<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1999
REGISTRATION NO. 333-87299
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DIGITAL IMPACT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7310 94-3286913
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
177 BOVET ROAD
SAN MATEO, CALIFORNIA 94402
(650) 356-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WILLIAM C. PARK
CHIEF EXECUTIVE OFFICER
DIGITAL IMPACT, INC.
177 BOVET ROAD
SAN MATEO, CALIFORNIA 94402
(650) 356-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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JEFFREY D. SAPER, ESQ. ALAN F. DENENBERG, ESQ.
SELIM DAY, ESQ. SHEARMAN & STERLING
DAVID R. KING, ESQ. 1550 EL CAMINO REAL, SUITE 100
AVA M. HAHN, ESQ. MENLO PARK, CA 94025
WILSON SONSINI GOODRICH & ROSATI (650) 330-2200
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 493-9300
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(1)(2) REGISTRATION FEE(3)
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Common Stock, par value $0.001 per share...... 5,175,000 $12.00 $62,100,000 $17,263.80
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(1) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
(3) $18,100.00 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THE 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 OCTOBER 22, 1999
Shares
[LOGO]
DIGITAL IMPACT
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $10.00 and $12.00 per share. We have applied to list our common stock on
The Nasdaq Stock Market's National Market under the symbol "DIGI."
The underwriters have an option to purchase a maximum of 675,000 additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
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<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS DIGITAL IMPACT
-------- ------------- --------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
HAMBRECHT & QUIST
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 1999.
<PAGE> 3
Inside Front Cover Graphics
Text: Delivering Relevant Emarketing Messages for Premier Companies.
[Logos of our clients: The Gap, Onsale, entry point, Tower Records, wine.com,
pets.com, garden.com, The Sharper Image, Foster & Smith, DigitalWorks,
Financial Engines, ebay, Macy's, cooking.com, Tavolo, Peet's Coffee & Tea,
shockwave.com, iGo.com, Fogdog Sports, SmarterKids.com, Another Universe,
Reel.com, doughNET, furniture.com, BMG Direct, proflowers.com, NexTag.com,
visualize and Agency.com]
[Photograph of a woman using a laptop computer, photograph of a boy dancing,
photograph of computer screens displaying our email campaigns]
[Logo of Digital Impact -- The Science of eMarketing]
Gatefold Graphics
Text: The Digital Impact Process: Providing Technology-Enabled Emarketing
Services.
[Five bubbles depicting the stages of our emarketing process, labeled: "customer
profiles", "content", "campaign management", "send", "track & report", and
"analyze". The campaign management bubble has smaller bubbles surrounding its
periphery, depicting our campaign management features, labeled: "schedule", "set
up", "import data", "target", "integrate content", and "test". Floating in the
background are computer screens displaying samples of our email campaigns.]
Text: Clients provide applicable content and customer information for each
campaign. List integrity and profile information are managed as part of the
service. Our structured campaign management process is used to target content
and test each email format. Real-time response data is recorded, analyzed and
fed back into the customer profile for use in future campaign targeting.
[Logo of Digital Impact -- The Science of eMarketing]
Inside Back Cover Graphics
Text: Key Features of The Digital Impact eMarketing Services. Email format is
optimized based on the richest graphical format a customer can receive,
displaying the same content in either HTML or text. Offers are personalized
based on customer preferences, profile, or purchase data. Best practices
guidelines and rigorous testing are used to determine optimum subject lines,
email structure and placement of offers.
[Photograph of computer screens displaying our email campaigns for The Gap,
garden.com, Onsale, Reel.com and sharperimage.com]
[Logo of Digital Impact -- The Science of eMarketing]
<PAGE> 4
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TABLE OF CONTENTS
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Page
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PROSPECTUS SUMMARY ............... 3
RISK FACTORS ..................... 7
YOU SHOULD NOT RELY ON
FORWARD-LOOKING
STATEMENTS ..................... 16
USE OF PROCEEDS .................. 16
DIVIDEND POLICY .................. 16
CAPITALIZATION ................... 17
DILUTION ......................... 18
SELECTED FINANCIAL DATA .......... 20
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ...... 22
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Page
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BUSINESS ......................... 30
MANAGEMENT ....................... 44
RELATED PARTY TRANSACTIONS ....... 54
PRINCIPAL STOCKHOLDERS ........... 56
DESCRIPTION OF CAPITAL STOCK ..... 58
SHARES ELIGIBLE FOR FUTURE
SALE ........................... 61
UNDERWRITING ..................... 63
NOTICE TO CANADIAN RESIDENTS ..... 66
LEGAL MATTERS .................... 67
EXPERTS .......................... 67
WHERE YOU CAN FIND OTHER DIGITAL
IMPACT INFORMATION ............. 67
INDEX TO FINANCIAL STATEMENTS .... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and our financial statements and notes to
those statements appearing elsewhere in this prospectus.
DIGITAL IMPACT, INC.
Digital Impact offers internet direct marketing, or emarketing, services to
businesses that wish to communicate more effectively with their customers online
through email. We combine proprietary technologies, rigorous business processes
and expertise developed over thousands of marketing promotions delivered through
email, to provide a comprehensive, outsourced emarketing solution. These email
marketing promotions, or what we refer to as email campaigns, are designed to
maximize our clients' return on their marketing investment.
Our core set of services includes campaign management, targeting and
personalization, email format optimization, campaign tracking and reporting, and
database hosting and management. We sell these services under the name Merchant
Mail. In addition, we recently introduced the Email Exchange Network, an online
marketing network that provides our clients with a new method to acquire
additional online customers.
Businesses and other marketing organizations spent an estimated $285
billion on general advertising in 1998, of which $160 billion was spent on
direct marketing, according to the Direct Marketing Association. To capitalize
on the growth of ecommerce, businesses are increasingly shifting this spending
to online advertising and direct marketing. Forrester Research projects that
total internet advertising expenditures in the U.S. will increase from $1.3
billion in 1998 to over $10 billion in 2002. Forrester also estimates that
internet direct marketing will account for 60%, or $6.2 billion, of these
expenditures in 2002, up from 15% in 1998.
Email, the most widely used application on the internet today, is a
critical element of internet direct marketing. Email offers businesses
significant advantages over paper-based communications, including more rapid
delivery, reduced costs and a greater degree of personalization. Emarketing
campaigns using email generate response rates that are between three and ten
times higher than the response rates for traditional direct mail campaigns,
based on information reported by Jupiter Communications. In addition, many
businesses do not have the desire or the ability to effectively design,
implement and manage their own emarketing campaigns.
We offer our clients a suite of emarketing services that includes email
campaign services, customer acquisition tools, customer data analysis and
strategic consulting services. These services provide our clients with the
following benefits:
- Targeted content relevant to each recipient.
- Personalized formatting of customer emails.
- In-depth performance tracking and campaign analysis.
- Substantial emarketing domain expertise.
- A robust technological infrastructure.
- Significantly improved time to market.
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<PAGE> 6
Our objective is to be the leading provider of emarketing services. As part
of our strategy, we intend to:
- Expand our service offerings.
- Exploit new market opportunities.
- Leverage our database of 20 million consumer profiles.
- Establish the Email Exchange Network as a leading service for client
acquisition.
- Build our brand.
We were incorporated in October 1997 and commenced sales of our services in
December 1997. Our principal executive offices are located at 177 Bovet Road,
Suite 200, San Mateo, California, 94402, and our telephone number is (650)
356-3400. Our web site is located at www.digitalimpact.com. Information
contained on our web site does not constitute part of this prospectus.
Merchant Mail is our trademark. Other trademarks or service marks appearing
in this prospectus are trademarks or service marks of the companies that use
them.
4
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THE OFFERING
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Common stock offered................. 4,500,000 shares
Common stock to be outstanding after
this offering...................... 23,548,954 shares
Use of proceeds...................... For general corporate purposes.
Proposed Nasdaq National Market
symbol............................. DIGI
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- -------------------------
The share amounts in this table are based on shares outstanding as of
September 30, 1999. This table excludes:
- 8,795,000 shares of common stock reserved for issuance under our 1998
stock plan, of which options to purchase 3,517,715 shares were
outstanding as of September 30, 1999, at a per share weighted average
exercise price of $0.98.
- 104,000 shares of convertible preferred stock that are issuable upon the
exercise of outstanding warrants, at a per share weighted average
exercise price of $0.72, and are convertible into 104,000 shares of
common stock immediately before completion of this offering.
- 1,200,000 shares reserved for issuance under our 1999 employee stock
purchase plan and our 1999 director option plan.
Subsequent to September 30, 1999, we granted options to purchase 485,000
shares of common stock at a per share weighted average exercise price of $6.16.
-------------------------
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- Our reincorporation in Delaware.
- The conversion of each outstanding share of our convertible preferred
stock into one share of common stock immediately before completion of
this offering.
- The filing of our amended and restated certificate of incorporation upon
completion of this offering.
- No exercise of the underwriters' over-allotment option.
5
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
OCTOBER 16, 1997 SIX MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED SEPTEMBER 30,
TO MARCH 31, MARCH 31, ------------------
1998 1999 1998 1999
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Revenues..................... $ 4 $ 1,307 $ 121 $ 3,257
Cost of revenues............. 4 674 87 1,617
------ ------- ------ --------
Gross margin................. -- 633 34 1,640
------ ------- ------ --------
Operating expenses:
Research and development... 27 966 209 2,518
Sales and marketing........ -- 670 134 2,544
General and
administrative.......... 77 1,151 181 2,164
Stock-based compensation... -- 1,157 162 3,295
------ ------- ------ --------
Total operating
expenses.............. 104 3,944 686 10,521
------ ------- ------ --------
Loss from operations......... (104) (3,311) (652) (8,881)
Interest income (expense),
net........................ 1 71 10 82
------ ------- ------ --------
Net loss..................... $ (103) $(3,240) $ (642) $ (8,799)
====== ======= ====== ========
Net loss per common share --
basic and diluted.......... $(0.45) $ (2.86) $(1.95) $ (2.94)
====== ======= ====== ========
Shares used in net loss per
common share calculation --
basic and diluted.......... 231 1,133 330 2,991
====== ======= ====== ========
Pro forma net loss per
share -- basic and diluted
(unaudited)................ $ (0.39) $ (0.62)
======= ========
Shares used in pro forma net
loss per share
calculation -- basic and
diluted (unaudited)........ 8,370 14,090
======= ========
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<CAPTION>
SEPTEMBER 30, 1999
----------------------
PRO FORMA
ACTUAL AS ADJUSTED
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................ $ 7,183 $51,918
Working capital.......................................... 5,384 50,119
Total assets............................................. 14,002 58,737
Capital lease obligations, less current portion.......... 713 713
Long term debt, less current portion..................... 197 197
Total stockholders' equity............................... 9,625 54,360
</TABLE>
- -------------------------
The preceding balance sheet data is shown on an actual basis and a pro
forma as adjusted basis to include the sale of shares of common stock by Digital
Impact in this offering at an assumed initial public offering price of $11.00
per share, after deducting the estimated underwriting discounts and commissions
and offering expenses.
6
<PAGE> 9
RISK FACTORS
An investment in our common stock is very risky. You should carefully
consider the risks described below, together with all of the other information
in this prospectus, before buying shares in this offering.
BECAUSE OF OUR LIMITED OPERATING HISTORY AND THE EMERGING NATURE OF THE
EMARKETING INDUSTRY, ANY PREDICTIONS ABOUT OUR FUTURE REVENUES AND EXPENSES MAY
NOT BE AS ACCURATE AS THEY WOULD BE IF WE HAD A LONGER BUSINESS HISTORY, AND WE
CANNOT DETERMINE TRENDS THAT MAY AFFECT OUR BUSINESS.
We were incorporated in October 1997 and first recorded revenue in December
1997. Our limited operating history makes financial forecasting and evaluation
of our business difficult. Since we have limited financial data, any predictions
about our future revenues and expenses may not be as accurate as they would be
if we had a longer business history. Because of the emerging nature of the
emarketing industry, we cannot determine trends that may emerge in our market or
affect our business. The revenue and income potential of the emarketing
industry, and our business, are unproven.
WE HAVE A HISTORY OF LOSSES, WE EXPECT CONTINUING LOSSES AND WE MAY NEVER
ACHIEVE PROFITABILITY.
Our operating costs have exceeded our revenues in each quarter since our
inception in October 1997. We incurred net losses of approximately $3.3 million
from October 1997 through March 31, 1999 and approximately $8.8 million for the
six months ended September 30, 1999. We had an accumulated deficit of
approximately $12.1 million as of September 30, 1999. We cannot assure you that
our revenues will continue to grow or that we will achieve or maintain
profitability in the future. In addition, we expect that our product
development, sales and marketing and administrative expenses will increase
significantly in the future. Accordingly, we will need to significantly increase
our revenues to achieve and maintain profitability. If we do not achieve or
sustain profitability in the future, we may be unable to continue our
operations.
OUR OPERATING RESULTS HAVE VARIED SIGNIFICANTLY IN THE PAST AND ARE LIKELY TO
VARY SIGNIFICANTLY FROM PERIOD TO PERIOD, AND OUR STOCK PRICE MAY DECLINE IF WE
FAIL TO MEET THE EXPECTATIONS OF ANALYSTS AND INVESTORS.
Our operating results have varied significantly in the past and are likely
to vary significantly from period to period. As a result, our operating results
are difficult to predict and may not meet the expectations of securities
analysts or investors. If this occurs, the price of our common stock would
likely decline. In addition to the risks discussed elsewhere in this prospectus,
the factors that may cause our operating results to fluctuate include the
following:
- The fixed nature of many of our expenses, such as salaries and rent,
incurred in advance based on our expectation of future growth.
- The loss of a major client or the timing of a significant emarketing
campaign.
- The absence of continuing obligations of our clients to purchase services
from us.
- The variability in our sales cycle, historically ranging from one to six
months.
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<PAGE> 10
SEASONAL TRENDS MAY CAUSE OUR QUARTERLY OPERATING RESULTS TO FLUCTUATE, WHICH
MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.
The traditional direct marketing industry has typically generated lower
revenues during the summer months and higher revenues during the calendar
year-end months. We believe our business may be affected by similar revenue
fluctuations, but our limited operating history is insufficient to predict the
existence or magnitude of these effects. If we do experience these effects,
analysts and investors may not be able to predict our quarterly or annual
operating results, and if we fail to meet expectations of analysts and
investors, our stock price could decline .
IF BUSINESSES AND CONSUMERS FAIL TO ACCEPT EMARKETING AS A MEANS TO ATTRACT NEW
CUSTOMERS, DEMAND FOR OUR SERVICES MAY NOT DEVELOP AND THE PRICE OF OUR COMMON
STOCK WOULD DECLINE.
The market for emarketing is new and rapidly evolving, and our business
will be harmed if sufficient demand for our services does not develop. Our
current and planned services are very different from the traditional methods
that many of our clients have historically used to attract new customers and
maintain customer relationships. Demand for emarketing, including our services,
may not materialize for several reasons, including:
- Businesses that have already invested substantial resources in other
methods of marketing and communications may be reluctant to adopt new
marketing strategies and methods.
- Consumers and businesses may choose not to accept emarketing messages.
- Businesses may elect not to engage in emarketing because consumers may
confuse permission-based email services with unsolicited commercial
email.
- The effectiveness of direct marketing through the use of emails may
diminish significantly if the volume of direct marketing email saturates
consumers.
A SMALL NUMBER OF CLIENTS ACCOUNT FOR A HIGH PERCENTAGE OF OUR REVENUES, AND THE
LOSS OF A MAJOR CLIENT COULD RESULT IN LOWER THAN EXPECTED REVENUES.
A small number of clients account for a high percentage of our revenues.
The loss of a major client could harm our business. For the fiscal year ended
March 31, 1999, three clients accounted for 26.8%, 11.5% and 10.9% of our
revenues. For the six months ended September 30, 1999, four of our clients
accounted for 9.7%, 8.4%, 8.4% and 8.1% of our revenues. We expect that a small
number of clients will continue to account for a high percentage of our revenues
for at least the next twelve months.
COMPETITION IN THE EMARKETING INDUSTRY IS INTENSE AND, IF WE ARE UNABLE TO
COMPETE EFFECTIVELY, THE DEMAND FOR, OR THE PRICES OF, OUR SERVICES MAY DECLINE.
The market for emarketing is intensely competitive, rapidly evolving and
experiences rapid technological change. We expect the intensity of competition
to increase significantly in the future because of the attention the internet
has received as a medium for advertising and direct marketing and because there
are no significant barriers to entry into our market. Intense competition may
result in price reductions, reduced sales, gross margins and operating margins,
and loss of market share.
8
<PAGE> 11
Our principal competitors include:
- Providers of emarketing solutions such as @Once, Acxiom and its affiliate
Bigfoot, Exactis.com, Kana Communications, L-Soft, Media Synergy,
MessageMedia, NetCreations, Responsys.com and YesMail.com.
- The in-house information technology departments of our existing and
prospective clients.
In addition, we expect competition to persist and intensify in the future,
which could harm our ability to increase sales and maintain our prices. In the
future, we may experience competition from Internet service providers,
advertising and direct marketing agencies and other large established businesses
such as America Online, DoubleClick, Microsoft, IBM, AT&T, Yahoo!, ADVO and the
Interpublic Group of Companies. Each of these companies possess large, existing
customer bases, substantial financial resources and established distribution
channels and could develop, market or resell a number of emarketing solutions.
These potential competitors may also choose to enter the market for emarketing
by acquiring one of our existing competitors or by forming strategic alliances
with these competitors. Any of these occurrences could harm our ability to
compete effectively.
For a further discussion of our competition, please see
"Business -- Competition."
RAPID TECHNOLOGICAL CHANGES COULD CAUSE OUR SERVICES TO BECOME OBSOLETE AND
UNMARKETABLE OR REQUIRE US TO REDESIGN OUR SERVICES, WHICH COULD BE COSTLY AND
TIME-CONSUMING.
The market for emarketing services is characterized by rapid technological
change. Our services could become obsolete and unmarketable if we are unable to
adapt our services to these new technologies. For example, the emergence of new
media formats such as streaming video and audio may require us to adapt our
services to remain competitive which could be costly and time-consuming.
IF WE DO NOT ATTRACT AND RETAIN ADDITIONAL HIGHLY-SKILLED PERSONNEL WE MAY BE
UNABLE TO EXECUTE OUR BUSINESS STRATEGY.
Our business depends on the continued technological innovation of our core
services and our ability to provide comprehensive emarketing expertise. Our main
offices are located in the San Francisco Bay Area, where competition for
personnel with internet-related technology and marketing skills is extremely
intense. If we fail to identify, attract, retain and motivate these highly
skilled personnel, we may be unable to successfully introduce new services or
otherwise implement our business strategy. We plan to significantly expand our
operations, and we will need to hire additional personnel as our business grows.
In particular, we have experienced difficulties in hiring highly skilled
technical and client services personnel due to significant competition for
experienced personnel in our market.
WE RELY ON THE SERVICES OF OUR FOUNDERS AND OTHER KEY PERSONNEL, WHOSE KNOWLEDGE
OF OUR BUSINESS AND TECHNICAL EXPERTISE WOULD BE EXTREMELY DIFFICULT TO REPLACE.
Our future success depends to a significant degree on the skills,
experience and efforts of our senior management. In particular, we depend upon
the continued services of William Park, our Chief Executive Officer and
co-founder and Gerardo Capiel, our Chief
9
<PAGE> 12
Technology Officer and co-founder, whose vision for our company, knowledge of
our business and technical expertise would be extremely difficult to replace. In
addition, we have not obtained life insurance benefiting Digital Impact on any
of our key employees. If any of our key employees left or was seriously injured
and unable to work and we were unable to find a qualified replacement, the level
of services we are able to provide could decline or we may be otherwise unable
to execute our business strategy.
SEVERAL KEY MEMBERS OF OUR MANAGEMENT TEAM HAVE ONLY RECENTLY JOINED US AND IF
THEY ARE UNABLE TO EFFECTIVELY INTEGRATE THEMSELVES INTO OUR BUSINESS OR WORK
TOGETHER AS A MANAGEMENT TEAM, WE MAY NOT BE ABLE TO MANAGE OUR BUSINESS
EFFECTIVELY.
Several key members of our management team have joined us recently. David
Oppenheimer, our Chief Financial Officer, Alan Flohr, our Vice President of
Sales and Client Services, Ronald Rasmussen, our Vice President of Engineering,
and Harry Drake, our Vice President of Client Services Engineering have joined
since March 31, 1999. These individuals must spend a significant amount of time
learning our business model and management system, in addition to performing
their regular duties. If they are unable to effectively integrate themselves
into our business or work together as a management team, we may not be able to
manage our business effectively.
IF WE ARE UNABLE TO IMPLEMENT APPROPRIATE CONTROLS, SYSTEMS AND PROCEDURES TO
MANAGE OUR EXPECTED GROWTH, WE MAY NOT BE ABLE TO SUCCESSFULLY OFFER OUR
SERVICES AND IMPLEMENT OUR BUSINESS PLAN.
