of any
copyright, patent, trade secret or other intellectual property right of a third
party. Owner will pay any costs and damages actually awarded against Purchaser,
and reasonable expenses (including but not limited to reasonable attorney's
fees) incurred by Purchaser in any such action attributable to any such claim.
(b) Owner shall indemnify and hold Purchaser harmless from and against any
costs, damages and fees reasonably incurred by Purchaser, including, but not
limited to, fees of attorneys and other professionals, to the extent based on or
attributable to an allegation, claim or action (i) arising out of any
allegations that the Purchased Assets contain any material that is libelous,
slanderous, defamatory, obscene or illegal, or (ii) with respect to any and all
losses, liabilities, damages or obligations resulting from or relating to any
untrue representation or breach of warranty by Owner, provided that Purchaser
first gives written notice to Owner of such claim or breach and Owner shall have
thirty (30) days to cure such claim or breach which gives rise to Purchaser's
indemnification claim under this Section 8(b).
(c) Owner's obligation to indemnify Purchaser in accordance with this
Section 8 shall apply provided that the loss suffered by the Purchaser exceeds
U.S. $5,000 and further provided that Owner's indemnification of Purchaser shall
not exceed in the aggregate the actual amount of (i) cash consideration already
paid to Owner by Purchaser in accordance with Schedule 2 attached hereto as of
the date Purchaser asserts such indemnification claim against Owner plus (ii)
any stock consideration already paid to Owner by Purchaser in accordance with
Schedule 2 attached hereto as of the date Purchaser asserts such indemnification
claim, provided that Owner shall have the sole discretion of making payment by
transferring stock in kind to the Purchaser or cash of equal value. In any
event, Owner's payment obligation in accordance with clause (ii) above shall not
exceed $333,333 in cash. Notwithstanding the foregoing, Owner's obligation to
indemnify Purchaser in accordance with this Section 8 shall not be subject to
any of the limits described in the previous sentence for losses arising from
Owner's fraud, willful conduct or gross negligence.
- 3-
<PAGE> 4
9. NON-COMPETITION / NON-SOLICITATION. Owner hereby agrees to the following:
(a) For a period of five (5) years after the Effective Date, Owner will
not anywhere in the world engage or participate in, directly or indirectly, as
principal, agent, employee, employer, consultant, investor or partner, or assist
in the management of, or own any stock or any other ownership interest in, any
Competitive Business (as defined herein); provided that the ownership of not
more than 5% of the outstanding securities of any class listed on an exchange or
regularly traded in the over-the-counter market shall not constitute a violation
of this Section 9(a). For purposes of this Agreement, "Competitive Business"
shall mean any business which relates to the collection and distribution of
information on software and applications.
(b) For a period of five (5) years after the Effective Date (the
"Non-Solicitation Period"), Owner will not solicit, or attempt to solicit, any
officer, director, consultant or employee of Purchaser or any of its
subsidiaries or affiliates to leave his or her engagement with Purchaser or such
subsidiary or affiliate nor will it call upon, solicit, divert or attempt to
solicit or divert from Purchaser or any of its affiliates or subsidiaries any of
their customers or suppliers, or potential customers or suppliers; provided,
however, that nothing in this Section 9(b) shall be deemed to prohibit Owner
from calling upon or soliciting a customer or supplier during the
Non-Solicitation Period if such action relates solely to a business which is not
competitive with Purchaser; and provided, further, however, that nothing in this
Section 9(b) shall be deemed to prohibit Owner from placing advertisements in
newspapers or other media of general circulation advertising employment
opportunities.
10. ADDITIONAL COVENANTS.
(a) The parties, as soon as practicable but in no event no later than
September 1, 1999, will enter into a service contract containing the following
provisions: (i) Owner (or an enterprise established by Owner) shall provide
maintenance and service for the Website and Owner shall devote such business
time that is reasonably necessary to operate the Website in a manner consistent
with Owner's past business practices. (ii) Owner shall have full editorial and
creative control over the content of the Website and shall report to the
President of Purchaser. (iii) As compensation for such services, Owner shall
receive an annual payment of U.S. $90,000 per year payable in twelve (12)
monthly installments on the first day of each month. (iv) Purchaser shall
reimburse Owner for all reasonable expenses incurred by Owner in connection with
the performance of his services, provided that any expense exceeding $1,000
shall require the prior consent of Purchaser. (v) The term of the service
contract shall be for three (3) years. (vi) Purchaser will pay to owner a
$10,000 annual end of the year bonus.
(b) Owner, as reasonably requested by Purchaser, shall provide assistance
in completing or consummating any necessary filings or transfers in connection
with the Purchased Assets in the United States and the Federal Republic of
Germany.
(c) Purchaser hereby acknowledges that Owner has confirmed to the
registered users of the Web site that such users will not receive unsolicited
e-mail or other messages from their use of
- 4-
<PAGE> 5
the Web site (a.k.a. spamming). Purchaser agrees to take commercially reasonable
measures to prevent such spamming on the Website after Closing.
11. TERMINATION. All rights, obligations and terms of this Agreement including
Purchaser's rights to indemnification shall terminate and expire three (3) years
after the date hereof. Notwithstanding the foregoing, the provisions in Section
9 of this Agreement shall survive five (5) years after the date hereof.
12. MISCELLANEOUS. (a) This Agreement will inure to the benefit of, and be
binding upon, the parties hereto, together with their respective legal
representatives, successors and assigns. (b) If any provision of this Agreement
is found invalid or unenforceable, that provision will be enforced to the
maximum extent permissible, and the other provisions of this Agreement will
remain in force. (c) This Agreement and schedules are the complete and exclusive
agreement among the parties with respect to the subject matter hereof,
superseding and replacing any and all prior agreements, communications and
understandings (both written and oral) regarding such subject matter. This
Agreement may only be modified, or any rights under it waived, by a written
agreement executed by both parties. (d) This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts,
exclusive of its rules governing choice of law and conflict of laws, provided
that the venue for any court proceeding shall be Frankfurt am Main in the
Federal Republic of Germany.
[The remainder of this page is intentionally left blank.]
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written.
OWNER
/s/ Patrick Lenz
-----------------------------
Patrick Lenz
ANDOVER ADVANCED TECHNOLOGIES, INC.
By: /s/ Bruce A. Twickler
-----------------------------
Title: President
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<PAGE> 7
SCHEDULE 1
LIST OF ASSETS
1. Domain: freshmeat.net
2. "FRESHMEAT" servicemark for computer services, namely providing on-line
software update information and download links in the, filed as Open Source
Software, Int. Class: 042.
There is a pending application dated April 8, 1999 (serial number
75/677150) for registration of this servicemark in the United States.
The servicemark was first used in commerce on March 24, 1998.
3. Web site copyrights for web sites in freshmeat.net
4. Scripts for the creation of the Web site contents of freshmeat.net
5. Data contained in the freshmeat.net databases.
6. Revenue generated through the sale of T-shirts containing the Web site
logo.
- 7 -
<PAGE> 8
SCHEDULE 2
PURCHASE PRICE
1. CASH CONSIDERATION. Total cash consideration to be paid shall be
$667,000 which shall be paid as follows to the Owner:
(a) $367,000 on the Effective Date; and
(b) a monthly installment of $20,000 payable on the first business
day of each month commencing on September 1, 1999 through and
including November 1, 2000. The aggregate payment under this
clause (b) shall be $300,000.
2. STOCK CONSIDERATION. In the event that the Purchaser completes an
initial public offering of its common stock (an "Offering"), in addition to the
consideration set forth above, the Purchaser shall issue shares of its common
stock to the Owner with an aggregate value as set forth below. The number of
shares of common stock to be issued to the Seller in each instance shall be
calculated using the price per share initially offered to the public in such
Offering:
Aggregate Value Timing
--------------- ------
$111,111 Upon closing of Offering
$111,111 Twelve (12) months after closing of Offering
$111,111 Twenty-four (24) months after closing of Offering
In the event that the service contract of Patrick Lenz with the Purchaser
referenced in Section 10 of this Agreement is terminated for Cause or
voluntarily by the individual, the Purchaser shall not be required to issue any
of the shares due to the Seller following the date of such termination.
3. ALTERNATE CASH CONSIDERATION. In the event that an Offering does not
occur within eighteen (18) months from the Effective Date, the Owner shall have
a one time option which must be exercised in writing not less than eighteen (18)
months after the Effective Date and not more than nineteen (19) months after the
Effective Date, to forego the consideration set forth in Section 2 above and to
receive in lieu thereof the following cash payments:
(i) US $100,000 paid on the date which is five (5) days following the
receipt by the Purchaser of the Owner's election hereunder;
(ii) US $100,000 paid on the date which is twelve (12) months after the
receipt by the Purchaser of the Owner's election hereunder; and
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<PAGE> 9
(iii) US $100,000 paid on the date which is twenty-four (24) months after
the receipt by the Purchaser of the Owner's election hereunder.
In the event that the service contract of Patrick Lenz with the Purchaser
referenced in Section 10 of this Agreement is terminated for Cause or
voluntarily by the individual, the Purchaser shall not be required to make any
payment in accordance with this Alternate Cash Consideration.
4. NATURE OF PURCHASE PRICE/PURCHASE PRICE ALLOCATION. The Parties agree that
all payments hereunder shall be deemed purchase price payable for the purchase
of the Purchased Assets and not compensation to the Owner. If necessary, the
Parties will mutually agree on the allocation of the Purchase Price.
- 9 -
<PAGE> 10
SCHEDULE 7(a)
TITLE AND INTEREST
Web site copyrights for web sites in freshmeat.net.
Certain volunteers have assisted the Owner in proofreading materials posted on
the web site.
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<PAGE> 1
EXHIBIT 10.5
OFFICE LEASE
by and between
NAGOG PARK INVESTORS, L.L.C.
("Landlord")
and
ANDOVER ADVANCED TECHNOLOGIES, INC.
(d/b/a Andover Net)
("Tenant")
Dated: March ___, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I REFERENCE DATA.........................................................1
1.1 Commencement Date..............................................1
1.2 Building.......................................................1
1.3 Leased Premises................................................1
1.4 Land...........................................................1
1.5 Property.......................................................1
1.6 Landlord's Mailing Address.....................................2
1.7 Tenant's Mailing Address.......................................2
1.8 Broker.........................................................2
1.9 Tenant's Prorata Share.........................................2
1.10 Security Deposit...............................................2
1.11 Guarantor......................................................2
1.12 Leased Premises Rentable Area..................................2
1.13 Permitted Use..................................................2
1.14 Lease Year.....................................................2
1.15 Base Year Taxes................................................2
1.16 Base Year Operating Costs......................................3
ARTICLE II LEASE TERM; EXTENSIONS................................................3
2.1 Term...........................................................3
2.2 Extension Rights...............................................3
ARTICLE III RENT.................................................................4
3.1 Base Rent......................................................4
3.2 Additional Rent................................................5
3.3 Manner of Payment of Additional Rent...........................6
ARTICLE IV SECURITY DEPOSIT......................................................6
4.1 Handling of Security Deposit...................................6
4.2 Restoration of Security Deposit................................6
ARTICLE V UTILITIES AND SERVICES ................................................7
5.1 Electricity, Heating, Ventilation, Air Conditioning............7
5.2 Other Utilities................................................7
5.3 Tenant's Obligations Regarding Additional Utilities............7
5.4 Landlord's Right to Install Other Utilities....................7
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI USE OF LEASED PREMISES................................................8
6.1 Use of Leased Premises.........................................8
6.2 Compliance with Laws...........................................8
6.3 Compliance with Americans with Disabilities Act................8
6.4 No Nuisance or Other Harmful or Disruptive Activity............8
6.5 Compliance with Fire Insurance Requirements....................9
6.6 Hazardous Materials............................................9
ARTICLE VII MAINTENANCE; REPAIRS................................................10
7.1 Tenant's Obligations..........................................10
7.2 Landlord's Obligations........................................11
7.3 Removal of Snow, Ice and Debris...............................11
7.4 Tenant's Failure to Make Repairs..............................11
ARTICLE VIII ALTERATIONS........................................................11
8.1 Alterations or Additions by Tenant............................11
8.2 Alterations or Additions by Landlord..........................12
ARTICLE IX ASSIGNMENT; SUBLEASING...............................................12
Landlord's Consent.....................................................12
ARTICLE X SUBORDINATION; ESTOPPEL CERTIFICATES..................................13
10.1 Subordination.................................................13
10.2 Estoppel Certificates.........................................14
ARTICLE XI INDEMNIFICATION AND WAIVER...........................................14
11.1 Damage to Property............................................14
11.2 Indemnity Against Liability...................................15
11.3 Waiver of Claims..............................................15
ARTICLE XII INSURANCE...........................................................16
12.1 Insurance to be Maintained by Tenant..........................16
12.2 Other Insurance Requirements..................................16
12.3 Waiver of Subrogation.........................................16
12.4 Insurance to be Maintained by Landlord........................17
ARTICLE XIII FIRE; CASUALTY; EMINENT DOMAIN.....................................17
13.1 Damage by Casualty............................................17
13.2 Tenant's Option to Terminate in the Event of a Taking.........18
13.3 Landlord's Option to Terminate in the Event of a Taking.......18
13.4 Miscellaneous Provisions Regarding Casualty or Taking.........19
ARTICLE XIV DEFAULT; REMEDIES; BANKRUPTCY.......................................20
14.1 Events of Default.............................................20
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C>
14.2 Landlord's Remedies...........................................21
14.3 Landlord's Cure Rights........................................23
14.4 Tenant's Obligation to Reimburse Landlord.....................23
14.5 No Waiver.....................................................23
14.6 Acceptance of Late Payments...................................23
14.7 Interest on Late Payments.....................................23
14.8 Remedies Cumulative...........................................23
14.9 Landlord's Rights in Tenant's Bankruptcy......................24
14.10 Landlord's Default............................................24
ARTICLE XV SURRENDER; HOLDING OVER..............................................25
15.1 Surrender of Leased Premises..................................25
15.2 Holding Over..................................................25
ARTICLE XVI LANDLORD'S LIABILITY................................................26
16.1 Limited Recourse..............................................26
16.2 Interruption of Services and Utilities........................26
16.3 No Consequential Damages......................................26
16.4 Liability after Conveyance of Property........................26
ARTICLE XVII MISCELLANEOUS PROVISIONS...........................................27
17.1 Governing Law.................................................27
17.2 Partial Invalidity............................................27
17.3 Captions......................................................27
17.4 Successors and Assigns........................................27
17.5 Recording of Lease............................................27
17.6 Entire Agreement..............................................27
17.7 Amendments....................................................27
17.8 Quiet Enjoyment...............................................28
17.9 No Partnership................................................28
17.10 Time of Essence...............................................28
17.11 Brokerage.....................................................28
17.12 Rules and Regulations.........................................28
17.13 Signs.........................................................28
17.14 Landlord's Access and Tenant's Access; Security...............29
17.15 Notices.......................................................29
17.16 No Merger.....................................................29
17.17 No Offer......................................................29
17.18 Waiver of Jury Trial..........................................29
17.19 Financial Reports.............................................30
17.20 Landlord's Fees...............................................30
17.21 Telecommunications............................................30
17.22 Confidentiality...............................................30
</TABLE>
iv
<PAGE> 5
<TABLE>
<S> <C>
17.23 Notice to Landlord's Mortgagee................................30
17.24 Condition of Leased Premises..................................31
17.25 Landlord's Work...............................................31
17.26 Tenant Improvements...........................................32
</TABLE>
List of Exhibits:
Exhibit FP - Floor Plan of Leased Premises
Exhibit LD - Legal Description of Property
Exhibit OC - Operating Costs
Exhibit RR - Rules and Regulations
Exhibit LW - Landlord's Work
Exhibit LW-1 - Landlord's Specifications
Exhibit LW-2 - Landlord's Plans
Exhibit TI - Tenant Improvements
Exhibit J - Janitorial Services
Exhibit TR - Title Restrictions
v
<PAGE> 6
OFFICE LEASE
THIS OFFICE LEASE (this "Lease") is made as of the ____ day of March,
1999, by and between Nagog Park Investors, L.L.C., having a business address c/o
Tishman-Heskin Partners, 119 North Fourth Street, Minneapolis, MN 55401
("Landlord") and Andover Advanced Technologies, Inc. (d/b/a Andover Net), a
Massachusetts corporation, having a business address
at 532 Great Road, Acton, Massachusetts 01720 ("Tenant").
Subject to the covenants, conditions and other provisions of this
Lease, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord,
the Leased Premises (as defined below), together with the non-exclusive right to
use in common with others the Common Facilities (as defined below) and the right
to use in common with other tenants, forty-one (41) unassigned parking spaces on
the Land.
ARTICLE I
REFERENCE DATA
Each of the capitalized terms used in this Lease shall have the meaning
set forth opposite such term below:
1.1 COMMENCEMENT DATE: May 15, 1999
1.2 BUILDING: The building located at 50 Nagog Park,
Acton, Massachusetts, containing
approximately one hundred eighteen
thousand three hundred nine (118,309)
rentable square feet of floor space.
1.3 LEASED PREMISES: A portion of the Building containing
approximately eleven thousand seven
hundred forty (11,740) rentable square
feet of floor space, located within the
Building on the second (2nd) floor as
shown on EXHIBIT FP attached hereto.
1.4 LAND: The land on which the Building is
located, as described in the legal
description attached hereto as
EXHIBIT LD.
1
<PAGE> 7
1.5 PROPERTY: The Land, the Building, the Common
Facilities and the other common areas
and the other improvements
1.6 LANDLORD'S MAILING ADDRESS: 119 North Fourth Street, Suit 407
Minneapolis, MN 55401
Attn: Mr. Raymond P. Cunningham
1.7 TENANT'S MAILING ADDRESS: 50 Nagog Park
Acton, MA 01720
Attn: President/CEO
1.8 BROKER: Grubb & Ellis Company
1.9 TENANT'S PRORATA SHARE: Nine and nine tenths percent (9.9%)
1.10 SECURITY DEPOSIT: Thirty-Five Thousand Dollars
($35,000.00)
1.11 GUARANTOR: N/A
1.12 LEASED PREMISES RENTABLE AREA: Eleven thousand seven hundred forty
(11,740) rentable square feet
1.13 PERMITTED USE: General office but only to the extent
permitted by applicable zoning, and no
other purpose.
1.14 LEASE YEAR: A period of twelve (12) consecutive
calendar months commencing on the
Commencement Date (or the first day of
the first calendar month after the
Commencement Date occurs if the
Commencement Date is any day other than
the first day of a month), and then
each consecutive twelve (12) month
period occurring thereafter during the
Term of this Lease.
1.15 BASE YEAR TAXES: Total Taxes (as defined below) paid
with respect to the Property for the
period from July 1, 1999 through June
30, 2000 (i.e., fiscal tax year 2000);
provided, however, if at the time the
Building reaches 95% occupancy, it can
be reasonably determined that the
assessment of the Property has been
increased to reflect an increase in the
occupancy of the Building over the
occupancy level that existed on the
relevant assessment date for fiscal
year 2000, then the Base Year Taxes
shall be calculated to equal the
product of
2
<PAGE> 8
(a) the new, higher assessed value
which reflects such 95% occupancy (as
distinct from any increased valuation
which is part of a general increased
valuation of all the property within
the Town of Acton) times (b) the tax
rate in effect for the Property for
fiscal year 2000.
1.16 BASE YEAR OPERATING COSTS: Total Operating Costs (as defined
below) paid with respect to the
Property for the period from January 1,
1999 through and including December 31,
1999; however, if during such period
average occupancy of the Building was
less than ninety-five (95%), then Base
Year Operating Costs shall be adjusted
as reasonably appropriate to reflect
the Operating Costs which would have
been incurred had average occupancy of
the Building for such period been
ninety-five percent (95%).
1.17 COMMON FACILITIES: The driveways and walkways necessary
for access to the Building and the
parking areas on the Land; the loading
docks and loading areas serving the
Building; the cafeteria and shower
facilities on the first floor of the
Building; the entrances, lobbies,
stairways, freight and passenger
elevators, and corridors necessary for
access to said loading docks, cafeteria
and shower facilities and the Leased
Premises; rest rooms on the same floor
as the Leased Premises; and the
heating, ventilating, air conditioning,
plumbing, electrical, security,
emergency and other mechanical systems
and equipment serving the Leased
Premises in common with other portions
of the Building.
ARTICLE II
LEASE TERM; EXTENSIONS
2.1 TERM. The term of this Lease shall be for a period of five (5)
years commencing on the Commencement Date and ending on the last day of the
month immediately prior to the month in which the fifth (5th) anniversary of the
Commencement Date occurs (the "Term"). Landlord shall deliver the Leased
Premises to Tenant, free of all tenants and occupants, on the Commencement Date.
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2.2 EXTENSION RIGHTS. Provided there is no uncured Event of
Default, or existing facts or circumstance which, with the giving of notice or
passage of time or both, could become an Event of Default, both at the time of
Tenant's exercise of its right to extend and at the commencement of the relevant
Option Term (defined below), Tenant shall have the right to extend the Term for
one (1) five-year extension period (the "Option Term") upon the following terms
and conditions:
2.2.1 Tenant must notify Landlord in writing of its
election to extend the Term for the Option Term on or before one hundred eighty
(180) days prior to the expiration of the Term.
2.2.2 The annual Base Rent for the Option Term shall be
equal to ninety-five percent (95%) of the Fair Market Rental Value as determined
pursuant to EXHIBIT FMRV attached hereto as of the last day of the original Term
with respect to the Base Rent due during the Option Term; provided that such
Fair Market Rental Value shall not be less than Two Hundred Thirty-Four Thousand
and 00/100 Dollars ($234,000.00) per year.
2.2.3 Additional Rent (defined below) due for Real Estate
Taxes (defined below), Operating Costs (defined below), the costs of utilities
and other sums due under this Lease shall be payable during the Option Term in
the same manner as herein provided for the original Term.
2.2.4 All other provisions of this Lease shall also remain
in effect during the Option Term except the right to extend as set forth in this
Section 2.2, it being agreed that there are no further rights of extension after
the first Option Term. Unless expressly stated herein to the contrary, all
references in this Lease to the "Term" shall include the Option Term when and if
Landlord receives Tenant's notice of election to extend the Term as herein
provided.
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ARTICLE III
RENT
3.1 BASE RENT. Tenant shall pay to Landlord annual rent equal to
(i) Two Hundred Five Thousand Four Hundred Fifty and 00/100 Dollars
($205,450.00) per year, payable in equal monthly installments of Seventeen
Thousand One Hundred Twenty and 83/100 Dollars ($17,120.83) each from May 1,
1999 through April 30, 2002, and Two Hundred Twenty-Eight Thousand Nine Hundred
Thirty and 00/100 Dollars ($228,930.00) per year, payable in equal monthly
installments of Nineteen Thousand Seventy-Seven and 75/100 Dollars ($19,077.75)
each from May 1, 2002 through April 30, 2004 ("Base Rent"), AND (ii) an amount
equal to the cost of the electricity consumed by Tenant at the Building
determined by a check meter (the "Electricity Rent"). Landlord shall pay for the
cost of such check meter. Payments of Base Rent shall be made by Tenant at the
Landlord's Mailing Address commencing on May 1, 1999 and continuing thereafter
on the first day of each month during the Term in advance, without offset,
deduction, demand, or abatement (except as otherwise expressly specified in this
Lease) whatsoever, in lawful money of the United States. The Base Rent payment
for any fractional month at the commencement, termination or expiration of the
Term will be prorated accordingly. The amount of Base Rent payable during the
Option Term shall be determined in accordance with Section 2.2.2 above.