Our ability to successfully offer services and implement our business plan
requires an effective planning and management process. Since we began
operations, we have significantly increased the size of our operations. This
growth has placed, and we expect that any future growth we experience will
continue to place, a significant strain on our management, systems and
resources. To manage the anticipated growth of our operations, we will be
required to improve existing and implement new operational, financial and
management information controls, reporting systems and procedures. For example,
we expect to substantially upgrade our accounting and billing system within the
next twelve months.
IF WE FAIL TO EXECUTE OUR STRATEGY TO EXPAND INTO NEW MARKETS, THE MARKET FOR
OUR SERVICES AND OUR POTENTIAL REVENUE WILL BE LIMITED.
The majority of our emarketing clients to date have been online
business-to-consumer retailers. We intend to expand our presence among clients
in other consumer markets, in markets where the customers are businesses rather
than consumers, and in international markets. If this strategy fails, our
business will be harmed. We have limited experience in these markets and may
encounter obstacles which we have not anticipated.
IF WE FAIL TO INTRODUCE NEW SERVICES, SUCH AS OUR RECENTLY-INTRODUCED EMAIL
EXCHANGE NETWORKS, OUR REVENUES MAY NOT INCREASE.
Part of our strategy is to increase our revenues by introducing new
services. If we fail to introduce new services our revenues will not increase.
For example, we recently introduced our Email Exchange Network which we expect
will account for a growing percentage of our future revenues. If the Email
Exchange Network is not accepted by our clients, our revenues may be lower.
10
<PAGE> 13
IF WE ARE UNABLE TO EXPAND CAPACITY, WE MAY LOSE MARKET SHARE.
If we are unable to expand capacity to keep pace with our clients' demands,
we may lose market share. The volume of emails we are sending has grown
significantly and we expect this volume to continue to grow. We will need to
enhance our services to handle both any increased email volume and the increased
level of response from consumers that are generated by this volume. In addition,
as we seek to grow our base of clients, we must add client services personnel to
handle the increased volume of emails and campaigns. If we are unable to add
client services personnel, the level of services we are able to provide our
clients could decline.
IF THE DELIVERY OF OUR EMAILS IS LIMITED OR BLOCKED, THEN OUR CLIENTS MAY
DISCONTINUE THEIR USE OF OUR SERVICES.
Our business model relies on our ability to deliver emails over the
internet through internet service providers and to recipients in major
corporations. In particular, a significant percentage of our emails are sent to
recipients who use America Online. America Online uses a proprietary set of
technologies to handle and deliver email and to block unwanted messages. If
these companies limit or halt the delivery of our emails, or if we fail to
deliver emails in such a way as to be compatible with these companies' email
handling technologies, then our clients may discontinue their use of our
services.
OUR FACILITIES AND SYSTEMS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER
UNEXPECTED EVENTS, AND ANY OF THESE EVENTS COULD RESULT IN AN INTERRUPTION OF
OUR ABILITY TO EXECUTE OUR CLIENT'S EMARKETING CAMPAIGNS.
We depend on the efficient and uninterrupted operations of our data center
and hardware systems. Our data center and hardware systems are located in
Northern California, an area susceptible to earthquakes. Our data center and
hardware systems are also vulnerable to damage from fire, floods, power loss,
telecommunications failures, and similar events. If any of these events result
in damage to our data center or systems, we may be unable to execute our
clients' emarketing campaigns until the damage is repaired, and may accordingly
lose clients and revenues. In addition, we may incur substantial costs in
repairing any damage.
OUR DATA CENTER IS LOCATED AT FACILITIES PROVIDED BY A THIRD PARTY, AND IF THIS
PARTY IS UNABLE TO ADEQUATELY PROTECT OUR DATA CENTER, OUR REPUTATION MAY BE
HARMED AND WE MAY LOSE CLIENTS.
Our data center, which is critical to our ongoing operations, is located at
facilities provided by a third party. Our operations depend on this party's
ability to protect our data center from damage or interruption from human error,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
events. If this party is unable to adequately protect our data center and
information is lost or our ability to deliver our services is interrupted, our
reputation may be harmed and we may lose clients.
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY, THIRD PARTIES
COULD USE OUR INTELLECTUAL PROPERTY WITHOUT OUR CONSENT.
Our ability to successfully compete is substantially dependent upon our
internally developed technology and intellectual property, which we protect
through a combination of
11
<PAGE> 14
copyright, trade secret and trademark law, and contractual obligations. We have
no issued patents and have two patent applications pending. We may not be able
to adequately protect our proprietary rights. Unauthorized parties may attempt
to obtain and use our proprietary information. Policing unauthorized use of our
proprietary information is difficult, and we cannot be certain that the steps we
have taken will prevent misappropriation, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States.
For a further discussion of our intellectual property, please see
"Business -- Intellectual Property."
OUR OPERATING RESULTS WOULD SUFFER IF WE WERE FORCED TO DEFEND AGAINST A
PROTRACTED INFRINGEMENT CLAIM OR IF A THIRD PARTY WERE AWARDED SIGNIFICANT
DAMAGES.
There is a substantial risk of litigation regarding intellectual property
rights in our industry. A successful claim of technology infringement against us
and our failure or inability to license the infringed or similar technology
could harm our business.
We expect that our technologies may experience an increase in third-party
infringement claims as the number of our competitors grows. In addition, we
believe that many of our competitors have filed or intend to file patent
applications covering aspects of their technology that they may claim our
intellectual property infringes. We cannot be certain that third parties will
not make a claim of infringement against us relating to our technology. Any
claims, with or without merit, could:
- Be time-consuming and costly to defend.
- Divert management's attention and resources.
- Cause delays in delivering services.
- Require the payment of monetary damages which may be tripled if the
infringement is found to be willful.
- Result in an injunction which would prohibit us from offering a
particular service.
- Require us to enter into royalty or licensing agreements which, if
required, may not be available on acceptable terms.
IF ANY OF THE THIRD PARTY TECHNOLOGIES WE USE BECOME UNAVAILABLE TO US, WE WILL
NOT BE ABLE TO OPERATE OUR BUSINESS UNTIL EQUIVALENT TECHNOLOGY CAN BE OBTAINED.
We are highly dependent on technologies we license from TIBCO, Oracle, Sun
Microsystems and Microsoft which enable us to send email through the internet
and allow us to offer a variety of targeted marketing capabilities. Our market
is evolving, and we may need to license additional technologies to remain
competitive. However, we may not be able to license these technologies on
commercially reasonable terms or at all. Our inability to obtain any of these
licenses could delay the development of our services until equivalent technology
can be identified, licensed or developed and integrated.
IF WE ARE UNABLE TO SAFEGUARD THE CONFIDENTIAL INFORMATION IN OUR DATA
WAREHOUSE, OUR REPUTATION MAY BE HARMED AND WE MAY BE EXPOSED TO LIABILITY.
We currently retain highly confidential customer information in a secure
data warehouse. We cannot assure you, however, that we will be able to prevent
unauthorized
12
<PAGE> 15
individuals from gaining access to this data warehouse. If any compromise or
breach of security were to occur, it could harm our reputation and expose us to
possible liability. Any unauthorized access to our servers could result in the
misappropriation of confidential customer information or cause interruptions in
our services. It is also possible that one of our employees could attempt to
misuse confidential customer information, exposing us to liability. In addition,
our reputation may be harmed if we lose customer information maintained in our
data warehouse due to systems interruptions or other reasons.
THE TERMINATION OF RELATIONSHIPS WITH DIRECT MARKETING FIRMS AND ADVERTISING
AGENCIES COULD SIGNIFICANTLY REDUCE OUR FUTURE REVENUES AND INCREASE OUR COSTS.
We have relationships with direct marketing firms and advertising agencies
which we anticipate will provide significant revenues in the future. If these
relationships are terminated or otherwise fail, our revenues may suffer and we
may be required to devote additional resources to our sales, marketing and
client services efforts. These companies generally are not obligated to offer
our services to their clients or restricted from working with our competitors.
Accordingly, our success will depend on their willingness to devote resources
and efforts to marketing our services.
ACTIVITIES OF OUR CLIENTS COULD DAMAGE OUR REPUTATION OR GIVE RISE TO LEGAL
CLAIMS AGAINST US.
Our clients' promotion of their products and services may not comply with
federal, state and local laws. We cannot predict whether our role in
facilitating these marketing activities would expose us to liability under these
laws. Any costs incurred as a result of that liability or asserted liability
could harm our business. If we are exposed to this kind of liability, we could
be required to pay substantial fines or penalties, redesign our business
methods, discontinue some of our services or otherwise expend resources to avoid
liability.
Our services involve the transmission of information through the internet.
Our services could be used to transmit harmful applications, negative messages,
unauthorized reproduction of copyrighted material, inaccurate data or computer
viruses to end-users in the course of delivery. Any transmission of this kind
could damage our reputation or could give rise to legal claims against us. We
could spend a significant amount of time and money defending against these legal
claims.
NEW REGULATION OF AND UNCERTAINTIES REGARDING THE APPLICATION OF EXISTING LAWS
AND REGULATIONS TO, EMARKETING AND THE INTERNET, COULD PROHIBIT, LIMIT OR
INCREASE THE COST OF OUR BUSINESS.
Legislation has recently been enacted in several states restricting the
sending of unsolicited commercial email. We cannot assure you that existing or
future legislation regarding commercial email will not harm our business. The
federal government and several other states are considering, or have considered,
similar legislation. These provisions generally limit or prohibit both the
transmission of unsolicited commercial emails and the use of forged or
fraudulent routing and header information. Some states, including California,
require that unsolicited emails include opt-out instructions and that senders of
these emails honor any opt-out requests.
Our business could be negatively impacted by new laws or regulations
applicable to emarketing or the internet, the application of existing laws and
regulations to emarketing
13
<PAGE> 16
or the internet or the application of new laws and regulations to our business
as we expand into new jurisdictions. There is a growing body of laws and
regulations applicable to access to or commerce on the internet. Moreover, the
applicability to the internet of existing laws is uncertain and may take years
to resolve. Due to the increasing popularity and use of the internet, it is
likely that additional laws and regulations will be adopted covering issues such
as privacy, pricing, content, copyrights, distribution, taxation antitrust,
characteristics and quality of services and consumer protection. The adoption of
any additional laws or regulations may impair the growth of the internet or
emarketing, which could, in turn, decrease the demand for our services and
prohibit, limit or increase our cost of doing business.
YEAR 2000 ISSUES PRESENT TECHNOLOGICAL RISKS, COULD CAUSE DISRUPTION TO OUR
BUSINESS AND COULD HARM SALES OF OUR SERVICES.
Any failure of our technology or systems, third-party software or hardware
on which we rely or the internet to be Year 2000 compliant could cause
disruption to our business and could harm our sales. Many currently installed
computer systems and software products are coded to accept or recognize only two
digit entries in the date code field. These systems and software products will
need to accept four digit entries to distinguish dates before and after January
1, 2000. As a result, computer systems and software used by many companies and
governmental agencies may need to be upgraded to comply with these Year 2000
requirements or risk system failure or miscalculations causing disruptions of
normal business activities.
We are currently assessing the Year 2000 readiness of the software,
computer technology and other services that we use that may not be Year 2000
compliant. We expect to complete this assessment in November 1999. Since we have
not completed this assessment, we are unable to predict to what extent our
business may be affected if our technology or systems, third party hardware or
software on which we rely or the Internet experience a material Year 2000
failure.
For a further discussion of the impact of Year 2000 on our business, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."
INTERNET-RELATED STOCK PRICES ARE ESPECIALLY VOLATILE AND THIS VOLATILITY MAY
DEPRESS OUR STOCK PRICE.
The stock market and specifically the stock prices of internet-related
companies have been very volatile. Because we are an internet-related company,
we expect our stock price to be similarly volatile. As a result of this
volatility, the market price of our common stock could significantly decrease.
This volatility is often not related to the operating performance of the
companies. This broad market volatility and industry volatility may reduce the
price of our common stock, without regard to our operating performance.
14
<PAGE> 17
A TOTAL OF 19,048,954, OR 81%, OF OUR TOTAL OUTSTANDING SHARES ARE RESTRICTED
FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE. THIS
COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF
OUR BUSINESS IS DOING WELL.
After this offering, we will have 23,548,954 shares of common stock
outstanding. This includes 4,500,000 shares that we are selling in the offering,
which may be resold immediately in the public market. The remaining 19,048,954
shares will become eligible for resale in the public market as shown in the
table below.
<TABLE>
<CAPTION>
NUMBER OF SHARES/
PERCENT OUTSTANDING
AFTER THE OFFERING DATE WHEN SHARES BECOME AVAILABLE FOR RESALE IN THE PUBLIC MARKET
------------------- -----------------------------------------------------------------
<S> <C>
16,236,855/68.9% 180 days after the date of this prospectus under agreements
between the stockholders and the underwriters or Digital Impact,
provided that none of these shares are released from lock-up
restrictions by Credit Suisse First Boston Corporation.
2,812,099/11.9% Between 180 and 365 days after the date of this prospectus due to
the requirements of federal securities laws.
</TABLE>
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act after the date of this offering to register an aggregate of
9,995,000 million shares of common stock issued or reserved for issuance under
our various stock plans.
OUR STOCK HAS NO PRIOR TRADING MARKET AND YOU MAY NOT BE ABLE TO RESELL YOUR
STOCK AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
Before this offering, there has not been a public trading market for our
common stock, and an active trading market for our common stock may not develop
or be sustained after this offering. Further, the market price of our common
stock may decline below our initial public offering price. The initial public
offering price will be determined by negotiations between the representatives of
the underwriters and us. See "Underwriting" for a discussion of the factors to
be considered in determining the initial public offering price.
15
<PAGE> 18
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS
BECAUSE THEY ARE INHERENTLY UNCERTAIN
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "expects,"
"plans," "future," "intends," "estimates," "should," "potential," "continue,"
"may," "will" and similar expressions to identify these forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us described above and
elsewhere in this prospectus.
USE OF PROCEEDS
Our net proceeds from the sale of the 4,500,000 shares of common stock in
this offering at an assumed public offering price of $11.00 per share, are
estimated to be $44.7 million, or $51.6 million if the underwriters'
over-allotment option is exercised in full and after deducting the estimated
underwriting discounts and commissions and offering expenses.
We intend to use the net proceeds from this offering primarily for general
corporate purposes. These uses are expected to include an expansion of our sales
and marketing efforts and technical support services, capital expenditures
focusing on expanding our email delivery capability, as well as expenses
associated with our geographic expansion. We also may use a portion of the net
proceeds to acquire complementary businesses, products or technologies; however,
we currently have no commitments or agreements and are not involved in any
negotiations to do so. Pending use of the net proceeds of this offering, we
intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain all future earnings, if any, for use in the operation
and expansion of our business and do not anticipate declaring or paying cash
dividends for the foreseeable future. Our existing line of credit prohibits the
payment of cash dividends.
16
<PAGE> 19
CAPITALIZATION
The following table describes our capitalization as of September 30, 1999:
- On an actual basis.
- On a pro forma basis to reflect the conversion of all outstanding shares
of convertible preferred stock into 12,292,058 shares of common stock.
- On a pro forma as adjusted basis to reflect the sale of 4,500,000 shares
of common stock at an assumed initial public offering price of $11.00 per
share in this offering, less estimated underwriting discounts and
commissions and offering expenses payable by Digital Impact.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ------------- -------------
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C>
Capital lease obligations, less current
portion........................................ $ 713 $ 713 $ 713
Long term debt, less current portion............. 197 197 197
------- ------- -------
Long term debt................................. 910 910 910
------- ------- -------
Stockholders' equity:
Convertible preferred stock, $0.001 par value
per share, 16,000,000 shares authorized,
12,292,058 shares issued and outstanding,
actual; 16,000,000 shares authorized, none
issued or outstanding, pro forma; 5,000,000
shares authorized, none issued or
outstanding, pro forma as adjusted.......... 12 -- --
Common stock, $0.001 par value per share,
54,000,000 shares authorized, 6,756,896
shares issued and outstanding, actual;
54,000,000 shares authorized, 19,048,954
shares issued and outstanding, pro forma;
100,000,000 shares authorized, 23,548,954
shares issued and outstanding, pro forma as
adjusted.................................... 7 19 24
Additional paid-in capital..................... 32,584 32,584 77,314
Unearned stock-based compensation.............. (10,836) (10,836) (10,836)
Accumulated deficit............................ (12,142) (12,142) (12,142)
------- ------- -------
Total stockholders' equity.................. 9,625 9,625 54,360
------- ------- -------
Total capitalization................... $10,535 $10,535 $55,270
======= ======= =======
</TABLE>
This tables excludes:
- 8,795,000 shares of common stock reserved for issuance under our 1998
stock plan, of which options to purchase 3,517,715 shares were
outstanding as of September 30, 1999, at a per share weighted average
exercise price of $0.98.
- 128,000 shares of convertible preferred stock that are issuable upon the
exercise of an outstanding warrant, at a per share weighted average
exercise price of $0.72, and are convertible into 128,000 shares of
common stock immediately before completion of this offering.
- 1,200,000 shares reserved for issuance under our 1999 employee stock
purchase plan and our 1999 director option plan.
Subsequent to September 30, 1999, the Company granted options to purchase
425,000 shares of common stock at a per share weighted average exercise price of
$6.16.
17
<PAGE> 20
DILUTION
The pro forma net tangible book value as of September 30, 1999 was $9.6
million or approximately $0.51 per share of common stock. Pro forma net tangible
book value per share represents the amount of our total tangible assets less
total liabilities, divided by the total number of shares of common stock
outstanding after giving effect to the conversion of all outstanding shares of
convertible preferred stock into 12,292,000 shares of common stock. Dilution in
pro forma net tangible book value per share represents the difference between
the amount per share paid by purchasers of shares of our common stock in this
offering and the pro forma net tangible book value per share of our common stock
immediately following this offering.
After accounting for our sale of the 4,500,000 shares of common stock
offered in this offering at an assumed public offering price of $11.00 per share
and after deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma net tangible book value
as of September 30, 1999 would have been $54.4 million, or approximately $2.31
per share. This represents an immediate increase in net tangible book value of
$1.81 per share to existing stockholders and an immediate dilution in net
tangible book value of $8.69 per share to new investors. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share as of
September 30, 1999..................................... $0.51
Increase per share attributable to new investors.......... 1.81
Pro forma net tangible book value per share after the
offering.................................................. 2.31
------
Dilution in pro forma net tangible book value per share to
new investors............................................. $ 8.69
======
</TABLE>
The following table describes, on a pro forma basis as of September 30,
1999, the differences between the number of shares of common stock purchased
from us, the total price and average price per share paid by existing investors
and by new investors, before deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, at an assumed public
offering price of $11.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- ------------------------ PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 19,048,954 81% $17,215,000 26% $ 0.90
New investors............. 4,500,000 19 49,500,000 74 11.00
---------- --- ----------- ----
Total........... 23,548,954 100% $66,715,000 100%
========== === =========== ====
</TABLE>
- -------------------------
The foregoing discussion and tables are based upon the number of shares
actually issued and outstanding on September 30, 1999 and assume no exercise of
options or warrants outstanding as of September 30, 1999.
After this offering and assuming the exercise in full of all of the options
and warrants outstanding and exercisable as of September 30, our pro forma net
tangible book value as of September 30, 1999 would be $2.13 per share,
representing an immediate increase in net tangible book value of $1.62 per share
to our existing stockholders and an immediate dilution in the net tangible book
value of $8.87 per share to new investors.
18
<PAGE> 21
If the underwriters' over-allotment option is exercised in full, the
following will occur:
- The number of shares of common stock held by existing stockholders will
decrease to approximately 79% of the total number of shares of our common
stock outstanding after this offering.
- The number of shares held by new investors will increase to 5,175,000 or
approximately 21% of the total number of shares of our common stock
outstanding after this offering.
19
<PAGE> 22
SELECTED FINANCIAL DATA
The selected statement of operations data for the period from October 16,
1997 (date of inception) through March 31, 1998 and for the year ended March 31,
1999 and the selected balance sheet data as of March 31, 1998 and 1999 have been
derived from our financial statements included elsewhere in this prospectus that
have been audited by PricewaterhouseCoopers LLP independent accountants. The
selected results of operations for the six months ended September 30, 1998 and
1999 and the selected balance sheet data as of September 30, 1999 are derived
from unaudited financial statements included elsewhere in this prospectus that
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of our operating
results for these periods and our financial condition as of that date. The
historical results are not necessarily indicative of results to be expected for
any future period. The data has been derived from financial statements that have
been prepared using generally accepted accounting principles and should be read
in conjunction with the financial statements and the notes to the financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
OCTOBER 16, 1997 SIX MONTHS ENDED
(DATE OF INCEPTION) YEAR ENDED SEPTEMBER 30,
TO MARCH 31, MARCH 31, ------------------
1998 1999 1998 1999
------------------- ---------- ------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.............................. $ 4 $ 1,307 $ 121 $ 3,257
Cost of revenues...................... 4 674 87 1,617
------ ------- ------- -------
Gross margin.......................... -- 633 34 1,640
------ ------- ------- -------
Operating expenses:
Research and development............ 27 966 209 2,518
Sales and marketing................. -- 670 134 2,544
General and administrative.......... 77 1,151 181 2,164
Stock-based compensation............ -- 1,157 162 3,295
------ ------- ------- -------
Total operating expenses......... 104 3,944 686 10,521
------ ------- ------- -------
Loss from operations.................. (104) (3,311) (652) (8,881)
Interest income (expense), net........ 1 71 10 82
------ ------- ------- -------
Net loss.............................. $ (103) $(3,240) $ (642) $(8,799)
====== ======= ======= =======
Net loss per common share -- basic and
diluted............................. $(0.45) $ (2.86) $ (1.95) $ (2.94)
====== ======= ======= =======
Shares used in net loss per common
share calculation -- basic and
diluted............................. 231 1,133 330 2,991
====== ======= ======= =======
Pro forma net loss per share -- basic
and diluted (unaudited)............. $ (0.39) $ (0.62)
======= =======
Shares used in pro forma net loss per
share calculation -- basic and
diluted (unaudited)................. 8,370 14,090
======= =======
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
AS OF MARCH 31,
---------------- AS OF
1998 1999 SEPTEMBER 30, 1999
------ ------ ------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $1,032 $2,864 $ 7,183
Working capital..................................... 1,013 2,895 5,384
Total assets........................................ 1,078 6,314 14,002
Capital lease obligations, less current portion..... -- 457 713
Long term debt, less current portion................ -- 234 197
Total Stockholders' equity.......................... 1,056 4,370 9,625
</TABLE>
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and
results of operations in conjunction with our financial statements and related
notes. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of factors including
those discussed in "Risk Factors," starting on page 6 and elsewhere in this
prospectus.
OVERVIEW
We are a leading provider of emarketing services. Our primary suite of
emarketing services, Merchant Mail, is sold as a single service and currently
consists of the following components: email campaign management, targeting and
personalization, email format optimization, campaign tracking and reporting, and
data hosting and management. We also recently introduced the Email Exchange
Network, a service which enables our clients to acquire new customers by sharing
email addresses with each other, with the consumer providing explicit consent.
We were incorporated in October 1997 and commenced sales of our services in
December 1997. During the period from inception through March 1998, we had
insignificant revenues. Operating activities during this period related
primarily to developing our services, building our corporate infrastructure and
raising capital. In April 1998, we began executing emarketing campaigns for
clients. To date, our revenues have consisted of sales of Merchant Mail. In July
1999, we established the Email Exchange Network and expect that it will
contribute to our revenues in future periods. Although our revenues have
increased each quarter since inception, we have never been profitable. We expect
to incur net losses for the foreseeable future and may never be profitable. As
of September 30, 1999, we had an accumulated deficit of $12.1 million.
We generate revenues from the sale of services to businesses that enable
them to proactively communicate with their customers online. Historically, these
services have primarily consisted of the design and execution of emarketing
campaigns. For each campaign, we generally charge our clients a fixed fee for
the set up and a variable fee based on the number of emails sent to our clients'
customers. We recognize revenue for these fees when we complete an emarketing
campaign, which typically lasts less than one week.
Cost of revenues consists primarily of expenses relating to the delivery of
emarketing services, including personnel costs, primarily consisting of our
client services staff, the amortization of equipment and licensed technology,
and data center rent.
Operating expenses are categorized into research and development, sales and
marketing, general and administrative, and stock-based compensation.
Research and development expenses consist primarily of personnel and
related costs, consultants and outside contractor costs, and software and
hardware maintenance costs for our development efforts. To date, all research
and development costs have been expensed as incurred.
22
<PAGE> 25
Sales and marketing expenses consist of personnel and related costs
primarily for our direct sales force, and marketing staff, in addition to
marketing programs which include trade shows, advertisements, promotional
activities and media events.
General and administrative expenses consist primarily of personnel and
related costs for corporate functions, including information services, finance,
accounting, human resources, facilities and legal.
Stock-based compensation represents the aggregate difference, at the date
of grant, between the respective exercise price of stock options and the deemed
fair market value of the underlying stock. Stock-based compensation is amortized
over the vesting period of the underlying options based on an accelerated
vesting method, generally four years. Through September 30, 1999, we recorded
unearned stock-based compensation totaling $14.5 million. For the year ended
March 31, 1999, we recognized amortization of stock-based compensation of
$543,000 for options granted and $614,000 for shares issued as a bonus to a
founder and for the six months ended September 30, 1999, we recognized
amortization of stock-based compensation of $3.3 million.
The total unamortized unearned stock-based compensation recorded for all
option grants through September 30, 1999 will be amortized as follows: $3.8
million for the remainder of the year ended March 31, 2000; $4.2 million for the
year ended March 31, 2001; $2.0 million for the year ended March 31, 2002; and
$772,000 for the year ended March 31, 2003 and the years following.
RESULTS OF OPERATIONS.
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
Revenues. Total revenues increased from approximately $121,000 for the six
months ended September 30, 1998 to approximately $3.3 million for the six months
ended September 30, 1999. The increase was primarily due to an increase in the
number of clients to whom we provide emarketing services from seven to 60, in
addition to a significant increase in the number of emails sent on behalf of our
clients from approximately 1.5 million emails to approximately 143 million
emails sent.
Cost of Revenues. Cost of revenues increased from approximately $87,000 for
the six months ended September 30, 1998 to approximately $1.6 million for the
six months ended September 30, 1999. The increase was primarily due to increased
personnel costs of approximately $962,000 associated with supporting a larger
number of clients and a higher volume of emails, as well as amortized costs of
approximately $268,000 associated with expansion of our data center capacity.
Gross margins increased from 28% for the six months ended September 30, 1998 to
50% for the six months ended September 30, 1999. This increase was primarily the
result of higher capacity utilization as revenues increased at a greater rate
than associated costs.
Research and Development. Research and development expenses increased from
approximately $209,000 for the six months ended September 30, 1998 to
approximately $2.5 million for the six months ended September 30, 1999. The
increase was primarily due to an increase in personnel costs of approximately
$1.4 million to further develop and enhance our service offerings. We are
continuing to invest substantially in research and development, and we expect
costs of research and development to increase on an absolute basis in future
periods.
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<PAGE> 26
Sales and Marketing. Sales and marketing expenses increased from
approximately $134,000 for the six months ended September 30, 1998 to
approximately $2.5 million for the six months ended September 30, 1999. The
increase was primarily a result of growth in our direct sales force, and
marketing staffs with personnel related costs increasing by approximately $1.4
million, as well as an increase in promotional spending of approximately
$344,000 targeted at building our brand, increasing our client base and growing
sales. We expect our sales and marketing expenses to significantly increase on
an absolute basis as we continue to grow our sales force and expand our
marketing activities.
General and Administrative. General and administrative expenses increased
from $181,000 for the six months ended September 30, 1998 and to approximately
$2.2 million for the six months ended September 30, 1999. The increase was due
primarily to an increase in personnel related costs of approximately $826,000,
an increase in professional fees of approximately $279,000 primarily related to
our information technology infrastructure and an increase in overhead costs of
approximately $136,000 associated with the growth of our business.
Stock-based Compensation. We recorded unearned stock-based compensation of
approximately $199,000 during the six months ended September 30, 1998 and
approximately $12.7 million during the six months ended September 30, 1999,
which is being amortized over the period during which the options vest,
generally four years. Amortization of this stock-based compensation recognized
during the six months ended September 30, 1998 was approximately $162,000 and
during the six months ended September 30, 1999 was approximately $3.3 million.
PERIOD FROM OCTOBER 16, 1997 (DATE OF INCEPTION) TO MARCH 31, 1998 AND YEAR
ENDED MARCH 31, 1999
Revenues. Total revenues increased from approximately $4,000 for the period
ended March 31, 1998 to approximately $1.3 million for the year ended March 31,
1999. The increase was primarily due to an increase in the number of clients
from three to 23 to whom we provide emarketing services, in addition to a
significant increase in the number of emails sent on behalf of our clients by
approximately 45 million.
Cost of Revenues. Cost of revenues increased from approximately $4,000 for
the period ended March 31, 1998 to approximately $674,000 for the year ended
March 31, 1999. The increase was primarily due to increased personnel costs of
approximately $300,000 associated with supporting a larger number of clients and
a higher volume of emails, as well as amortized costs of $141,000 associated
with expansion of our data center capacity and data center rent of approximately
$138,000. Gross margins were 48% for the year ended March 31, 1999. This
increase was primarily the result of higher capacity utilization as revenues
increased at a greater rate than associated costs.
Research and Development. Research and development expenses increased from
approximately $27,000 for the period ended March 31, 1998 to approximately
$966,000 for the year ended March 31, 1999. The increase was primarily due to an
increase in personnel related costs of approximately $555,000 and costs
associated with developing technologies which enhance the services provided to
our clients and make our operations more efficient.
Sales and Marketing. Sales and marketing expenses were not significant for
the period ended March 31, 1998 and were approximately $670,000 for the year
ended
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<PAGE> 27
March 31, 1999. The increase was primarily a result of growth in our direct
sales and marketing staffs with personnel related costs increasing by
approximately $374,000, as well as an increase in promotional spending of
approximately $212,000, targeted at building our brand, increasing our client
base and growing sales.
General and Administrative. General and administrative expenses increased
from approximately $77,000 for the period ended March 31, 1998 to approximately
$1.2 million for the year ended March 31, 1999. The increase was due primarily
to an increase in personnel costs of approximately $400,000, outside contracts
of approximately $274,000 and an increase in overhead costs of approximately
$246,000 associated with the growth of our business.
Stock-based compensation. During the year ended March 31, 1999, we recorded
unearned stock-based compensation of approximately $1.8 million which is being
amortized over the period during which the options vest, generally four years.
For the year ended March 31, 1999, we recognized amortization of stock-based
compensation of approximately $543,000 as a result of options granted to
employees and non-employees during the year. In addition, we recognized
additional stock-based compensation of approximately $614,000 in the year for
270,000 shares of common stock which we issued as a bonus to a founder.
Income Taxes. No provision for federal and state income taxes was recorded
as we incurred net operating losses from inception through September 30, 1999.
As of March 31, 1999 we had approximately $2.1 million of federal and state net
operating loss carryforwards which expire in varying amounts beginning in 2005.
Due to the uncertainty regarding the ultimate utilization of the net operating
loss carryforwards, we have not recorded any benefit for losses and a valuation
allowance has been recorded for the entire amount of the net deferred tax asset.
In addition, sales of our stock, including shares sold in this offering, may
further restrict our ability to utilize our net operating loss carryforwards.
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QUARTERLY OPERATING RESULTS
The following table presents our historical unaudited quarterly results of
operations for our most recent six quarters. This data is unaudited and derived
from our audited annual financial statements and notes included elsewhere in
this prospectus. In the opinion of management, these quarterly financial
information has been prepared on the same basis as our annual financial
statements and includes all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial results included in the
table below. This statement of operations data should be read in conjunction
with the financial statements and related notes included in this prospectus. Our
results of operations have fluctuated and are likely to continue to fluctuate in
the future. Results of operations for any previous periods are not necessarily
comparable to future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1999 1999 1999
-------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................. $ 25 $ 96 $ 396 $ 790 $ 1,385 $ 1,872
Cost of revenues.......... 24 63 189 398 672 945
-------- ------- ------- ------- ------- -------
Gross margin.............. 1 33 207 392 713 927
-------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 77 132 292 465 843 1,675
Sales and marketing..... 46 88 152 384 1,010 1,534
General and
administrative........ 86 95 225 745 1,047 1,117
Stock-based
compensation.......... 95 67 110 885 977 2,318
-------- ------- ------- ------- ------- -------
Total operating
expenses............ 304 382 779 2,479 3,877 6,644
-------- ------- ------- ------- ------- -------
Loss from operations...... (303) (349) (572) (2,087) (3,164) (5,717)
Interest income (expense),
net..................... 6 4 22 39 4 78
-------- ------- ------- ------- ------- -------
Net loss.................. $ (297) $ (345) $ (550) $(2,048) $(3,160) $(5,639)
======== ======= ======= ======= ======= =======
AS A PERCENTAGE OF
REVENUES:
Revenues.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......... 96.0 65.6 47.7 50.3 48.5 50.5
-------- ------- ------- ------- ------- -------
Gross margin.............. 4.0 34.4 52.3 49.7 51.5 49.5
-------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development........... 308.0 137.5 73.7 58.9 61.0 89.5
Sales and marketing..... 184.0 91.7 38.4 48.6 72.9 81.9
General and
administrative........ 344.0 99.0 56.8 94.3 75.6 59.7
Stock-based
compensation.......... 380.0 69.8 27.8 112.0 70.5 123.8
-------- ------- ------- ------- ------- -------
Total operating
expenses............ 1216.0 398.0 196.7 313.8 280.0 354.9
-------- ------- ------- ------- ------- -------
Loss from operations...... (1212.0) (363.6) (144.4) (264.1) (228.5) (305.4)
Interest income (expense),
net..................... 24.0 4.2 5.6 4.9 0.3 4.2
-------- ------- ------- ------- ------- -------
Net loss.................. (1188.0)% (359.4)% (138.8)% (259.2)% (228.2)% (301.2)%
======== ======= ======= ======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
From our inception to September 30, 1999, we funded our operations
primarily with $17.4 million raised through the private sale of our equity
securities. As of September 30, 1999, we had cash and cash equivalents of $7.2
million and availability of $900,000 under a leasing line of credit. Amounts
borrowed under this agreement of $1.1 million at September 30, 1999 bear
interest at rates of between 6.2% and 10.1% and are collateralized by the leased
assets. Additionally, at September 30, 1999 we had $238,000
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outstanding under a loan and security agreement with a bank. The loan agreement
provides for borrowings of up to $350,000, $300,000 of which is collateralized
by the Company's property and equipment.
Under the terms of the loan agreement, certain transactions, including
payment of dividends, are prohibited without the bank's consent. The loan bears
interest at the prime rate (8.2% at September 30, 1999) plus 0.25% per annum.
Net cash used in operating activities was $95,000 for the period ended
March 31, 1998 and $2.0 million for the year ended March 31, 1999, primarily the
result of net losses of $103,000 for the period ended March 31, 1998 and $3.2
million for the year ended March 31, 1999, after adjusting for stock-based
compensation expense of $1.2 million for the year ended March 31, 1999. Net cash
used in operating activities was $4.3 million for six months ended September 30,
1999, primarily the result of net losses of $8.8 million, after adjusting for
stock-based compensation expense of $3.1 million.
Net cash used in investing activities was $31,000 for the period ended
March 31, 1998, $2.4 million for the year ended March 31, 1999 and $1.9 million
for the six months ended September 30, 1999. The cash used in investing
activities was related to purchases of property and equipment.
Net cash provided by financing activities was $1.2 million for the period
ended March 31, 1998 and $6.2 million for the year ended March 31, 1999. Cash
provided by financing activities was primarily from proceeds of the sale of our
preferred stock and the sale and leaseback of assets, as well as draws against
our line of credit. Net cash provided by financing activities was $10.5 million
for the three months ended September 30, 1999.
At September 30, 1999 we have annual rental obligations of approximately
$454,000 for the year ended March 31, 2000, $1,120,000 for the year ended March
31, 2001, $1,172,000 for the year ended March 31, 2002 and $824,000 for the year
ended March 31, 2003. These leases are for approximately 29,400 square feet of
office space for our headquarters in San Mateo, California.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents and availability under our line of credit
facilities, will be sufficient to meet our anticipated cash needs for working
capital, repayment of debt and capital expenditures for at least the next twelve
months. We currently intend to spend between $3.0 million and $5.0 million on
capital expenditures over the next twelve months, with a focus on expanding our
email delivery capability. We plan to use the remaining proceeds from this
offering to fund operating activities, including sales and marketing, research
and development and general administrative services. After twelve months, we may
need additional capital. However, we may need to raise additional funds sooner
to fund additional expansion, develop new or enhanced services, respond to
competitive pressures or make acquisitions. We cannot be certain that additional
financing will be available to us on favorable terms. If adequate funds are not
available on acceptable terms, our business will be harmed.
YEAR 2000 READINESS DISCLOSURE
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit entries to
distinguish dates before and after January 1, 2000. This could result in system
failures or miscalculations causing disruption
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<PAGE> 30
of operations for any company using these computer programs or hardware. As a
result, many companies' computer systems may need to be upgraded or replaced in
order to avoid Year 2000 issues.
We are a comparatively new enterprise, and, accordingly, the majority of
software and hardware we use to manage our business has all been purchased or
developed by us within the last 18 months. While this does not completely
protect us against Year 2000 exposure, we believe our exposure is limited
because recently-developed technology is generally Year 2000 compliant.
We are in the process of testing our technology and systems. The testing we
have completed has primarily been performed internally, and we have recently
retained a consultant to test and review our systems for Year 2000 compliance.
We currently expect that our consultant will complete its review by the end of
November. Based on the testing we have performed, we believe that our software
is Year 2000 compliant.
In addition, we rely on software and hardware developed by third parties,
which we have not independently tested to determine Year 2000 compliance. We
have reviewed certifications from our key equipment suppliers for our data
centers that their equipment is Year 2000 compliant. Additionally, we have
reviewed certifications from the providers of key software applications that
their software is Year 2000 compliant. Based on an initial evaluation of our
broader list of software and hardware providers, we believe that these providers
are in the process of reviewing and implementing their own Year 2000 compliance
programs. This initial evaluation consisted of contacting each of our software
and hardware vendors to determine the level of their Year 2000 compliance. We
will work with these providers, who have varying timetables and plans for their
Year 2000 compliance, to address the Year 2000 issue and continue to seek
assurances from them that their products are Year 2000 compliant.
To date we have incurred less than $100,000 in costs associated with our
Year 2000 remediation efforts, and anticipate that any future costs will not
exceed $500,000. However, if we, or third party providers of hardware, software
and communications services fail to remedy any Year 2000 issues, the result
could be lost revenues, increased operating expenses, the loss of customers and
other business interruptions, any of which could harm our business. Moreover,
the failure to adequately address Year 2000 compliance issues in the delivery of
services to our clients could result in claims against us of misrepresentation
or breach of contract and related litigation, any of which could be costly and
time consuming to defend.
We have not developed any specific contingency plans for Year 2000 issues.
Our reasonably likely worst case scenario for Year 2000 problems would be our
inability to execute our clients' emarketing campaigns and the potential
initiation by our clients of associated litigation.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position 98-1, or SOP 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after December 15, 1998. We believe that
the adoption of SOP 98-1 will not have a material impact on our financial
statements.
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In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. We believe the adoption of
SOP 98-5 will not have a material impact on our results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. We do not currently
hold derivative instruments or engage in hedging activities.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We provide our services to clients primarily in the U.S. As a result, it is
unlikely that our financial results could be directly affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. All of our sales are currently denominated in U.S. dollars.
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay on our outstanding debt instruments. The risk associated
with fluctuating interest expense is limited, however, to the exposure related
to those debt instruments and credit facilities which are tied to market rates.
We do not plan to use derivative financial instruments in our investment
portfolio. We plan to ensure the safety and preservation of our invested
principal funds by limiting default risk, market risk and reinvestment risk. We
plan to mitigate default risk by investing in high-credit quality securities.
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BUSINESS
OVERVIEW
We offer internet direct marketing, or emarketing, services to businesses
that wish to communicate more effectively with their customers online through
email. We combine proprietary technologies, rigorous business processes and
expertise developed over thousands of email campaigns to provide a
comprehensive, outsourced emarketing solution. The services we provide are
designed to maximize our clients' return on their marketing investment.
Our core set of services includes campaign management, targeting and
personalization, email format optimization, campaign tracking and reporting, and
database hosting and management. We sell these services under the name Merchant
Mail. In addition, we recently introduced the Email Exchange Network, an online
marketing network that provides our clients with a new method to acquire
additional online customers.
INDUSTRY BACKGROUND
THE GROWTH OF INTERNET COMMERCE AND EMAIL
The explosive growth of the internet as a tool for global communications
and commerce has prompted a wide variety of businesses to develop strategies to
sell products and services online. International Data Corporation, or IDC,
estimates that worldwide commerce over the internet will increase from
approximately $50 billion in 1998 to $1.3 trillion in 2003. To attract and
retain a broader range of customers and increase ecommerce revenues, businesses
are seeking ways to more effectively communicate with their customers online.