Electricity Rent shall be payable in monthly installments in arrears within
thirty (30) days after Tenant receives an invoice from Landlord stating the
amount of electricity consumed by Tenant during the previous month according to
said check meter and the actual cost to Landlord of such electricity.
3.2 ADDITIONAL RENT. In addition to the Base Rent and Electricity
Rent, Tenant shall pay to Landlord the following amounts as additional rent
("Additional Rent") hereunder:
3.2.1 TAXES. Commencing July 1, 2000, Tenant will pay to
Landlord Tenant's Prorata Share of the "Increased Taxes" (defined below) for
each fiscal tax year or portion thereof included within the Term. "Taxes" shall
mean the total of all real estate taxes, charges, and assessments, extraordinary
as well as ordinary, and any payments in lieu of such real estate taxes, levied,
imposed, or assessed for a particular fiscal year during the Term of this Lease
by governmental authorities upon or attributable to the Property, or to any and
all personalty owned by Landlord installed in or about the same by Landlord. If
due to a future change in the method of taxation any franchise, income or profit
tax shall be levied against Landlord in substitution for or in lieu of any tax
which would otherwise constitute a real estate tax or payment in lieu of real
estate tax, or if a specific tax on rentals from the Property shall be levied
against Landlord, such franchise, rental, or income tax shall be deemed to
constitute "Taxes" for the purposes hereof. Notwithstanding any other provision
of this Lease, "Taxes" shall not include any tax on Landlord's net income.
"Increased Taxes" shall mean the amount, if any, by which total Taxes paid for
any fiscal tax year included within the Term exceed Base Year Taxes. If Landlord
obtains an abatement of any such Taxes, a proportionate share of such abatement,
less the reasonable fees and costs incurred in obtaining the same, shall be
refunded to Tenant. Taxes shall be deemed to be paid over the maximum time
permitted under law. If the Term includes only a portion of any fiscal tax year,
Tenant's Prorata Share of Increased Taxes for such fiscal tax year shall be
prorated according to the fraction calculated by dividing (a) the total number
of days in such fiscal tax year included within the Term by (b) 365. Tenant
shall be fully responsible for any tax assessment or other charge levied by any
governmental authority against any personalty placed upon the Property by
Tenant.
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3.2.2 OPERATING COSTS. Commencing January 1, 2000, Tenant
shall pay to Landlord Tenant's Prorata Share of the Increased Operating Costs
(defined below) for each calendar year. For the purposes of this Lease, the term
"Operating Costs" shall mean the items listed in EXHIBIT OC attached hereto and
made a part hereof. "Increased Operating Costs" shall mean the amount, if any,
by which total Operating Costs for any calendar year included within the Term
exceed Base Year Operating Costs. If during any calendar year less than
ninety-five percent (95%) of the rentable area of the Building is occupied, then
Operating Costs for such calendar year shall be adjusted reasonably to reflect
the Operating Costs which would have been incurred if at least ninety-five
percent (95%) of the rental area of the Building had been occupied during such
calendar year. If the Term includes only a portion of a calendar year, Tenant's
Prorata Share of Increased Operating Costs for such calendar year shall be
prorated according to the fraction calculated by dividing (a) the total number
of days in such calendar year included within the Term by (b) 365.
3.3 MANNER OF PAYMENT OF ADDITIONAL RENT. Landlord shall
reasonably estimate Base Year Operating Costs, Increased Taxes, Increased
Operating Costs, and Tenant's Prorata Share of such Increased Taxes and such
Increased Operating Costs for the Lease Year in question and commencing January
1, 2000, Tenant shall pay with each monthly installment of Base Rent during that
Lease Year, in advance as Additional Rent, an amount equal to one-twelfth
(1/12th) of the total of Tenant's Prorata Share of such estimated Increased
Taxes and Increased Operating Costs. On or before April 1 of each calendar year,
Landlord shall deliver to Tenant a reasonably detailed written statement of the
actual Taxes and Operating Costs for the preceding calendar year, together with
reasonable supporting documentation to permit Tenant to confirm the accuracy of
all charges and calculations. If total payments made by Tenant based upon such
estimates exceed Tenant's Prorata Share of actual Increased Taxes and Increased
Operating Costs as finally determined for the Lease Year in question, then any
overpayment shall be credited in full to such payments next coming due under
this Lease. If total payments based upon such estimates are less than the actual
amounts required to pay in full Tenant's Prorata Share of actual Increased Taxes
and Increased Operating Costs for the year in question, then Tenant shall pay to
Landlord the full amount of the deficiency within thirty (30) days after
receiving written notice from Landlord of the amount of such deficiency. The
Additional Rent payment for any fractional month at the commencement,
termination or expiration of the Term shall be prorated accordingly. Payments of
Additional Rent shall be made by Tenant without offset, deduction, demand, or
abatement whatsoever (except as otherwise expressly provided in this Lease), in
lawful money of the United States.
ARTICLE IV
SECURITY DEPOSIT
4.1 HANDLING OF SECURITY DEPOSIT. Upon the execution of this
Lease, Tenant shall pay to Landlord the Security Deposit in the amount specified
in Section 1.10 above, which shall be held as security for Tenant's performance
of Tenant's obligations under this Lease (and may be applied
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by Landlord to defray the cost or expense to Landlord (including, without
limitation, payment of any unpaid Rent) arising out of any Event of Default by
Tenant hereunder) and refunded to Tenant at the end of the Lease Term subject to
Tenant's satisfactory compliance with the conditions and obligations of this
Lease. Landlord may co-mingle the Security Deposit with Landlord's other funds
and shall have no obligation to pay any interest with respect to the Security
Deposit. Further, Landlord shall have the obligation to turn over the Security
Deposit to any grantee of Landlord's interest in the Property, excluding any
mortgagee; and if so turned over, Tenant agrees to look solely to such grantee
for proper application of the Security Deposit. In the event the Security
Deposit is so turned over, Landlord shall provide written notice of such
transfer to Tenant stating the amount of money so turned over and naming the
recipient of such Security Deposit.
4.2 RESTORATION OF SECURITY DEPOSIT. In the event Landlord
applies any portion of the Security Deposit in accordance with Section 4.1 above
(excluding transfers of the Security Deposit to any grantee of Landlord's
interest in the Property), Tenant shall immediately make payment to Landlord of
the amount necessary to restore the Security Deposit to the full dollar amount
set forth in Section 1.10.
ARTICLE V
UTILITIES AND SERVICES
5.1 ELECTRICITY, HEATING, VENTILATION, AIR CONDITIONING. Tenant
shall pay directly to Landlord monthly (as set forth in Section 3.1) Tenant's
share of charges for electricity consumed in the Leased Premises as established
by the so-called check meter or sub-meter (the "Sub- meter") between the main
meter (the "Main Meter") for the Building and the Leased Premises which monitors
electricity usage at the Leased Premises. Tenant's share shall equal the total
monthly electric bill based upon the usage reflected by the Main Meter, times a
fraction of which the denominator is the total kilowatt hours shown on the Main
Meter for the month in question and the numerator of which is the total kilowatt
hours shown on the Sub-meter for the month in question. During the Term,
Landlord shall provide heating, ventilation and air conditioning ("HVAC") to the
Leased Premises between the hours of 8:00 a.m. to 6:00 p.m. Monday through
Friday and from 8:00 a.m. to 1:00 p.m. on Saturday, but excluding holidays (the
"Normal Hours HVAC"). Upon Tenant's request, which request must be made to
Landlord's property manager by 3:00 pm on the preceding business day, Landlord
shall provide HVAC beyond Normal Hours HVAC at a cost of fifty dollars ($50) per
hour.
5.2 OTHER UTILITIES. For any utility service provided to the
Leased Premises other than electricity, water or sewer, Tenant must make
arrangements directly with the provider of such utility service for bills to be
rendered directly to Tenant, and Tenant shall have full responsibility to pay
all such bills.
5.3 TENANT'S OBLIGATIONS REGARDING ADDITIONAL UTILITIES. Landlord
shall have no obligation to provide utilities or equipment other than the
utilities and equipment within the Leased
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Premises as of the Commencement Date of this Lease. In the event Tenant's use of
the Leased Premises requires additional utilities or equipment or utilities of
greater capacity, the installation and maintenance thereof shall be Tenant's
sole obligation and shall be performed at Tenant's sole cost and expense,
provided that such installation shall be subject to the prior written consent of
Landlord which shall not be unreasonably withheld, delayed or conditioned.
5.4 LANDLORD'S RIGHT TO INSTALL OTHER UTILITIES. Landlord shall be
entitled to install in or through the Leased Premises (above drop ceilings) and
the Property and repair, maintain, and replace pipes, conduits, wires, and other
utility lines serving other tenants or portions of the Property provided said
installation, repair, maintenance or replacements do not unreasonably interfere
with Tenant's use of the Leased Premises, other than a reasonable time necessary
to complete such installation, repair, maintenance, or replacement. Landlord
shall provide at least forty-eight (48) hours advance written notice to Tenant
of any such work to be performed in or adjacent to the Leased Premises that may
reasonably be calculated to have an effect on the Tenant's use of the Leased
Premises.
5.5 JANITORIAL SERVICES. Landlord shall provide janitorial
services to the Leased Premises according to the schedule attached as EXHIBIT J.
The cost of such services shall be included in Operating Costs.
ARTICLE VI
USE OF LEASED PREMISES
6.1 USE OF LEASED PREMISES. Tenant acknowledges that no trade or
occupation shall be conducted in the Leased Premises or use made thereof other
than the Permitted Use set forth in Section 1.13 above.
6.2 COMPLIANCE WITH LAWS. Tenant, at its sole expense, shall
comply with all laws, rules, orders and regulations of federal, state, county,
and municipal authorities (collectively, "Governmental Regulations"), and with
any direction of any public officers pursuant to law, which impose any duty upon
Landlord or Tenant with respect to the Leased Premises. Conversely, Landlord, at
its sole expense, shall comply with all Governmental Regulations and any such
directions which impose any duty with respect to the portions of the Building or
Property outside of the Leased Premises, except to the extent that such duty is
triggered by the specific use for which Tenant is utilizing the Leased Premises,
in which event the provisions of the prior sentence shall govern. Tenant shall
also comply with all covenants, conditions and restrictions of record as
specified herein on EXHIBIT TR as of the execution of this Lease applicable to
Tenant's use or occupancy of the Property.
6.3 COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Without in
any way limiting the generality of the obligations set forth in Section 6.2
above, Tenant also shall comply at Tenant's sole cost and expense with all
applicable provisions of the Americans with Disabilities Act ("ADA") and all of
the regulations promulgated thereunder as they apply to Tenant's use and
occupancy of
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the Leased Premises and the operation of Tenant's business therein and shall be
fully responsible for any modifications or alterations to the Leased Premises or
the common areas of the Property necessary to meet requirements of the ADA which
have become applicable to the Leased Premises or the Property as a result of
Tenant's operation of its business within the Leased Premises. Landlord shall be
responsible for compliance of the Building or Property outside of the Leased
Premises with all provisions of the ADA, except to the extent that such duty is
triggered by the specific use for which Tenant is utilizing the Leased Premises,
in which event and to which extent the provisions of the prior sentence shall
govern (unless Tenant's use of the Leased Premises is solely a "general office
use," in which case such duty shall be Landlord's duty).
6.4 NO NUISANCE OR OTHER HARMFUL OR DISRUPTIVE ACTIVITY. Tenant
shall not perform any acts or carry on any business or practices which may (a)
injure or overburden any part of the Leased Premises, the Property or common
areas, including, without limitation, any of the electrical or mechanical
systems of the Property, (b) violate any certificate of occupancy affecting the
same, (c) constitute a public or private nuisance or a menace to other tenants
on the Property, (d) produce undue noise, (e) create obnoxious fumes or other
odors or (f) otherwise cause unreasonable interference with other tenants or
occupants of the Property.
6.5 COMPLIANCE WITH FIRE INSURANCE REQUIREMENTS. Tenant shall not
permit any use of the Leased Premises which will make voidable any insurance on
the Property or on the contents of the Building or which shall be contrary to
any law or regulation from time to time established by the New England Fire
Insurance Rating Association or any similar body succeeding to its powers. If
Landlord gives notice and Tenant persists in any use of the Leased Premises
which will make voidable any insurance on the Property or on the contents of the
Building, then in addition to any other remedies Landlord may have, Tenant shall
on demand reimburse Landlord, and all other tenants to the extent of insurance
carried directly by them, all extra insurance premiums caused in any way by
Tenant's use of the Leased Premises, including, without limitation, the volume
of electricity and electrical equipment used by Tenant.
6.6 HAZARDOUS MATERIALS. Tenant shall not permit the emission,
release, threat of release or other escape of any Hazardous Materials (defined
below) so as to adversely affect in any manner, even temporarily, any element or
part of the Leased Premises or the Property. Tenant shall not use, generate,
store or dispose of Hazardous Materials in or about the Leased Premises (except
for ordinary office and cleaning supplies which are stored, used and disposed of
in compliance with all applicable Environmental Laws (defined below)), or dump,
flush or in any way introduce Hazardous Materials (other than common cleaning
products which are being disposed of in compliance with all applicable
Environmental Laws) into sewage or other waste disposal systems serving the
Leased Premises (nor shall Tenant permit its employees, agents or contractors to
take any of the foregoing actions).
Tenant will indemnify, defend and hold Landlord harmless from and
against all claims, loss, costs and expenses (including, without limitation,
reasonable attorneys' fees and disbursements, diminution in the value of the
Leased Premises or the Property, costs incurred in connection with
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any investigation of site conditions or any clean-up or remedial work required
by any federal, state or local governmental agency) to the extent incurred as a
result of any contamination of the Leased Premises or any other portion of the
Property with, or any release or threat of release of, Hazardous Materials by
Tenant or Tenant's contractors, licensees, invitees, agents, servants or
employees (collectively, the "Tenant Group"). Without limiting the foregoing, if
the presence of any Hazardous Materials in, on or under the Leased Premises or
the Property caused or permitted by any of the Tenant Group results in any
contamination of the Leased Premises or the Property or any other property,
Tenant shall promptly take all actions at its sole expense as are necessary to
return the Leased Premises, the Property and such other property to the
condition existing prior to the introduction of any such Hazardous Material by
such member(s) of the Tenant Group, provided that Landlord's approval of such
action shall first be obtained, which approval shall not be unreasonably
withheld so long as such actions would not potentially have any material adverse
long-term or short-term effect on Landlord, the Leased Premises or the Property.
Landlord shall indemnify, defend and hold harmless Tenant from and against all
claims, loss, costs and expenses (including without limitation reasonable
attorney's fees and disbursements, diminution in the value of the Leased
Premises, costs incurred in the investigation of site conditions or any clean-up
or remedial work required by any federal, state or local governmental agency) to
the extent incurred as a result of any contamination of the Property with, or
any release of, Hazardous Material existing or arising prior to the date of this
Lease or arising after the date of this Lease as a result of the actions or
negligence of Landlord or its agents, employees or contractors, but neither
Landlord nor Tenant shall be responsible for the actions or negligence of other
tenants.
The obligations of Tenant and Landlord in this Section shall survive
the expiration or earlier termination of this Lease and any transfer of title to
the Leased Premises, whether by sale, foreclosure, deed in lieu of foreclosure
or otherwise.
For purposes of this Lease, "Hazardous Materials" means, collectively,
any animal wastes, medical waste, blood, biohazardous materials, hazardous
waste, hazardous substances, pollutants or contaminants, petroleum or petroleum
products, radioactive materials, asbestos in any form or condition, or any
pollutant or contaminant or hazardous, dangerous or toxic chemicals, materials
or substances within the meaning of any applicable federal, state or local law,
regulation, ordinance or requirement relating to or imposing liability or
standards of conduct concerning any such substances or materials on account of
their biological, chemical, radioactive, hazardous or toxic nature, all as now
in effect or hereafter from time to time enacted or amended. For purposes of
this Lease, "Environmental Laws" means all laws, rules, orders and regulations
of federal, state, county, and municipal authorities, concerning, any Hazardous
Materials whatsoever.
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ARTICLE VII
MAINTENANCE; REPAIRS
7.1 TENANT'S OBLIGATIONS. Tenant shall, at Tenant's sole cost and
expense, (a) maintain and keep in good repair, good working order and free of
litter and refuse (excluding litter and refuse contained in wastebaskets or
disposed of in an area designated by Landlord) the interior of the Leased
Premises and, except for Landlord's obligations under Section 7.2 of this Lease,
make any and all repairs and replacements thereto as and when required, ordinary
or extraordinary, foreseeable or unforeseeable, including, but not limited to,
the maintenance, repair and replacement of any and all furnishings, fixtures and
leasehold improvements within the Leased Premises, exterior entrances, windows
and plate glass (provided that Landlord shall contribute any insurance proceeds
it receives for any damage to the plate glass to the extent the insurance
premiums paid by Landlord respecting the plate glass are included in Operating
Costs) within or part of the wall delimiting the Leased Premises and any
electrical wiring, lighting fixtures, heating or plumbing fixtures, pipes, air
conditioning or heating components contained within and exclusively serving the
Leased Premises; and (b) keep unclogged and in good repair all drains, traps and
sewer pipes exclusively serving the Leased Premises and maintain and leave the
same in good working order. At Landlord's option, ordinary maintenance of any of
the systems described above shall be undertaken by Landlord in which event,
promptly upon demand by Landlord, Tenant shall reimburse Landlord (such
reimbursement to constitute Additional Rent hereunder) for all costs and
expenses incurred by Landlord in connection with such maintenance undertaken.
7.2 LANDLORD'S OBLIGATIONS. Landlord agrees to make all necessary
repairs, replacements, additions and removals, interior and exterior, structural
and nonstructural to maintain the exterior and structural portions of the
Building and the Property (including foundations, floors, structural supports,
roofs, roof structures, canopies (excluding Tenant's signage thereon), walls,
driveways, sidewalks and parking facilities), the building systems including
heating, ventilation, air conditioning, electrical, mechanical and plumbing
systems (except for portions of those systems exclusively serving the Leased
Premises and located within the Leased Premises), the Common Facilities and
windows and plate glass (to the extent maintenance is required due to product
failure or storm related damage) of the Building, reasonable wear and tear,
damage by fire and other casualty only excepted. Further, if any such
maintenance is required because of the negligence or intentional misconduct of
Tenant or those for whose conduct Tenant is legally responsible and such
maintenance is not covered by insurance, then Tenant shall be responsible for
such maintenance, and if such maintenance is covered by insurance, then Tenant
shall be fully liable and responsible to Landlord for the deductible amount of
any such insurance. Landlord agrees to maintain the Common Facilities of the
Building and the landscaped and paved areas of the Property in the same
condition as they may be as of the Commencement Date.
7.3 REMOVAL OF SNOW, ICE AND DEBRIS. Removal of snow, ice and
debris from the Common Facilities including sidewalks, driveways and parking
areas of the Property shall be the responsibility of Landlord. Snow, ice and
debris shall be removed as soon as reasonably practicable.
7.4 TENANT'S FAILURE TO MAKE REPAIRS. If repairs are required to
be made by Tenant pursuant to the terms hereof, Landlord may demand that Tenant
make the same forthwith, and if Tenant refuses or neglects to commence such
repairs and complete the same with reasonable
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dispatch, after such demand, Landlord may (but shall not be required to do so)
make or cause such repairs to be made and such repairs by Landlord shall be
governed by the provisions of Sections 14.3 and 14.4 below.
ARTICLE VIII
ALTERATIONS
8.1 ALTERATIONS OR ADDITIONS BY TENANT. Tenant shall not make any
alterations (structural or otherwise), improvements, or additions to the Leased
Premises, without the prior written consent of the Landlord, other than the
Tenant Improvements as set forth in Section 17.27 and EXHIBIT TI below. All such
allowed alterations, improvements or additions other than the Tenant
Improvements shall be at Tenant's sole cost and expense. Tenant shall not permit
any mechanics' liens, or similar liens, to remain upon the Leased Premises for
labor and material furnished to Tenant or claimed to have been furnished to
Tenant in connection with work of any character performed or claimed to have
been performed at the direction of Tenant and shall cause any such lien to be
released of record forthwith without cost to Landlord. Any alterations or
improvements made by Tenant shall, at the option of Landlord, either become the
property of the Landlord at the expiration or earlier termination of the Term or
be removed by Tenant at Tenant's sole cost and expense at the expiration or
earlier termination of the Term. All alterations or additions made by Tenant
shall be performed in a good and workmanlike manner and in compliance with all
the applicable laws, ordinances, orders, rules, regulations and requirements
applicable thereto, shall be carried out in conformance with plans and
specifications approved by Landlord, and shall be performed only by contractors
or mechanics approved by Landlord. All such contractors and mechanics shall
carry liability insurance (which shall name Landlord and Tenant as an additional
insured) and workmen's compensation insurance reasonably satisfactory to
Landlord, and Landlord shall be presented with certificates of same prior to the
commencement of any work. Tenant agrees to pay Landlord's reasonable charges for
the review of all proposed alterations, improvements and additions and for
supervision of the same other than the Tenant Improvements. Neither approval of
the plans and specifications nor supervision of the Tenant's work by Landlord
shall constitute a representation or warranty by Landlord as to the accuracy,
adequacy, sufficiency or propriety of such plans and specifications or the
quality of workmanship or the compliance of such alteration with applicable law.
8.2 ALTERATIONS OR ADDITIONS BY LANDLORD. Landlord hereby reserves
the right at any time to enter upon the Property or the Leased Premises,
provided Landlord shall give Tenant at least forty-eight (48) hours prior notice
before entering the Leased Premises, and make alterations or additions thereto,
or to any or all of the common facilities, improvements or personalty comprising
a part thereof, provided such alterations or additions do not unreasonably
interfere with Tenant's use of, or diminish the useable space contained in, the
Leased Premises.
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ARTICLE IX
ASSIGNMENT; SUBLEASING
LANDLORD'S CONSENT. Tenant shall not, without the prior written consent
of Landlord, such consent not to be unreasonably withheld: (i) assign, convey,
mortgage or otherwise transfer this Lease or any interest hereunder, or sublease
the Leased Premises, or any part thereof, whether voluntarily or by operation of
law; or (ii) permit the use of the Leased Premises by any person other than
Tenant and its employees. Any such assignment, sublease, transfer or use
described in the preceding sentence (a "Transfer") occurring without the prior
written consent of Landlord shall be void and of no effect. Landlord's consent
to any Transfer shall not constitute a waiver of Landlord's right to withhold
its consent to any future Transfer. Landlord's consent to any Transfer or
acceptance of Base Rent or Additional Rent from any party other than Tenant
shall not release Tenant from any covenant or obligation under this Lease, but
Landlord shall not enforce against Tenant any obligation for which Landlord has
already received full payment or performance from such other party.. Landlord
may require as a condition to its consent to any assignment of this Lease that
the assignee execute an instrument in which such assignee assumes the
obligations of Tenant hereunder. If Landlord consents to any Transfer, Tenant
shall pay to Landlord all rent and other consideration received by Tenant in
excess of the Base Rent, Electricity Rent and Additional Rent paid by Tenant for
the portion of the Leased Premises so transferred. In addition, Tenant shall pay
to Landlord any attorneys' fees and expenses incurred by Landlord in connection
with any proposed Transfer, whether or not Landlord consents to such Transfer.
ARTICLE X
SUBORDINATION; ESTOPPEL CERTIFICATES
10.1 SUBORDINATION. If the Leased Premises are, as of the date
hereof, subject to any mortgage or trust deed, Landlord shall provide Tenant
with an agreement executed by such lienholder which shall assure Tenant's right
to possession of the Leased Premises and other rights granted under this Lease
substantially in accordance with this Lease's terms and conditions. Such
agreement shall be reasonably acceptable to Tenant, Landlord, and such
lienholder and shall be recordable with the applicable registry or office.