Email is the most widely used application on the internet today and its
proliferation has been critical to the growth of ecommerce. Businesses use email
as the primary means to proactively communicate with their customers online. For
example, email is often used to confirm electronic transactions and to notify
customers of important new developments or product offerings. IDC estimates that
the number of electronic mailboxes worldwide will grow from approximately 240
million in 1998 to over 590 million by 2003, and that the number of emails sent
annually worldwide will grow from 809 billion to 4.8 trillion during the same
period.
THE EMERGENCE OF INTERNET DIRECT MARKETING
Businesses and other marketing organizations spent an estimated $285
billion on general advertising in 1998, of which $160 billion was spent on
direct marketing, according to the Direct Marketing Association. An increasing
percentage of this spending is expected to move into online forms of advertising
and direct marketing as businesses seek to grow their ecommerce revenues. Since
direct marketing expenditures have traditionally been larger than expenditures
for advertising, spending on internet direct marketing, or emarketing, is
expected to soon outpace internet advertising spending as a means to drive
ecommerce. Forrester Research projects total internet advertising expenditures
in the U.S. to increase from $1.3 billion in 1998 to over $10 billion in 2002.
Forrester also estimates that internet direct marketing will account for 60%, or
$6.2 billion, of these expenditures in 2002, up from 15% in 1998.
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Emarketing allows businesses to cost-effectively target online customers
through customized email marketing campaigns. Initially, email did not gain wide
acceptance as an emarketing tool because of concerns regarding privacy and
unsolicited communication. With the recent advent of permission-based email,
where individuals sign up to receive information from specific sources on topics
of interest to them, email has become an increasingly important direct marketing
tool. Email, or emarketing campaigns offer significant advantages over
paper-based communications, including more rapid delivery, reduced cost and a
greater degree of personalization. Emarketing campaigns generate response rates
that are three to ten times higher than response rates for traditional direct
mail campaigns, based on information reported by Jupiter Communications.
CHALLENGES IN IMPLEMENTING EMARKETING PROGRAMS
Companies face significant challenges in effectively implementing
emarketing programs internally. These challenges include the difficulties and
costs associated with:
- Assembling and delivering high volumes of personalized email messages.
- Determining the most effective layout, copy and graphical email format
for each recipient.
- Tracking and analyzing large volumes of individual customer response
data.
- Hiring and retaining a team of specialized emarketing and technology
experts.
- Building and maintaining the necessary hardware and software
infrastructure.
- Rapidly setting-up, designing and executing successful emarketing
campaigns.
A company's failure to adequately address any of these challenges can
result in lost business opportunities and substantial damage to its brand. As a
result, we believe companies are seeking an outsourced solution that will enable
them to fully realize their emarketing objectives while maintaining a focus on
their core competencies.
THE DIGITAL IMPACT SOLUTION
We offer a comprehensive suite of emarketing services designed to maximize
our clients' return on their marketing investment. Our emarketing services
currently include direct email marketing services, customer acquisition tools,
customer data analysis and strategic consulting services and client support
services. We combine proprietary technologies, a rigorous process methodology
and the domain expertise of our client services professionals to create
emarketing campaigns for our clients. We provide our clients with a high quality
emarketing solution featuring accurate and timely delivery of email messages
with limited client oversight requirements. The benefits of our solution
include:
Targeted, relevant content. Through our proprietary technologies and
processes, we can dynamically assemble and deliver millions of personalized
emails based on recipient profiles. Each recipient's profile can include
demographic information, past response and purchase behavior and customizable
business rules. We continually update each individual profile with response data
that is typically captured in less than one second.
Personalized email formatting. Our email sensor technology enables us to
ensure that each recipient receives an email that fully utilizes the graphical
capabilities of that recipient's email software. This technology allows us to
deliver a particular email in one of several formats, including basic text,
America Online format, and hypertext markup
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language, or HTML, depending on the recipient's email capabilities. Our use of
rich graphical formats can significantly increase the likelihood of a customer
response.
Real-time performance tracking and campaign analysis. Using our campaign
management tools, we can track and analyze large volumes of customer response
data in real-time. By real-time we mean interactive communications or data
exchanges in less than one second. This capability allows our clients to quickly
execute test campaigns, gain valuable market research data, and evaluate the
effectiveness of alternative emarketing strategies. Clients can then launch
full-scale campaigns based on these test results, all within a short period of
time.
Domain expertise. Our experience gained from designing and managing
thousands of email campaigns has allowed us to develop an emarketing process
built on best practices, a term we use to describe our accumulated knowledge of
effective emarketing strategies and techniques. This institutionalized process
provides us with a methodology to reliably execute each phase of a campaign,
from initial setup to results analysis and allows us to consistently deliver
valuable emarketing services to our clients.
Robust and scalable infrastructure. Our ongoing investments in hardware and
software enable us to reliably assemble and deliver large volumes of client
emails on a timely basis. We delivered over 28 million emails in June 1999 and
have the capacity to deliver up to 180 million emails per month with our
existing hardware infrastructure. We have designed our systems and
infrastructure so that we can readily expand our capabilities in a
cost-efficient manner, which we refer to as scalable.
Significantly improved time to market. By leveraging our investment in
infrastructure and technology, combined with our institutionalized processes and
experience, our clients are able to deploy their emarketing campaigns rapidly
and reliably. This approach allows our clients to remain focused on their core
business competencies and enhance their competitive positions.
STRATEGY
Our objective is to be the leader in emarketing services. The following are
the key elements of our strategy:
Expand our service offerings. We intend to leverage our emarketing and
technology expertise to develop new tools, functionalities and features that
will enable us to maximize our clients' return on their marketing investment. By
working closely with our network of clients, we continually refine our
emarketing expertise to increase the value of each of our services.
Exploit new market opportunities. We believe there are significant
opportunities to introduce our services into new markets. The majority of our
emarketing clients to date have been traditional and online retailers. We intend
to expand our presence among clients in other consumer markets, in markets where
the customers are businesses rather than consumers, and in international
markets.
Leverage our database of consumer profiles. We intend to leverage our
database of consumer profiles to implement new services in a permission-based
environment. We believe that the increasing scope and depth of this database
will create opportunities for the sharing of information among our clients. This
will enable our network of clients to
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obtain broader and more meaningful information about consumers than any single
client would otherwise obtain on its own.
Establish the Email Exchange Network as a leading service for client
acquisition. We recently began offering our clients the opportunity to
participate in the Email Exchange Network, a cooperative marketing network that
allows our clients to collectively acquire new customer information and share
email addresses in an opt-in, permission-based program. We believe that the
Email Exchange Network will provide us with an additional means to attract and
retain clients.
Build brand awareness and strategic alliances. To increase our brand
awareness, we are promoting our services to online marketers and advertising
agencies through the use of our web site, trade advertisements and selected
media events. We are also promoting our client success stories through the use
of case studies, technical papers and regular briefings with industry analysts.
We intend to build alliances with leading internet technology and service
providers to leverage their sales, marketing and engineering capabilities, and
to enhance awareness of our brand.
SERVICES
We provide comprehensive services for executing personalized emarketing
campaigns designed to enable our clients to acquire and retain online customers.
Our primary suite of emarketing services, Merchant Mail, is sold as a single
service and currently consists of the following components:
- Email campaign management.
- Targeting and personalization.
- Media optimization.
- Tracking and reporting.
- Data hosting and management.
We also provide the Email Exchange Network, a service which enables our
clients to acquire new customers by sharing email addresses with each other,
with the consumer providing explicit consent.
EMAIL CAMPAIGN MANAGEMENT
We assign each client a client services manager, an emarketing specialist
who applies our extensive domain expertise and methodologies, to manage that
client's email campaigns. The campaign management process includes:
- Establishing rules for email personalization based upon each recipient's
profile and email software environment.
- Checking the quality of each email across over 30 email software
packages.
- Applying our accumulated knowledge base to analyze the results of each
campaign.
- Managing and ensuring the integrity of data transfers with our clients.
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TARGETING AND PERSONALIZATION
We create targeted email messages for each customer based on our clients'
emarketing objectives. Our targeting and personalization capabilities include:
- Matching a particular email offer to the appropriate group of recipients
based on a pre-defined set of marketing parameters determined by our
clients. For example, in a recent campaign we emailed different offers to
multiple customer groups based on the timing of their last purchase from
that client. In another instance, we created and delivered emails
containing gardening advice tailored to each recipient's geographic
region.
- Automatically sending an email based on a pre-determined event or
schedule. For example, currently we help one of our clients sell
additional products by sending order confirmation emails containing
offers for related products to online purchasers.
- Dynamically assembling unique emails using sophisticated algorithms and
statistical models to predict the content most relevant to each
recipient. For example, we recently assembled and delivered 35,000 unique
emails, each featuring six different products from a pool of 3,000
possible choices. The six products and the order in which they were
presented to each customer were determined on the basis of the customer's
purchase behavior, self-reported preferences and demographic profile.
EMAIL FORMAT OPTIMIZATION
We use our email sensor technology to determine the optimal graphical
format for each recipient's email software environment. This technology enables
us to deliver email at the highest level of graphics and interaction currently
available to the recipient, including:
- Plain text emails with universal resource locator, or URL, links.
- Plain text emails with hyperlinked words that are blue and underlined.
- Emails tailored for subscribers of America Online with hyperlinked words
and font formatting.
- Hypertext markup language, or HTML, emails with advanced graphical
elements.
- Dynamic HTML and Java-based email with interactive capabilities greater
than HTML.
CAMPAIGN TRACKING AND REPORTING
We monitor and report the performance of our clients' email campaigns. The
data is collected at the individual customer level and includes the number and
percentage of:
- Emails successfully delivered.
- Emails rejected by email servers.
- HTML and dynamic HTML emails opened.
- Click throughs per campaign, per recipient and per specific offer.
- Email replies from customers.
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DATA HOSTING AND MANAGEMENT
We collect, warehouse and manage key marketing elements of our clients'
customer information. In total, we manage over 20 million consumer profiles. Our
data hosting and management services include:
- Maintaining the integrity of our clients' email lists by purging
undeliverable addresses, correcting invalid addresses and eliminating
duplicate records.
- Developing and hosting web pages that transparently integrate with a
client's web site and that allow consumers to enter and update their
profile and subscription information.
- Capturing and processing real-time campaign response data at the
individual recipient level, including the recipient's email software
environment, whether the email was successfully delivered and opened and
which items were clicked on within the email.
- Automatically handling campaign email replies, including unsubscribe
requests, vacation notices, undeliverable messages, and forwarding of
customer service requests.
THE EMAIL EXCHANGE NETWORK
We have created an online cooperative marketing network, the Email Exchange
Network, which provides our clients with a new customer acquisition model. Our
Email Exchange Network operates as follows:
- Clients select other participating clients with whom they would like to
share customer profiles.
- Clients include links to the Email Exchange Network web site in their
emails or on their web sites.
- Consumers click on these links to access the Email Exchange Network.
- Consumers choose the participating clients from whom they would like to
receive information, and complete an optional profile form.
- Each consumer's email address and optional profile information is
automatically added to the customer profile database of the selected
clients.
- Clients pay us for every consumer profile added and are credited when one
of their customers joins another participant's list.
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CLIENTS
We began providing services in March 1998 and, as of September 30, 1999,
had 60 clients. Our clients consist of a diverse group of companies operating in
many industries throughout the United States, ranging from Fortune 100 to small
private companies. For the year ended March 31, 1999 Preview Travel, ONSALE and
The Gap accounted for 26.8%, 11.5% and 10.9% of our revenues. For the six months
ended September 30, 1999, ONSALE, Garden.com, Preview Travel and The Gap
accounted for 9.6%, 8.4%, 8.4% and 8.2% of revenues. During the six months ended
September 30, 1999, we completed a campaign for each of the following clients:
Agency.com
Another Universe
BMG Direct
Barnes and Noble
Cooking.com
Digital Work
Doughnet
eBay
Financial Engines
Flooz.com
Fogdog Sports
Furniture.com
The Gap
Garden.com
Harte-Hanks
Hewlett-Packard
iGo (formerly 1-800-Batteries)
iTurf (formerly Delias)
Knight-Ridder New Media
Macy's
Mastercard
Medscape
Netcentives
Nextag
Omaha Steaks
ONSALE
Peet's Coffee and Tea
Pets.com
Reel.com
Service Merchandise
Sharper Image
Smarter Kids
Sprint
Tavolo (formerly Digital Chef)
Tektronix
Tower Records
Universal Studios
Wine.com
(formerly Virtual Vineyards)
yourPharmacy.com
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<PAGE> 39
SELECTED CLIENT CASE STUDIES
The following case studies illustrate different components of the
emarketing services we perform for our clients. The clients described in these
case studies are current clients, and they did not, in the aggregate, constitute
more than 15% of our revenues for the quarter ended September 30, 1999.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
SERVICE
CLIENT COMPONENT SUMMARY OF CASE STUDY
- -------------------------------------------------------------------------------------------
<S> <C> <C>
The Sharper Image Email Campaign The Sharper Image, a specialty gifts retailer
Management tested and validated new emarketing
strategies with the aid of our campaign
management system. Over the course of several
months, we measured the effectiveness of
promotions and email layouts based on the
characteristics of different customer groups.
Using the results of these tests, The Sharper
Image refined their emarketing strategy to
increase the frequency and size of customer
orders. We began working with The Sharper
Image in May 1998.
- -------------------------------------------------------------------------------------------
ONSALE Targeting and ONSALE, an online auction retailer, used our
Personalization services to target and deliver personalized
email offers to their customers. We adapted
our data modeling system to assemble
personalized emails containing offers for
selected ONSALE customers based on their bid
and buy behavior in previous auctions. This
model utilized daily customer response data
to improve the effectiveness of the campaigns
over time. We began working with ONSALE in
November 1998.
- -------------------------------------------------------------------------------------------
Peet's Coffee & Tea Media Optimization Peet's Coffee and Tea, a gourmet beverage
retailer, used our email sensor technology to
determine the graphical capabilities of each
recipient's email. We then delivered a New
Yorker cartoon to those customers who could
view graphics in their email. All other
customers received an email containing a
hyperlink to the Peet's web site where the
cartoon was displayed. We began working with
Peet's in April 1999.
- -------------------------------------------------------------------------------------------
Tower Records Tracking and Tower Records, a leading music retailer, used
Reporting our services to track and report their
customers' music interests. We provided them
with comprehensive reporting on those
customers who responded to each emarketing
campaign, the timing of that response, and
the revenue and return on investment per
campaign. Using our services, Tower Records
was able to gauge customer reaction to its
outbound emarketing campaigns and gain
insight into online customer behavior. We
began working with Tower Records in March
1998.
- -------------------------------------------------------------------------------------------
</TABLE>
SALES AND MARKETING
We sell our services primarily through direct sales representatives located
in San Mateo, California and New York City. We focus our sales efforts on the
senior marketing
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and business executives of our prospective clients. Our sales personnel tailor
their demonstrations and proposals to address each client's particular needs.
We complement our direct sales force by entering into arrangements with
leading companies in the direct marketing and advertising industries. We have an
agreement with Harte-Hanks, a large direct marketing company, under which we are
the exclusive provider of emarketing services sold by Harte-Hanks' over 200
national and international sales representatives. In addition, we recently
launched a marketing program to enable advertising agencies to offer our
services to their clients.
Our marketing strategy is to build and promote our brand and to generate
qualified leads for our sales team. We focus our marketing efforts on dedicated
Internet companies as well as traditional companies seeking to take advantage of
the commercial opportunities presented by ecommerce. We rely on a range of
marketing activities to pursue our objectives, including trade shows, trade
advertisements, selected media events and our own web site. We publish
additional marketing materials to support the sales process, including company
brochures, feature descriptions, technology research papers and client case
studies.
CLIENT SERVICES
Our client services group is responsible for the ongoing support of our
clients. Based on the specific requirements of their emarketing campaigns, each
client is assigned a team that typically consists of the following personnel:
- A client services manager, responsible for the overall relationship and
coordination of activities to effectively serve our client.
- A production specialist, responsible for integration of content and
offers to be sent in our client's email campaigns.
- A graphic designer, responsible for the creation of the graphic design
elements for the campaigns.
- A marketing analyst, responsible for testing services and for providing
insight into the results of campaigns.
For clients that require additional services, the client services manager
has access to a staff of marketing statisticians and engineers capable of
creating complex statistical models, developing extensions to our core services,
and identifying and analyzing relationships and trends in our clients' marketing
data, which we refer to as data mining.
TECHNOLOGY
Our technology organization is responsible for research and development,
systems integration quality assurance and network operations. We have designed
an architecture based in part on proprietary technologies and in part on
licensed technologies.
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ARCHITECTURE
Our scalable, distributed architecture is based on a publish-and-subscribe
model and parallel computing technology. The key components of our architecture
are illustrated in the chart below:
[GRAPHIC]
[Graphical diagram consisting of a set of labeled boxes and stylized
illustrations, connected to each other by arrows. In the center of the diagram
is a box labeled 'Data Warehouse,' which is connected by bi-directional arrows
to three other boxes positioned to the left, right, and above the 'Data
Warehouse' box. These three boxes are labeled 'Client Information,' Assembly and
Delivery Engine,' and 'Campaign Management.'
The 'Campaign Management' box contains three smaller boxes, labeled from left to
right 'Data Mining,' 'Campaign Configuration,' and 'Reporting.'
The box labeled 'Assembly and Delivery Engine' has three outbound arrows which
are connected to three identical stylized envelopes, each labeled 'email.' Each
of these stylized envelopes has an outbound arrow connecting it to a stylized
drawing of a person, and from there to a box labeled 'Response Handler.' This
box is connected using an outbound arrow to the box labeled 'Data Warehouse.']
Client Information. We use proprietary software tools to import a client's
customer profile information and email content elements, and convert them into a
format compatible with our data warehouse.
Data Warehouse. Our data warehouse currently stores over 20 million
customer profiles, each of which may include consumer preferences, demographics,
transaction histories and emarketing response data. The data warehouse also
contains the assembly instructions for our clients' emarketing campaigns.
Information in our data warehouse is organized by use of a proprietary set of
tables and relationships to optimize the performance and scalability of the
other system components.
Campaign Management. We use a variety of campaign management tools that
enable our client services managers to implement emarketing campaigns. These
tools consist of the following:
- Data mining. We employ various technologies to review and analyze
customer response data, transaction histories, web site tracking data and
customer-reported preference data to identify patterns of behavior and
predict subsequent purchase behavior.
- Campaign configuration. Our campaign configuration system is a
proprietary software application used to configure the content,
targeting, formatting and delivery timing of our clients' emarketing
campaigns.
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<PAGE> 42
- Reporting. We provide immediate reporting of campaign results to our
clients. We deliver these reports to our clients as spreadsheet
attachments to an email, through their internet browser or as raw data
files.
Assembly and Delivery Engine. Our email assembly and delivery engine is
designed to construct, format and deliver large volumes of personalized email on
behalf of our clients. The modules of this engine are optimized for specific
tasks, including dynamic email assembly, high volume email delivery, graphical
content serving and load management.
Response Handler. We use proprietary web-based software to track the
delivery of our email transmissions and each recipient's response to those
emails. We track emails delivered, emails opened, emails rejected, unsubscribe
requests and recipients' responses to our clients' offers. We also use our
proprietary email sensor to automatically detect a recipient's ability to
display emails in media formats other than plain text, such as HTML, dynamic
HTML and Java-based content.
NETWORK OPERATIONS AND SYSTEM SECURITY
Our servers are located at Exodus Communications in Santa Clara,
California. Exodus provides uninterrupted internet access with an aggregate
network capacity of over 17 gigabits per second. Additionally, Exodus provides
power, climate control and monitoring services 24 hours per day, seven days per
week. We plan to add a similar facility in the eastern United States within the
next 12 months. Our internal network operations are managed by experienced
systems architects and security experts who provide around the clock operations
and database administration support.
Our data center consists of over 100 Sun Microsystems and Intel-based
servers. These servers are connected to a high speed network backbone. Our
production and internal networks are protected by a fault-tolerant firewall
system that filters all network communications. We have also implemented a
secure link with our corporate office facility that allows direct and secure
access to our data center systems, enabling timely campaign administration.
CORE TECHNOLOGIES
We utilize a number of industry-standard technologies to support our
architecture. Our software is written primarily in the Java programming
language, enabling us to build reusable components and designs. We also use the
extensible markup language, or XML, to facilitate the dynamic assembly of
emails. We use Sun Solaris, Linux and Microsoft Windows NT operating systems
running on Sun Microsystems and Intel-based servers.
We also license technologies from a number of third parties. Our data
warehouse is managed using Oracle 8.0 database software. The performance of our
email assembly and delivery engine is monitored using software licensed from
TIBCO, which also allows us to easily install additional servers to increase
capacity without service interruptions. Campaign results are reported on the
internet to clients using software we license from Actuate.
COMPETITION
The market for emarketing services is intensely competitive, rapidly
evolving and experiences rapid technological change. We expect competition to
increase significantly in
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the future because of the attention the internet has received as a means of
advertising and direct marketing and because there are no significant barriers
to entry into our market.