Tenant agrees to subordinate this Lease to any future mortgage, or trust deeds,
provided such lienholder shall assure Tenant's right to possession of the Leased
Premises and other rights granted under this Lease substantially in accordance
with this Lease's terms and conditions. Such assurance shall be in the form
customarily used by such lienholder, and shall be recordable with the applicable
registry or office.
Upon such attornment, this Lease shall continue in full force and
effect as a direct lease between the Successor Landlord (as defined below) and
Tenant upon all of the terms, conditions and covenants as are set forth in this
Lease, except that the Successor Landlord (unless formerly Landlord under this
Lease or its nominee or designee) shall not be: (i) liable in any way to Tenant
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for any act or omission, neglect or default on the part of Landlord under this
Lease; (ii) responsible for any monies owing by or on deposit with Landlord to
the credit of Tenant unless actually received by the Successor Landlord; (iii)
subject to any counterclaim or setoff which theretofore accrued to Tenant
against Landlord; (iv) bound by any modification of this Lease subsequent to
such Superior Lease or Superior Mortgage (each as defined below) or by any
previous prepayment of Base Rent or Additional Rent for more than one (1) month,
which was not approved in writing by the Superior Mortgagee (as defined below);
(v) liable to Tenant beyond the Successor Landlord's interest in the Property
and the rents, income, receipts, revenues, issues and profits issuing from such
Property; (vi) responsible for the performance of any work to be done by
Landlord under this Lease to render the Leased Premises ready for occupancy by
Tenant; or (vii) required to remove any person occupying the Leased Premises or
any part thereof, except if such person claims by, through or under the
Successor Landlord. Any mortgage to which this Lease is, at the time referred
to, subject and subordinate, is herein called the "Superior Mortgage" and the
holder of a Superior Mortgage is herein called the "Superior Mortgagee." Any
Superior Mortgagee or the nominee or designee of any Superior Mortgagee or
lessor under any Superior Lease, and their respective successors or assigns,
including the purchaser at a foreclosure sale, who succeeds to the rights of
Landlord under this Lease shall be a "Successor Landlord."
10.2 ESTOPPEL CERTIFICATES. Tenant shall, within fifteen (15)
business days after request from Landlord, deliver to any mortgagee, proposed
mortgagee, proposed purchaser of all or any part of the Property, or any other
person or entity designated by Landlord, in recordable form, a certificate
certifying any and all information reasonably requested, including, but not
limited to, the following: (a) the date of this Lease, the date when the Term of
this Lease commenced, the date of the expiration of the Term, and the date when
Base Rent and Additional Rent commenced to accrue hereunder; (b) that this Lease
is unmodified, not amended, and in full force and effect; or, if there have been
any amendments or modifications, that the Lease is in full force and effect as
so amended or modified and stating the amendments or modifications and the dates
thereof; (c) whether or not there are then existing any setoffs or defenses
against the enforcement of any of the terms and/or conditions of this Lease and
any amendments or modifications hereof on the part of Tenant to be performed,
and, if so, specifying the same; and (d) the dates, if any, to which the Base
Rent, the Additional Rent and other sums on Tenant's part to be paid hereunder
have been paid and/or paid in advance; and (e) Tenant has accepted the Leased
Premises and any and all improvements in the condition then existing as being
complete and in accordance with Tenant's agreements as to the same and in
accordance with the Lease, and that Tenant waives any and all claims or causes
of action as to the condition of the Leased Premises including the improvements
thereto (to the extent that the work for such improvements has been completed)
as against Landlord and any new owner of the Property or assignee, or specifying
in detail any respect in which the Leased Premises or any improvements have not
been completed in accordance with the Lease, if that is the case (setting forth
any such deficiencies in reasonable detail). If Landlord shall submit to Tenant
a proposed instrument containing any of the foregoing information, then, if
Tenant shall fail to respond to Landlord's request for confirmation of the
information set forth therein within fifteen (15) business days after Landlord's
request, any information contained in such proposed instrument shall be deemed
to be true, and Tenant shall be deemed to have waived any rights accruing by
reason of any inaccuracy
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in such proposed instrument. Further, Tenant's failure or refusal to execute and
deliver such certificate within such fifteen (15) business day period shall
constitute an Event of Default under this Lease.
ARTICLE XI
INDEMNIFICATION AND WAIVER
11.1 DAMAGE TO PROPERTY. Tenant shall save Landlord harmless from
all loss and damage to property occurring within the Leased Premises occasioned
by the use or escape of water or by the bursting of pipes, as well as from any
claim or damage resulting from neglect in not removing snow and ice from the
roof of the Building, or by any nuisance made or suffered on the Leased
Premises. Tenant also agrees to save Landlord harmless from any claim or damage
resulting from neglect in not removing snow and ice from the sidewalks on the
Property, unless such loss is caused by the intentional misconduct or negligence
of Landlord. Landlord shall not be liable for any loss or damage arising from
any latent defect in the Leased Premises or in the Building except as may be
otherwise expressly and specifically provided herein. All personal property or
improvements of Tenant at or about the Leased Premises shall be installed, used,
or enjoyed at the sole risk of Tenant, and Tenant shall defend, indemnify and
hold Landlord harmless from and against any and all claims and/or causes of
action pertaining to or arising out of damage to the same, including but not
limited to subrogation claims by Tenant's insurance carrier, but excepting such
claims and/or causes of action resulting from the actual negligence and/or
willful misconduct of Landlord.
11.2 INDEMNITY AGAINST LIABILITY. Tenant shall also indemnify and
hold Landlord harmless, to the fullest extent permitted by law, from and against
any and all claims, actions, loss, damage, liability and expense (including,
without limitation, reasonable attorney's fees and related legal costs incurred
by Landlord) in connection with loss of life, personal injury and/or damage to
property arising out of or resulting from (i) any occurrence in, upon or at the
Leased Premises or (ii) the occupancy or use of the Leased Premises, the
Building or the Property or any part thereof, or anywhere on or about the
Property if caused wholly or in part by any act, negligence or failure to
perform the obligations imposed by this Lease or any breach thereof, or omission
of Tenant, its officers, agents, employees, subtenants, licensees,
concessionaires, invitees, visitors or others occupying space in the Leased
Premises, except to the extent arising out of the negligence or willful
misconduct of Landlord or its agents, employees or contractors. If Landlord
shall be threatened with or made a party to any litigation commenced by or
against Tenant (except in the event that such litigation is commenced by
Landlord against Tenant or by Tenant against Landlord and Tenant prevails in
such litigation), or with respect to any matter described above, except to the
extent arising out of the negligence or willful misconduct of Landlord or its
agents, employees or contractors, then Tenant shall protect and hold Landlord
harmless and indemnified and shall defend Landlord with counsel reasonably
acceptable to Landlord, or, at Landlord's option, shall advance all costs,
expenses and reasonable attorney's fees incurred or paid by Landlord in
connection with such litigation.
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11.3 WAIVER OF CLAIMS. Tenant releases Landlord and its agents and
employees from, and waives all claims for, damage or injury to person or
property and loss of business sustained by Tenant and resulting from the
Building or the Leased Premises or any part thereof or any equipment therein
becoming in disrepair (other than from Landlord's negligence in managing and
operating the Property), or resulting from any accident, or from any
intentionally wrongful conduct by anyone other than Landlord, in or about the
Building or the Leased Premises or occurring anywhere on or about the Property.
This paragraph shall apply particularly, but not exclusively, to flooding,
damage caused by Building equipment and apparatus, water, snow, ice, frost,
steam, excessive heat or cold, broken glass, sewage, gas, odors, excessive noise
or vibration or the bursting or leaking of pipes, plumbing fixtures or sprinkler
devices. Without limiting the generality of the foregoing, Tenant waives all
claims and rights of recovery against Landlord and its agents and employees for
any loss or damage to any property of Tenant, whether or not such loss or damage
is due to the fault or negligence of Landlord or its agents or employees, and
regardless of the amount of insurance proceeds collected or collectible under
insurance policies in effect.
ARTICLE XII
INSURANCE
12.1 INSURANCE TO BE MAINTAINED BY TENANT. At its own cost and
expense, Tenant shall obtain and maintain throughout the Term of this Lease the
following insurance coverage: (a) comprehensive general public liability
insurance covering claims for injury to persons or property occurring in or
about the Leased Premises or the Property, or arising out of ownership,
maintenance, use, or occupancy thereof by the Tenant, in the amount of Three
Million Dollars ($3,000,000.00), with property damage insurance with limits of
Five Hundred Thousand Dollars ($500,000.00); (b) all risk hazard insurance
including and not limited to fire, extended coverage, vandalism and malicious
mischief insurance, covering any and all of the Tenant's equipment, trade
fixtures, tools, inventory, and personal property in, at, or about the Leased
Premises, in the full amount of the replacement cost of any and all of the same;
(c) Worker's Compensation and all other insurance coverages for employees,
agents, servants, and others at or about the Leased Premises in compliance with
and as required by any and all applicable governmental regulations and statutes;
and (d) if any of the walls delimiting the Leased Premises contain plate glass,
plate glass insurance for the benefit of Landlord in the amount of replacement
cost thereof. Landlord may from time to time reasonably require Tenant to
maintain other insurance coverage or may increase the amount of the foregoing
insurance to be maintained by Tenant so as to provide insurance coverage in
forms and amounts consistent with the extent of coverage maintained by similar
tenants in similar buildings located in the same geographic market as the Leased
Premises. Tenant shall obtain an endorsement to such insurance waiving rights of
subrogation against Landlord, if such an endorsement is available from Tenant's
insurance company.
12.2 OTHER INSURANCE REQUIREMENTS. All such insurance procured by
Tenant as provided herein shall be in responsible companies qualified to do
business in Massachusetts and in good standing therein and having a Best's
rating of A+++, naming Landlord and Landlord's mortgagee; as well as Tenant
against injury to persons or damage to property as herein provided.
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Tenant shall deposit with Landlord certificates for such insurance at or prior
to the Commencement Date, and thereafter within thirty (30) days prior to the
expiration of any such policies. All such insurance certificates shall provide
that such policies shall not be canceled or modified without at least ten (10)
days prior written notice to each insured named therein.
12.3 WAIVER OF SUBROGATION. Insofar as, and to the extent that, the
following provision may be effective without invalidating or making it
impossible to secure insurance coverage obtainable from responsible insurance
companies doing business in the locality in which the Property is located (even
though an extra premium may result therefrom), Landlord and Tenant mutually
agree that, with respect to any hazard, the loss from which is covered by
insurance then being carried by them, respectively, the party carrying such
insurance and suffering such loss releases the other of and from any and all
claims with respect to such loss to the extent of the insurance proceeds paid
with respect thereto; and they further mutually agree that their respective
insurance companies shall have no right of subrogation against the other on
account thereof.
12.4 INSURANCE TO BE MAINTAINED BY LANDLORD. Landlord shall
maintain property and casualty insurance with respect to the Building and other
improvements constituting the Property in such amounts as are required by the
first mortgage lender for the Property, or in the absence of a first mortgage
lender, in amounts which are comparable to those maintained by other reasonably
prudent property owners of facilities of the type and character of the Property,
but not less than full replacement cost thereof as reasonably determined by
Landlord.
ARTICLE XIII
FIRE; CASUALTY; EMINENT DOMAIN
13.1 DAMAGE BY CASUALTY. Should a substantial portion of the Leased
Premises, or of the Building or Property, be substantially damaged by fire or
other casualty, or in the event that a fire or other casualty renders the Leased
Premises or the access thereto substantially unsuitable for its intended use,
Landlord may elect to terminate this Lease upon notice to Tenant within thirty
(30) days after such fire or casualty. If less than a substantial portion of the
Leased Premises, or of the Building, or of the Property is damaged by fire or
other casualty, then (subject to the availability of insurance proceeds from any
mortgagee of the Property) Landlord shall be obligated to repair, reconstruct or
replace the damaged portions of the Leased Premises and shall use reasonable
diligence to complete same, Building or Property including the Tenant
Improvements as nearly as possible to their former condition. When such fire or
casualty renders the Leased Premises substantially unsuitable for its intended
use, a just and proportionate abatement of rent shall be made until such time as
Tenant is able to resume full utilization of Premises or this Lease is
terminated. If any casualty results in the total suspension of business in the
Leased Premises as a result of damage or any adverse effect on the Leased
Premises, Tenant shall have the option of suspending the running of the Term
from the date of the casualty to the earlier of the date business is resumed or
sixty (60) days following the completion of restoration; such option to be
exercised by written notice within thirty (30) days after the date of the
casualty. Further, within thirty (30) days after any
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substantial fire or other casualty, Landlord shall give written notice to Tenant
with respect to whether or not Landlord will restore the Leased Premises,
including the Tenant Improvements to the Leased Premises. Tenant may elect to
terminate this Lease if either (a) Landlord notifies Tenant that Landlord has
elected not to restore the Leased Premises, including the Tenant Improvements to
the Leased Premises, or (b) Landlord elects to restore but fails to restore the
Leased Premises, including the Tenant Improvements to the Leased Premises, to a
condition substantially suitable for its intended use within one hundred eighty
(180) days after such fire or casualty. However, Tenant's failure to give such
notice of termination within ten (10) business days after the date on which the
right to terminate ripens under either (a) or (b) above shall constitute a
waiver of such right by Tenant. Landlord will seek to have the first mortgagee
of the Property, if any, provide for application of hazard insurance loss
proceeds to the repair or reconstruction of the Leased Premises upon any hazard
loss. Subject to the mortgagee (if any) of the Property making the hazard loss
insurance proceeds available for such restoration and to Landlord's receipt of
such proceeds for that purpose, if Landlord elects to repair, reconstruct, or
cause to be repaired or reconstructed, such damage or destruction, Landlord
shall not be required to expend, in connection with such repair or
reconstruction, any amount exceeding the amount of casualty insurance proceeds
actually received by Landlord. Notwithstanding the foregoing, in the event such
mortgagee shall not make the insurance loss proceeds available for repair or
restoration, Landlord shall not be required to repair or reconstruct the Leased
Premises and shall notify Tenant within thirty (30) days next following such
hazard loss, of its election in this respect and thereupon, Tenant shall have
the termination rights described above in this Section. For purposes of this
Section 13.1, damage shall be deemed substantial if (i) fifty percent (50%) or
more of the Leased Premises, Building or Property is damaged or destroyed, or
(ii) the time needed for Landlord to repair or restore the damage and put the
Leased Premises, Building and/or Property in proper condition for use or
occupancy is reasonably estimated by Landlord to require more than one hundred
eighty (180) days.
13.2 TENANT'S OPTION TO TERMINATE IN THE EVENT OF A TAKING. If the
Property shall be taken in its entirety under any condemnation or eminent domain
proceedings (each such occurrence being hereinafter referred to as a "Taking")
by any governmental authority (the "Taking Authority") during the Term hereof,
or in the event twenty-five percent (25%) or more of the Leased Premises, or the
access thereto, is taken in any such proceedings and the remaining portion shall
not be suitable or adequate (in the reasonable opinion of Tenant exercised in
good faith) for the conduct of Tenant's business and Tenant notifies Landlord in
writing of such determination within thirty (30) days next following the notice
of such taking by the Taking Authority or the date upon which Tenant receives
written notice that title has vested in the Taking Authority, whichever is first
to occur, then in any such event this Lease and the Term hereof shall terminate
thirty (30) days after such written notice from Tenant to Landlord, and Tenant
shall be liable for the payment of Base Rent, Additional Rent and all other
charges due from Tenant hereunder, and performance of the other terms and
conditions of this Lease on Tenant's part to be performed only up to date of
such termination, and any Base Rent and Additional Rent paid in advance for
periods following such date shall be apportioned and promptly refunded to
Tenant.
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13.3 LANDLORD'S OPTION TO TERMINATE IN THE EVENT OF A TAKING. If less
than the entire Property, or less than twenty-five (25%) percent of the Leased
Premises, shall be acquired or taken by condemnation or eminent domain as
aforesaid, and the mortgagee of the Property shall not make the proceeds of any
awards or damages payable as to the Taking available for restoration and repair
of the balance of the Building, or Landlord shall determine in its reasonable
discretion that the restoration and repair of the balance of the Building shall
be impracticable; or in the event the Taking occurs within the last eighteen
(18) months of the initial Term (or of an Option Term, if any), Landlord shall
be entitled to terminate this Lease by sixty (60) days prior written notice to
Tenant without liability by reason of such Taking. If Landlord does not so
terminate this Lease, this Lease shall continue and Landlord shall rebuild and
restore the Leased Premises as nearly as possible to the condition existing next
preceding such Taking, with due allowance for the portion so taken; further,
Tenant shall promptly restore or repair any improvements made by it in the
Leased Premises to the extent proceeds from such awards are made available to
Tenant for such purpose and this Lease shall be and remain in full force and
effect and be unaffected by, the Taking, except that from the date possession of
the taken portion of the Leased Premises is acquired by the Taking Authority,
the Base Rent payable under this Lease shall be diminished by a percentage equal
to the percentage of the Leased Premises so taken and the Tenant's Pro Rata
Share shall be recalculated. The restoration or repair work to be done by Tenant
shall be done subject to any and all terms and conditions elsewhere set forth in
this Lease governing alterations or work on Tenant's part to be performed. Upon
written request from Tenant (which written request shall specifically reference
this Section 13.3 and the consequence of Landlord's failure to respond),
Landlord shall notify Tenant of its determination called for in this Section
within one hundred twenty (120) days after the date of the Taking. In the event
that Landlord shall fail to respond to such request and notify Tenant of its
determination within such one hundred twenty (120) day period, Tenant shall have
the right to terminate this Lease without cost or liability therefor as of the
date of the Taking.
13.4 MISCELLANEOUS PROVISIONS REGARDING CASUALTY OR TAKING.
13.4.1 In the event this Lease is terminated or terminates by
reason of a Taking or a Casualty, the provisions of the Lease applicable upon
expiration of the Lease shall govern the parties.
13.4.2 Landlord will seek to have any mortgagee of the
Building or Property provide for application of the proceeds of any Taking
awards to restoration, repair, and reconstruction of the portion of such
Property remaining after the Taking. Notwithstanding the amount of land,
building, or improvements taken by condemnation or eminent domain or the
termination or continuance of this Lease with respect thereto, Tenant shall not
participate or share in any recovery, award, or damages payable or paid as to
such Taking, nor have or assert any right, claim, or cause of action against
Landlord, the fee owner, or mortgagee of the Property or, except as expressly
provided in Section 13.4.3 below, the Taking Authority whether for the loss of,
or diminution in value of, the unexpired Term of this Lease, or as to the Taking
of any such land, building, and/or improvements or otherwise; and Tenant for
itself and its successors and assigns hereby waives, surrenders, and
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releases to Landlord any and all claims or rights to claim or receive all or any
portion of any and all recovery, awards, and/or damages as to such Taking.
13.4.3 If permitted by statute, Tenant may assert a separate
and independent claim for and recover from the Taking Authority, but not from
Landlord, any compensation as may be separately awarded or recoverable by Tenant
in its own name and right for the value of the Tenant Improvements made by
Tenant (but only to the extent Tenant has paid the cost of installing or
constructing such Tenant improvements), any damage to Tenant's portable fixtures
and equipment, or on account of any expenses which it shall incur in relocation
expenses, but in no event shall any such claims or recoveries be asserted if the
same would diminish in any way the award to Landlord for the Land, Building and
any Tenant Improvements paid for by Landlord.
ARTICLE XIV
DEFAULT; REMEDIES; BANKRUPTCY
14.1 EVENTS OF DEFAULT. Each of the following shall be an event of
default ("Event of Default") under this Lease:
14.1.1 Tenant shall default in the payment of any
installment of Base Rent, Additional Rent or other sum herein specified to be
paid by Tenant and such default shall continue for five (5) business days after
written notice thereof; provided, however, that Landlord shall not be required
to give more than two (2) notices during any consecutive twelve (12) month
period with regard to defaults in the payment of installments of Base Rent,
Additional Rent or any other sums payable by Tenant under this Lease, and in the
event that Landlord has already given two (2) such notices during any
consecutive twelve (12) month period, any subsequent failure of Tenant during
such twelve (12) month period to make any such payment shall immediately
constitute an Event of Default even though no notice has been given;
14.1.2 Tenant shall default in the observance or performance
of any other of Tenant's covenants, agreements, or obligations hereunder and
such default shall not be cured within thirty (30) days after written notice
thereof, or if such default is of a nature that it cannot be reasonably cured
within such thirty (30) day period, Tenant shall not have commenced to cure such
default within such thirty (30) day period and diligently proceed to completion
of said cure within one hundred twenty (120) days after written notice thereof,
but only if such extended period beyond thirty (30) days without a completed
cure will not have a material adverse effect on the value of the Property or the
Leased Premises or expose Landlord to any liability; further, Landlord shall not
be required to give more than two (2) notices during any consecutive eighteen
(18) month period with regard to Tenant's failure to perform its obligations
under a particular Section of this Lease (a "Previously Defaulted Provision")
and in the event that Landlord has already given two (2) such notices during any
consecutive eighteen (18) month period, any subsequent failure of Tenant during
such eighteen (18) month period to fully and punctually observe such Previously
Defaulted
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Provision shall immediately constitute an Event of Default even though no notice
has been given; or
14.1.3 Tenant's leasehold interest in the Leased Premises
shall be taken on execution, levied upon or attached by other process of law
directed against Tenant;
14.1.4 Tenant or any Guarantor shall die, dissolve, shall
become insolvent, shall make a transfer in fraud of creditors, shall make an
assignment for the benefit of creditors, shall file a voluntary petition in
bankruptcy, shall be adjudicated bankrupt or insolvent, shall file any petition
or answer seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under Title 11 of the
United States Bankruptcy Code relating to Bankruptcy, as amended (the
"Bankruptcy Code") or under any present or future Federal, State or other
statute, law or regulation for the relief of debtors, or shall seek or consent
to or acquiesce in the appointment of any trustee, receiver or liquidator of
Tenant or Guarantor or of all or any substantial part of their respective
assets, or shall admit in writing its inability to pay its debts generally as
they become due (Tenant and Guarantor hereby acknowledging that this Lease is a
lease of nonresidential real property and therefore agreeing that Tenant, as
debtor in possession, or the trustee for Tenant in any proceeding under the
Bankruptcy Code, shall not seek or request any extension of time to assume or
reject this Lease or to perform any obligations of this Lease which arise from
or after the order of relief);
14.1.5 A petition shall be filed against Tenant or Guarantor
in bankruptcy under the Bankruptcy Code or under any other law seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future Federal, State or
other statute, law or regulation and shall remain undismissed or unstayed for an
aggregate of sixty (60) days (whether or not consecutive), or if any debtor in
possession (whether or not Tenant or Guarantor) trustee, receiver or liquidator
of Tenant or Guarantor or of all or any substantial part of their respective
assets shall be appointed without the consent or acquiescence of Tenant or
Guarantor, as the case may be, and such appointment shall remain unvacated or
unstayed for an aggregate of sixty (60) days (whether or not consecutive); or
14.1.6 If the Leased Premises or any substantial portion are
abandoned by Tenant.
14.2 LANDLORD'S REMEDIES. Upon the occurrence of an Event of
Default, Landlord shall have the following rights and remedies:
14.2.1 Landlord shall have the right at its election, at any
time thereafter, to give Tenant written notice of Landlord's election to
terminate this Lease on a date specified in such notice. Upon the giving of such
notice, this Lease and the estate hereby granted shall expire and terminate on
such date as fully and completely and with the same effect as if such date were
the date hereinbefore fixed for the expiration of the Term, and all rights of
Tenant hereunder shall expire and terminate, but Tenant shall remain liable as
hereinafter provided. Further, Tenant hereby expressly
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waives any rights of redemption it may have under M.G.L. c. 186, ss.11 or
pursuant to any other statutory provision or common law principle.
14.2.2 Landlord shall have the immediate right, whether or
not this Lease shall have been terminated pursuant to Section 14.2.1, to
re-enter and repossess the Leased Premises or any part thereof and repossess the
same as of its former estate by force, summary proceedings, ejectment or
otherwise and the right to remove all persons and property therefrom. Landlord
shall be under no liability for or by reason of any such entry, repossession or
removal. No such re-entry or taking of possession of the Leased Premises by
Landlord shall be deemed to waive or prejudice any remedies provided to Landlord
hereunder, nor be construed as an election on Landlord's part to terminate this
Lease unless a written notice of such election be given to Tenant pursuant to
Section 14.2.1 or unless the termination of this Lease be decreed by a court of
competent jurisdiction.
14.2.3 At any time or from time to time after the
repossession of the Leased Premises or any part thereof pursuant to Section
14.2.2, whether or not this Lease shall have been terminated pursuant to Section
14.2.1, Landlord may relet the Leased Premises or any part thereof for the
account of Tenant, in the name of Tenant or Landlord or otherwise, without
notice to Tenant, for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the Term) and on
such conditions (which may include free rent and any other concessions) and for
such uses as Landlord, in its reasonable discretion, may determine; and Landlord
may collect and receive any rents payable by reason of such reletting. Landlord
shall not be responsible or liable for any failure to relet or to collect any
rent due upon such reletting.
14.2.4 In the event of any termination of this Lease or
repossession of the Leased Premises or any part thereof by reason of the
occurrence of an Event of Default, Tenant will pay to Landlord the Base Rent,
Additional Rent and other sums required to be paid by Tenant for the period to
and including the date of such termination or repossession; and, thereafter,
until the end of what would have been the Term in the absence of such
termination or repossession, and whether or not the Leased Premises or any part
thereof shall have been relet, Tenant shall be liable to Landlord for, and shall
pay to Landlord, as liquidated and agreed current damages, the Base Rent,
Additional Rent and other sums which would be payable under this Lease by Tenant
in the absence of such termination or repossession, less the net proceeds, if
any, of any reletting effected for the account of Tenant pursuant to Section
14.2.3, after deducting from such proceeds all of Landlord's expenses reasonably
incurred in connection with such reletting (including, without limitation, all
repossession costs, brokerage commissions, legal expenses, attorney's fees,
employee expenses, alteration costs and expenses of preparation for such
reletting). Tenant will pay such current damages on the days on which Base Rent
would have been payable under this Lease in the absence of such termination or
repossession, and Landlord shall be entitled to recover the same from Tenant on
each such day.
14.2.5 At any time after any such termination of this Lease
or repossession of the Leased Premises or any part thereof by reason of the
occurrence of an Event of Default, whether or not Landlord shall have collected
any current damages pursuant to Section 14.2.4, Landlord shall be entitled to
recover from Tenant, and Tenant will pay to Landlord on demand, as and for
liquidated
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and agreed final damages for any Event(s) of Default by Tenant and in lieu of
all current damages beyond the date of such demand (it being agreed that it
would be impracticable or extremely difficult to fix the actual damages), an
amount equal to the excess, if any, of (a) the Base Rent, Additional Rent and
other sums which would be payable under this Lease from the date of such demand
(or, if it be earlier, the date to which Tenant shall have satisfied in full its
obligations under Section 14.2.4 to pay current damages) for what would be the
then unexpired Term in the absence of such termination or repossession plus
Landlord's estimate of the aggregate expenses of reletting the Leased Premises,
over (b) the then net fair rental value of the Leased Premises for the same
period (after deducting from such fair rental value reasonable amounts on
account of the time needed to relet the Leased Premises and concessions which
would normally be given to a new tenant). Fair rental value shall be established
by reference to the terms and conditions upon which Landlord relets the Leased
Premises if such reletting is accomplished within a reasonable period of time
after such termination or repossession and otherwise established on the basis of
Landlord's estimates and assumptions of fact regarding market and other relevant
circumstances, which shall govern unless shown to be clearly erroneous.
14.3 LANDLORD'S CURE RIGHTS. If an Event of Default shall occur,
Landlord, without being under any obligation to do so and without thereby
waiving such Event of Default, may remedy such default for the account and at
the expense of Tenant.
14.4 TENANT'S OBLIGATION TO REIMBURSE LANDLORD. If Landlord makes
any expenditures (pursuant to Section 14.3 above or otherwise) or incurs any
obligations for the payment of money in connection with any failure of Tenant to
perform fully all of its obligations under this Lease, such sums paid or
obligations incurred (including but not limited to, reasonable attorney's fees
and court costs in instituting, prosecuting or defending any action or
proceeding), with interest at the rate of one and one half percent (1-1/2%) per
month and costs, shall upon demand be paid to Landlord by Tenant as Additional
Rent.
14.5 NO WAIVER. Landlord's failure to take action against Tenant
with respect to any default in Tenant's performance of its obligations hereunder
shall not, under any circumstances, constitute a waiver of any of Landlord's
rights under this Lease and, further, no waiver of any of the provisions of this
Lease shall be effective unless given in writing nor shall any waiver be
construed as a waiver of any of the other provisions hereof or as a waiver of
the same provisions for any subsequent time.
14.6 ACCEPTANCE OF LATE PAYMENTS. No payment by Tenant, or
acceptance by Landlord, of a lesser amount than then due from Tenant to Landlord
shall be treated otherwise than as a payment on account regardless of any letter
accompanying such check or legend entered upon such check. Further, no
acceptance of any payment by Landlord from Tenant shall in any way constitute a
waiver of any default then existing or which would exist with the proper giving
of notice.
14.7 INTEREST ON LATE PAYMENTS. If Tenant shall fail to pay, when
the same is due and payable, any Base Rent, or Additional Rent or any other
charges or payments required hereunder
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(excluding the payments described in Section 14.4 above), such unpaid amounts
shall bear interest from the due date thereof to the date of payment at the
annual rate of interest of twelve percent (12%) per annum, but in no event
higher than the maximum rate permitted by law; and, in addition, Tenant shall
pay Landlord a late charge for any Base Rent, any Additional Rent or any other
charges or payments due hereunder which is paid after its due date equal to five
percent (5%) of such payment.
14.8 REMEDIES CUMULATIVE. Any and all remedies set forth in this
Lease (a) shall be in addition to any and all other remedies Landlord may have
at law or in equity, (b) shall be cumulative, and (c) may be pursued
successively or concurrently as Landlord may elect. The exercise of any remedy
by Landlord shall not be deemed an election of remedies or preclude Landlord
from exercising any other remedies in the future.
14.9 LANDLORD'S RIGHTS IN TENANT'S BANKRUPTCY. If this Lease is
assigned to any person or entity pursuant to the provisions of the Bankruptcy
Code, 11 U.S.C. 101 ET SEQ. as now existing or hereafter amended (the
"Bankruptcy Code"), any and all monies or other considerations payable or
otherwise to be delivered in connection with such assignment shall be paid and
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any and all monies or other considerations
constituting Landlord's property under the preceding sentence not paid or
delivered to Landlord shall be held in trust for the benefit of Landlord and be
promptly paid to or turned over to the Landlord. Notwithstanding anything in
this Lease to the contrary, all amounts payable by Tenant to or on behalf of
Landlord under this Lease, whether or not expressly denominated as rent,
including, without limitation, the Base Rent and Additional Rent specified
herein, shall constitute rent for the purpose of Section 502(b)(7) of the
Bankruptcy Code.
If Tenant assumes this Lease and proposes to assign the same pursuant
to the provisions of the Bankruptcy Code to any person or entity who shall have
made a bona fide offer to accept an assignment of this Lease on terms acceptable
to Tenant, then notice of such proposed assignment, setting forth (a) the name
and address of such person; (b) all of the terms and conditions of such offer,
and (c) the adequate assurance to be provided Landlord to assure such person's
future performance under the Lease, including without limitation, the assurance
referred to in Sections 365(b)(1)(c) and 365(b)(3) of the Bankruptcy Code, shall
be given to Landlord by the Tenant no later than twenty (20) days after receipt
by the Tenant of such bona fide offer, but in any event no later than ten (10)
days prior to the date that the Tenant shall make application to a court of
competent jurisdiction for authority and application to enter into such
assignment and assumption, and Landlord shall thereupon have the prior right and
option, to be exercised by notice to the Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if any,
as the bona fide offer made by such person, less any brokerage commissions which
may be payable out of the consideration to be paid by such person for the
assignment of this Lease. Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code shall be deemed without
further act or deed to have assumed on and after the date of such assignment all
of the
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obligations arising under this Lease. Any such assignee shall upon demand
execute and deliver to Landlord an instrument confirming such assumption.
14.10 LANDLORD'S DEFAULT. (a) If Tenant shall give written notice to
Landlord requesting that Landlord undertake any repair or replacement of the
Leased Premises or Property or to undertake any other obligation which Landlord
is expressly required to perform under the terms of this Lease, and Landlord
shall not, within twenty (20) business days thereafter either (i) commence and
diligently prosecute such repair, replacement or other obligation, or (ii)
refute on some reasonable basis Tenant's contention that Landlord is required to
undertake the same, then in such event, Tenant may give a second notice to
Landlord requesting that Landlord undertake the same. If, within fifteen (15)
days after such second notice, Landlord shall not either (i) commence and
diligently prosecute such repair, replacement or other obligation or (ii) refute
on some reasonable basis Tenant's contention that Landlord is required to
undertake the same, then Tenant, on three (3) business days prior notice to
Landlord of Tenant's intent to do so, may undertake such repair, replacement or
other obligation on Landlord' behalf (unless Landlord shall have already
commenced and be diligently prosecuting the same) and Landlord shall reimburse
Tenant for the reasonable costs incurred by Tenant in connection herewith within
fifteen (15) business days after demand by Tenant therefor (such demand to be
accompanied by documentation of such expenditures in reasonable detail).
(b) If Landlord shall not make payment to Tenant as
required pursuant to this Subsection 14.10, then Tenant may file a legal
proceeding against Landlord to recover the same, but under no circumstance will
Tenant have the right to offset against Base or Additional Rent any amount owed
by Landlord to Tenant pursuant to this Section 14.10. If Tenant prevails against
Landlord in connection with such legal proceeding, then Landlord shall also be
obligated to reimburse Tenant fully for any and all reasonable attorney's fees
or other costs incurred by Tenant in connection with such legal proceeding and
Landlord agrees that its obligation to reimburse Tenant shall be made a part of
any order entered by a court as part in such legal proceeding.
(c) Tenant shall not seek to enforce any remedy it may
have for any default on the part of Landlord without first giving written notice
to any mortgagee of the Property in accordance with Section 17.23 below.
ARTICLE XV
SURRENDER; HOLDING OVER
15.1 SURRENDER OF LEASED PREMISES. Tenant shall, at the expiration
or other termination of the Term, (a) remove all of Tenant's goods and effects
and trade fixtures from the Leased Premises (including, without hereby limiting
the generality of the foregoing, all signs and lettering affixed or painted by
Tenant either inside or outside the Leased Premises) and repair fully any damage
caused by such removal, and (b) deliver to Landlord the Leased Premises, in
broom clean
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condition, and otherwise in the same condition as existed as of the Commencement
Date (normal wear and tear and damage by fire or other casualty excepted), all
keys, locks thereto, other fixtures connected therewith and all alterations and
additions made to or upon the Leased Premises (other than any Tenant's trade
fixtures removed pursuant to the preceding subsection (a)). Upon Tenant's
failure to comply with the preceding sentence, Landlord is hereby authorized,
without liability to Tenant for loss or damage thereto, and at the sole risk of
Tenant, to remove and store any of such property at Tenant's expense, or to
retain same under Landlord's control or to sell, at public or private sale, with
notice to Tenant, any or all of such property not so removed and to apply the
net proceeds of such sale to the payment of any sum due hereunder, or to destroy
such property.
15.2 HOLDING OVER. If Tenant remains in possession of the Leased
Premises or any part thereof after the expiration or earlier termination of the
Term of this Lease, Tenant shall be deemed to be in use and occupancy of the
Leased Premises as a month-to-month tenant at a rate of monthly Base Rent two
(2) times the rate of the total monthly installment of Base Rent then in effect
upon the date of expiration or termination of this Lease and subject to the same
terms and conditions (including, without limitation, provisions concerning the
payment of all other charges hereunder) as those set forth in this Lease other
than as to the length of Term. However, nothing in this Lease provision shall be
deemed to extend the Term beyond that set forth in Article 2 hereof, nor grant
any right to Tenant or any other person to use, occupy, or remain in possession
of all or any part of the Leased Premises beyond the expiration or earlier
termination of the Term of this Lease.
ARTICLE XVI
LANDLORD'S LIABILITY
16.1 LIMITED RECOURSE. Tenant specifically agrees to look solely to
Landlord's then equity interest in the Property at the time owned, for recovery
of any judgment from Landlord; it being specifically agreed that Landlord
(original or successor) shall never be personally liable for any such judgment,
or for the payment of any monetary obligation to Tenant.
16.2 INTERRUPTION OF SERVICES AND UTILITIES. Landlord shall in no
event be liable for any interruption in, failure of, or discontinuance of
services or utilities to the Building or the Leased Premises for any reason,
including, without limitation, when such services or utilities are interrupted
(a) by strike (not limited to Landlord or its business operations), lockout,
breakdown, accident, order or regulation of or by an governmental authority, or
failure of supply, (b) by reason of the making of repairs or alterations which
Landlord is required or is permitted by this Lease or by law to make or in good
faith deems necessary; (c) by inability to obtain supplies, parts or employees
necessary to furnish such services, or because of war or other emergency, (d) by
any other cause beyond Landlord's reasonable control, or (e) by any cause due to
any act or neglect of Tenant or Tenant's servants, agents, employees, licensees
or any persons claiming by, through or under Tenant In addition, no such
interruption in, failure of, or discontinuance of any such services or utilities
shall be considered as an eviction or disturbance of Tenant's occupancy of the
Leased Premises, relieve
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Tenant from its obligations under this Lease, or entitle Tenant to any offset
rights or any other rights or remedies against Landlord.
16.3 NO CONSEQUENTIAL DAMAGES. In no event shall Landlord ever be
liable to Tenant for any loss of business or any other indirect or consequential
damages suffered by Tenant from whatever cause.
16.4 LIABILITY AFTER CONVEYANCE OF PROPERTY. The term "Landlord",
as used herein, shall mean and refer to the owner of the fee estate in the
Property whosoever such owner may be from time to time or to the person or
entity named as Landlord above or its successors or assigns, as the case may be;
and upon any conveyance or transfer of the interest of such person or entity as
Landlord, such person or entity shall be thereupon released and discharged from
any and all liability under this Lease or otherwise to Tenant and any and all
others whomsoever except for breaches of this Lease occurring prior to such
transfer.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 GOVERNING LAW. This Lease shall be governed by the law of the
Commonwealth of Massachusetts and shall be deemed to have been made, executed,
delivered and accepted by the respective parties in that state.
17.2 PARTIAL INVALIDITY. If any term or provision of this Lease, or
the application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law. It is the intention of the parties hereto that if any
provision of this Lease is capable of two constructions, one of which would
render the provision valid, then the provision shall have the meaning which
renders it valid.
17.3 CAPTIONS. The captions of this Lease are for convenience and
reference only and shall not be deemed or construed to bind, modify, increase,
or decrease the terms and conditions of this Lease, or any interpretation or
construction thereof.
17.4 SUCCESSORS AND ASSIGNS. The terms and conditions in this Lease
shall apply to and be binding upon the parties herein and their respective
successors and assigns, except as expressly otherwise provided.
17.5 RECORDING OF LEASE. Tenant shall not record this Lease.
However, at the request of either party, Landlord and Tenant shall execute,
acknowledge, deliver, exchange, and record at the
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requestor's expense a Notice of Lease or other short-form instrument permitted
under applicable state law and prepared by Landlord.
17.6 ENTIRE AGREEMENT. This Lease and any and all exhibits and
riders attached hereto and made a part of this Lease constitute the entire
agreement of the parties concerning this Lease, and any and all other or prior
agreements, representations, or warranties are hereby terminated, canceled, and
agreed to be void and of no force or effect.
17.7 AMENDMENTS. No change, amendment, deletion, or addition to
this Lease shall be effective unless in writing and signed by the parties.
17.8 QUIET ENJOYMENT. So long as Tenant is not in default of any of
its obligations under this Lease, Tenant shall peaceably and quietly have, hold
and enjoy the Leased Premises free of any claims by, through or under Landlord.
17.9 NO PARTNERSHIP. Nothing in this Lease shall create or be
construed to create a partnership between Tenant and Landlord, or make them
joint venturers, or bind or make Landlord in any way liable or responsible for
any acts, omissions, negligence, debts or obligations of Tenant.
17.10 TIME OF ESSENCE. Time is of the essence of this Lease and all
of the terms and conditions specified herein.
17.11 BROKERAGE. Tenant acknowledges that Tenant has dealt with no
broker in connection with this Lease other than the Broker or Brokers named in
Section 1.8 above. In the event of any other brokerage claim against Landlord
predicated upon dealings with Tenant, Tenant agrees to defend the same and
indemnify Landlord against any such claim. Landlord warrants and represents that
it has dealt with no broker in connection with the consummation of this Lease
except the Broker or Brokers listed in Section 1.8 above, and in the event of
any other brokerage claim against Tenant predicated upon dealings with Landlord,
Landlord agrees to defend the same and indemnify Tenant against any such claim.
The Broker shall be paid by Landlord.
17.12 RULES AND REGULATIONS. Tenant agrees to comply, and cause its
employees, agents, contractors, invitees and other representatives to comply,
with any and all rules and regulations established by Landlord for the Property
as reasonably determined by Landlord to be necessary for the orderly and
efficient operation of the Property, including, without limitation, those rules
and regulations set forth in EXHIBIT RR attached hereto and any reasonable
modifications, amendments or additions thereto as Landlord may make from time to
time by written notice to Tenant. However, Landlord shall not be responsible to
Tenant for failure to enforce any of such rules and regulations or for the
non-observance or violation of any of such rules and regulations by any other
tenant or owner or by any other person, or for the non- observance or violation
of or failure to enforce or to perform the provisions of any other lease.
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17.13 SIGNS. Tenant shall obtain the prior written consent of
Landlord, which consent shall not be unreasonably withheld, before placing any
sign at, on, or about the door to the Leased Premises. Tenant shall also obtain
the prior written consent of Landlord, which consent may be withheld in
Landlord's sole and absolute discretion, before erecting any other type of sign
outside of the Building or any exterior door, wall, window, or portion of the
Leased Premises, or within the lobby of the Building and Landlord shall have no
obligation whatsoever to approve any such sign. Any materials or displays
approved by Landlord, shall at all times be maintained by Tenant at its cost and
expense in good condition, good working order and appearance and in compliance
with all applicable laws, codes, ordinances and by-laws; and Tenant hereby
unconditionally and irrevocably authorizes Landlord to enter upon the Leased
Premises at Tenant's expense and without liability or penalty, and to remove any
materials or displays not in accordance with each and all of the foregoing
provisions. Landlord shall provide, at its sole cost and expense, an identifying
sign for Tenant in a Building directory located in the lobby of the first floor
of the Building in the same design and size as the identification in the
Building directory for other tenants of the Building.
17.14 LANDLORD'S ACCESS AND TENANT'S ACCESS; SECURITY. (a) Landlord
or agents of Landlord may, upon forty-eight (48) hours prior notice to Tenant
(or at any time without notice in the case of emergency), enter the Leased
Premises to (i) inspect the same, (ii) remove placards and signs affixed thereto
and not approved as herein provided, (iii) make alterations as provided in
Section 8.2 above or repairs, (iv) show the Leased Premises to others, and (v)
at any time within six (6) months before the expiration of the Term, affix to
any suitable part of the Leased Premises a notice that the Leased Premises are
available for lease and keep the same so affixed without hindrance or
molestation.
(b) Provided Tenant shall not be in default of any term,
covenant or condition of this Lease, Tenant shall have access to the Leased
Premises twenty-four (24) hours per day, seven (7) days a week, fifty-two (52)
weeks per year, through means of the Building card-key security/access system.
17.15 NOTICES. Any and all notices, demands, consents or approvals
required hereunder shall be given in writing in accordance with this Section
17.15. Any notice from Landlord to Tenant shall be deemed duly served, if mailed
to Tenant's Mailing Address (as defined in Section 1.7 above), or such other
address as Tenant may advise by written notice to Landlord, by overnight
courier, or by registered or certified mail, return receipt requested, postage
prepaid. Any notice from Tenant to Landlord shall be deemed duly served, if
mailed to Landlord by a nationally recognized overnight courier, or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to Landlord at Landlord's Mailing Address (as defined in Section 1.6
above) or at such other address as Landlord may from time to time advise in
writing. All payments of Base Rent and Additional Rent shall be paid and sent to
Landlord at Landlord's Mailing Address.
17.16 NO MERGER. There shall be no merger of the leasehold estate
hereby created with the fee estate in the Property or any part thereof if the
same person acquires or holds, directly or
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indirectly, this Lease or any interest in this Lease and the fee estate in the
Property or any interest in such fee estate.
17.17 NO OFFER. The submission of this Lease to Tenant shall not be
construed as an offer, and Tenant shall not have any rights under this Lease
unless Landlord executes a copy of this Lease and delivers it to Tenant.
17.18 WAIVER OF JURY TRIAL. To the maximum extent permitted by law,
Landlord and Tenant each waive right to trial by jury in any litigation arising
out of or with respect to this Lease.
17.19 FINANCIAL REPORTS. Not more than once in any twelve (12) month
period, and within fifteen (15) days after Landlord's request, Tenant shall
furnish Tenant's most recent financial statements (including any notes to them)
as may have been prepared by an independent certified public accountant or,
failing those, Tenant's internally prepared financial statements to Landlord.
Landlord will not disclose any aspect of Tenant's financial statements that
Tenant designates to Landlord as confidential except (i) to Landlord's lenders
or prospective purchasers of the Property, (ii) in litigation between Landlord
and Tenant, and (iii) if required by court order.
17.20 LANDLORD'S FEES. Whenever Tenant requests Landlord to take any
action or give any consent required or permitted under this Lease, Tenant will
reimburse Landlord for Landlord's reasonable out-of-pocket costs incurred in
reviewing the proposed action or consent, including without limitation
reasonable attorneys', engineers' or architects' fees, within ten (10) days
after Landlord's delivery to Tenant of a statement of such costs. Tenant will be
obligated to make such reimbursement without regard to whether Landlord consents
to any such proposed action.
17.21 TELECOMMUNICATIONS. Tenant and its telecommunications
companies, including but not limited to local exchange telecommunications
companies and alternative access vendor services companies shall have no right
of access to and within the Building, for the installation and operation of
telecommunications systems including but not limited to voice, video, data, and
any other telecommunications services provided over wire, fiber optic,
microwave, wireless, and any other transmission systems, for part or all of
Tenant's telecommunications within the Building and from the Building to any
other location without Landlord's prior written consent which shall not be
unreasonably withheld, conditioned or delayed. Regardless of Landlord's consent
to the installation and operation of such telecommunications systems, Tenant
hereby acknowledges that Landlord has no obligation to Tenant to ensure
performance by telecommunication companies or other service companies, and
Landlord has no responsibility for any delays, deficiencies or defects in
connection with the services provided. Tenant hereby acknowledges and agrees
that the indemnification of Landlord by Tenant set forth in Section 11.2 above,
shall expressly apply to any damage to the Leased Premises or the Building, and
injury to persons or other damage to property occurring during or as a result of
any actions taken or done pursuant to Landlord's consent given in accordance
with this Section 17.21.