We believe that the factors on which we compete include:
- Credibility of clients and their willingness to act as references.
- Quality and features of emarketing services.
- Quality of customer service.
- Sophistication and reliability of core technology.
- Speed of implementation of emarketing campaigns.
- Cost-effectiveness of a given solution.
Although we believe that our solution currently competes favorably with
respect to these factors, our market is relatively new and is evolving rapidly.
We may not be able to maintain our competitive position against current and
potential competitors.
Our principal competitors include providers of emarketing services such as
@Once, Acxiom and its affiliate Bigfoot, Exactis.com, Kana Communications,
L-Soft, Media Synergy, Message Media, Net Creations, Responsys.com and
Yesmail.com. We also compete with the information technology departments of
current and prospective clients.
We may experience additional competition from internet service providers,
advertising and direct marketing agencies and other large established businesses
such as America Online, DoubleClick, Microsoft, IBM, AT&T, Yahoo!, ADVO and the
Interpublic Group of Companies. Each of these companies possess large, existing
customer bases, substantial financial resources and established distribution
channels and could develop, market or resell a number of emarketing services.
These potential competitors may also choose to enter the market for emarketing
services by acquiring one of our existing competitors or by forming strategic
alliances with these competitors. Any of these occurrences could harm our
ability to compete effectively.
Many of our current and potential competitors have longer operating
histories, greater name recognition, larger customer bases, more diversified
lines of products and services and significantly greater resources than we have.
These competitors may be able to devote significant resources to sales and
marketing, adopt more aggressive pricing policies and deliver superior
solutions. In addition, many of our current or potential competitors have broad
distribution channels that may be used to bundle competing products or services.
If such competitors bundle competing products or services, the demand for our
services could substantially decline. As a result, we cannot assure you that we
will compete effectively with our current or future competitors or that
competitive pressures will not harm our business.
INTELLECTUAL PROPERTY RIGHTS
Our success and ability to compete are substantially dependent upon our
technology and intellectual property. While we rely on copyright, trade secret
and trademark law to protect our technology and intellectual property, we
believe that factors such as the technological and creative skills of our
personnel, new service developments and frequent service enhancements are more
essential to establishing and maintaining an intellectual
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property leadership position. We have two U.S. patent applications pending and
two U.S. trademark applications pending.
We generally enter into confidentiality agreements with our employees and
consultants. Our confidentiality agreements generally require our employees to
hold in confidence and not disclose any of our proprietary information. Despite
our efforts to protect our proprietary information, unauthorized parties may
attempt to obtain and use our proprietary information. Policing unauthorized use
of our proprietary information is difficult, and the steps we have taken might
not prevent misappropriation, particularly in foreign countries where the laws
may not protect our proprietary rights as fully as do the laws of the United
States.
We have filed for trademark protection for the mark Digital Impact in the
European Community, which includes the following member countries: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, Sweden, and the United Kingdom. We have also
filed for trademark protection for the mark Digital Impact in Japan. Other than
these actions, the Company has not taken substantial additional steps to protect
its intellectual property in jurisdictions other than the United States.
We collect and use data derived from our clients. This creates the
potential for claims to be made against us, either directly or through
contractual indemnification provisions with customers, including copyright or
trademark infringement, invasion of privacy or other legal theories. Although we
carry general liability insurance, our insurance may not cover potential claims
of this type or may not be adequate to indemnify us for all liability that may
be imposed.
Substantial litigation regarding intellectual property rights exists in the
technology industry. From time to time, third parties have asserted and may
assert exclusive patent, copyright, trademark and other intellectual property
rights to technologies and related standards that are important to us. We expect
that we may increasingly face infringement claims as the number of competitors
in our industry segments grows and the functionality of products and services in
different industry segments overlaps. In addition, we believe that many of our
competitors have filed or intend to file patent applications covering aspects of
their technology that they may claim our intellectual property infringes.
Although we have not been party to any litigation asserting claims that allege
infringement of intellectual property rights, we cannot assure you that we will
not be a party to litigation in the future. Any third party claims, with or
without merit, could be time-consuming to defend, result in costly litigation,
divert management's attention and resources or require us to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to us, if at all. A successful claim of
infringement against us could harm our business.
GOVERNMENT REGULATION
Legislation has recently been enacted in several states restricting the
sending of unsolicited commercial email. The federal government and several
other states are considering, or have considered, similar legislation. Although
the provisions of these current and contemplated laws vary, they generally limit
or prohibit both the transmission of unsolicited commercial emails and the use
of forged or fraudulent routing and header information. Some states, including
California, require that unsolicited emails include opt-out instructions and
that senders of such emails honor any opt-out requests. We
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believe that our current suite of services will not be affected by such
legislation because we do not send unsolicited commercial email. We cannot
assure you that future legislation or the application of existing legislation
will not harm our business.
There is a growing body of laws and regulations applicable to access to or
commerce on the internet. Due to the increasing popularity and use of the
internet, it is likely that a growing number of laws and regulations will be
adopted at the international, federal, state and local level relating to the
internet or emarketing services covering issues such as user privacy, pricing,
content, copyrights, distribution, antitrust and characteristics and quality of
services. Further, the growth and development of the market for emarketing may
prompt calls for more stringent consumer protection laws that may impose
additional burdens on those companies conducting business online. The adoption
of any additional laws or regulations may impair the growth of the internet or
emarketing, which could, in turn, decrease the demand for our services and
increase our cost of doing business. Moreover, the applicability to the internet
of existing laws in various jurisdictions governing issues such as property
ownership, sales and other taxes, libel and personal privacy is uncertain and
may take years to resolve. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business or the application of existing laws and
regulations to the internet could harm our business.
EMPLOYEES
As of September 30, 1999, we had a total of 127 employees, all of whom were
full-time employees. Of the total number of employees, 50 were engaged in
research and development, 24 in sales, marketing and business development, 36 in
professional services and technical support and 17 in finance, administration
and operations. Our future performance depends in significant part upon the
continued service of our key technical, sales and senior management personnel.
Our future success also depends on our continuing ability to attract, train and
retain highly qualified technical, sales and managerial personnel. Competition
for such personnel is intense, and we may not be able to retain our key
personnel in the future. None of our employees is represented by a labor union.
We have not experienced any work stoppages and consider our relations with our
employees to be good.
FACILITIES
Our principal executive offices are located in San Mateo, California, where
we lease approximately 29,400 square feet under two leases that expire in 2002
and 2003.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table provides information regarding our executive officers,
key employees and directors as of September 30, 1999:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION(S)
-------------------------------- --- -----------
<S> <C> <C>
William Park....................... 32 Chief Executive Officer and Chairman of the
Board of Directors
Gerardo Capiel..................... 31 Chief Technology Officer and Director
David Oppenheimer.................. 42 Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
Ronald Rasmussen................... 36 Vice President, Engineering and Operations
Raymond Kaupp...................... 47 Vice President, Marketing and Business
Development
Alan Flohr......................... 34 Vice President, Sales and Client Services
Ruthann Quindlen................... 45 Director
Warren Packard..................... 31 Director
Michael Brown...................... 40 Director
</TABLE>
<TABLE>
<CAPTION>
KEY EMPLOYEES
-------------
<S> <C> <C>
Harry Drake........................ 32 Vice President, Client Services Engineering
Brian Platter...................... 34 Vice President, Product Management
</TABLE>
William Park has served as our Chief Executive Officer since July 1999 and
serves as Chairman of our board of directors, a position he has held since he
co-founded Digital Impact in October 1997. From October 1997 through June 1999,
Mr. Park served as our President. From July 1996 until November 1996, Mr. Park
was Director of Profile Marketing for NetAngels, an Internet company focused on
web personalization technologies. From 1989 to 1994, Mr. Park held a variety of
marketing positions at ZAI*NET Software, Inc., an enterprise software company,
where he became Vice President of Marketing in 1993. Mr. Park holds a B.A. from
the University of Pennsylvania and an M.B.A. from Stanford University.
Gerardo Capiel has served as our Chief Technology Officer and as a member
of our board of directors, a position he has held since he co-founded Digital
Impact in October 1997. From August 1996 to August 1997, Mr. Capiel was Director
of Internet/ Internet Solutions for Altro Solutions, an information technology
and business process consulting firm. From June 1995 to September 1995, Mr.
Capiel was a marketing analyst at Broadvision, an Internet applications software
company. Prior to that, Mr. Capiel held various positions at Altro Solutions.
Mr. Capiel holds a B.S. in engineering systems and computation from the
Massachusetts Institute of Technology and an M.B.A. from Stanford University.
David Oppenheimer has served as our Vice President, Finance and Chief
Financial Officer since July 1999. From November 1997 to July 1999, Mr.
Oppenheimer was Vice President, Finance for Autodesk, Inc., a supplier of design
and visual effect software. From January 1995 to November 1997, Mr. Oppenheimer
held several positions with AlliedSignal, Inc., an advanced technology and
manufacturing company, including Chief
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Financial Officer of AlliedSignal Electronic Materials, Vice President of
Finance for AlliedSignal Aerospace Services and Controller of AlliedSignal
Engines. From August 1985 to January 1995, Mr. Oppenheimer was employed by
United Airlines, a commercial air transportation company, most recently as
Division Controller. Mr. Oppenheimer holds a B.S. in mechanical engineering from
State University of New York, Buffalo and an M.B.A. from the University of
California, Berkeley.
Ronald Rasmussen has served as our Vice President, Engineering and
Operations since October 1999. From September 1997 to October 1999, Mr.
Rasmussen served as Vice President, Engineering and Product Development of The
Santa Cruz Operation Inc., a business systems software company. From 1993 to
September 1997, Mr. Rasmussen served as Director of Engineering of The Santa
Cruz Operation Inc. Prior to that, Mr. Rasmussen served in a variety of senior
software engineering positions for Hewlett-Packard. Mr. Rasmussen holds a B.A.
in economics and a B.A. computer science from the University of California,
Santa Cruz.
Raymond Kaupp has served as our Vice President, Marketing and Business
Development since April 1998. From July 1993 to March 1998, Mr. Kaupp served as
President of UGC, a catalog retailer. From January 1988 to July 1993, Mr. Kaupp
held a variety of marketing management positions at Apple Computer, a computer
manufacturer. Prior to that, Mr. Kaupp served as a marketing manager at Metaphor
Computer Systems, a decision support systems company. Mr. Kaupp holds a B.S. in
business administration from San Diego State University and an M.B.A. from the
University of California, Berkeley.
Alan Flohr has served as our Vice President, Sales and Client Services
since August 1999. From April 1999 to August 1999, Mr. Flohr served as Vice
President, Sales. From May 1995 to April 1999, Mr. Flohr was employed by Advo
Incorporated, a direct mail marketing company, as Vice President of Strategic
Account Development, Vice President of Field Marketing and Director of Marketing
Planning. From December 1992 to April 1995, Mr. Flohr co-founded and served as
principal of New Paradigm Ventures, a marketing consulting and venture capital
company. Mr. Flohr holds a B.S. in industrial engineering from State University
of New York, Buffalo and an M.B.A. from The Amos Tuck School of Business
Administration at Dartmouth College.
Ruthann Quindlen has served as a member of our board of directors since
November 1998. Since June 1994, Ms. Quindlen has been a general partner of
Institutional Venture Partners, a venture capital investment firm. Ms. Quindlen
serves on the board of directors of Mpath Inc., an Internet media company, and
on the board of directors of several private companies. Ms. Quindlen holds a
B.S. in economics from Georgetown University and an M.B.A. from the Wharton
School of the University of Pennsylvania.
Warren Packard has served as a member of our board of directors since March
1998. Mr. Packard is a partner of Draper Fisher Jurvetson, a position he has
held since June 1997. From January 1996 to June 1997, Mr. Packard founded and
served as the Vice President of Business Development of Angara Database Systems.
From June 1996 to January 1997 Mr. Packard was an associate at Institutional
Venture Partners. Mr. Packard also serves on the board of directors of several
private companies. Mr. Packard holds a B.S. and M.S. in mechanical engineering
and an M.B.A. from Stanford University.
Michael Brown has served as a member of our board of directors since
September 1999. Mr. Brown also serves as Chief Executive Officer of Quantum
Corporation, a data
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storage company, a position he has held since September 1995. In May 1998, he
was also appointed Chairman of the Board of Quantum. Prior to September 1995,
Mr. Brown held several other positions at Quantum. Mr. Brown holds a B.A. in
economics from Harvard University and an M.B.A. from Stanford University.
Harry Drake has served as our Vice President, Client Services Engineering
since July 1999. Mr. Drake joined Digital Impact in February 1999 as Director,
Client Services Engineering. From March 1994 until February 1999, Mr. Drake was
a Director for Altro Systems, an information technology and business process
consulting firm. Mr. Drake holds a B.A. in economics from the University of
California, Berkeley.
Brian Platter has served as our Vice President, Product Management since
May 1999. Mr. Platter joined Digital Impact in April 1998 and served as
Director, Client Services through April 1999. From July 1997 to January 1998,
Mr. Platter worked for Fujitsu Computer Products of America, an information
technology company. From June 1994 until July 1997, Mr. Platter served as a
Senior Consultant for Gemini Management Consulting, a management consulting
firm. Mr. Platter holds a B.S. in mechanical engineering from the University of
Colorado and an M.B.A. from Stanford University.
BOARD COMPOSITION
Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of the board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, two of the nominees to the board will be elected
to a one-year term, one will be elected to a two-year term and two will be
elected to three-year terms. Subsequently, directors will be elected for
three-year terms. Mr. Capiel and Mr. Packard have been designated Class I
directors whose term expires at the 2000 annual meeting of stockholders. Ms.
Quindlen has been designated a Class II director whose term expires at the 2001
annual meeting of stockholders. Mr. Brown and Mr. Park have been designated
Class III directors whose term expires at the 2002 annual meeting of
stockholders. There are no family relationships among any of our directors,
officers or key employees.
BOARD COMMITTEES
We established an audit committee in September 1999 and a compensation
committee in July 1999.
Our audit committee consists of Ms. Quindlen and Mr. Packard. The audit
committee reviews internal accounting procedures and consults with and reviews
the services provided by our independent accountants.
Our compensation committee consists of Ms. Quindlen and Mr. Brown. The
compensation committee establishes salaries, incentives and other forms of
compensation for officers and other employees. This committee also administers
our incentive compensation and benefit plans.
DIRECTOR COMPENSATION
Directors do not currently receive any cash compensation from us for their
service as members of the board of directors. Directors who are employees of
Digital Impact are
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eligible to participate in our 1998 stock plan and our 1999 employee stock
purchase plan. Directors who are not employees of Digital Impact are eligible to
participate in our 1999 director option plan. Our 1999 director option plan
generally provides for an automatic initial grant of an option to purchase
20,000 shares of our common stock to each non-employee director on the later to
occur of the effective date of the plan or the date on which a person first
becomes a non-employee director. After the initial grant, a non-employee
director will be granted a subsequent option to purchase 5,000 shares of our
common stock each year on the date of our annual meeting of stockholders, if on
such date he or she has served as a director for at least six months. These
grants have a term of ten years. Each initial option grant will vest as to 25%
of the shares issuable under the option on each anniversary of its date of grant
and each subsequent option grant will vest as to 100% of the shares issuable
under the option on each anniversary of its date of grant. The exercise price of
all options will be 100% of the fair market value per share of our common stock
on the date of grant. For an additional description of these option plans,
please refer to our discussion under "-- Compensation Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee is an officer or employee
of Digital Impact. No interlocking relationship exists between our board of
directors or compensation committee and the board of directors or compensation
committee of any other company, nor has such an interlocking relationship
existed in the past. Ms. Quindlen, a member of our compensation committee, is a
general partner of Institutional Venture Partners, a stockholder of our company.
For more information on this relationship, please refer to "Related Party
Transactions."
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
Mr. Oppenheimer is party to an employment agreement, dated July 29, 1999,
effective as of August 2, 1999. Under the agreement, we agreed to pay Mr.
Oppenheimer an annual salary of $225,000, and granted him an option to purchase
275,000 shares of our common stock. The shares issuable under this option will
vest over a four year period, with 6.25% of these shares vesting at the end of
the first three months of employment and the remaining shares will vest monthly.
If Mr. Oppenheimer is terminated without cause, he will be entitled to receive
continued payment of his base salary for three months as severance. If within
twelve months of a change in control, Mr. Oppenheimer's employment is terminated
without cause or he terminates his employment as a result of a reduction in his
compensation, a change in his responsibilities or refusal of the successor
company to assume our responsibilities under the employment agreement, 50% of
his unvested shares shall have their vesting accelerated in full as of the date
of termination. A change of control is defined as a merger or reorganization in
which we are not the surviving corporation, our transfer of all or substantially
all of our assets, our liquidation or dissolution, or if any person becomes the
beneficial owner of 50% or more of our voting stock.
Mr. Flohr is party to an employment agreement, dated March 12, 1999,
effective as of April 1, 1999. Under this agreement, we agreed to pay Mr. Flohr
an annual salary of $165,000, and granted him an option to purchase 300,000
shares of our common stock. Mr. Flohr is also eligible to receive a sales
commission of $85,000 upon achieving his sales quota. The shares subject to this
option will vest over a four year period, with 12.5% of these shares vesting at
the end of six months and the remaining shares will vest monthly.
47
<PAGE> 50
If Mr. Flohr is terminated without cause, he will be entitled to receive
continued payment of his base salary for six months as severance.
EXECUTIVE COMPENSATION
The following table includes the compensation earned for services rendered
to us in all capacities for the fiscal year ended March 31, 1999 by our Chief
Executive Officer and our other most highly compensated executive officer who
earned more than aggregate cash compensation of $100,000 during the fiscal year
ended March 31, 1999. These executives are referred to as the named executive
officers in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
William Park................................... $ 83,333 $ -- --
Chief Executive Officer
Raymond Kaupp.................................. 131,969 7,875 260,820
Vice President, Marketing and Business
Development
</TABLE>
Mr. Park has served as our Chief Executive Officer since July 1999. Prior
to that time, we did not have a Chief Executive Officer. Mr. Park, as our
President, acted in a capacity similar to Chief Executive Officer during that
period. Messrs. Oppenheimer, Flohr and Rasmussen were hired as executive
officers subsequent to March 31, 1999 and are compensated at annual rates of
$225,000, $200,000 and $175,000, respectively.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information regarding stock options granted to
each of the named executive officers in the fiscal year ended March 31, 1999,
including the potential realizable value over the term of the options which may
be five to ten years, based on assumed rates of stock appreciation of 5% and
10%, compounded annually. These assumed rates of appreciation comply with the
rules of the Securities and Exchange Commission and do not represent our
estimate of future stock price. Actual gains, if any, on stock option exercises
will be dependent on the future performance of our common stock.
The percentages below are based on a total of 1,964,804 shares issuable
under options granted by us during the year ended March 31, 1999 to employees,
directors and consultants. All options were granted under our 1998 stock plan at
exercise prices at the fair market value of our common stock on the date of
grant, as determined in good faith by the board of directors. All options listed
below are immediately exercisable upon grant; however, any unvested shares may
be repurchased by us at their cost if the optionee's service with us terminates.
All option shares listed in the table below vest over four years, with 25% of
the option shares vesting one year after the option grant date, and the
remaining option shares vesting ratably each month thereafter.
The potential realizable values below assume that the initial public
offering price of $11.00 per share was the fair market value of the common stock
on the date of grant and
48
<PAGE> 51
that the price of the applicable stock increases from the date of grant until
the end of the ten year option term of the annual rates specified. There is no
assurance provided to any holder of our securities that the actual stock price
appreciation over the ten year option term will be at the assured 5% and 10%
levels or at any other defined level.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SHARES PERCENTAGE OF PRICE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS EXERCISE OPTION TERM
OPTIONS GRANTED TO PRICE EXPIRATION ------------------------
NAME GRANTED EMPLOYEES PER SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
William Park......... -- --% $ -- -- $ -- $ --
Raymond Kaupp........ 260,820 13.3 0.02 4/29/08 4,668,115 7,436,283
</TABLE>
FISCAL YEAR-END OPTION VALUES
The following table provides summary information concerning the shares of
common stock represented by outstanding stock options held by each of the named
executive officers as of March 31, 1999. No options were exercised by the named
executive officers during the year ended March 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
MARCH 31, 1999 MARCH 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William Park............... -- -- $ -- --
Raymond Kaupp.............. 260,820 -- 125,193 --
</TABLE>
These values are based on the fair market value as of March 31, 1999, as
determined by the board of directors, minus the exercise price, multiplied by
the number of shares underlying the option.
In April 1999, we granted to Mr. Flohr options to purchase 300,000 shares
of common stock at an exercise price of $0.25 per share. In July 1999, we
granted to Mr. Oppenheimer options to purchase 275,000 shares of common stock at
an exercise price of $2.50 per share. In August 1999, we granted to Mr. Flohr
options to purchase 100,000 shares of common stock at an exercise price of $2.50
per share. In September 1999, we granted to Mr. Kaupp options to purchase 50,000
shares of common stock at an exercise price of $2.50 per share. In October 1999,
we granted to Mr. Rasmussen options to purchase 202,500 shares of common stock
at an exercise price of $7.00 per share. These options vest over a four year
period.