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17.22 CONFIDENTIALITY. Tenant and Landlord each acknowledge that the
terms and conditions of this Lease are to remain confidential, and may not be
disclosed by Tenant or Landlord to anyone, by any manner or means, directly or
indirectly, without the prior written consent of the other, except in connection
with a proposed sale or financing. The consent by either the Landlord or the
Tenant to any disclosures shall not be deemed to be a waiver on the part of
either of the prohibition against any future disclosure.
17.23 NOTICE TO LANDLORD'S MORTGAGEE. Tenant shall not seek to
enforce any remedy it may have for any default on the part of the Landlord
without first giving written notice by certified mail, return receipt requested,
specifying the default in reasonable detail, to any Landlord's Mortgagee whose
address has been given to Tenant, and affording such Landlord's Mortgagee a
reasonable opportunity to perform Landlord's obligations hereunder.
17.24 CONDITION OF LEASED PREMISES. Tenant hereby accepts the Leased
Premises in their "AS-IS" condition, and Landlord shall have no obligation to
perform any work therein (including, without limitation, demolition of any
improvements existing therein or construction of any tenant finish-work or other
improvements therein), and shall not be obligated to reimburse Tenant or provide
an allowance for any costs related to the demolition or construction of
improvements therein except for completion of the Landlord Work (defined below)
in accordance with EXHIBIT LW. No agreement of Landlord to alter, remodel,
decorate, clean or improve the Leased Premises or the Building (or to provide
Tenant with any credit or allowance for the same), and no representations
regarding the condition of the Leased Premises or the Building have been made by
or on the behalf of Landlord or relied upon by Tenant other than with respect to
the Landlord Work as set forth in Section 17.25 and as described in EXHIBIT LW.
Landlord and Tenant expressly disclaim any implied warranty that the Leased
Premises are suitable for Tenant's intended commercial purpose, and Tenant's
obligation to pay rent hereunder is not dependent upon the condition of the
Leased Premises or the performance by Landlord of its obligations hereunder,
and, except as otherwise expressly provided herein, Tenant shall continue to pay
the rent, without abatement, setoff or deduction, notwithstanding any breach by
Landlord of its duties or obligations hereunder, whether express or implied.
Tenant's taking possession of the Leased Premises shall be conclusive evidence
that the Leased Premises were in good order and satisfactory condition when
Tenant took possession.
17.25 LANDLORD'S WORK. Landlord shall perform the construction work
(the "Landlord Work") described in EXHIBIT LW attached hereto in a good and
workmanlike manner and in accordance with all Government Regulations and shall
substantially complete the Landlord Work (that is, complete the Landlord Work,
except for normal "punch list" items which shall be completed within thirty (30)
days after substantial completion of the Landlord Work) on or before May 1,
1999. Subject to the provisions of the following paragraph, if substantial
completion of the Landlord Work is delayed beyond May 1, 1999, payment of Base
Rent pursuant to Section 3.1 of this Lease shall commence on the date the
Landlord Work is substantially complete.
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In the event the Landlord Work is not substantially completed on or
before June 1, 1999 (the "Outside Date for Completion"), Tenant shall have the
right to terminate its obligations under this Lease; provided, however, that (1)
the Outside Date for Completion shall be extended for a period equal to the
duration of any delays in construction caused by strikes, shortages of
materials, acts of God or other matters not reasonably within the control of
Landlord, and (2) in the event any delays in completing the Landlord Work are as
a result of change orders or other delays caused by Tenant, the Outside Date for
Completion shall be extended day for day for each such delay caused by Tenant or
longer if appropriate to compensate for additional delays which were encountered
on account of items enumerated in (1) above that would not otherwise have been
encountered but for the Tenant caused delays. Further, if issuance of a
temporary or permanent certificate of occupancy for the Landlord Work or the
Leased Property is delayed beyond May 1, 1999, because of delays caused by
Tenant, then the rent commencement date shall be May 1, 1999 and on that date
Tenant shall commence to pay Base Rent and Additional Rent under this Lease.
Except for latent defects and deficiencies in the Landlord Work of
which Tenant has given written notice to Landlord not later than thirty (30)
days following the Commencement Date, Landlord shall be deemed to have
satisfactorily completed the Landlord Work, and Tenant shall be deemed to have
waived all rights and remedies with respect to deficiencies (other than latent
defects) in the Landlord Work. If Tenant does give timely notice of
deficiencies, Landlord shall remedy as soon as reasonably practicable any
deficiencies specified in such notice and shall begin such remediation within
thirty (30) days after Tenant's notice.
Landlord shall bear the full cost of the Design Allowance (as defined
below), and the Tenant Improvement Allowance (as defined below). The Design
Allowance shall be the allowance for the cost of any architect or other design
fees incurred to design, and prepare the plans and specifications necessary for,
the Landlord Work, which allowance shall not exceed Ten Thousand Five Hundred
Sixty-Six and 00/100 Dollars ($10,566.00) in total. The Tenant Improvement
Allowance shall be the allowance for any so-called "hard costs" incurred in
constructing the Landlord Work, which allowance shall not exceed Fifty-Eight
Thousand Seven Hundred and 00/100 Dollars ($58,700.00) plus any unused portion
of the Design Allowance. Tenant shall be responsible for any architect or other
design fees in excess of Ten Thousand Five Hundred Sixty-Six and 00/100 Dollars
($10,566.00) and for any construction-related costs of the Tenant Improvements
work exceeding Fifty-Eight Thousand Seven Hundred and 00/100 Dollars
($58,700.00) plus any unused portion of the Design Allowance, and Tenant shall
pay such amount to Landlord within thirty (30) days of receiving an invoice
describing the costs with reasonable detail. The Tenant Improvement Allowance
shall be used for physical improvements only.
17.26 TENANT IMPROVEMENTS. Except for Landlord's Work, all
improvements to the Building required for Tenant's initial occupancy of the
Building are referred to as "Tenant Improvements." Tenant Improvements shall be
constructed in accordance with the plans and specifications prepared by Tenant
("Tenant Space Plan") (as further defined in EXHIBIT TI) and submitted to
Landlord and approved by Landlord as provided below and in EXHIBIT TI.
Landlord's approval, shall be limited to determining whether Tenant's plans and
specifications (a) will have an
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adverse impact on Landlord's re-use of the Leased Premises at the end of the
Term and (b) conform with the requirements of applicable Governmental
Regulations, good construction practices, and insurance industry standards,
their consistency with the architectural and structural integrity of the
Building, and with the ability of the heating, ventilation and air conditioning
system serving the Leased Premises to provide adequate ventilation and
heating/cooling capacity for general office purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed and delivered as a sealed instrument by their respective duly
authorized officers as of the day and year first written above.
LANDLORD: TENANT:
NAGOG PARK INVESTORS, L.L.C. ANDOVER ADVANCED
TECHNOLOGIES, INC. (d/b/a Andover
Net, Inc.)
By: _______________________ By: _____________________________
Its ___________________ Name: _______________________
Title: ______________________
By: ________________________
Name: __________________
Title: _________________
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EXHIBIT FP
FLOOR PLAN OF LEASED PREMISES
SEE ATTACHED
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EXHIBIT LD
LEGAL DESCRIPTION OF PROPERTY
Lot 106 on a Plan entitled " 'Nagog Square' Definitive Subdivision Plan of Land
in Acton, Mass." by R. D. Nelson dated May 10, 1973, last revised November 12,
1973 and recorded with Middlesex South District Registry of Deeds as Plan No.
448 of 1974 in Book 12629, Page 25 (hereinafter called the "Plan"), bounded and
described as follows:
SOUTHERLY by Nagog Park, as shown on the Plan, by five courses,
76.81', 520.00', 99.38', 346.17' and 104.76',
respectively;
SOUTHEASTERLY by land of Nagog Development Company shown on the Plan
as "60' R. O. W. Easement Area 20.450 S.F.," by two
courses, 43.17' and 289.09', respectively;
NORTHERLY by land now or formerly of J. J. Heider & V. P.
Wiegand, 231.95';
EASTERLY again by said land now or formerly of J. J. Heider & V.
E. Wiegand by five courses, 86.36', 141.00', 62.49',
110.13', and 135.94', respectively;
NORTHEASTERLY by land now or formerly of S. & J. Tabbi, 623.67';
NORTHWESTERLY by land shown on the Plan as Lot 8A, by three courses,
109.64', 103.78' and 154.91', respectively;
SOUTHWESTERLY again by said land shown on the Plan as Lot 8A, 102.27'
Together with grant of easements contained in a deed May 27, 1982 recorded in
Book 14625, Page 368.
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EXHIBIT OC
OPERATING COSTS
"Operating Costs" shall mean:
(a) all costs and expenses paid or incurred by Landlord in
operating, managing, equipping, insuring, controlling traffic, policing (if and
to the extent provided by Landlord), lighting, cleaning, maintaining, repairing
(including minor replacements associated with such repair) and restoring the
Property, including all utility lines, pipes and conduits, drainage or sewage
systems, elevators and escalators, and electricity, steam, water, fuel, heating,
lighting and air conditioning systems serving the Property and also including
the costs and expenses for all utilities, including, without limitation, HVAC,
water and sewer service, used or consumed in the Building, and also including
all costs and expenses for mail collection and distribution, sweeping,
snowplowing, sanding, refuse removal, planting and replacing decorations,
flowers and landscaping, painting, uniforms, wages, fidelity bonds, unemployment
taxes, social security taxes, workmen's compensation insurance premiums, fees
for required licenses and permits, supplies, repair, maintenance, operation,
replacement and debt service of any equipment associated with the maintenance or
operation of common areas and Common Facilities (but excluding the cost of
equipment properly chargeable to the capital account and depreciation of the
original cost of construction of the common areas, buildings and building
systems), and any other expense or charge, whether or not hereinbefore
mentioned, which, in accordance with generally accepted accounting and
management principles, would be considered an expense of managing, operating,
maintaining or repairing the Property; and
(b) all premiums for comprehensive general public liability,
property damage, difference-in-condition, casualty, rent loss, elevator, and
other insurance maintained by Landlord with respect to all of the Property,
including the Common Facilities and other common areas and all buildings and
improvements.
Notwithstanding any contrary provision of this Lease, Operating Costs
shall not include expenses relating to the following:
(i) salaries, wages, benefits and other expenses of administrative
employees and other persons not involved in the daily operations of the
Building;
(ii) principal, interest or other charges relating to indebtedness
secured by a mortgage covering any portion of the Property, and payments of rent
and other charges under any superior lease covering any portion of the Property;
(iii) leasehold improvements made in connection with the preparation
of any portion of the Building for occupancy by a new or existing tenant;
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<PAGE> 42
(iv) any expansion of the rentable area of the Building;
(v) costs, expenses or charges properly chargeable or attributable
to a particular tenant or tenants;
(vi) any utility or other service used or consumed in the premises
leased to any tenant or occupant, if Tenant's use or consumption of such utility
or other services is separately metered or sub-metered at the Premises;
(vii) efforts to lease portions of the Building or to procure new
tenants for the Building, including advertising expenses, leasing commissions
and attorney's fees;
(viii) negotiations or disputes with any tenant of the Building;
(ix) Landlord's general overhead not directly related to the
management or operations of the Building;
(x) depreciation of the Building;
(xi) repairs and replacements arising out of a fire or other
casualty or an exercise of the eminent domain of the Building; provided,
however, that the deductible portion of any loss covered by insurance shall be
amortized over the useful life of the improvements which have been repaired or
replaced in response to such fire or other casualty and such amortized portion
shall be includable in annual operating costs;
(xii) Landlord's breach or violation of a law, lease or other
obligation, including fines, penalties and attorneys' fees;
(xiii) compensation paid to employees or other persons in connection
with commercial concessions operated by Landlord;
(xiv) fees for licenses, permits or inspections that are not part of
routine maintenance of the Building (but Operating Costs shall include fees for
licenses, permits of inspections required to comply with changes in any laws
occurring after the Commencement Date) or result from the act or negligence of
Landlord or any other tenant of the Building;
(xv) environmental testing, remediation and compliance;
(xvi) compliance by Landlord with laws existing as of the date of
this Lease, including without limitation the Americans with Disabilities Act and
the regulations and standards thereunder;
(xvii) sculptures, paintings and other works of art;
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<PAGE> 43
(xviii) repairs necessary to cure defects in the construction of any
portion or component of the Building;
(xix) any items with respect to which Landlord receives
reimbursement from insurance proceeds or from a third party; and
(xx) any repair or replacement which would be deemed a capital
expenditure under generally accepted accounting; provided, however, that the
cost of any such repair or replacement shall be amortized over the useful life
of the improvements which have been repaired or replaced and such amortized
portion shall be includable in annual operating costs.
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<PAGE> 44
EXHIBIT FMRV
CALCULATION OF FAIR MARKET RENTAL VALUE
For purposes of Section 2.2, "Fair Market Rental Value" shall be as
reasonably determined by Landlord to be the annual rental charge (including
without limitation Base Rent, Additional Rent and other charges) as of the
commencement date of each Option Period, for new leases then being negotiated or
executed for comparable office space in Boston, Massachusetts for terms
commencing on or about the date of commencement of the Option Period. In
determining Fair Market Rental Value, Landlord shall take into consideration the
size of the premises, location of the premises, lease term, condition and
location of the applicable office building, services provided by the landlord,
rental concessions and other comparable factors). Bona fide written offers to
lease comparable space received by Landlord from third parties (at arm's length)
may be used by Landlord as an indication of the Fair Market Rental Value.
Landlord shall notify Tenant of its determination of Fair Market Rental Value
within thirty (30) days after Landlord's receipt of Tenant's notice exercising
its option to extend. If the Landlord does not receive written notice from
Tenant of Tenant's disagreement with Landlord's determination of the Fair Market
Rental Value within ten (10) days after Tenant's receipt of said determination,
Tenant shall be deemed to have accepted said determination by Landlord. If
Tenant disagrees with Landlord's determination of the Fair Market Rental Value,
Tenant shall have the right, by written notice given to Landlord within ten (10)
days after Tenant has received notice of Landlord's determination, to request
that such Fair Market Value be determined by appraisal in accordance with the
provisions of this EXHIBIT FMRV. In such event, the Fair Market Rental Value
shall be determined by impartial MAI appraisers, one to be chosen by Landlord,
one to be chosen by Tenant (the "Initial Appraisers"), and, if necessary, a
third to be selected as provided below. Landlord and Tenant shall each notify
the other of its selected appraiser within ten days following the giving of
Tenant's request for appraisal as provided above. Each appraiser shall be
independent, familiar with office buildings and leases and rents in Boston,
Massachusetts and experienced in making real estate appraisals. The cost of each
Initial Appraiser shall be paid by the party selecting such Appraiser. The
appraisers shall render their written appraisal of the Fair Market Rental Value
for the Option Period within thirty (30) days following the appointment of both
such appraisers. If the appraisals determined by each of the Initial Appraisers
are less than five percent (5%) apart (I.E., the higher appraisal is less than
105% of the lower appraisal), then the Fair Market Rental Value shall be
determined by taking the average of the two appraisals. In the event the Initial
Appraisers are five percent (5%) or more apart, the Initial Appraisers shall
promptly select a third appraiser who meets the same criteria as required of the
Initial Appraisers ("Third Appraiser"). The Third Appraiser shall submit to
Landlord and Tenant, within twenty-one (21) days after its appointment, its
written appraisal of the Fair Market Rental Value with respect to the Leased
Premises as of the applicable commencement date, which appraisal shall be
binding upon Landlord and Tenant. The cost of the Third Appraiser shall be borne
equally by Landlord and Tenant.
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<PAGE> 45
EXHIBIT RR
RULES AND REGULATIONS
The following rules and regulations shall apply to the Leased Premises,
the Building, and the Property:
1. Sidewalks, doorways, vestibules, halls, stairways, and other
similar areas shall not be obstructed by tenants or used by any tenant for
purposes other than ingress and egress to and from their respective leased
premises and for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the
purposes for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or deposited therein. Damage resulting to any such
fixtures or appliances from misuse by a tenant or its agents, employees or
invitees, shall be paid by such tenant.
3. No signs, advertisements or notices shall be painted or
affixed on or to any windows or doors or other part of the Building (nor to the
outside of the Leased Premises) without the prior written consent of Landlord.
No nails, hooks or screws shall be driven or inserted in any part of the
Building (nor to the outside of the Leased Premises) except by Building
maintenance personnel. No curtains or other window treatments shall be placed
between the glass and the Building standard window treatments.
4. Landlord shall provide all door locks in each tenant's leased
premises, at the cost of such tenant, and no tenant shall place any additional
door locks in its leased premises without Landlord's prior written consent.
Landlord shall furnish to each tenant a reasonable number of keys to such
tenant's leased premises, at such tenant's cost, and no tenant shall make a
duplicate thereof.
5. Movement in or out of the Building of furniture or office
equipment, or dispatch or receipt by tenants of any bulky material, merchandise
or materials which require use of elevators or stairways, or movement through
the Building entrances or lobby shall be conducted under Landlord's supervision
at such times and in such a manner as Landlord may reasonably require. Each
tenant assumes all risks of and shall be liable for all damage to articles moved
and injury to persons or public engaged or not engaged in such movement,
including equipment, property and personnel of Landlord if damaged or injured as
a result of acts in connection with carrying out this service for such tenant.
6. Landlord may prescribe weight limitations and determine the
locations for safes and other heavy equipment or items, which shall in all cases
be placed in the Building so as to distribute weight in a manner acceptable to
Landlord which may include the use of such supporting devices as Landlord may
require. All damages to the Building caused by the installation or removal of
any property of a tenant, or done by a tenant's property while in the Building,
shall be repaired at the expense of such tenant.
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7. Corridor doors, when not in use, shall be kept closed. Nothing
shall be swept or thrown into the corridors, halls, elevator shafts or
stairways. No birds or animals shall be brought into or kept in, on or about any
tenant's leased premises. No portion of any tenant's leased premises shall at
any time be used or occupied as sleeping or lodging quarters.
8. Tenant shall cooperate with Landlord's employees in keeping
its leased premises neat and clean. Tenants shall not employ any person for the
purpose of such cleaning other than the Building's cleaning and maintenance
personnel.
9. To ensure orderly operation of the Building, no ice, mineral
or other water, towels, newspapers, etc. shall be delivered to any leased area
except by persons approved by Landlord.
10. Tenant shall not make or permit any vibration or improper,
objectionable or unpleasant noises or odors to permeate outside of the Leased
Premises or otherwise interfere in any way with other tenants or persons having
business with them.
11. No machinery of any kind (other than normal office equipment)
shall be operated by any tenant on its leased area without Landlord's prior
written consent, nor shall any tenant use or keep in the Building any flammable
or explosive fluid or substance.
12. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from tenant's leased premises or public or common
areas regardless of whether such loss occurs when the area is locked against
entry or not.
13. No vending or dispensing machines of any kind may be
maintained in any leased premises without the prior written permission of
Landlord.
14. Tenant shall not conduct any activity on or about the
Property, the Building or the Leased Premises which will draw pickets,
demonstrators, or the like.
15. All vehicles are to be currently licensed, in good operating
condition, parked for business purposes having to do with Tenant's business
operated in the Premises, parked within designated parking spaces, one vehicle
to each space. No vehicle shall be parked as a "billboard" vehicle in the
parking lot. Any vehicle parked improperly may be towed away. Tenant, Tenant's
agents, employees, vendors and customers who do not operate or park their
vehicles as required shall subject the vehicle to being towed at the expenses of
the owner or driver. Landlord may place a "boot" on the vehicle to immobilize it
and may levy a charge of $50.00 to remove the "boot". Tenant shall indemnify,
hold and save harmless Landlord of any liability arising from the towing or
booting of any vehicles belonging to Tenant, Tenant's agents, vendors, employees
and customers.
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EXHIBIT LW
LANDLORD'S PLANS AND SPECIFICATIONS
Landlord and Tenant shall agree on mutually acceptable plans and specifications
for the Leased Premises which will be attached hereto as EXHIBIT LW
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<PAGE> 48
EXHIBIT TI
TENANT IMPROVEMENTS
(a) Tenant shall cause its architect to prepare a reasonable detailed
layout plan of proposed Tenant Improvements of the Leased Premises, as the same
may be amended ("Tenant Space Plan") and submitted to and approved by Landlord,
which approval or disapproval shall not be unreasonably delayed or conditioned.
Landlord shall provide its approval or disapproval to Tenant within five (5)
business days after Landlord's receipt of the Tenant Space Plan and provided
that any disapproval shall contain reasonable objections, Tenant will enter into
a contract (the "TI Construction Contract") with one of three general
contractors to be chosen by Landlord in its reasonable discretion ("Tenant's
General Contractor"). Tenant shall have the right to solicit competitive bids
for the construction of the Tenant Improvements from said three (3) general
contractors.
(b) Tenant shall adhere to the following requirements in performing all the
Tenant Improvements work. Tenant shall procure all necessary governmental
approvals and all Tenant Improvements work shall be performed at Tenant's risk
in compliance with all applicable laws and in a good and workmanlike manner
employing new materials of good quality and producing a result at least equal in
quality to the other parts of the Leased Premises. When any Tenant Improvements
work is in progress, Tenant shall cause to be maintained insurance as described
below and such other insurance as may be required by Landlord covering any
additional hazards due to such Tenant Improvements work, and is required by
Landlord a statutory lien bond pursuant to M.G.L. c. 254 ss. 12 or any successor
statute (or such other protection of Landlord's interest in the Building against
liens as Landlord may reasonably require), in each case for the benefit of
Landlord and any mortgagee. It shall be a condition of Landlord's approval of
any Tenant Improvements work (i) that certificates of such insurance, and a lien
bond in recordable form (if so required), issued by responsible insurance
companies qualified to do business in Massachusetts and reasonably approved by
Landlord, shall have been deposited with Landlord, (ii) that Tenant has provided
Tenant's certification of the insurable value of the work in question for
casualty insurance purposes, and (iii) that all of the other conditions of the
Lease have been satisfied. At all times while performing Tenant Improvements
work, Tenant and each contractor of Tenant shall not discriminate against any
individual because of race, color, sex, religion or national origin.
(c) In performing Tenant Improvements work, each contractor of Tenant shall
comply with Landlord's reasonable requirements relating to the time and methods
for such work, use of delivery elevators and other Building facilities; and no
contractor shall ever interfere with or disrupt any other tenant or other person
using the Building. Each contractor shall in all events work on the Leased
Premises without causing labor disharmony or coordination difficulties, and
without causing any delays to, or impairing any guaranties, warranties or
obligations of, any contractors of Landlord. Tenant and its contractors shall
not have any obligation to employ union labor. If any such contractor uses or
asks Landlord to provide any services in addition to those services specified in
this Lease, such contractors, jointly and severally with Tenant, shall agree to
reimburse Landlord for the
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<PAGE> 49
cost thereof based on Landlord's schedule of charges established from time to
time (and if no such charges have been established, then based on Landlord's
reasonable charge established at the time). Each such contractor shall, by its
entry into the Building, be deemed to have agreed jointly and severally with
Tenant to indemnify and hold Landlord, Landlord's Managing Agent and Landlord's
mortgagee and their respective partners, officers, directors, employees and
agents harmless from any claim, loss or expense arising in whole or in part out
of any act or neglect committed by such person while in the Building, to the
same extent as Tenant has so agreed in the Lease.