COMPENSATION PLANS
AMENDED AND RESTATED 1998 STOCK PLAN
Our amended and restated 1998 stock plan provides for the grant of
incentive stock options to employees, including officers and employee directors,
and for the grant of nonstatutory stock options and stock purchase rights to
employees, directors and consultants. The 1998 stock plan was originally adopted
by our board of directors and approved by the stockholders in March 1998, and
was amended and restated by our board
49
<PAGE> 52
of directors in September 1999 and approved by the stockholders in October 1999.
Unless terminated sooner, the 1998 stock plan will terminate automatically ten
years from the date of obtaining stockholder approval.
A total of 8,795,000 shares of our common stock has been reserved for
issuance under this plan. In addition, annual increases will be added to the
1998 stock plan, beginning on January 1, 2001, equal to the lesser of 1,500,000
shares, 4% of the outstanding shares or an amount determined by our board of
directors. As of September 30, 1999, options to purchase 3,517,715 shares of
common stock were outstanding under the 1998 stock plan and 5,277,285 were
available for further issuance.
The administrator of our 1998 stock plan has the power to determine, among
other things:
- the terms of the options or stock purchase rights granted, including the
exercise price of the option or stock purchase right;
- the number of shares issuable under each option or stock purchase right;
- the exercisability of each option or stock purchase right; and
- the form of consideration payable upon the exercise of each option or
stock purchase right.
In addition, the administrator has the authority to amend, suspend or
terminate the 1998 stock plan, so long as no such action affects any shares of
common stock previously issued and sold or any option previously granted under
the 1998 stock plan. During any fiscal year, each optionee may be granted
options to purchase a maximum of 1,000,000 shares. In addition, in connection
with an optionee's initial employment with us, such optionee may be granted an
option covering an additional 1,000,000 shares.
Options and stock purchase rights granted under our 1998 stock plan are
generally not transferable by the optionee, and each option and stock purchase
right is exercisable during the lifetime of the optionee only by such optionee.
Options granted under the 1998 stock plan must generally be exercised within
three months after the end of optionee's status as an employee, director or
consultant of Digital Impact, or within twelve months after such optionee's
termination by death or disability, but in no event later than the expiration of
the option's term.
In the case of stock purchase rights, unless the administrator determines
otherwise, the restricted stock purchase agreement grants us a repurchase option
exercisable upon the voluntary or involuntary termination of the purchaser's
employment or consulting relationship with us for any reason, including death or
disability. The purchase price for shares repurchased under the restricted stock
purchase agreement must be the original price paid by the purchaser and may be
paid by cancellation of any indebtedness of the purchaser to us. The repurchase
option lapses at a rate determined by the administrator.
The exercise price of all incentive stock options granted under the 1998
stock plan must be at least equal to the fair market value of the common stock
on the date of grant. The exercise price of nonstatutory stock options and stock
purchase rights granted under the 1998 stock plan is determined by the
administrator, but for nonstatutory stock options intended to qualify as
"performance-based compensation" under Section 162(m) of the Internal Revenue
Code, the exercise price must be at least equal to the fair market value of our
common stock on the date of grant. For any participant who owns stock possessing
50
<PAGE> 53
more than 10% of the voting power of all classes of our outstanding capital
stock, the exercise price of any incentive stock option granted must be at least
equal to 110% of the fair market value on the grant date and the term of such
incentive stock option must not exceed five years. The term of all other options
granted under the 1998 stock plan may not exceed ten years.
The 1998 stock plan provides that if we merge with or into another
corporation, or sell substantially all of our assets, each option and stock
purchase right shall be assumed or an equivalent option substituted for by the
successor corporation. If the outstanding options and stock purchase rights are
not assumed or substituted for by the successor corporation, the optionees will
become fully vested in and have the right to exercise such options or stock
purchase rights. If an option or stock purchase right becomes fully vested and
exercisable upon a merger or sale of assets, the administrator must notify the
optionee that the option or stock purchase right is fully exercisable for a
period of 15 days from the date of the notice, and the option or stock purchase
right will terminate upon the expiration of the 15 day period.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 employee stock purchase plan was adopted by our board of directors
in September 1999 and approved by our stockholders in October 1999. A total of
700,000 shares of our common stock has been reserved for issuance under the 1999
employee stock purchase plan, plus annual increases beginning on January 1, 2001
equal to the lesser of 700,000 shares, 2% of the outstanding shares on such date
or an amount determined by our board of directors. As of the date of this
prospectus, no shares have been issued under the 1999 employee stock purchase
plan.
The 1999 employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains consecutive, overlapping,
twelve month offering periods. Each offering period includes two six-month
purchase periods. The offering periods generally start on the first trading day
on or after June 1 and December 1 of each year, except for the first such
offering period which commences on the first trading day on or after the
effective date of this offering and ends on the last trading day on or before
November 30, 2000.
Employees are eligible to participate if they are customarily employed by
us or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, employees may not be granted an
option to purchase stock under the 1999 employee stock purchase plan if they
either:
- immediately after grant, own stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- hold rights to purchase stock under our employee stock purchase plans
which accrue at a rate which exceeds $25,000 worth of stock for each
calendar year.
The 1999 employee stock purchase plan permits participants to purchase our
common stock through payroll deductions of up to 15% of the participant's
"compensation." Compensation is defined as the participant's base straight time
gross earnings and commissions but exclusive of payments for overtime, profit
sharing payments, shift premium payments, incentive compensation, incentive
payments and bonuses. The maximum number of shares a participant may purchase
during a single purchase period is 5,000 shares.
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<PAGE> 54
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 1999 purchase plan is generally 85% of the lower of the fair
market value of the common stock either:
- at the beginning of the offering period; or
- at the end of the purchase period.
If the fair market value at the end of a purchase period is less than the
fair market value at the beginning of the offering period, the participants will
be withdrawn from the current offering period following exercise and
automatically re-enrolled in a new offering period. The new offering period will
use the lower fair market value as of the first date of the new offering period
to determine the purchase price for future purchase periods. Participants may
end their participation at any time during an offering period, and they will be
paid their payroll deductions to date. Participation ends automatically upon
termination of employment with Digital Impact.
Rights granted under the 1999 employee stock purchase plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the 1999 employee stock purchase
plan. The 1999 employee stock purchase plan provides that, if we merge with or
into another corporation or there is a sale of substantially all of our assets,
each outstanding option may be assumed or substituted for by the successor
corporation. If the successor corporation refuses to assume or substitute for
the outstanding options, the offering period then in progress will be shortened
and a new exercise date will be set.
The 1999 employee stock purchase plan will terminate in 2009. Our board of
directors has the authority to amend or terminate the 1999 employee stock
purchase plan, except that no such action may adversely affect any outstanding
rights to purchase stock under the 1999 employee stock purchase plan.
1999 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in our 1999 director
option plan. The 1999 director option plan was adopted by our board of directors
in September 1999 and approved by our stockholders in October 1999. The 1999
director option plan has a term of ten years, unless terminated sooner by our
board of directors. A total of 500,000 shares of our common stock have been
reserved for issuance under the 1999 director option plan. In addition, annual
increases will be added to this plan, beginning on January 1, 2001, equal to the
lesser of 250,000 shares, or an amount determined by our board of directors.
The 1999 director option plan generally provides for an automatic initial
grant of an option to purchase 20,000 shares of our common stock to each
non-employee director on the date which the later of the following events occur:
- the effective date of the 1999 director option plan; or
- the date when a person first becomes a non-employee director.
After the initial grant, a non-employee director will be granted a
subsequent option to purchase 5,000 shares of our common stock each year on the
date of our annual meeting of stockholders, if on such date he or she has served
on our board of directors for at least six months. Each initial option grant and
each subsequent option grant shall have a term
52
<PAGE> 55
of 10 years. Each initial option grant will vest as to 25% of the shares
issuable under the option on each anniversary of its date of grant and each
subsequent option grant will vest as to 100% of the shares subject to the option
on each anniversary of its date of grant. The exercise price of all options will
be 100% of the fair market value per share of our common stock on the date of
grant.
The 1999 director option plan provides that if we merge with or into
another corporation, or sell substantially all of our assets, the successor
corporation shall assume each option or substitute an equivalent option. If
following such assumption or substitution, the optionee's status as a director
is terminated other than upon voluntary resignation, each option will become
fully vested and exercisable generally for a period of three months from the
date of termination. If outstanding options are not assumed or substituted for
by the successor corporation, each option will become fully vested and
exercisable for a period of thirty days from the date our board of directors
notifies the optionee of the option's full exercisability, after which period
the option shall terminate. Options granted under the 1999 director option plan
must be exercised within three months of the end of the optionee's tenure as our
director, or within twelve months after such director's termination by death or
disability, but in no event later than the expiration of the option's ten year
term. No option granted under the 1999 director option plan is transferable by
the optionee other than by will or the laws of descent and distribution, and
each option is exercisable, during the lifetime of the optionee, only by the
optionee.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Section 145 of the Delaware General
Corporation Law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify other officers and
employees and our agents to the fullest extent permitted by law. We believe that
indemnification under our bylaws covers at least negligence and gross negligence
on the part of indemnified parties. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the bylaws would permit indemnification. We maintain directors' and
officers' liability insurance.
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<PAGE> 56
RELATED PARTY TRANSACTIONS
PREFERRED STOCK SALE
SERIES A CONVERTIBLE PREFERRED STOCK. In March 1998, we sold shares of our
series A preferred stock convertible into an aggregate of 5,592,000 shares of
common stock at a price of approximately $0.21 per share, to raise capital to
finance our operations. The following 5% stockholders purchased shares in the
financing:
<TABLE>
<CAPTION>
NUMBER OF
COMMON EQUIVALENT AGGREGATE
PURCHASER SHARES CONSIDERATION
--------- ----------------- -------------
<S> <C> <C>
Draper Fisher Associates Fund IV,
L.P. .................................. 3,124,800 $ 651,000
Draper Fisher Partners IV, L.L.C. ....... 235,200 49,000
Draper Richards L.P. .................... 1,440,000 240,000
</TABLE>
The share numbers and price per share above reflect the three-for-one stock
split of our capital stock effected in November 1998 and the two-for-one stock
split of our capital stock effected in August 1999. The holders of our series A
preferred stock were allotted one seat on our board of directors, currently
filled by Mr. Packard, in connection with their investment. This right expires
upon closing of this offering.
SERIES B CONVERTIBLE PREFERRED STOCK. In November 1998, we sold shares of our
series B preferred stock convertible into an aggregate of 4,448,264 shares of
common stock at a price of approximately $1.21 per share, to raise capital to
finance our operations. The following 5% stockholders purchased shares in the
financing:
<TABLE>
<CAPTION>
NUMBER OF
COMMON EQUIVALENT AGGREGATE
PURCHASER SHARES CONSIDERATION
--------- ----------------- -------------
<S> <C> <C>
Institutional Venture Partners VIII,
L.P. .................................. 3,429,312 $ 4,143,809
IVM Investment Fund VIII, LLC............ 36,930 44,624
IVM Investment Fund VIII-A, LLC.......... 15,828 19,125
IVP Founders Fund I, L.P. ............... 35,172 42,500
Draper Fisher Associates Fund IV,
L.P. .................................. 747,654 903,428
Draper Fisher Partners IV, L.L.C. ....... 56,276 68,001
Draper Richards L.P. .................... 82,758 100,000
</TABLE>
The share numbers and price per share above reflect the two-for-one stock
split of our capital stock effected in August 1999. The holders of our series B
preferred stock were allotted one seat on our board of directors, currently
filled by Ms. Quindlen, in connection with their investment. This right expires
upon closing of this offering.
SERIES C CONVERTIBLE PREFERRED STOCK. In July 1999, we sold shares of our series
C preferred stock convertible into an aggregate of 2,227,294 shares of common
stock at a price of approximately $4.78 per share, to raise capital to finance
our operations. The following 5% stockholders purchased shares in the financing:
<TABLE>
<CAPTION>
NUMBER OF
COMMON EQUIVALENT AGGREGATE
PURCHASER SHARES CONSIDERATION
--------- ----------------- -------------
<S> <C> <C>
Institutional Venture Partners VIII,
L.P. .................................. 1,230,720 $ 5,888,995
IVM Investment Fund VIII, LLC............ 23,198 111,002
Draper Fisher Associates Fund IV,
L.P. .................................. 429,530 2,055,300
Draper Fisher Partners IV, L.L.C. ....... 32,330 154,700
Draper Richards L.P. .................... 52,247 250,000
</TABLE>
The share numbers and price per share above reflect the two-for-one stock
split of our capital stock effected in August 1999.
54
<PAGE> 57
OTHER TRANSACTIONS
In connection with the above transactions, we entered into an agreement
with the investors providing registration rights for these shares. For more
information regarding this agreement, see "Description of Capital
Stock -- Registration Rights."
For information regarding agreements between us and some of our executive
officers, please see "Management -- Employment Contracts and Change of Control
Arrangements."
COMMON STOCK ISSUANCE
In February 1999, William Park, our Chief Executive Officer, contributed to
our capital 270,000 shares of our common stock, without consideration.
Contemporaneously, we issued to Gerardo Capiel, our Chief Technology Officer, an
aggregate of 270,000 shares of our common stock as a bonus.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table shows information regarding the beneficial ownership of
our common stock as of September 30, 1999 by the following individuals or
groups:
- each person or entity who is known by us to own beneficially more than 5%
of our outstanding stock.
- each of the named executive officers and directors.
- all directors and executive officers as a group.
Unless otherwise indicated, and except for any rights these persons'
spouses may have, the persons listed below have sole voting and investment power
for shares of our common stock shown as beneficially owned by them. Beneficial
ownership is determined under the rules of the Securities and Exchange
Commission and generally includes voting or investment power for the shares.
Percentage of beneficial ownership prior to the offering is based on 19,048,954
shares of common stock outstanding as of September 30, 1999. Each beneficial
owner's percentage ownership assumes the exercise or conversion of all options,
warrants and other convertible securities held by such person and that are
exercisable or convertible 60 days after September 30, 1999. Each beneficial
owner's percentage ownership does not include any shares of common stock that
such owner may purchase in the offering. Except as otherwise noted, the address
of each person listed is /o Digital Impact, Inc., 177 Bovet Road, Suite 200, San
Mateo, California 94402.
<TABLE>
<CAPTION>
PERCENTAGE OPTIONS
OF SHARES EXERCISABLE
OUTSTANDING WITHIN 60
------------------- DAYS AFTER
NUMBER OF SHARES PRIOR TO AFTER SEPTEMBER 30,
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING 1999
---------------- ------------------ -------- -------- -------------
<S> <C> <C> <C> <C>
Entities affiliated with
Institutional Venture
Partners........................ 4,771,160 25.0% 20.2% --
3000 Sand Hill Road
Building 2, Suite 290
Menlo Park, California 94025
Entities affiliated with Draper
Fisher Jurvetson................ 4,625,790 24.3 19.6 --
400 Seaport Court, Suite 250
Redwood City, California 94063
Draper Richards L.P............... 1,575,004 8.3 6.7 --
50 California Street, Suite 2925
San Francisco, California 94111
William Park...................... 3,600,000 18.9 15.3 --
Gerard Capiel..................... 2,070,000 10.9 8.8 --
David Oppenheimer................. 275,000 1.4 1.1 275,000
Ronald Rasmussen.................. 202,500 1.1 * 202,500
Raymond Kaupp..................... 260,820 1.4 1.1 260,820
Alan Flohr........................ 400,000 2.1 1.7 400,000
Ruthann Quindlen.................. 4,771,160 25.0 20.2 --
Warren Packard.................... 4,625,790 24.3 19.6 --
Michael Brown..................... 30,000 * * 30,000
All executive officers and
directors as a group (9
persons)........................ 16,235,270 85.2 68.9 1,168,320
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
The shares listed above for entities affiliated with Institutional Venture
Partners consist of 4,660,032 shares held by Institutional Venture Partners
VIII, L.P., 60,128 shares
56
<PAGE> 59
held by IVM Investment Fund VIII, LLC, 15,828 shares held by IVM Investment Fund
VIII-A, LLC and 35,172 shares held by IVP Founders Fund I, L.P. Ruthann
Quindlen, a member of our board of directors, is a general partner of
Institutional Venture Partners.
The shares listed above for Draper Fisher Jurvetson consist of 4,301,984
shares held by Draper Fisher Associates Fund IV, L.P., and 323,806 shares held
by Draper Fisher Partners IV, L.L.C. Warren Packard, a member of our board of
directors, is a general partner of Draper Fisher Jurvetson.
The shares listed above for William Park consist of 3,600,000 restricted
shares which are subject to a repurchase option held by us which lapses over a
four year period.
The shares listed above for Gerardo Capiel consist of 270,000 shares of
common stock and 1,800,000 restricted shares which are subject to a repurchase
option held by us which lapses over a four year period.
The shares listed above for Warren Packard and Ruthann Quindlen include all
shares beneficially owned by entities affiliated with Draper Fisher Jurvetson
and entities affiliated with Institutional Venture Partners, respectively, but
Mr. Packard and Ms. Quindlen disclaim beneficial ownership of the shares held by
these entities except to the extent of their pecuniary interest in these
entities.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, we will be authorized to issue
100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
undesignated preferred stock, $0.001 par value.
COMMON STOCK
As of September 30, 1999, there were 19,048,954 shares of common stock
outstanding which were held of record by 73 stockholders. There will be
23,548,954 shares outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise or conversion of outstanding options after
September 30, 1999, effective upon the closing of this offering.
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Limited by preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably any dividends that may be declared from time to time
by the board of directors out of funds legally available for that purpose. See
"Dividend Policy." Upon liquidation, dissolution or winding up, the holders of
common stock are entitled to share ratably in all assets remaining after payment
of liabilities, limited by prior distribution rights of preferred stock, if any,
then outstanding. The holders of common stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable, and the shares of common stock to be
issued upon the closing of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater than the rights of the common stock. It is not possible
to state the actual effect of the issuance of any shares of preferred stock upon
the rights of holders of the common stock until the board of directors
determines the specific rights of the holders of such preferred stock. However,
the effects might include restricting dividends on the common stock, diluting
the voting power of the common stock, impairing the liquidation rights of the
common stock and delaying or preventing a change in control without further
action by the stockholders. Immediately prior to the closing, no shares of
preferred stock will be outstanding. We have no present plans to issue any
shares of preferred stock.
REGISTRATION RIGHTS
As of September 30, 1999, the holders of 12,354,638 shares of our common
stock are entitled to require us to register their shares under the Securities
Act. These rights are provided under the terms of our agreement with the holders
of registrable securities. Holders of these registrable shares have unlimited
rights to request that these shares be included in any Digital Impact-initiated
underwritten public offering of our securities. The underwriters may reduce the
registrable shares to be included on the registration statement for marketing
reasons. In addition, at any time the earlier of July 7, 2002 or one year after
the effective date of this prospectus, holders of at least two-thirds of the
registrable shares
58
<PAGE> 61
may demand that we register their shares up to two times. Also, after we become
eligible to use Form S-3, holders of registrable shares may request that we
effect a registration of these shares on a shelf registration statement up to
two times in any twelve month period. We will bear all expenses incurred in
connection with these registrations, other than underwriters' and brokers'
discounts and commissions.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Provisions of Delaware law and our certificate of incorporation and bylaws
summarized below could make more difficult our acquisition by means of a tender
offer, a proxy contest or otherwise and the removal of incumbent officers and
directors. These provisions are expected to discourage coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control to first negotiate with us. We believe that the benefits of
increased protection of our potential ability to negotiate with the proponent of
an unfriendly or unsolicited proposal to acquire or restructure us outweighs the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
STOCKHOLDER MEETINGS
Under our restated certificate of incorporation and restated bylaws, the
board of directors, the chairman of the board and the president may call special
meetings of stockholders but the stockholders may not call a special meeting. In
addition, our restated certificate of incorporation and restated bylaws do not
provide for the right of stockholders to act by written consent without a
meeting or for cumulative voting in the election of directors.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND PROPOSALS
Our restated bylaws establish advance notice procedures for proposals and
the nomination of candidates for election as directors, other than nominations
made by or at the direction of the board of directors or a board committee.
CLASSIFIED BOARD
Our amended and restated certificate of incorporation provides that the
board of directors will be divided into three classes, each serving staggered
three-year terms. For more information concerning our classified board of
directors, see "Management -- Board Composition."