Tenant shall purchase and, unless waived in writing by the Landlord in
particular instances, shall cause each contractor of Tenant to purchase, in a
company or companies against which the Landlord has no reasonable objections,
such insurance as will protect Landlord from claims set forth below:
4.1 claims under workers' or workmen's compensation,
disability benefit and other similar employee benefit acts;
4.2 claims for damages because of bodily injury,
occupational sickness or disease, or death of his employees;
4.3 claims for damages because of bodily injury, sickness
or disease, or death of any person other than his employees;
4.4 claims for damages insured by personal injury
liability coverage which are sustained (1) by any person as a result of an
offense directly or indirectly related to the employment of such person by the
Contractor, or (2) by any other person;
4.5 claims for damages, other than to the Tenant
Improvements work itself, because of injury to or destruction of tangible
property, including loss of use resulting therefrom;
4.6 claims for damages because of bodily injury or death
of any person or property damage arising out of the ownership, maintenance or
use of any motor vehicle; and
4.7 claims for contractual liability (both oral and
written) under his undertaking with Tenant.
(d) The insurance required shall include all major divisions of coverage,
and shall be on a comprehensive general basis including Premises and Operations
(deleting X-C-U exclusions), Owners' and Contractor's Protective, Products and
Completed Operations, and Owned, Nonowned, and Hired Motor Vehicles. Such
insurance shall be written for not less than any limits of liability required by
law or those set forth below (which amounts may, from time to time, be
reasonably increased by Landlord), whichever is greater.
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.1 Workman's Compensation - Statutory/Employers Liability and all
additional endorsements $500,000.
.2 Public Liability - Single Limit (Combined) Per Occurrence.
Bodily & Personal Injury $1,000,000
Property Damage $1,000,000 Occurrence/Aggregate.
.3 Automobile Liability - Single Limit (Combined) Per Occurrence.
Bodily Injury $1,000,000
Property Damage $1,000,000 Per Occurrence.
.4 Independent Contractors - $1,000,000 Per Occurrence.
.5 Products and Completed Operations $1,000,000 Per
Occurrence, covering liability for claims made within
applicable statutes of limitations following issuance
of final Certificate of Payment.
.6 Broad Form Blanket Contractual Liability (both oral and
written) $1,000,000 per occurrence.
.7 Excess Liability Umbrella - $5,000,000 Per Occurrence.
Certificates of insurance acceptable to Landlord shall be filed with
Landlord prior to commencement of the Tenant Improvements work. These
Certificates shall contain a provision that coverages afforded under the
policies will not be amended, canceled or non-renewed until at least 30 days'
prior written notice has been given to Landlord and all other additional
insureds. The form of certificate shall be acceptable to Landlord. If by the
terms of insurance carried by tenant or any contractor a mandatory deductible is
required, in the event of a paid claim Tenant or such contractor shall be
responsible for the deductible amount. All deductible/self-insured retention
amounts shall be show on the Certificate of Insurance. In all cases, Landlord,
Landlord's Managing Agent, each mortgagee of the Building and any other person
reasonably designated by Landlord shall be named as additional insureds.
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EXHIBIT J
JANITORIAL SERVICES
CLEANING SPECIFICATIONS
A. GENERAL NOTES
1. All cleaning personnel shall sign in and out at the main lobby
security desk.
2. Building keys shall be accounted for and returned daily. Any
missing keys are to be reported to building security
immediately.
3. All cleaning personnel will wear uniforms and proper
identification including the company and the employee names.
4. Cleaning company will maintain a logbook on a daily basis
noting any problems, areas inaccessible due to tenants working
after hours and utility work completed.
5. Cleaning supervisors will maintain a log of building supplies
used and advise management when to restock. Cleaning
supervisor will be responsible for transporting, storing and
organizing supplies.
6. Supervisors will be responsible for turning off all lights and
locking all doors when their job is done.
B. MAIN LOBBY AND COMMON AREAS
1. Dust mop, wash and rinse all hard floor surfaces. Wash with a
detergent solution and rinse with a clear water solution.
Spray buff, using a high speed floor machine as necessary.
Strip and reseal as directed.
2. Clean all entrance mats as required.
3. Vacuum all carpeted surfaces and spot clean all stains with a
spot carpet cleaner.
4. Clean, with glass cleaner, all fingerprints and marks on all
glass entry doors including revolving doors, etc.
5. Polish all exposed metal surfaces in main lobby.
6. Wipe clean and polish all metal and wood surfaces in elevator
and on elevator doors.
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7. Vacuum carpeted elevators and spot clean as necessary. Wash
freight elevator floor as necessary.
8. Dust elevator light fixtures.
9. Empty all exterior trash receptacles, cleaning as needed and
replace liners.
10. Clean and sanitize all drinking fountains using a germicidal
detergent solution.
C. RESTROOMS
1. Dust mop and sweep tiled lavatory floors. Wash and rinse using
germicidal solution. Machine scrub once per month. Strip and
reseal tile floors as directed.
2. Clean, using a germicidal solution, all metal toilet and
urinal partitions.
3. Clean, using a germicidal solution, all tile walls as
required.
4. Clean all vanity tops.
5. Clean and sanitize all sinks, toilet bowls and seats, and
urinals, using a germicidal detergent.
6. Clean and polish all bright work (chrome fixtures, faucets,
etc.).
7. Clean and sanitize all dispensers and receptacles (soap
dispensers, paper towels, toilet paper, sanitary napkins).
8. Refill all dispensers in lavatories.
9. Remove all waste paper and refuse to a designated area.
D. TENANT CLEANING
1. Empty all wastebaskets and dispose of trash in designated
area. Replace plastic liners.
2. Dust mop, wash and rinse all hard surfaces. Spray buff, using
a high speed floor machine, as necessary. Strip and reseal
floors as directed.
3. Vacuum all carpeted surfaces and spot clean all stairs with a
spot cleaner.
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<PAGE> 53
4. Clean all fingerprints and marks on walls, door frames, kick
planes, door louvers, door handles and light switches.
5. Dust and clean any spots on all baseboards throughout tenant
areas.
6. Dust and wipe clean as necessary, all furniture, chair rails,
moldings, closets and coat racks.
7. Damp wipe and polish all glass furniture tops.
E. UTILITY CLEANING
1. Keep electric and telephone closets in clean and orderly
fashion.
2. Police loading dock and trash areas.
3. Perform miscellaneous projects such as cleaning mechanical
areas, exterior stairs, etc. as may be requested by building
management.
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EXHIBIT TR
TITLE RESTRICTIONS
1. Rights in a cartpath shown and rights represented by a line designated
"APPROX. LAKE NAGOG WATERSHED LINE" on plan dated May 10, 1973, last
revised November 12, 1973, recorded as Plan No. 448 of 1974 in Book
12629, Page 25, as affected by a plan entitled "Nagog Square
Modification Plan in Acton, Mass. Modification of the Nagog Square'
Definitive Subdivision Plan by R.R. Nelson Civil Engineers, dated May
10, 1973 as revised" dated July 5, 1982 recorded in Book 15170, Page
End; Said cartpath being also shown on the Survey referred to in Item
8.
2. Rights under an "Agreement with Water Supply District of Acton to Pay
Demand Charge" dated October 12, 1972 recorded in Book 12345, Page 670,
as affected by an amendment dated May 14, 1974 recorded in Book 12633,
Page 191; Certificate of Performance recorded March 16, 1981 in Book
14238, Page 35; and Revised Certificate of Performance dated May 18,
1981 recorded in Book 14321, Page 63.
3. Declaration of Restrictive Covenants by Nagog Development Company dated
March 13, 1981 recorded in Book 14238, page 59, as affected by First
Amendment dated May 8, 1981 recorded in Book 14286, Page 442, as
affected by Certificate of Approval dated December 1, 1988 recorded in
Book 19599, Page 290, and as affected by Confirmation Certificate of
Approval, dated February 7, 1998 recorded in Book 28159, Page 204.
4. Reservation of a slope easement for the support of the right of way
along the easterly bound of the Premises as set forth in deed from
Nagog Development Company to Digital Equipment Corporation dated May
27, 1982 recorded in Book 14625, Page 368; said Slope Easement being
also shown on the Survey referred to in Item No. 8.
5. Conditions set forth in an instrument of the Acton Board of Selectmen
entitled "DECISION SITE PLAN SPECIAL PERMIT" dated June 9, 1987
recorded in Book 19159, Page 50.
6. Decision of Acton Planning Board for approval of Definitive Plan
Highridge Subdivision, approved October 18, 1989, recorded in Book
20595, Page 358, as shown on plan recorded in Book 20595, Page 356 and
357, affecting an easement over a small, triangular parcel at the
eastern extremity of the insured premises as shown on the survey
referred to in Item 8.
7. Plan entitled "Plan of Land Highridge Subdivision Acton MA Prepared
for: Mutual Development Co. 225 Newtonville Ave., Newton MA 02158"
dated August 21, 1989, last revised September 26, 1989, recorded in
Book 20590, Page 356 as Plan No. 496 of 1990 discloses utility and
grading easement running across the northeasterly corner of the
premises.
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8. Survey entitled "ALTA/ACSM PLAN, 50 NAGOG PARK DRIVE, ACTON,
MASSACHUSETTS, PREPARED FOR HESKIN/SIGNET PARTNERS dated
September 9, 1998, revised September 18, 1998 Prepared by Howe
Surveying Associates, Inc., Civil Engineers & Land Surveyors discloses
the following:
a. Approximate Lake Nagog Watershed Line.
b. Telephone, electric, sewer and water lines crosses
onto premises.
c. Record Location of cartpath.
d. Slope Easement Area.
e. Curb cut and curbing in Nagog Park Drive.
f. Utility and grading easement affecting a triangular
portion of the premises at the eastern extremity of
the premises.
9. Terms and provisions of Lease between CTRON ACQUISITION, INC., Landlord
and Digital Equipment Corporation dated February 7, 1998, notice of
which is dated February 7, 1998 recorded in Book 28159, Page 237.
10. Rights set forth in Deed to Digital Equipment Corporation dated May 27,
1982 recorded in Book 14625, Page 368 as shown on the survey referred
to in Item 8.
11. Easement to MCI Metro Access Transmission Services, Inc. dated November
4, 1994 recorded in Book 25085, Page 18.
12. Mortgage, Assignment of Rents and Security Agreement to Principal
Commercial Advisors, Inc. dated November ___, 1998 recorded on November
___, 1998 as Instrument No. _________.
13. UCC-1 Financing Statement naming Nagog Park Investors, L.L.C., as
Debtor, and Principal Commercial Advisors, Inc., as Secured Party,
recorded November ___, 1998 as Instrument No. _______.
a. Board of Appeals Decision (Hearing #80-43) dated
November 3, 1980 recorded November ___, 1998 as
Instrument No. ______ (as reflected in Landlord's
title policy insuring Landlord's interest in the land
described on EXHIBIT A to this Lease).
b. Board of Appeals Decision (Hearing #80-43) dated
November 3, 1980 recorded November ___, 1998 as
Instrument No. _____ (as reflected in Landlord's
title policy insuring Landlord's interest in the land
described on EXHIBIT A to this Lease).
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EXHIBIT 10.6
ANDOVER .NET INSERTION ORDER
BANNER AD CAMPAIGN
SEPTEMBER 14, 1999
INVOICE #:
ADVERTISER:
INVOICE:
WEBSITE URLS:
CAMPAIGN DATE:
IMPRESSIONS:
BANNER SPECS:
CREATIVE :
AD SUBMISSION:
SALES CONTACT:
REPORTING:
BILLING:
TOTAL CHARGES:
AUTHORIZED SIGNATURE:
----------------------------------------------------------
DATE:
----------------------------
CC TYPE:
CCHOLDER:
ACCOUNT#
EXP. DATE:
FAX SIGNED I/O TO 978/635-5326, ATTN:
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[ANDOVER.NET LETTERHEAD]
INSERTION ORDER
INSERTION ORDER NO:
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TECHNICAL CONTACT:
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AUTHORIZED SIGNATURE: DATE:
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<PAGE> 1
EXHIBIT 10.7
EXECUTION COPY
EMPLOYMENT AND
NON-COMPETITION AGREEMENT
AGREEMENT, dated as of June 28, 1999, by and between Andover Advanced
Technologies, Inc., a Massachusetts corporation (the "Company"), and Robert
Malda, a resident of Holland, Michigan (the "Employee").
WHEREAS, the Company desires to engage the services of the Employee and
the Employee desires to be employed by the Company;
WHEREAS, the Company desires to be assured that the unique and expert
services of the Employee will be substantially available to the Company, and
that the Employee is willing and able to render such services on the terms and
conditions hereinafter set forth; and
WHEREAS, the Company desires to be assured that the confidential
information and good will of the Company will be preserved for the exclusive
benefit of the Company;
NOW, THEREFORE, in consideration of such employment and the mutual
covenants and promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Employee agree as follows:
Section 1. EMPLOYMENT. The Company hereby employs the Employee,
and the Employee hereby accepts such employment under and subject to the terms
and conditions hereinafter set forth.
Section 2. TERM. The term of employment under this Agreement
shall begin on June 28, 1999 and, unless sooner terminated as provided in
Section 6, shall conclude three (3) years from the date hereof (the "Term").
Section 3. DUTIES. The Employee shall perform services in a
managerial capacity subject to the general supervision of the President of the
Company. The Employee hereby agrees to devote such business time (i) as is
reasonably necessary to operate the Website (as that term is defined in the
Asset Purchase Agreement dated as of June 18, 1999 by and between the Company
and Blockstackers, Inc. (the "Purchase Agreement")) as it has historically been
operated and (ii) to such other duties as the Employee and the Company may
agree. In addition, the Employee shall use his reasonable best efforts in the
faithful performance of such duties and to the promotion and forwarding of the
business and affairs of the Company.
Section 4. SALARY COMPENSATION. In consideration of the services
rendered by the Employee under this Agreement, the Company shall pay the
Employee a base salary (the "Base Salary") at the rate of $90,000 per calendar
year. The Base Salary may be increased, but not decreased, at the sole
discretion of the Company's Board of Directors. The Base Salary shall be paid in
such installments and at such times as the Company pays its regularly salaried
<PAGE> 2
employees. The Employee shall be eligible for such bonus and merit raises on the
same terms as are generally afforded to other employees of the Company.
Section 5. BENEFITS. In addition to the compensation detailed
in Section 4 of this Agreement, the Employee shall be entitled to the following
additional benefits:
Section 5.01. PAID VACATION. The Employee shall be entitled to
three (3) weeks paid vacation per fiscal year, such vacation to extend for such
periods and shall be taken at such intervals as shall be appropriate and
consistent with the proper performance of the Employee's duties hereunder.
Section 5.02. INSURANCE COVERAGE. During the Term, the Company
shall provide the Employee with group health and life insurance protection to
the same extent that it makes such protection available to its other Employee
employees, which protection shall be equivalent to the protection as in effect
immediately prior to the date hereof.
Section 5.03. REIMBURSEMENT OF EXPENSES. The Company shall
reimburse the Employee for all reasonable expenses actually incurred by the
Employee in connection with the business affairs of the Company and the
performance of his duties hereunder. The Employee shall comply with such
reasonable limitations and reporting requirements with respect to such expenses
as the Board may establish from time to time.
Section 6. TERMINATION. This Agreement shall be terminated at
the end of the Term or any Renewal Term, or earlier as follows:
Section 6.01. DEATH. This Agreement shall terminate upon the death
of the Employee, except that the compensation provided in Section 4 shall
continue through the end of the month in which the Employee's death occurs.
Section 6.02. PERMANENT DISABILITY. In the event of any physical or
mental disability of the Employee rendering the Employee unable to perform his
duties hereunder for a period of at least one hundred twenty (120) consecutive
days and the further determination that the disability is permanent with regard
to the Employee's ability to return to work in his full capacity, this Agreement
shall terminate automatically. Any determination of disability shall be made by
the Board in consultation with a qualified physician or physicians selected by
the Board and reasonably acceptable to the Employee. The failure of the Employee
to submit to a reasonable examination by such physician or physicians shall act
as an estoppel to any objection by the Employee to the determination of
disability by the Board.
Section 6.03. BY THE COMPANY FOR CAUSE. The employment of the
Employee may be terminated by the Company for Cause (as defined below) at any
time effective upon written notice to the Employee. For purposes hereof, the
term "Cause" shall mean that the Board has determined that any one or more of
the following has occurred:
(a) The Employee shall have been convicted of, or shall
have pleaded guilty or NOLO CONTENDERE to, any felony;
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<PAGE> 3
(b) The Employee shall have willfully failed or refused
to carry out the reasonable and lawful instructions of the President
(other than as a result of illness or disability) and such failure or
refusal shall have continued for a period of ten (10) days following
written notice from the President, which notice provides reasonable
detail regarding such failure or refusal; provided however if the
Company determines to change its strategic focus or otherwise alter the
Website or remove Creative Control (as such terms are defined in the
Purchase Agreement), any such failure or refusal shall not permit the
Company to terminate the Employee for "Cause" hereunder;
(c) the Employee shall have breached any material
provision of Section 8 or 9 hereof and such breach shall have continued
for a period of ten (10) days following written notice thereof; or
(d) the Employee shall have committed any fraud,
embezzlement, material misappropriation of funds, or other material
acts of dishonesty against the Company.
Section 6.04. BY THE COMPANY WITHOUT CAUSE. The Company may
terminate the Employee's employment at any time without Cause effective upon
written notice to the Employee.
Section 6.05. BY THE EMPLOYEE VOLUNTARILY. The Employee may
terminate this Agreement at any time effective upon at least thirty (30) days'
prior written notice to the Company.
Section 6.06. BY THE EMPLOYEE FOR GOOD REASON. The Employee may
terminate this Agreement effective upon written notice to the Company for Good
Reason. Any such termination shall be treated as a termination by the Company
without Cause. For this purpose, the term "Good Reason" shall mean: (i) the
assignment to the Employee of any duties inconsistent in any substantial respect
with the Employee's position, authority or responsibilities as contemplated by
Section 1 of this Agreement; (ii) any material reduction in any of the benefits
described in Sections 5 of this Agreement; (iii) any material breach of this
Agreement by the Company; or (iv) the Company requires the Employee to perform
his duties hereunder from any specific location for a prolonged period of time
(provided that all of the Employee's duties hereunder are being otherwise
performed).
Section 7. TERMINATION PAYMENTS AND BENEFITS.
Section 7.01. VOLUNTARY TERMINATION, TERMINATION FOR CAUSE. Upon
any termination of this Agreement either (1) voluntarily by the Employee or (2)
by the Company for Cause as provided in Section 6.03, all salary and other
benefits hereunder shall cease at the effective date of termination. In
addition, the Company's obligation to make any payments after the date of
termination pursuant to the provisions of Schedule 1 to the Purchase Agreement
shall be reduced as set forth in such Schedule.
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<PAGE> 4
Section 7.02. TERMINATION WITHOUT CAUSE OR FOR GOOD REASON. In the
event that this Agreement is terminated by the Company without Cause, or by the
Employee for Good Reason, the Employee shall be entitled to continue to receive
the Base Salary and benefits hereunder for a period of twelve (12) months from
the date of termination. In addition, the Company's obligation to make the
payments set forth on Schedule 1 of the Purchase Agreement shall not be reduced.
Section 7.03. TERMINATION DUE TO PERMANENT DISABILITY. In the event
that this Agreement is terminated due to the Permanent Disability of the
Employee, the Employee shall receive an amount equal to the Employee's salary as
is in effect at the effective date of termination for a period of three (3)
months from the effective date of termination, pursuant to the Company's normal
payroll practices.
Section 7.04. NO OTHER BENEFITS. Except as specifically provided in
this Section 7, the Employee shall not be entitled to any compensation,
severance or other benefits from the Company or any of its subsidiaries or
affiliates upon the termination of this Agreement for any reason whatsoever.
Section 8. PROPRIETARY INFORMATION; INVENTIONS IN THE FIELD.
Section 8.01. PROPRIETARY INFORMATION. In the course of his service
to the Company, the Employee will have access to confidential specifications,
know-how, strategic or technical data, marketing research data, product research
and development data, manufacturing techniques, confidential customer lists,
sources of supply and trade secrets, all of which are confidential and may be
proprietary and are owned by or licensed exclusively to the Company, or any of
its subsidiaries or affiliates. Such information shall hereinafter be called
"Proprietary Information" and shall include any and all items enumerated in the
preceding sentence and coming within the scope of the business of the Company or
any of its subsidiaries or affiliates as to which the Employee may have access,
whether conceived or developed by others or by the Employee alone or with others
during the period of his service to the Company, whether or not conceived or
developed during regular working hours. Proprietary Information shall not
include any records, data or information which are (i) in the public domain
during or after the period of service by the Employee provided the same are not
in the public domain as a consequence of disclosure directly or indirectly by
the Employee in violation of this Agreement; or (ii) independently obtained or
developed by the Employee or third parties without a breach of this Section 8.
Section 8.02. INTENTIONALLY OMITTED.
Section 8.03. NON-USE AND NON-DISCLOSURE. The Employee agrees that
Proprietary Information is of critical importance to the Company and a violation
of this Section 8.03 would seriously and irreparably impair and damage the
Company's business. The Employee shall not, during the Term or at any time
thereafter, (a) disclose, directly or indirectly, any Proprietary Information to
any person other than the Company or employees thereof at the time of such
disclosure who, in the reasonable judgment of the Employee, need to know such
Proprietary Information or such other persons to whom the Employee has been
specifically instructed to make disclosure by the Board and in all such cases
only to the extent required in the course of
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<PAGE> 5
the Employee's service to the Company or (b) use any Proprietary Information,
directly or indirectly, for his own benefit or for the benefit of any other
person or entity. At the termination of his employment, the Employee shall
deliver to the Company all notes, letters, documents and records which may
contain Proprietary Information which are then in his possession or control and
shall destroy any and all copies and summaries thereof.
Section 8.04. ASSIGNMENT OF INVENTIONS. The Employee agrees to
assign and transfer to the Company or its designee, without any separate
remuneration or compensation, his entire right, title and interest in and to all
Inventions in the Field (as defined below), together with all United States and
foreign rights with respect thereto, and at the Company's expense to execute and
deliver all appropriate patent and copyright applications for securing United
States and foreign patents and copyrights on Inventions in the Field and to
perform all lawful acts, including giving testimony, and to execute and deliver
all such instruments that may be necessary or proper to vest all such Inventions
in the Field and patents and copyrights with respect thereto in the Company, and
to assist the Company in the prosecution or defense of any interference which
may be declared involving any of said patent applications, patents, copyright
applications or copyrights. For the purposes of this Agreement, the words
"Inventions in the Field" shall mean any discovery, process, design,
development, improvement, application, technique, or invention, whether
patentable or copyrightable or not and whether reduced to practice or not,
conceived or made by the Employee, individually or jointly with others (whether
on or off the Company's premises or during or after normal working hours) while
in the employ of the Company and as a part of the duties the Employee performs
for the Company, or any of its subsidiaries or affiliates.
Section 9. RESTRICTIONS ON ACTIVITIES OF THE EMPLOYEE
Section 9.01. ACKNOWLEDGMENTS. The Employee agrees that he is being
employed hereunder in a key management capacity with the Company and that the
Company is engaged in a highly competitive business and that the success of the
Company's business in the marketplace depends upon its goodwill and reputation
for quality and dependability. The Employee further agrees that reasonable
limits may be placed on his ability to compete against the Company as provided
herein so as to protect and preserve the legitimate business interests and good
will of the Company.
Section 10.02. GENERAL RESTRICTIONS.
(a) During the Term and for the Non-Competition Period
(as defined below), the Employee will not (anywhere in the world where the
Company or any of its subsidiaries or affiliates then conducts business) engage
or participate in, directly or indirectly, as principal, agent, employee,
employer, consultant, investor or partner, or assist in the management of, or
own any stock or any other ownership interest in, any business which is
Competitive with the Company (as defined below); provided that the ownership of
not more than 5% of the outstanding securities of any class listed on an
exchange or regularly traded in the over-the-counter market shall not constitute
a violation of this Section 10.02. For purposes of this Agreement, a business
shall be considered "Competitive with the Company" only if it involves a
real-time or contemporaneous news website. The Employee and the Company agree
that the Employee
-5-
<PAGE> 6
may continue to develop "DJ Hernandez," "Ad-Fu" and "Everything" which
activities the Company agrees are not Competitive.
(b) For purposes of this Agreement, the "Non-Competition
Period" shall mean the longer of (i) the Term and (ii) a period of five (5)
consecutive years from the date hereof; provided however, that if the Company
terminates the Employee's employment without Cause or the Employee terminates
for Good Reason, the Non-Competition Period shall terminate concurrently with
the termination of employment.
Section 9.03. EMPLOYEES, CUSTOMERS AND SUPPLIERS.
(a) During the Term, any Renewal Term and the
Non-Solicitation Period (as defined below), the Employee will not solicit, or
attempt to solicit, any officer, director, consultant, Employee or employee of
the Company or any of its subsidiaries or affiliates to leave his or her
engagement with the Company or such subsidiary or affiliate nor will he call
upon, solicit, divert or attempt to solicit or divert from the Company or any of
its affiliates or subsidiaries any of their customers or suppliers, or potential
customers or suppliers, of whose names he was aware during the term of his
employment with the Company; provided, however, that nothing in this Section
9.03 shall be deemed to prohibit the Employee from calling upon or soliciting a
customer or supplier during the Non-Solicitation Period if such action relates
solely to a business which is not Competitive with the Company; and provided,
further, however, that nothing in this Section 9.03 shall be deemed to prohibit
the Employee (i) from soliciting or hiring any employee of the Company or any of
its subsidiaries or affiliates, if such employee is a member of the Employee's
immediate family or (ii) from placing advertisements in newspapers or other
media of general circulation advertising employment opportunities.
(b) For purposes of this Agreement, the "Non-Solicitation
Period" shall mean the longer of (i) the Term and (ii) a period of twelve (12)
consecutive months after the Employee's employment terminates; provided however,
that if the Company terminates the Employee's employment without Cause or the
Employee terminates for Good Reason, the Non-Solicitation Period shall terminate
concurrently with the termination of employment.
Section 9.04. THE EMPLOYEE REPRESENTS AND WARRANTS THAT THE
KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSES AT THE TIME OF COMMENCEMENT OF
EMPLOYMENT HEREUNDER ARE SUFFICIENT TO PERMIT HIM, IN THE EVENT OF TERMINATION
OF HIS EMPLOYMENT HEREUNDER, TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF
WITHOUT VIOLATING ANY PROVISION OF SECTION 8 OR 9 HEREOF, FOR EXAMPLE, BY USING
SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A
NON-COMPETITOR. THE EMPLOYEE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY SO
TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON HIS ABILITY TO
OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE LEVEL AT WHICH HE
IS COMPENSATED BY THE COMPANY.
-6-
<PAGE> 7
Section 10. REMEDIES. It is specifically understood and agreed
that any breach of the provisions of Section 8 or 9 of this Agreement is likely
to result in irreparable injury to the Company and that the remedy at law alone
will be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Company shall be entitled to enforce the specific
performance of this Agreement by the Employee and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages.
Section 11. SEVERABLE PROVISIONS. The provisions of this
Agreement are severable and the invalidity of any one or more provisions shall
not affect the validity of any other provision. In the event that a court of
competent jurisdiction shall determine that any provision of this Agreement or
the application thereof is unenforceable in whole or in part because of the
duration or scope thereof, the parties hereto agree that said court in making
such determination shall have the power to reduce the duration and scope of such
provision to the extent necessary to make it enforceable, and that the Agreement
in its reduced form shall be valid and enforceable to the full extent permitted
by law.
Section 12. NOTICES. All notices hereunder, to be effective,
shall be in writing and shall be delivered by hand or mailed by certified mail,
postage and fees prepaid, as follows:
If to the Company: Andover Advanced Technologies, Inc.
50 Nagog Office Park
Acton, MA 01720
Facsimile No: (978) 635-5326
Attention: President
If to the Employee: Robert Malda
----------------------
Holland, Michigan _____
or to such other address as a party may notify the other pursuant to a notice
given in accordance with this Section 12.
Section 13. MISCELLANEOUS.
Section 13.01. MODIFICATION. This Agreement constitutes the entire
Agreement between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral.
This Agreement may not be amended or revised except by a writing signed by the
parties.
Section 13.02. ASSIGNMENT AND TRANSFER. This Agreement shall not be
terminated by the merger or consolidation of the Company with any corporate or
other entity or by the transfer of all or substantially all of the assets of the
Company to any other person, corporation, firm or entity, provided that any
assignee of the Company pursuant to this Section 13.02 assumes in writing the
obligations of the Company hereunder. The provisions of this Agreement shall be
binding on and shall inure to the benefit of any such successor in interest to
the Company.
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<PAGE> 8
Neither this Agreement nor any of the rights, duties or obligations of the
Employee shall be assignable by the Employee, nor shall any of the payments
required or permitted to be made to the Employee by this Agreement be
encumbered, transferred or in any way anticipated.
Section 13.03. CAPTIONS. Captions herein have been inserted solely
for convenience of reference and in no way define, limit or describe the scope
or substance of any provision of this Agreement.
Section 13.04. GOVERNING LAW. This Agreement shall be construed
under and enforced in accordance with the laws of the Commonwealth of
Massachusetts.
[Remainder of page intentionally left blank]
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a sealed instrument as of the day and year first above written.
ANDOVER ADVANCED TECHNOLOGIES, INC.
By: /s/ Bruce A. Twickler
-----------------------------
Title: President
/s/ Robert Malda
- ------------------------------
Robert Malda
-9-
<PAGE> 1
EXHIBIT 10.8
ANDOVER ADVANCED TECHNOLOGIES, INC.
1995 STOCK PLAN
1. PURPOSE. This 1995 Stock Plan (the "Plan") is intended to
provide incentives: (a) to the officers and other employees of ANDOVER ADVANCED
TECHNOLOGIES, INC. (the "Company"), its parent (if any) and any present or
future subsidiaries of the Company (collectively, "Related Corporations") by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which qualify as "incentive stock options" under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code")
("ISO" or "ISOs"); (b) to directors, officers, employees and consultants of the
Company and Related Corporations by providing them with opportunities to
purchase stock in the Company pursuant to options granted hereunder which do not
qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options"); (c) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with awards of stock in the Company ("Awards");
and (d) to directors, officers, employees and consultants of the Company and
Related Corporations by providing them with opportunities to make direct
purchases of stock in the Company ("Purchases"). Both ISOs and Non-Qualified
Options are referred to hereafter individually as an "Option" and collectively
as "Options". Options, Awards and authorizations to make Purchases are referred
to hereafter collectively as "Stock Rights". As used herein, the terms "parent"
and "subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 425 of the Code.
2. ADMINISTRATION OF THE PLAN.
A. The Plan shall be administered by the Board of Directors of
the Company (the "Board"). Members of the Board who are either (i) eligible for
Stock Rights pursuant to the Plan or (ii) have been granted Stock Rights may
vote on any matters affecting the administration of the Plan or the grant of any
Stock Rights pursuant to the Plan, except that no such member shall act upon the
granting to himself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken with respect to the granting to him of Stock Rights. All
references in the Plan to the Committee shall mean the Board if no Committee has
been appointed pursuant to subparagraphs B or C of this Section 2 below.
B. The Board may delegate its powers with respect to the
administration of the Plan to a compensation committee (the "Committee")
appointed by the Board, provided that such Committee shall be composed pursuant
to subparagraph C below if the Company registers any class of any equity
security pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Committee may select one of its members as its
chairman, and shall hold meetings at such time and
<PAGE> 2
places as it may determine. Acts by a majority of the Committee, or acts reduced
to or approved in writing by a majority of the members of the Committee, shall
be the valid acts of the Committee. From time to time the Board may increase or
decrease the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
C. Notwithstanding the foregoing, if the Company registers any
class of any equity security pursuant to Section 12 of the Exchange Act, the
Plan shall be administered by the Committee (unless and until its members are
not qualified to serve on the Committee pursuant to the provisions of the Plan)
which shall be composed of not fewer than two (2) members of the Board who shall
be appointed from time to time by the Board. No member of such Committee may
exercise discretion with respect to, or participate in, the administration of
the Plan if, at any time, while a member of the Committee or during the twelve
(12)-month period prior to such exercise or participation, he has been granted
or awarded Stock Rights or any other derivative security of the Company or any
of its affiliate under this Plan or any similar plan of the Company, except
that:
(a) participation in a "Formula Plan" shall not disqualify a
director from being a disinterested person. A Formula Plan is a plan which:
(i) permits officers and/or directors to receive awards
and either (A) states the amount and price of securities to be
awarded to designated officers and directors or categories of
officers and directors, though not necessarily to others who
may participate in the plan, and specifies the time of awards
to officers and directors or (B) sets forth a formula that
determines the amount, price and timing of awards, using
objective criteria such as earnings of the Company, value of
the securities, years of service, job classification, and
compensation levels; and
(ii) provides that these plan provisions shall not be
amended more than once every six (6) months, other than to
comport with changes in the Code, the Employee Retirement
Income Security Act ("ERISA"), or the rules thereunder;
(b) participation in an ongoing securities acquisition plan which
meets the following conditions shall not disqualify a director from being a
disinterested person:
(i) the plan provides for broad-based employee
participation and the terms of the plan do not discriminate in
favor of highly compensated employees;
(ii) officer or director participants making withdrawals
must cease further purchases in the plan for six (6) months,
or the securities so
<PAGE> 3
distributed must be held by the participant six (6) months
prior to disposition; provided, however, that extraordinary
distributions of all of the Company's securities held by the
plan and distributions in connection with death, retirement,
disability, termination of employment, or a qualified domestic
relations order as defined by the Code or Title I of ERISA, or
the rules thereunder, are not subject to this requirement;
(iii) officer or director participants who cease
participation in the plan may not participate again for at
least six (6) months; and
(iv) for stock purchase plans under Section 423 of the
Internal Revenue Code or similar plans, where the purchase
price of the stock is not fixed and the participant is not
obligated to purchase the stock until exercise of a right, in
addition to the foregoing conditions, the stock acquired is
held for six (6) months from the date the stock purchase price
is fixed.
(c) an election to receive an annual retainer fee in either cash
or an equivalent amount of securities, or partly in cash and partly in
securities, shall not disqualify a director from being a disinterested person;
and
(d) participation in a plan shall not disqualify a director from
being a disinterested person for the purpose of administering another plan that
does not permit participation by directors.
Members of the Committee shall be subject to any additional
restrictions necessary to satisfy the requirements for disinterested
administration of the Plan as set forth in Rule 16b-3 under the Exchange Act, as
it may be amended from time to time. If at any time any member of the Committee
does not satisfy such disinterested administration requirements, no stock
options shall be granted under the Plan to any director or officer until such
time as all members of the Committee satisfy such requirements.
D. Subject to ratification of the grant or authorization of each
Stock Right by the Board (if so required by applicable state law), and subject
to the terms of the Plan, the Committee, if so appointed, shall have the
authority to (i) determine the employees of the Company and Related Corporations
(from among the class of employees eligible under paragraph 3 to receive ISOs)
to whom ISOs may be granted, and to determine (from among the class of
individuals and entities eligible under paragraph 3 to receive Non-Qualified
Options and Awards and to make Purchases) to whom Non-Qualified Options, awards
and authorizations to make Purchases may be granted; (ii) determine the time or
times at which Options or Awards may be granted or Purchases made; (iii)
determine the option price of shares subject to each Option, which price shall
not be less than the minimum price of shares subject to each Purchase; (iv)
determine whether each Option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi) determine
whether restrictions such as repurchase
<PAGE> 4
options are to be imposed on shares subject to Options, Awards and Purchases and
the nature of such restrictions, if any; and (vii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If the Committee
determines to issue a Non-Qualified Option, it shall take whatever actions it
deems necessary, under Section 422 of the Code and the regulations promulgated
thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Stock Right granted under it.
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any
employee of the Company or any Related Corporation. Those officers and directors
of the Company who are not employees may not be granted ISOs under the Plan.
Non-Qualified Options, Awards and authorizations to make Purchases may be
granted to any director (whether or not an employee), officer, employee or
consultant of the Company or any Related Corporation. The granting of any Stock
Right to any individual or entity shall neither entitle that individual or
entity to, nor disqualify him from, participation in any other grant of Stock
Rights.
4. STOCK. The stock subject to Options, Awards and Purchases
shall be authorized but unissued shares of Common Stock of the Company, no par
value per share (the "Common Stock"), or shares of Common Stock reacquired by
the Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is Twelve Thousand Two Hundred and Fifty (12,250), subject
to adjustment as provided in paragraph 13. Any such shares may be issued as
ISOs, Non-Qualified Options or Awards, or to persons or entities making
Purchases, so long as the number of shares so issued does not exceed such
number, as adjusted. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercisable in whole or in part, or
if the Company shall reacquire any vested shares issued pursuant to Awards or
Purchases, the unpurchased shares subject to such Options and any unvested
shares so reacquired by the Company shall again be available for grants of Stock
Rights under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under
the Plan at any time after October 12, 1995 and prior to October 12, 2005. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert any ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
<PAGE> 5
A. The price per share specified in the agreement relating to
each ISO granted under the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement relating to
such ISO shall not be less than one hundred ten percent (110%) of the fair
market value per share of Common Stock on the date of grant.
B. In no event shall the aggregate fair market value (determined
at the time an ISO is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any calendar
year (under all stock option plans of the Company and any Related Corporation)
exceed $100,000; provided that this paragraph 6(B) shall have no force or effect
if its inclusion in the Plan is not necessary for Options issued as ISOs to
qualify as ISOs pursuant to Section 422(d) of the Code.
C. If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which the Common
Stock is traded, if the Common Stock is then traded on a national securities
exchange; or (ii) the last reported sale price (on that date) of the Common
Stock on the NASDAQ National Market List, if the Common Stock is not then traded
on a national securities exchange; or (iii) the closing bid price (or average of
bid prices) last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the NASDAQ
National Market List. However, if the Common Stock is not publicly traded at the
time an Option is granted under the Plan, "fair market value" shall be deemed to
be the fair value of the Common Stock as determined by the Committee after
taking into consideration all factors which it deems appropriate, including,
without limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
7. OPTION DURATION. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten (10) years and one day from the date of
grant in the case of Non-Qualified Options, (ii) ten (10) years from the date of
grant in the case of ISOs generally, and (iii) five (5) years from the date of
grant in the case of ISOs granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation. Subject to earlier termination
as provided in paragraphs 9 and 10, the term of each ISO shall be the term set
forth in the original instrument granting such ISO, except with respect to any
part of such ISO that is converted into a Non-Qualified Option pursuant to
paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
<PAGE> 6
A. The Option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. Once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee.
C. Each Option or installment may be exercised at any time or
from time to time, in whole or in part, for up to the total number of shares
with respect to which it is then exercisable.
D. The Committee shall have the right to accelerate the date of
exercise of any installment of any Option; provided that the Committee shall not
accelerate the exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to paragraph 16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be
employed by the Company and all Related Corporations other than by reason of
death or disability as defined in paragraph 10, no further installments of his
ISOs shall become exercisable, and his ISOs shall terminate after the passage of
sixty (60) days, from the date of termination of his employment, but in no event
later than on their specified expiration dates, except to the extent that such
ISOs (or unexercised installments thereof) have been converted into
Non-Qualified Options pursuant to paragraph 16. Employment shall be considered
as continuing uninterrupted during a bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed ninety (90) days or, if longer,
any period during which such optionee's right to reemployment is guaranteed by
statute. A bona fide leave of absence with the written approval of the Committee
shall not be considered an interruption of employment under the Plan, provided
that such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved period
of absence. ISOs granted under the Plan shall not be affected by any change of
employment within or among the Company and Related Corporations, so long as the
optionee continues to be an employee of the Company or any Related Corporation.
Nothing in the Plan shall be deemed to give any grantee of any Stock Right the
right to be retained in employment or other service by the Company or any
Related Corporation for any period of time.
10. DEATH; DISABILITY.
A. If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number or shares with respect to which he could
have exercised it on his death, by his estate, personal representative or
beneficiary who has acquired the ISO by will or by the
<PAGE> 7
laws of descent and distribution, at any time prior to the earlier of the ISO's
specified expiration date or 180 days from the date of the optionee's death.
B. If an ISO optionee ceases to be reemployed by the Company and
all Related Corporations by reason of his disability, he shall have the right to
exercise any ISO held by him on the date of termination of employment, to the
extent of the number of shares with respect to which he could have exercised it
on that date, at any time prior to the earlier of the ISO's specified expiration
date or 180 days from the date of the termination of the optionee's employment.
For the purposes of the Plan, the term "disability" shall mean "permanent and
total disability" as defined in Section 22(e)(3) of the Code or successor
statute.
11. ASSIGNABILITY. No Stock Right shall be assignable or
transferable by the grantee except by will or by the laws of descent and
distribution, and during the lifetime of the grantee each Stock Right shall be
exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following
events, an optionee's rights with respect to Options granted to him hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. If the shares of Common Stock shall be subdivided or combined
into a greater or smaller number of shares or if the Company shall issue any
shares of Common Stock as a stock dividend on its outstanding Common Stock, the
number of shares of Common Stock deliverable upon the exercise of Options shall
be appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
B. If the Company is to be consolidated with or acquired by
another entity in a merger, sale of all or substantially all of the Company's
assets or otherwise (an "Acquisition"), the Committee or the Board of Directors
of any entity assuming the
<PAGE> 8
obligations of the Company hereunder (the "Successor Board"), shall, as to
outstanding Options either (i) make appropriate provision for the continuation
of such Options by substituting on an equitable basis for the shares then
subject to such Options the consideration payable with respect to the
outstanding shares of Common Stock in connection with the Acquisition; or (ii)
upon written notice to the optionee, provide that all Options must be exercised,
to the extent then exercisable, within a specified number of days of the date of
such notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof.
C. In the event of recapitalization or reorganization of the
Company (other than a transaction described in subparagraph B above) pursuant to
which securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon exercising
an Option shall be entitled to receive for the purchase price paid upon such
exercise the securities he would have received if he had exercised his Option
prior to such recapitalization or reorganization.
D. Notwithstanding the foregoing, any adjustments made pursuant
to subparagraphs A, B or C with respect to ISOs shall be made only after the
Committee, after consulting with counsel for the Company, determines whether
such adjustments would constitute a "modification" of such ISOs (as that term is
defined in Section 425 of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the Committee determines that such adjustments
made with respect to ISOs would constitute a modification of such ISOs, it may
refrain from making such adjustments.
E. In the event of the proposed dissolution or liquidation of the
Company, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
F. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends paid in cash or in property other than
securities of the Company.
G. No fractional shares shall be issued under the Plan and the
optionee shall receive from the Company cash in lieu of such fractional shares.
H. Upon the happening of any of the foregoing events described in
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall
<PAGE> 9
determine the specific adjustments to be made under this paragraph 13 and,
subject to paragraph 2, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise of a
Stock Right made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such restricted Common Stock, such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or cash
were issued, unless otherwise determined by the Committee or the Successor
Board.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part
or installment thereof) shall be exercised by giving written notice to the
Company at its principal office address. Such notice shall identify the Stock
Right being exercised and specify the number of shares as to which such Stock
Right is being exercised, accompanies by full payment of the purchase price
therefor either (a) in the United States dollars in cash or by check, or (b) at
the discretion of the Committee, through delivery of shares of Common Stock
having a fair market value equal as of the date of the exercise to the cash
exercise price of the Stock Right, or (c) at the discretion of the Committee, by
delivery oft he grantee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Code, or (d) at the discretion of the
Committee, by any combination of (a), (b) and (c) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c), or (d) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a stockholder with respect to the shares covered by his Option until the date of
issuance of a stock certificate to him for such shares. Except as expressly
provided above in paragraph 13 with respect to changes in capitalization and
stock dividends, no adjustment shall be made for dividends or similar rights for
which the record date is before the date such stock certificate is issued.
15. TERMS AND AMENDMENT OF PLAN. This Plan was adopted by the
Board and stockholders on October 12, 1995. Any Stock Rights granted prior to
such stockholder approval shall become null and void if such stockholder
approval is not obtained. The Plan shall expire on October 12, 2005; provided,
however, that the Plan and all Stock Rights granted under the Plan prior to such
date shall remain in effect and subject to adjustment and amendment as herein
provided until they have been satisfied or terminated in accordance with the
terms of the respective grants or awards and the related option instruments. The
Board may terminate or amend the Plan in any respect at any time without the
authorization of stockholders to the extent allowed by law, including without
limitation any rules issued by the Securities and Exchange Commission under
Section 16 of the Exchange Act, except that, unless approved by the
stockholders, it may not: (a) increase the total number of shares that may be
issued under the Plan (except by adjustment pursuant to paragraph 13); (b)
modify the provisions of paragraph 3 regarding eligibility for grants of ISOs;
(c) modify the provisions of paragraph 6(B) regarding the
<PAGE> 10
exercise price at which shares may be offered pursuant to ISOs (except by
adjustment pursuant to paragraph 13); and (d) extend the expiration date of the
Plan. In no event may action of the Board or stockholders alter or impair the
rights of a grantee, without his consent, under any Stock Right previously
granted to him.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF
ISOS. The Committee, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
ISO's for any installment or portions of installments thereof) that have not
been exercised on the date of conversion into Non-Qualified Options at any time
prior to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but are not limited to, extending the exercise period
or reducing the exercise price of the appropriate installments of such Options.
At the time of such conversion, the Committee (with the consent of the Optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. APPLICATION OF FUNDS. The proceeds received by the company
from the sale of shares pursuant to Options granted and Purchases authorized
under the Plan shall be used for general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a
Non-Qualified Option, the grant of an award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right on the grantee's payment of such additional
withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFIED DISPOSITION. Each employee
who receives an ISO must agree to notify the Company in writing immediately
after the employee makes a Disqualifying Disposition of any Common Stock
acquired pursuant to
<PAGE> 11
the exercise of an ISO. A Disqualifying Disposition is any disposition
(including any sale) of such Common Stock before the later of (a) two (2) years
after the date the employee was granted the ISO or (b) one (1) year after the
date the employee has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of
the Plan and the instruments evidencing Stock Rights shall be governed by the
laws of The Commonwealth of Massachusetts. In construing this Plan, the singular
shall include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
<PAGE> 12
ANDOVER ADVANCED TECHNOLOGIES, INC.
AMENDMENT NO. 1 TO 1995 STOCK OPTION PLAN
In accordance with the provisions of Section 15 of the Andover Advanced
Technologies, Inc. 1995 Stock Option Plan, the Plan is hereby amended as
follows:
1. Section 4 of the Plan is hereby amended by increasing
the number of shares subject to the Plan from 12,250 shares to 32,250 shares of
the no par value common stock of the Corporation.
2. This amendment shall take effect as of the date of
its adoption by the Andover Advanced Technologies, Inc. Board of Directors and
upon its approval by the stockholders of Andover Advanced Technologies, Inc. in
accordance with Section 15 of the Plan.