DELAWARE ANTI-TAKEOVER LAW
We are subject to Section 203 of the Delaware General Corporation Law. In
general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date the person became an interested
stockholder, unless, with some exceptions, the "business combination" or the
transaction in which the person became an interested stockholder is approved in
a manner provided for by Delaware law. Generally, a "business combination"
includes a merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years prior to the determination of interested stockholder status,
did own, 15% or more of a corporation's voting stock. The existence of this
provision would be expected to have an anti-takeover
59
<PAGE> 62
effect on transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
UNDESIGNATED PREFERRED STOCK
The authorization of undesignated preferred stock makes it possible for our
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
Digital Impact. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Harris Trust of
California.
NASDAQ NATIONAL MARKET LISTING
We have applied to list our common stock on The Nasdaq National Market
under the trading symbol "DIGI."
60
<PAGE> 63
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. If our stockholders sell substantial amounts of our common stock
(including shares issued upon the exercise of outstanding options) in the public
market following this offering, the market price of our common stock could fall
dramatically. These sales also might make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate.
The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and by "lock-up"
agreements that our stockholders have entered into with the underwriters. For a
description of these "lock-up" agreements, please see "Underwriting."
Upon completion of this offering, we will have 23,548,954 outstanding
shares of common stock (based on shares outstanding as of September 30, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options after September 30, 1999). Of these shares, the 4,500,000
shares to be sold in this offering (5,175,000 shares if the underwriters'
over-allotment option is exercised in full) will be freely tradable in the
public market without restriction under the Securities Act, unless the shares
are held by "affiliates" of Digital Impact, as that term is defined in Rule 144
under the Securities Act.
The remaining 19,048,954 shares outstanding upon completion of this
offering will be "restricted securities" as that term is defined under Rule 144.
Restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act, which are summarized below.
All of the executive officers, directors and stockholders of Digital
Impact, who collectively hold an aggregate of 19,048,954 of these restricted
securities, have entered into "lock-up" agreements in which they have agreed not
to offer, sell, contract to sell, grant any option to purchase or otherwise
dispose of any of these shares for a period of 180 days from the date of this
prospectus. We also have entered into an agreement with the underwriters that we
will not offer, sell or otherwise dispose of common stock for a period of 180
days from the date of this prospectus. However, Credit Suisse First Boston
Corporation may in its sole discretion, at any time without notice, release all
or any portion of the shares restricted by lock-up agreements.
Taking into account the lock-up agreements and assuming Credit Suisse First
Boston Corporation does not release stockholders from these agreements, the
following shares will be eligible for sale in the public market at the following
times:
- beginning on the effective date of this prospectus, only the shares sold
in the offering will be immediately available for sale in the public
market;
- beginning 180 days after the effective date of this prospectus,
approximately 16,236,855 shares will be eligible for sale under Rules 144
and 701 of the Securities Act;
- an additional 2,812,099 shares will be eligible for sale under Rule 144
upon the expiration of various one-year holding periods after the
expiration of the lock-up period;
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<PAGE> 64
Any common stock that has been purchased or may be purchased in this
offering by our "affiliates," as defined in Rule 144 of the Securities Act, will
be subject to the volume and other selling limitations under Rule 144 of the
Securities Act. All of the shares eligible for sale at the 180th day after the
date of this prospectus or afterward will be subject initially to certain volume
and other limitations under Rule 144 of the Securities Act.
In addition, we intend to file, after the effective date of this offering,
a registration statement on Form S-8 under the Securities Act covering all
shares of common stock reserved for issuance under our 1998 stock plan, 1999
employee stock purchase plan and 1999 director option plan. The registration
statement will become effective automatically upon filing. Shares registered
under this registration statement would be available for sale in the open market
in the future unless these shares have vesting restrictions with Digital Impact
or the contractual restrictions described above. For more information on shares
eligible for resale, our stock plans and registration rights, see "Risk
Factors -- A total of 19,048,954 shares, or 81%, of our total outstanding shares
are restricted from immediate resale but may be sold into the market in the near
future. This could cause the market price of our common stock to drop
significantly, even if our business is doing well," "Management -- Compensation
Plans," and "Description of Capital Stock -- Registration Rights."
62
<PAGE> 65
UNDERWRITING
Under the terms of and the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Hambrecht & Quist LLC, Donaldson, Lufkin & Jenrette Securities Corporation and
U.S. Bancorp Piper Jaffray Inc. are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Hambrecht & Quist LLC.......................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total..................................................... 4,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a thirty-day option to purchase on a
pro rata basis up to 675,000 additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other brokers/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions payable by
us....................... $ $ $ $
Expenses payable by us..... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
63
<PAGE> 66
We, our officers and directors and our stockholders, have agreed that we
and they will not offer, sell, contract to sell, announce an intention to sell,
pledge or directly or indirectly dispose of, or file with the Commission a
registration statement under the Securities Act relating to, any additional
shares of common stock or securities convertible into or exchangeable or
exercisable for any shares of common stock without the prior written consent of
Credit Suisse First Boston Corporation for a period of 180 days after the date
of this prospectus. These restrictions do not prohibit us from issuing employee
stock options and common stock issuable upon exercise of employee stock options
outstanding on the date of this prospectus, or filing a registration statement
on Form S-8 covering all shares of common stock reserved for issuance under our
compensation plans.
The underwriters have reserved for sale, at the initial public offering
price, up to 225,000 shares of the common stock for our customers and business
partners. At the discretion of our management, other parties, including friends
and family of key employees of Digital Impact, may participate in the directed
share program. The number of shares available for sale to the general public in
the offering will be reduced to the extent such persons purchase directed
shares. Any directed shares not so purchased will be offered by the underwriters
to the general public on the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make.
We have applied to list our common stock on The Nasdaq National Market
under the symbol "DIGI."
Before this offering, there has been no public market for the common stock.
The initial public offering price will be determined by negotiation between us
and the underwriters. The principal factors to be considered in determining the
public offering price include:
- the information included in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids under Regulation M under the
Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified number.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed to cover
syndicate short positions.
64
<PAGE> 67
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would be in
the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise, and, if commenced, may be discontinued at
any time.
65
<PAGE> 68
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario Securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
66
<PAGE> 69
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
LEGAL MATTERS
The validity of our common stock offered hereby will be passed upon for
Digital Impact by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California, and for the underwriters by Shearman & Sterling, Menlo
Park, California. A member of Wilson Sonsini Goodrich & Rosati is the holder of
an option to acquire 20,000 shares of our common stock.
EXPERTS
The financial statements as of March 31, 1998 and 1999, and for the period
from October 16, 1997 (date of inception) to March 31, 1998 and for the year
ended March 31, 1999 included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND OTHER DIGITAL IMPACT INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act relating to the common stock
offered by this prospectus. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information included in the
registration statement and the exhibits filed as a part of the registration
statement, certain parts of which are omitted under the rules and regulations of
the SEC. For further information about us and our common stock, reference is
made to the registration statement and to the exhibits filed as a part of the
registration statement. Statements contained in this prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete and are qualified in their entirety by reference to each
such contract, agreement or other document which is filed as an exhibit to the
registration statement. The registration statement, including the exhibits and
schedules to the registration statement, may be inspected without charge at the
principal office of the SEC at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, or at the Regional Offices of the SEC at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Our SEC filings are also available
to the public from the SEC's web site at http://www.sec.gov. In addition, such
material will be available for inspection at the offices of The Nasdaq Stock
Market, Inc., at 1735 K Street, N.W., Washington D.C. 20006. Copies of such
material may be obtained by mail from the Public Reference Branch of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
67
<PAGE> 70
DIGITAL IMPACT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity........................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 71
REPORT OF INDEPENDENT ACCOUNTANTS
To the board of directors and stockholders of
Digital Impact, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Digital Impact, Inc. at March 31,
1998 and 1999, and the results of its operations and its cash flows for the
period from October 16, 1997 (date of inception) to March 31, 1998 and for the
year ended March 31, 1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
San Jose, California
June 16, 1999, except for Note 10, as to which
the date is September 16, 1999
To the board of directors and stockholders of
Digital Impact, Inc.
The accompanying financial statements included herein reflect the approval
by the Company's board to reincorporate under the laws of Delaware. The above
opinion is in the form that will be signed by PricewaterhouseCoopers LLP upon
the effectiveness of such event assuming that from September 16, 1999 to the
effective date of that event, no other events shall have occurred that would
affect the accompanying financial statements.
San Jose, California
October 22, 1999
F-2
<PAGE> 72
DIGITAL IMPACT, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
MARCH 31, EQUITY
---------------- SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999 1999
------ ------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $1,032 $ 2,864 $ 7,183
Accounts receivable, net of allowance
for doubtful accounts of $0, $10
and $40 at March 31, 1998, 1999 and
September 30, 1999, respectively... -- 668 1,572
Prepaid and other current assets...... 3 116 96
------ ------- -------
Total current assets............... 1,035 3,648 8,851
Property and equipment, net............. 28 2,494 4,368
Restricted cash......................... -- 108 108
Other assets............................ 15 64 675
------ ------- -------
Total assets....................... $1,078 $ 6,314 $14,002
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 21 $ 591 $ 1,584
Accrued liabilities................... 1 221 1,377
Current portion of capital lease
obligations........................ -- 207 312
Current portion of long term debt..... -- 234 194
------ ------- -------
Total current liabilities.......... 22 1,253 3,467
------ ------- -------
Capital lease obligations, less
current portion.................... -- 457 713
Long term debt, less current
portion............................ -- 234 197
------ ------- -------
Total liabilities.................. 22 1,944 4,377
------ ------- -------
Commitments (Note 5)
Stockholders' equity:
Convertible preferred stock, $0.001
par value
Authorized: 16,000 shares;
Issued and outstanding: 5,592,
10,040 and 12,292 shares at March
31, 1998, 1999 and September 30,
1999, respectively; and none pro
forma............................ 6 10 12 $ --
(Liquidation preference: $6,540)
Common stock, $0.001 par value
Authorized: 54,000 shares;
Issued and outstanding: 6,000,
6,022 and 6,757 shares at March
31, 1998, 1999 and September 30,
1999, respectively; and 19,049
pro forma........................ 6 6 7 19
Additional paid-in capital............ 1,147 8,925 32,584 32,584
Unearned stock-based compensation..... -- (1,227) (10,836) (10,836)
Stock subscription receivable......... -- (1) -- --
Accumulated deficit................... (103) (3,343) (12,142) (12,142)
------ ------- ------- -------
Total stockholders' equity......... 1,056 4,370 9,625 $ 9,625
------ ------- ------- =======
Total liabilities and stockholders'
equity........................... $1,078 $ 6,314 $14,002
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 73
DIGITAL IMPACT, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 16, 1997
(DATE OF INCEPTION) SIX MONTHS ENDED
TO YEAR ENDED SEPTEMBER 30,
MARCH 31, MARCH 31, -----------------
1998 1999 1998 1999
------------------- ---------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues........................ $ 4 $ 1,307 $ 121 $ 3,257
Cost of revenues................ 4 674 87 1,617
------ ------- ------ -------
Gross margin.................... -- 633 34 1,640
------ ------- ------ -------
Operating expenses:
Research and development...... 27 966 209 2,518
Sales and marketing........... -- 670 134 2,544
General and administrative.... 77 1,151 181 2,164
Stock-based compensation...... -- 1,157 162 3,295
------ ------- ------ -------
Total operating expenses... 104 3,944 686 10,521
------ ------- ------ -------
Loss from operations............ (104) (3,311) (652) (8,881)
Interest income, net............ 1 71 10 82
------ ------- ------ -------
Net loss........................ $ (103) $(3,240) $ (642) $(8,799)
====== ======= ====== =======
Net loss per common
share -- basic and diluted.... $(0.45) $ (2.86) $(1.95) $ (2.94)
====== ======= ====== =======
Shares used in net loss per
common share
calculation -- basic and
diluted....................... 231 1,133 330 2,991
====== ======= ====== =======
Pro forma net loss per share --
basic and diluted
(unaudited)................... $ (0.39) $ (0.62)
======= =======
Shares used in pro forma net
loss per share
calculation -- basic and
diluted (unaudited)........... 8,370 14,090
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 74
DIGITAL IMPACT, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM OCTOBER 16, 1997 (DATE OF INCEPTION) TO SEPTEMBER 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL UNEARNED STOCK
--------------- --------------- PAID-IN STOCK-BASED SUBSCRIPTION ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION RECEIVABLE DEFICIT TOTAL
------ ------ ------ ------ ---------- ------------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders................. -- $-- 6,000 $16 $ -- $ -- $-- $ -- $ 6
Issuance of Series A
convertible preferred
stock, net of issuance
costs of $19............. 5,592 6 -- -- 1,147 -- -- -- 1,153
Net loss................... -- -- -- -- -- -- -- (103) (103)
------ -- ----- -- ------- -------- -- -------- -------
Balances, March 31, 1998... 5,592 6 6,000 6 1,147 -- -- (103) 1,056
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $30............. 4,448 4 -- -- 5,341 -- -- -- 5,345
Issuance of Series B
convertible preferred
stock warrant............ -- -- -- -- 52 -- -- -- 52
Exercise of stock
options.................. -- -- 22 -- 1 -- (1) -- --
Issuance of common stock
options for services..... -- -- -- -- 1 -- -- -- 1
Unearned stock-based
compensation............. -- -- -- -- 1,769 (1,769) -- -- --
Amortization of unearned
stock-based
compensation............. -- -- -- -- -- 542 -- -- 542
Contribution of shares from
a founder................ -- -- (270) -- -- -- -- -- --
Issuance of shares as bonus
to a founder............. -- -- 270 -- 614 -- -- -- 614
Net loss................... -- -- -- -- -- -- -- (3,240) (3,240)
------ -- ----- -- ------- -------- -- -------- -------
Balances, March 31, 1999... 10,040 10 6,022 6 8,925 (1,227) (1) (3,343) 4,370
Issuance of Series C
convertible preferred
stock, net of issuance
costs of $24............. 2,228 2 -- -- 10,636 -- -- -- 10,638
Exercise of convertible
preferred stock warrant.. 24 -- -- -- 6 -- -- -- 6
Exercise of stock
options.................. -- -- 735 1 113 -- -- -- 114
Issuance of common stock
options for services..... -- -- -- -- 212 -- -- -- 212
Unearned stock-based
compensation............. -- -- -- -- 12,692 (12,692) -- -- --
Amortization of unearned
stock-based
compensation............. -- -- -- -- -- 3,083 -- -- 3,083
Repayment on stock
subscription............. -- -- -- -- -- -- 1 -- 1
Net loss................... -- -- -- -- -- -- -- (8,799) (8,799)
------ -- ----- -- ------- -------- -- -------- -------
Balances, September 30,
1999 (unaudited)......... 12,292 $12 6,757 $7 $32,584 $(10,836) $-- $(12,142) $ 9,625
====== == ===== == ======= ======== == ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 75
DIGITAL IMPACT, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 16, 1997 SIX MONTHS
(DATE OF INCEPTION) YEAR ENDED ENDED SEPTEMBER 30,
TO MARCH 31, MARCH 31, --------------------
1998 1999 1998 1999
------------------- ---------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operations:
Net loss........................................... $ (103) $(3,240) $(642) $(8,799)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 3 250 16 535
Provision for bad debts.......................... -- 10 -- 12
Stock-based compensation expense for shares
issued to founder............................. -- 614 -- --
Warrants issued for services..................... -- -- -- 212
Amortization of unearned stock-based
compensation.................................. -- 543 162 3,083
Change in assets and liabilities:
Accounts receivable......................... -- (678) (84) (916)
Prepaid expenses and other current assets... (3) (113) (5) 20
Restricted cash............................. -- (108) -- --
Other assets................................ (14) (49) 1 (611)
Accounts payable............................ 21 570 84 993
Accrued liabilities......................... 1 220 (1) 1,156
------ ------- ----- -------
Net cash used in operating activities....... (95) (1,981) (469) (4,315)
------ ------- ----- -------
Cash flows from investing activities:
Acquisition of property and equipment.............. (31) (2,423) (175) (1,896)
------ ------- ----- -------
Net cash used in investing activities....... (31) (2,423) (175) (1,896)
------ ------- ----- -------
Cash flows from financing activities:
Proceeds from long-term debt....................... -- 350 68 --
Principal payments on long-term debt............... -- (173) -- (229)
Proceeds from bridge loan.......................... -- -- -- --
Proceeds from sale of assets, subject to
lease-back....................................... -- 714 -- --
Proceeds from issuance of common stock............. -- -- -- 114
Proceeds from issuance of convertible preferred
stock, net....................................... 1,158 5,345 -- 10,644
Repayment of stock subscription.................... -- -- -- 1
------ ------- ----- -------
Net cash provided by financing activities... 1,158 6,236 68 10,530
------ ------- ----- -------
Net increase (decrease) in cash and cash
equivalents........................................ 1,032 1,832 (576) 4,319
Cash and cash equivalents at beginning of period..... -- 1,032 1,032 2,864
------ ------- ----- -------
Cash and cash equivalents at end of period........... $1,032 $ 2,864 $ 456 $ 7,183
====== ======= ===== =======
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 1 $ 18 $ 1 $ 117
Supplemental disclosure of noncash financing
activities:
Acquisition of software license in exchange for
note............................................. $ -- $ 291 $ -- $ --
Contribution of technology in exchange for Common
Stock............................................ $ 1 $ -- $ -- $ --
Warrant issued for preferred stock................. $ -- $ 52 $ -- $ --
Assets acquired under capital leases............... $ -- $ 714 $ -- $ 513
Unearned stock-based compensation.................. $ -- $ 1,769 $ 194 $12,692
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 76
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
Digital Impact, Inc. (the "Company") was incorporated in the state of
California on October 16, 1997. The Company is a leading provider of e-marketing
services. The Company's (primary suite) of e-marketing services, Merchant Mail,
is sold as a single service and currently consists of the following components:
email campaign management, targeting and personalization, media optimization,
tracking and reporting, and data hosting and management. In connection with the
organization of the Company, the founders transferred some proprietary
technology and other intangible assets to the Company in exchange for 6,000,000
shares of common stock. For accounting purposes, a nominal value was assigned to
this transaction as there was no predecessor basis in the technology and other
intangible assets.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
UNAUDITED INTERIM RESULTS
The accompanying balance sheet as of September 30, 1999, the statements of
operations and of cash flows for the six months ended September 30, 1998 and
1999 and the statement of stockholders' equity for the six months ended
September 30, 1999 are unaudited. The unaudited interim financial statements
have been prepared on the same basis as the annual financial statements and, in
the opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position and its results of operations and its cash flows for the six months
ended September 30, 1998 and 1999. The financial data and other information
disclosed in these notes to financial statements related to these periods are
unaudited. The results for the six months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the year ending March
31, 2000.
USE OF ESTIMATES
Preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make certain
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 reported period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company generates revenues from the sale of services such as design and
execution of Internet direct marketing or e-marketing campaigns. For each
campaign, the Company charges their clients a fixed fee for the set up and a
variable fee based on the number of emails sent to the customers of the
Company's clients. The Company also enters into contractual arrangements to
provide a minimum number of email campaigns for a monthly fee. Revenue is
recognized upon the completion of campaigns provided that there are no remaining
significant obligations and collection of the resulting receivable is probable.
F-7
<PAGE> 77
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less at the time of purchase to be cash equivalents.
At March 31, 1999, approximately $108,000 of cash was pledged as collateral for
an outstanding letter of credit (see Note 5).
CONCENTRATION OF CREDIT RISK AND OTHER RISKS AND UNCERTAINTIES
The Company's cash and cash equivalents are maintained at a major U.S.
financial institution. Deposits in this institution may exceed the amount of
insurance provided on such deposits.
During the year ended March 31, 1999, three clients accounted for 26.8%,
11.5% and 10.9% of the Company's revenue and as of March 31, 1999, these same
three clients accounted for 22.1%, 12.5% and 13.6% of accounts receivables. For
the six months ended September 30, 1999, four of the Company's clients accounted
for 9.7%, 8.4%, 8.4% and 8.1% of revenues for that period.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash
and cash equivalents, restricted cash, accounts receivable, accounts payable and
accrued liabilities approximate their fair value due to their relatively short
maturities.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development costs are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the shorter of the estimated useful
lives of the assets, generally three to five years, or the lease term, if
applicable. Gains and losses upon asset disposal are taken into income in the
year of disposition. Maintenance and repairs are charged to operations as
incurred.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company continually monitors its long-lived assets to determine whether
any impairment of these assets has occurred. In making such determination, the
Company evaluates the performance of the underlying products and product lines.
The Company recognizes impairment of long-lived assets in the event the net book
value of such assets exceeds the future undiscounted cash flows attributable to
such assets. No material impairments have been experienced to date.
SEGMENTS
The Company follows Statement of Financial Accounting Standards No. 131, or
SFAS 131, "Disclosures about Segments of an Enterprise and Related Information."