3. Executed as hereinabove provided, the Plan is hereby
ratified and confirmed in all respects.
Adopted by the Board of Directors and Stockholders July 31, 1996
-------------
<PAGE> 13
ANDOVER ADVANCED TECHNOLOGIES, INC.
AMENDMENT NO. 2 TO 1995 STOCK OPTION PLAN
In accordance with the provisions of Section 15 of the Andover Advanced
Technologies, Inc. 1995 Stock Option Plan, the Plan is hereby amended as
follows:
1. Section 4 of the Plan is hereby amended by increasing
the number of shares subject to the Plan from 32,250 shares to 50,000 shares of
the no par value common stock of the Corporation.
2. This amendment shall take effect as of the date of
its adoption by the Andover Advanced Technologies, Inc. Board of Directors and
upon its approval by the stockholders of Andover Advanced Technologies, Inc. in
accordance with Section 15 of the Plan.
3. Executed as hereinabove provided, the Plan is hereby
ratified and confirmed in all respects.
Adopted by the Board of Directors and Stockholders June 24, 1997
-------------
<PAGE> 14
ANDOVER ADVANCED TECHNOLOGIES, INC.
AMENDMENT NO. 3 TO 1995 STOCK OPTION PLAN
In accordance with the provisions of Section 15 of the Andover Advanced
Technologies, Inc. 1995 Stock Option Plan, the Plan is hereby amended as
follows:
1. Section 4 of the Plan is hereby amended by increasing
the number of shares subject to the Plan from 50,000 shares to 75,000 shares of
the no par value common stock of the Corporation.
2. This amendment shall take effect as of the date of
its adoption by the Andover Advanced Technologies, Inc. Board of Directors and
upon its approval by the stockholders of Andover Advanced Technologies, Inc. in
accordance with Section 15 of the Plan.
3. Executed as hereinabove provided, the Plan is hereby
ratified and confirmed in all respects.
Adopted by the Board of Directors and Stockholders November 12, 1998
-----------------
<PAGE> 1
EXHIBIT 10.10
ANDOVER ADVANCED TECHNOLOGIES, INC.
1999 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This stock option plan (the "Plan") is intended to encourage ownership
of the stock of Andover Advanced Technologies, Inc., a Massachusetts corporation
(the "Company") by employees, consultants and advisors of the Company and its
subsidiaries, to induce qualified personnel to enter and remain in the employ of
the Company or its subsidiaries and otherwise to provide additional incentive
for optionees to promote the success of its business.
2. STOCK SUBJECT TO THE PLAN.
(a) The total number of shares of the authorized but unissued or
Treasury shares of the common stock, no par value, of the Company ("Common
Stock") for which options may be granted under the Plan shall not exceed eighty
six thousand four hundred (86,400) shares, subject to adjustment as provided in
Section 12 hereof.
(b) If an option granted hereunder shall expire or terminate for
any reason without having vested fully or having been exercised in full, the
unvested and/or unpurchased shares subject thereto shall again be available for
subsequent option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under the
Plan may be subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee.
3. ADMINISTRATION OF THE PLAN.
At the discretion of the Company's Board of Directors, the Plan shall
be administered either (i) by the full Board of Directors of the Company or (ii)
by a committee (the "Committee")
<PAGE> 2
consisting of two or more members of the Company's Board of Directors. In the
event the full Board of Directors is the administrator of the Plan, references
herein to the Committee shall be deemed to include the full Board of Directors.
The Board of Directors may from time to time appoint a member or members of the
Committee in substitution for or in addition to the member or members then in
office and may fill vacancies on the Committee however caused. The Committee
shall choose one of its members as Chairman and shall hold meetings at such
times and places as it shall deem advisable. A majority of the members of the
Committee shall constitute a quorum and any action may be taken by a majority of
those present and voting at any meeting.
Any action may also be taken without the necessity of a meeting by a
written instrument signed by a majority of the Committee. The decision of the
Committee as to all questions of interpretation and application of the Plan
shall be final, binding and conclusive on all persons. The Committee shall have
the authority to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any option agreement granted hereunder in the manner and to the
extent it shall deem expedient to carry the Plan into effect and shall be the
sole and final judge of such expediency. No Committee member shall be liable for
any action or determination made in good faith.
4. TYPE OF OPTIONS.
Options granted pursuant to the Plan shall be authorized by action of
the Committee and may be designated as either incentive stock options meeting
the requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified options which are not intended to meet the
requirements of such Section 422 of the Code, the designation to be in
-2-
<PAGE> 3
the sole discretion of the Committee. The Plan shall be administered by the
Committee in such manner as to permit options to qualify as incentive stock
options under the Code.
5. ELIGIBILITY.
Options designated as incentive stock options shall be granted only to
employees (including officers and directors who are also employees) of the
Company or any of its subsidiaries, including subsidiaries which become such
after adoption of the Plan. Options designated as non-qualified options may be
granted to officers, employees, consultants, advisors and directors of the
Company or of any of its subsidiaries, including subsidiaries which become such
after adoption of the Plan. "Subsidiary" or "subsidiaries" shall be as defined
in Section 424 of the Code and the Treasury Regulations promulgated thereunder
(the "Regulations").
The Committee shall, from time to time, at its sole discretion, select
from such eligible individuals those to whom options shall be granted and shall
determine the number of shares to be subject to each option. In determining the
eligibility of an individual to be granted an option, as well as in determining
the number of shares to be granted to any individual, the Committee in its sole
discretion shall take into account the position and responsibilities of the
individual being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Committee may deem relevant.
No option designated as an incentive stock option shall be granted to
any employee of the Company or any subsidiary if such employee owns, immediately
prior to the grant of an option, stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of a parent or a
subsidiary, unless the purchase price for the stock under such option shall be
at least 110% of its fair market value at the time such option is granted and
the option,
-3-
<PAGE> 4
by its terms, shall not be exercisable more than five years from the date it is
granted. In determining the stock ownership under this paragraph, the provisions
of Section 424(d) of the Code shall be controlling. In determining the fair
market value under this paragraph, the provisions of Section 7 hereof shall
apply.
The maximum number of shares of the Company's Common Stock with respect
to which an option or options may be granted to any employee in any calendar
year shall not exceed eighty six thousand four hundred (86,400) shares, taking
into account shares subject to options granted and terminated, or repriced,
during such calendar year.
6. OPTION AGREEMENT.
Each option shall be evidenced by an option agreement (the "Agreement")
duly executed on behalf of the Company and by the optionee to whom such option
is granted, which Agreement shall comply with and be subject to the terms and
conditions of the Plan. The Agreement may contain such other terms, provisions
and conditions which are not inconsistent with the Plan as may be determined by
the Committee, provided that options designated as incentive stock options shall
meet all of the conditions for incentive stock options as defined in Section 422
of the Code. The date of grant of an option shall be as determined by the
Committee. More than one option may be granted to an individual.
7. OPTION PRICE.
The option price or prices of shares of the Company's Common Stock for
options designated as non-qualified stock options shall be as determined by the
Committee. The option price or prices of shares of the Company's Common Stock
for incentive stock options shall be not less than the fair market value of such
Common Stock at the time the option is granted as determined by the Committee in
accordance with the Regulations promulgated under Section
-4-
<PAGE> 5
422 of the Code. If such shares are then listed on any national securities
exchange, the fair market value shall be the mean between the high and low sales
prices, if any, on the largest such exchange on the date of the grant of the
option or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales prices on the nearest date before and
the nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the shares are not then listed on any such exchange, the
fair market value of such shares shall be the mean between the high and low
sales prices, if any, as reported in the National Association of Securities
Dealers Automated Quotation National Market ("NASDAQ/NM") for the date of the
grant of the option, or, if none, shall be determined by taking a weighted
average of the means between the highest and lowest sales on the nearest date
before and the nearest date after the date of grant in accordance with Treasury
Regulations Section 25.2512-2. If the shares are not then either listed on any
such exchange or quoted in NASDAQ/NM, the fair market value shall be the mean
between the average of the "Bid" and the average of the "Ask" prices, if any, as
reported in the National Daily Quotation Service for the date of the grant of
the option, or, if none, shall be determined by taking a weighted average of the
means between the highest and lowest sales prices on the nearest date before and
the nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the fair market value cannot be determined under the
preceding three sentences, it shall be determined in good faith by the
Committee.
8. MANNER OF PAYMENT; MANNER OF EXERCISE.
(a) Options granted under the Plan may provide for the payment of
the exercise price, as determined by the Committee, and as set forth in the
Option Agreement, by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of
-5-
<PAGE> 6
such options, (ii) shares of Common Stock of the Company owned by the optionee
having a fair market value equal in amount to the exercise price of the options
being exercised, (iii) any combination of (i) and (ii), provided, however, that
payment of the exercise price by delivery of shares of Common Stock of the
Company owned by such optionee may be made only if such payment does not result
in a charge to earnings for financial accounting purposes as determined by the
Committee or (iv) by delivery of a properly executed exercise notice to the
Company, together with a copy of irrevocable instruments to a broker to deliver
promptly to the Company the amount of sale or loan proceeds to pay the exercise
price. The fair market value of any shares of the Company's Common Stock which
may be delivered upon exercise of an option shall be determined by the Committee
in accordance with Section 7 hereof. To facilitate clause (iv) above, the
Company may enter into agreements for coordinated procedures with one or more
brokerage firms. The date of exercise shall be the date of delivery of such
exercise notice or payment.
(b) To the extent that the right to purchase shares under
an option has accrued and is in effect, options may be exercised in full at one
time or in part from time to time, by giving written notice, signed by the
person or persons exercising the option, to the Company, stating the number of
shares with respect to which the option is being exercised, accompanied by
payment in full for such shares as provided in subparagraph (a) above. Upon such
exercise, delivery of a certificate for paid-up non-assessable shares shall be
made at the principal office of the Company to the person or persons exercising
the option at such time, during ordinary business hours, not more than ten (10)
days from the date of receipt of the notice by the Company, as shall be
designated in such notice, or at such time, place and manner as may be agreed
upon by the Company and the person or persons exercising the option. Upon
exercise of the option and
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<PAGE> 7
payment as provided above, the optionee shall become a shareholder of the
Company as to the Shares acquired upon such exercise.
9. EXERCISE OF OPTIONS.
Each option granted under the Plan shall, subject to Section 10(b) and
Section 12 hereof, be exercisable at such time or times and during such period
as determined by the Committee which shall be set forth in the Agreement;
provided, however, that no option granted under the Plan shall have a term in
excess of ten (10) years from the date of grant.
To the extent that an option to purchase shares is not exercised by an
optionee when it becomes initially exercisable, it shall not expire but shall be
carried forward and shall be exercisable, on a cumulative basis, until the
expiration of the exercise period. No partial exercise may be made for less than
fifty (50) full shares of Common Stock.
Notwithstanding the foregoing, the Committee may in its discretion
accelerate the exercisability of any option subject to such terms and conditions
as the Committee deems necessary and appropriate
10. TERM OF OPTIONS; EXERCISABILITY.
(a) TERM.
(1) Each option shall expire not more than ten (10) years
from the date of the granting thereof, but shall be subject to earlier
termination as herein provided.
(2) Except as otherwise provided in this Section 10, an
option granted to any employee optionee who ceases to be an employee of the
Company or one of its subsidiaries shall terminate 60 days after the date such
optionee ceases to be an employee of the Company or one of its subsidiaries, or
on the date on which the option expires by its terms, whichever occurs first.
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<PAGE> 8
(3) If such termination of employment is because of
dismissal for cause or because the employee is in breach of any employment
agreement, such option will terminate on the date the optionee ceases to be an
employee of the Company or one of its subsidiaries.
(4) If such termination of employment is because the
optionee has become permanently disabled (within the meaning of Section 22(e)(3)
of the Code), such option shall terminate on the last day of the twelfth month
from the date such optionee ceases to be an employee, or on the date on which
the option expires by its terms, whichever occurs first.
(5) In the event of the death of any optionee, any option
granted to such optionee shall terminate on the last day of the twelfth month
from the date of death, or on the date on which the option expires by its terms,
whichever occurs first.
(6) Notwithstanding subparagraphs (2), (3), (4) and (5)
above, the Committee shall have the authority to extend the expiration date of
any outstanding option in circumstances in which it deems such action to be
appropriate, provided that no such extension shall extend the term of an option
beyond the date on which the option would have expired if no termination of the
optionee's employment had occurred.
(b) EXERCISABILITY.
(1) Except as provided below, an option granted to an
employee optionee who ceases to be an employee of the Company or one of its
subsidiaries shall be exercisable only to the extent that the right to purchase
shares under such option has accrued and is in effect on the date such optionee
ceases to be an employee of the Company or one of its subsidiaries.
(2) An option granted to an employee optionee who ceases
to be an employee of the Company or one of its subsidiaries because he or she
has become permanently disabled, as defined in Section 22(e)(3) of the Code,
shall be exercisable by such person or his or her legal
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<PAGE> 9
representative only to the extent that the right to purchase shares under such
option has accrued and is in effect on the date such optionee ceases to be an
employee of the Company or one of its subsidiaries.
(3) In the event of the death of any optionee, the option
granted to such optionee may be exercised only to the extent that the right to
purchase shares under such option is accrued and is in effect on the date of the
death of such optionee by the estate of such optionee, or by any person or
persons who acquired the right to exercise such option by bequest or inheritance
or by reason of the death of such optionee.
11. OPTIONS NOT TRANSFERABLE.
The right of any optionee to exercise any option granted to him or her
shall not be assignable or transferable by such optionee otherwise than by will
or the laws of descent and distribution, except that an optionee may transfer
options that are not incentive stock options granted under Plan to the
optionee's spouse or children or to a trust or family limited partnership or
similar organization established for the sole benefit of one or more of the
optionee, the optionee's spouse or the optionee's children; provided, that prior
to any registration by the Company under the Securities Act of 1933, as amended
(the "Securities Act"), no optionee shall assign or transfer any option if the
result of such assignment or transfer shall be to increase, upon exercise of the
option, the total number of holders of Common Stock without the prior written
consent of the Committee, which consent may be withheld by the Committee if it
reasonably believes that withholding such consent will reduce the likelihood
that the Company would be required to register its Common Stock under the
Securities Act. Incentive stock options shall be exercisable during the lifetime
of such optionee only by him/her. Any option granted under the Plan shall be
null and void and without effect upon the bankruptcy of the optionee to whom the
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<PAGE> 10
option is granted, or upon any attempted assignment or transfer, except as
herein provided, including without limitation any purported assignment, whether
voluntary or by operation of law, pledge, hypothecation or other disposition,
attachment, divorce, trustee process or similar process, whether legal or
equitable, upon such option.
12. RECAPITALIZATIONS, REORGANIZATIONS AND THE LIKE.
(a) In the event that the outstanding shares of the Common Stock
of the Company are changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corporation by reason of
any reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination of shares, or dividends payable in capital stock,
appropriate adjustment shall be made in the number and kind of shares as to
which options may be granted under the Plan and as to which outstanding options
or portions thereof then unexercised shall be exercisable, to the end that the
proportionate interest of the optionee shall be maintained as before the
occurrence of such event; such adjustment in outstanding options shall be made
without change in the total price applicable to the unexercised portion of such
options and with a corresponding adjustment in the option price per share.
(b) In addition, unless otherwise determined by the Committee in
its sole discretion, in the case of any (i) sale or conveyance to another entity
of all or substantially all of the property and assets of the Company,
including, without limitation, by way of merger or consolidation, or (ii) Change
in Control (as hereinafter defined) of the Company, the purchaser(s) of the
Company's assets or stock may, in his, her or its discretion, deliver to the
optionee the same kind of consideration that is delivered to the shareholders of
the Company as a result of such sale, conveyance or Change in Control, the
Committee may cancel all outstanding options in exchange for consideration in
cash or in kind which consideration shall be equal in
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<PAGE> 11
value to the value of those shares of stock or other securities the optionee
would have received had the option been exercised (to the extent then
exercisable) and no disposition of the shares acquired upon such exercise been
made prior to such sale, conveyance or Change in Control, less the option price
therefor. Upon receipt of such consideration by the optionee, his or her option
shall immediately terminate and be of no further force and effect. The value of
the stock or other securities the optionee would have received if the option had
been exercised shall be determined in good faith by the Committee, and in the
case of shares of the Common Stock of the Company, in accordance with the
provisions of Section 7 hereof. The Committee shall also have the power and
right to accelerate the exercisability of any options, notwithstanding any
limitations in this Plan or in the Agreement upon such a sale, conveyance or
Change in Control. Upon such acceleration, any options or portion thereof
originally designated as incentive stock options that no longer qualify as
incentive stock options under Section 422 of the Code as a result of such
acceleration shall be redesignated as non-qualified stock options. A "Change in
Control" shall be deemed to have occurred if any person, together with all
affiliates of such person or persons, who prior to such time owned less than
thirty percent (30%) of the then outstanding Common Stock of the Company, shall
acquire, whether by purchase, exchange, tender offer, merger, consolidation or
otherwise, such additional shares of the Company's Common Stock in one or more
transactions, or series of transactions, such that following such transaction or
transactions, such person and affiliates beneficially own fifty percent (50%) or
more of the Company's Common Stock outstanding; provided, that in no event shall
the consummation of an initial public offering by the Company constitute a
Change of Control.
(c) Upon dissolution or liquidation of the Company, all options
granted under this Plan shall terminate, but each optionee (if at such time in
the employ of or otherwise associated
-11-
<PAGE> 12
with the Company or any of its subsidiaries) shall have the right, immediately
prior to such dissolution or liquidation, to exercise his or her option to the
extent then exercisable.
(d) No fraction of a share shall be purchasable or deliverable
upon the exercise of any option, but in the event any adjustment hereunder of
the number of shares covered by the option shall cause such number to include a
fraction of a share, such fraction shall be adjusted to the nearest smaller
whole number of shares.
13. NO SPECIAL EMPLOYMENT RIGHTS.
Nothing contained in the Plan or in any option granted under the Plan
shall confer upon any option holder any right with respect to the continuation
of his or her employment by the Company (or any subsidiary) or interfere in any
way with the right of the Company (or any subsidiary), subject to the terms of
any separate employment agreement to the contrary, at any time to terminate such
employment or to increase or decrease the compensation of the option holder from
the rate in existence at the time of the grant of an option. Whether an
authorized leave of absence, or absence in military or government service, shall
constitute termination of employment shall be determined by the Committee at the
time.
14. WITHHOLDING.
The Company's obligation to deliver shares upon the exercise of any
option granted under the Plan and any payments or transfers under Section 12
hereof shall be subject to the option holder's satisfaction of all applicable
Federal, state and local income, excise, employment and any other tax
withholding requirements.
-12-
<PAGE> 13
15. RESTRICTIONS ON ISSUE OF SHARES.
(a) Notwithstanding the provisions of Section 8, the Company may
delay the issuance of shares covered by the exercise of an option and the
delivery of a certificate for such shares until one of the following conditions
shall be satisfied:
(i) The shares with respect to which such option has been
exercised are at the time of the issue of such shares effectively registered or
qualified under applicable Federal and state securities acts now in force or as
hereafter amended; or
(ii) Counsel for the Company shall have given an opinion,
which opinion shall not be unreasonably conditioned or withheld, that such
shares are exempt from registration and qualification under applicable Federal
and state securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be
effective, and the Company shall use its best efforts to bring about compliance
with the above conditions within a reasonable time, except that the Company
shall be under no obligation to qualify shares or to cause a registration
statement or a post-effective amendment to any registration statement to be
prepared for the purpose of covering the issue of shares in respect of which any
option may be exercised, except as otherwise agreed to by the Company in
writing.
16. PURCHASE FOR INVESTMENT; RIGHTS OF HOLDER ON SUBSEQUENT
REGISTRATION.
Unless the shares to be issued upon exercise of an option granted under
the Plan have been effectively registered under the Securities Act of 1933, as
now in force or hereafter amended, the Company shall be under no obligation to
issue any shares covered by any option unless the person who exercises such
option, in whole or in part, shall give a written representation and undertaking
to the Company which is satisfactory in form and scope to counsel for the
Company and upon which, in the opinion of such counsel, the Company may
-13-
<PAGE> 14
reasonably rely, that he or she is acquiring the shares issued pursuant to such
exercise of the option for his or her own account as an investment and not with
a view to, or for sale in connection with, the distribution of any such shares,
and that he or she will make no transfer of the same except in compliance with
any rules and regulations in force at the time of such transfer under the
Securities Act of 1933, or any other applicable law, and that if shares are
issued without such registration, a legend to this effect may be endorsed upon
the securities so issued. In the event that the Company shall, nevertheless,
deem it necessary or desirable to register under the Securities Act of 1933 or
other applicable statutes any shares with respect to which an option shall have
been exercised, or to qualify any such shares for exemption from the Securities
Act of 1933 or other applicable statutes, then the Company may take such action
and may require from each optionee such information in writing for use in any
registration statement, supplementary registration statement, prospectus,
preliminary prospectus or offering circular as is reasonably necessary for such
purpose and may require reasonable indemnity to the Company and its officers and
directors and controlling persons from such holder against all losses, claims,
damages and liabilities arising from such use of the information so furnished
and caused by any untrue statement of any material fact therein or caused by the
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made.
17. LOANS.
The Company may make loans to optionees to permit them to exercise
options. If loans are made, the requirements of all applicable Federal and state
laws and regulations regarding such loans must be met.
-14-
<PAGE> 15
18. MODIFICATION OF OUTSTANDING OPTIONS.
The Committee may authorize the amendment of any outstanding option
with the consent of the optionee when and subject to such conditions as are
deemed to be in the best interests of the Company and in accordance with the
purposes of this Plan.
19. APPROVAL OF STOCKHOLDERS.
The Plan shall be subject to approval by the vote of stockholders
holding at least a majority of the voting stock of the Company present, or
represented, and entitled to vote at a duly held stockholders' meeting, or by
written consent of the stockholders as provided for under applicable state law,
within twelve (12) months after the adoption of the Plan by the Board of
Directors and shall take effect as of the date of adoption by the Board of
Directors upon such approval. The Committee may grant options under the Plan
prior to such approval, but any such option shall become effective as of the
date of grant only upon such approval and, accordingly, no such option may be
exercisable prior to such approval.
20. TERMINATION AND AMENDMENT.
Unless sooner terminated as herein provided, the Plan shall terminate
ten (10) years from the date upon which the Plan was duly adopted by the Board
of Directors of the Company. The Board of Directors may at any time terminate
the Plan or make such modification or amendment thereof as it deems advisable;
provided, however, that except as provided in this Section 20, the Board of
Directors may not, without the approval of the stockholders of the Company
obtained in the manner stated in Section 19, increase the maximum number of
shares for which options may be granted or change the designation of the class
of persons eligible to receive options under the Plan, or make any other change
in the Plan which requires stockholder approval under applicable law or
regulations.
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<PAGE> 16
21. RESERVATION OF STOCK.
The Company shall at all times during the term of the Plan reserve and
keep available such number of shares of stock as will be sufficient to satisfy
the requirements of the Plan and shall pay all fees and expenses necessarily
incurred by the Company in connection therewith.
22. LIMITATION OF RIGHTS IN THE OPTION SHARES.
An optionee shall not be deemed for any purpose to be a stockholder of
the Company with respect to any of the options except to the extent that the
option shall have been exercised with respect thereto and, in addition, a
certificate shall have been issued theretofore and delivered to the optionee.
23. NOTICES.
Any communication or notice required or permitted to be given under
the Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
Approved by Board of Directors: __________________________
Approved by Stockholders: ________________________________
-16-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 16, 1999
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