The
F-8
<PAGE> 78
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Company operates in one segment, using one measurement of profitability to
manage its business. All long-lived assets are maintained in the United States.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the differences
between financial reporting and tax basis of assets and liabilities, measured at
tax rates that will be in effect when the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock issued to Employees" ("APB No. 25") and Financial
Accounting Standards Board Interpretation No. 28, "Accounting for Stock
Appreciation Rights and Other Variable Stock Option or Award Plans" ("FIN 28")
and complies with the disclosure provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
Under APB No. 25, compensation expense is based on the difference, if any,
on the date of the grant, between the fair value of the Company's stock and the
exercise price. SFAS No. 123 defines a "fair value" based method of accounting
for an employee stock option or similar equity investment. The pro forma
disclosures of the difference between compensation expense included in net loss
and the related cost measured by the fair value method are presented in Note 6.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and Emerging Issues Task Force Issue
No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
COMPREHENSIVE INCOME
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Through March 31, 1999, the Company has not had any
transactions that are required to be reported in other comprehensive income.
NET LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing net loss available to
common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per share is computed giving effect
to all dilutive potential common shares, including options, warrants and
preferred stock. Options, warrants and preferred stock were not included in the
computation of diluted net loss per share for the period ended March 31, 1998,
for the year ended March 31, 1999 and for the six months ended September 30,
1998 and September 30, 1999 because the effect would be antidilutive. A
reconciliation of the numerator and denominator used in the calculation of
F-9
<PAGE> 79
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
historical basic and diluted net loss per share follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 16, 1997, SIX MONTHS
(DATE OF INCEPTION) YEAR ENDED ENDED SEPTEMBER 30,
TO MARCH 31, MARCH 31, --------------------
1998 1999 1998 1999
------------------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Numerator:
Net loss....................... $ (103) $(3,240) $ (642) $(8,799)
======= ======= ======= =======
Denominator:
Weighted average common
shares outstanding...... 4,771 6,002 6,000 6,333
Weighted average unvested
common shares subject to
repurchase.............. (4,540) (4,869) (5,670) (3,342)
------- ------- ------- -------
Denominator for basic and
diluted calculation.......... 231 1,133 330 2,991
======= ======= ======= =======
Net loss per common share --
basic and diluted............ $ (0.45) $ (2.86) $ (1.95) $ (2.94)
======= ======= ======= =======
</TABLE>
ANTIDILUTIVE SECURITIES
Warrants to purchase 86,000 shares of Series A convertible preferred stock
at an exercise price of $0.2083 per share have not been included in the
computation of diluted net loss per share for the period from October 16, 1997
(date of inception) to March 31, 1998. Options to purchase 1,887,000 shares of
common stock at a weighted average exercise price of $0.043 per share and
warrants to purchase 152,000 shares of Series A and B convertible preferred
stock at a weighted average exercise price of $0.643 per share have not been
included in the computation of diluted net loss per share for the year ended
March 31, 1999. Options to purchase 3,518,000 shares of common stock at a
weighted average exercise price of $0.98 per share and warrants to purchase
104,000 shares of Series A and B convertible preferred stock at a weighted
average exercise price of $0.84 per share have not been included in the
computation of diluted net loss per share for the six months ended September 30,
1999.
Additionally, all shares of convertible preferred stock have not been
included in the computation of diluted net loss per share for all periods
presented as they are anti-dilutive (see Note 9).
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position No. 98-1, or SOP 98-1, "Software for Internal Use,"
which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP 98-1 is effective for financial
statements for fiscal years beginning after
F-10
<PAGE> 80
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 15, 1998. The Company does not expect that the adoption of SOP 98-1
will have a material impact on its financial statements.
In April 1998, the Accounting Standards Executive Committee issued
Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up
Activities." This standard requires companies to expense the costs of start-up
activities and organization costs as incurred. In general, SOP 98-5 is effective
for fiscal years beginning after December 15, 1998. The Company believes the
adoption of SOP 98-5 will not have a material impact on its results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133 will be
effective for fiscal years beginning after June 15, 2000. The Company does not
currently hold derivative instruments or engage in hedging activities.
\ NOTE 3 -- BALANCE SHEET COMPONENTS
PROPERTY AND EQUIPMENT, NET (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
--------------
1998 1999
---- ------
<S> <C> <C>
Furniture and office equipment......................... $ 3 $ 201
Computer equipment and software........................ 28 2,544
--- ------
Total cost............................................. 31 2,745
Less accumulated depreciation.......................... (3) (251)
--- ------
$28 $2,494
=== ======
</TABLE>
Depreciation and amortization expense was $3,000 and $248,000 for the
period ended March 31, 1998 and for the year ended March 31, 1999, respectively.
During the year ended March 31, 1999, the Company sold to a financial
institution computer equipment and software at cost and leased-back the assets,
which were classified as capital leases. The cost of the assets acquired under
capital leases was $714,000 at March 31, 1999. The accumulated depreciation on
these assets was $11,000 at March 31, 1999.
ACCRUED LIABILITIES (IN THOUSANDS):
<TABLE>
<CAPTION>
MARCH 31,
------------
1998 1999
---- ----
<S> <C> <C>
Payroll and related..................................... $ -- $185
Other................................................... 1 36
---- ----
$ 1 $221
==== ====
</TABLE>
F-11
<PAGE> 81
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- BORROWINGS:
The Company had $312,000 outstanding for equipment purchases under a loan
and security agreement with a bank at March 31, 1999. The loan agreement
provides for borrowings of up to $350,000, $300,000 of which is collateralized
by the Company's property and equipment. Under the terms of the loan agreement,
certain transactions, including payment of dividends, are prohibited without the
bank's consent. The loan bears interest at the prime rate (8.25% at March 31,
1999) plus 0.25% per annum. The Company is required to make monthly repayments
on this loan through December 2000. Principal payments under the loan are
$200,000 in the year ending March 31, 2000 and $112,000 in the year ending March
31, 2001.
In November 1998, the Company acquired a software license in exchange for a
promissory note for $291,000. The note bears interest at 12.7% per annum. This
note is collateralized by the software license purchased. Remaining principal
payments due under the note are $34,000 in the year ending March 31, 2000 and
$122,000 in the year ending March 31, 2001.
On February 12, 1999, the Company signed an agreement with a leasing
company for a leasing line of credit of $2.0 million. Amounts borrowed under
this agreement bear interest at rates of between 6.2 and 10.1% and are
collateralized by the leased assets. At March 31, 1999, the Company had used
$714,000 of this leasing line of credit. In conjunction with this agreement, the
Company issued a warrant to the leasing company for 66,000 shares of Series B
convertible preferred stock at an exercise price of $1.20875 per share (see Note
6).
NOTE 5 -- COMMITMENTS:
OPERATING LEASES
The Company leases its facility under an operating lease which expires in
2002. Rent expense for the period from October 16, 1997 (date of inception) to
March 31, 1998 and for the year ended March 31, 1999 was $7,000 and $122,000
respectively. Rent expense for the six months ended September 30, 1999 was
$387,000.
F-12
<PAGE> 82
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancelable capital and operating
leases, including lease commitments entered into as of March 31, 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
MARCH 31, LEASES LEASES
----------- ------- ---------
<S> <C> <C>
2000........................................................ $267 $ 423
2001........................................................ 267 435
2002........................................................ 173 353
2003........................................................ 40 --
---- ------
Total minimum lease payments................................ 747 $1,211
---- ======
Less: Discount due to warrants.............................. (50)
Less: Amount representing interest.......................... (33)
----
Present value of capital lease obligations.................. 664
Less: Current portion....................................... 199
----
Long-term portion of capital lease obligations.............. $465
====
</TABLE>
LETTER OF CREDIT
The Company obtained a letter of credit from a financial institution
totaling $108,000 in lieu of a security deposit for leased office space. No
amounts have been drawn against the letter of credit at March 31, 1999.
NOTE 6 -- STOCKHOLDERS' EQUITY:
CONVERTIBLE PREFERRED STOCK
Convertible preferred stock at March 31, 1999 consists of the following (in
thousands):
<TABLE>
<CAPTION>
PROCEEDS
SHARES NET OF
------------------------ LIQUIDATION ISSUANCE
SERIES AUTHORIZED OUTSTANDING AMOUNT COSTS
------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
A..................................... 6,000 5,592 $1,165 $1,158
B..................................... 6,000 4,448 5,375 5,345
C..................................... 4,000 -- -- --
------- ------ ------ ------
16,000 10,040 $6,540 $6,503
======= ====== ====== ======
</TABLE>
The holders of convertible preferred stock have various rights and
preferences as follows:
DIVIDENDS
The holders of Series A and Series B convertible preferred stock are
entitled to receive dividends of $0.0167 and $0.0967 per share per annum,
respectively. Such dividends, which are in preference to any common stock
dividends, are payable whenever funds are legally available and when declared by
the board of directors. The right of the
F-13
<PAGE> 83
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
holders of the preferred stock to receive dividends is not cumulative. At March
31, 1999 no dividends have been declared.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
the holders of convertible preferred stock are entitled to receive, prior and in
preference to any distribution of any of the assets of the Company to the
holders of common stock, an amount per share equal to the sum of $0.2083 and
$1.2085 for each outstanding share of Series A and Series B convertible
preferred stock, respectively, plus any declared and unpaid dividends. If the
funds available for distribution are insufficient to cover the liquidation
preference, then the entire assets and funds of the Company legally available
for distribution are to be distributed ratably among the holders of preferred
stock.
After payment of the full liquidation preference of the preferred
stockholders, any remaining assets of the Company legally available are to be
distributed ratably to the holders of common stock.
CONVERSION
Each share of preferred stock, at the option of the holder, is convertible
into a number of fully paid shares of common stock as determined by dividing the
respective preferred stock issue price by the conversion price in effect at the
time. The initial conversion prices of Series A and Series B convertible
preferred stock are $0.2083 and $1.2085, respectively, subject to adjustments in
accordance with antidilution provisions contained in the Company's Certificate
of Incorporation. Conversion is automatic immediately upon the closing of a firm
commitment underwritten public offering in which the per share price values the
Company on a fully-diluted basis to be at least $125 million, and the gross
proceeds raised exceed $10,000,000.
VOTING RIGHTS
As long as at least 4,140,000 shares of preferred stock remain outstanding,
the Company must obtain approval from a majority of the holders of preferred
stock to declare or pay any dividend on common stock; redeem, purchase or
otherwise acquire any common stock other than shares subject to right of
repurchase by the Company; cause the acquisition, reorganization, merger or
consolidation of the Company that results in a transfer of 50% or more of the
voting control of the Company; authorize or issue another equity security having
a preference over, or being on parity with, the Series A and Series B
convertible preferred stock; increase the number of directors of the Company; or
alter the Certificate of Incorporation as it relates to the preferred stock or
change the authorized number of shares of preferred stock.
WARRANTS FOR CONVERTIBLE PREFERRED STOCK
In March 1998, the Company granted a fully exercisable warrant to purchase
86,000 shares of Series A convertible preferred stock for $0.2083 per share in
connection with the issuance of Series A convertible preferred stock. Such
warrants are outstanding at
F-14
<PAGE> 84
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
March 31, 1999 and expire five years after issuance. Using the Black-Scholes
pricing model, the Company determined that the fair value of the warrants was
$12,000.
In November 1998, the Company granted a fully exercisable warrant to
purchase 66,000 shares of Series B convertible preferred for $1.2085 per share
in connection with a capital lease agreement. Such warrants were outstanding at
March 31, 1999 and expire five years after issuance. Using the Black Scholes
pricing model, the Company determined that the fair value of these warrants was
$52,000. The warrants were recorded as a discount on the debt and will be
amortized over the life of the underlying borrowings. The amortization recorded
in the year ended March 31, 1999 was $2,000.
COMMON STOCK
Share information for all periods has been retroactively adjusted to
reflect a 10-for-1 common stock split effected in March 1998 and a 3-for-1
preferred and common stock split effected in November 1998.
The Company has issued 6,000,000 shares of its common stock to the founders
of the Company under stock purchase agreements. Each share of common stock has
the right to one vote. The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when declared by the Board of
Directors, subject to the prior rights of holders of all classes of stock
outstanding having priority rights as to dividends. No dividends have been
declared or paid through March 31, 1999.
All of the 6,000,000 shares of common stock issued thus far have been
issued under restrictive stock purchase agreements, under which the Company has
the option to repurchase issued shares of common stock. Generally, 25% of the
Company's repurchase rights lapse within one year, with the remaining rights
lapsing at a rate of 2.083% per month until all shares have been released. At
March 31, 1998 and 1999, 5,670,000 and 3,609,000 outstanding common shares were
subject to repurchase, respectively.
FAIR VALUE OF COMMON STOCK
In the absence of a public trading market for the Company's common stock,
alternative means for determining the fair value were used by the Board of
Directors. Factors considered included the consideration received from third
parties for the issuance of the Series A, B and C preferred stock of the
Company, the significant liquidation, participation and other preferences of the
holders of these preferred stocks, the financial condition of the Company,
including milestones in the development of the Company's business and the market
conditions.
STOCK OPTION PLAN
In 1998, the Company adopted the 1998 Stock Plan (the "Plan") under which
3,795,000 shares of the Company's common stock were reserved for issuance to
employees, directors and consultants. Options granted under the Plan may be
incentive stock options or non-statutory stock options. Incentive stock options
may only be granted to employees. The board of directors determines the period
over which options become exercisable, however, options shall become exercisable
at a rate of no less than 20% per year over five years from the date the options
are granted. The exercise price of incentive stock options
F-15
<PAGE> 85
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
and non-statutory stock options shall be no less than 100% and 85%,
respectively, of the fair market value per share of the Company's common stock
on the grant date. The term of the options granted under the Plan may range from
four to ten years.
Activity under this Plan is as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------
SHARES WEIGHTED
AVAILABLE NUMBER OF PRICE PER AVERAGE AGGREGATE
FOR GRANT SHARES SHARE EXERCISE PRICE PROCEEDS
--------- --------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Options reserved at Plan
inception.............. 1,695 -- -- -- --
------
Balances, March 31,
1998................... 1,695 -- -- -- --
Additional shares
reserved............... 2,101 -- -- -- --
Options granted.......... (1,965) 1,965 $0.02-$0.25 $0.08 $ 160
Options exercised........ -- (22) $ 0.02 $0.02 $ 0
Options cancelled........ 56 (56) $0.02-$0.25 $0.03 $ (2)
------ ----- ------
Balances, March 31,
1999................... 1,884 1,887 $0.02-$0.25 $0.08 $ 158
Additional shares
reserved............... 5,000
Options granted.......... (2,492) 2,492 $0.25-$7.00 $1.37 $3,412
Options exercised........ -- (735) $0.02-$0.25 $ .16 $ (114)
Options cancelled........ 126 (126) $0.02-$0.25 $0.06 $ (8)
Balances, September 30,
1999 (unaudited)....... 4,520 3,518 $0.02-$7.00 $0.98 $3,448
======
</TABLE>
PRO FORMA STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Had compensation cost been determined based on
the fair value at the grant date for the awards for the periods ended March 31,
1998 and 1999 and the six months ended September 30, 1999 consistent with the
provisions of SFAS No. 123, the Company's net loss for the year ended March 31,
1999 and for the six months ended September 30, 1999, respectively, would have
been as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
1999 1999
---------- -------------
(UNAUDITED)
<S> <C> <C>
Net loss attributable to common stockholders -- as
reported.......................................... $(3,240) $(8,799)
Net loss attributable to common stockholders -- pro
forma............................................. $(3,252) $(8,971)
Net loss per common share -- basic and diluted as
reported.......................................... $ (2.86) $ (1.27)
Net loss per common share -- basic and diluted pro
forma............................................. $ (2.87) $ (1.27)
</TABLE>
F-16
<PAGE> 86
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made each
year. The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following assumptions used for grants:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
1999 1999
---------- -------------
(UNAUDITED)
<S> <C> <C>
Expected volatility........................... 0% 0%
Weighted average risk-free interest rate...... 5.18% 5.65%
Expected life (from vesting date)............. 5 years 5 years
Expected dividends............................ 0% 0%
</TABLE>
MINIMUM VALUE OF OPTION
Based on the above assumptions, the weighted average minimum values per
share of options granted were $0.02 and $0.65 the year ended March 31, 1999 and
the six months ended September 30, 1999, respectively.
The options outstanding and currently exercisable by exercise price at
March 31, 1999 are as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------- ----------------------- -------- ----------- --------
<S> <C> <C> <C> <C>
1,376 9.2 $0.03 64 $0.02
511 9.8 $0.25 3 $0.25
----------- --
1,887 9.4 67
=========== ==
</TABLE>
The options outstanding and currently exercisable by exercise price at
September 30, 1999 (unaudited) are as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
----------- ----------------------- -------- ----------- --------
<S> <C> <C> <C> <C>
1,010 8.8 $0.03 335 $0.02
1,258 9.5 $0.25 22 $0.25
1,250 9.9 $2.75 26 $2.50
----------- ---
3,518 9.4 383
=========== ===
</TABLE>
F-17
<PAGE> 87
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
During the year ended March 31, 1999 the Company recorded unearned
stock-based compensation totalling $1,769,000 which is being amortized to
expense over the period during which the options vest, generally four years
using FIN 28. For the year ended March 31, 1999, the Company recorded
stock-based compensation of $543,000 in respect of options granted to employees
and non-employees during the year. In addition, the Company recognized
additional stock-based compensation of $614,000 in the year for 270,000 shares
of common stock which the Company bonused to a founder. (See Note 8). Based on
the above assumptions, the weighted average fair values per share of options
granted were $0.98 and $9.19 for the year ended March 31, 1999 and the six
months ended September 30, 1999 respectively.
NOTE 7 -- INCOME TAXES:
At March 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $2,107,000 available to offset future regular and
alternative minimum taxable income. The Company's federal and state net
operating loss carryforwards expire in 2005 through 2019.
At March 31, 1999, the Company had federal and state research and
development and other credits of approximately $34,000 and $26,000,
respectively. The research and development credit carryforwards expire in 2019,
if not utilized.
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforward in certain situations where changes occur in the stock
ownership of a company. If the Company should have an ownership change, as
defined for tax purposes, utilization of the carryforwards could be restricted.
Temporary differences which give rise to significant portions of deferred
tax assets and liabilities at March 31, 1998 and 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------
1998 1999
---- -----
<S> <C> <C>
Net operating loss carryforwards....................... $ 12 $ 839
Research and development credit carryover.............. -- 51
Capitalized start-up and other......................... 28 37
---- -----
Total deferred tax assets.............................. 40 927
Less valuation allowance............................... (40) (927)
---- -----
Net deferred tax asset................................. $ -- $ --
==== =====
</TABLE>
The Company has established a 100% valuation allowance at March 31, 1999 as
it appears more likely than not that no benefit will be realized for its
deferred tax assets.
NOTE 8 -- RELATED PARTY TRANSACTION:
On February 11, 1999, the Board of Directors approved the contribution of
270,000 shares of common stock from one of the founders to the Company. The
Company then issued these shares to another founder as a bonus. The fair value
of the shares on February 11, 1999 was determined to be $2.27 per share. The
Company recognized
F-18
<PAGE> 88
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
$614,000 in stock-based compensation in connection with this transaction for the
year ended March 31, 1999.
NOTE 9 -- UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
STOCKHOLDERS' EQUITY:
Upon the closing of the Company's initial public offering, all outstanding
Series A, Series B and Series C convertible preferred stock (See Note 10) will
be converted automatically into common stock. The pro forma effect of this
conversion has been presented as a separate column in the Company's balance
sheet, assuming, that the Series C convertible preferred stock had been issued
and this conversion had occurred as of September 30, 1999.
Pro forma basic and diluted net loss per common share have been computed to
give effect to common equivalent shares from preferred stock that will
automatically convert upon the closing of the Company's initial public offering
(using the as-if-converted method) for the years ended March 31, 1999 and the
three months ended June 30, 1999.
A reconciliation of the numerator and denominator used in the calculation
of pro forma basic and fully diluted net loss per common share follows (in
thousands except per share data):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
1999 1999
----------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Numerator
Net loss....................................... $(3,240) $(8,799)
------- -------
Denominator:
Shares used in computing basic and diluted net
loss per share.............................. 1,133 2,991
Adjusted to reflect the effect of the assumed
conversion of convertible preferred stock
from the date of issuance:
Series A convertible preferred stock........ 5,592 5,616
Series B convertible preferred stock........ 1,645 4,448
Series C convertible preferred stock........ -- 1,035
------- -------
Weighted average shares used in computing pro
forma basic and diluted net loss per share..... 8,370 14,090
------- -------
Pro forma basic and diluted net loss per share... $ (0.39) $ (0.62)
======= =======
</TABLE>
F-19
<PAGE> 89
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- SUBSEQUENT EVENTS:
OFFICE LEASE
On May 28, 1999, the Company entered into a lease agreement to lease
additional office space. The Company is required to make monthly payments which
are due as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
2000......................................... $ 362
2001......................................... 770
2002......................................... 782
2003......................................... 793
------
$2,707
======
</TABLE>
1998 STOCK OPTION PLAN
On July 1, 1999, the board of directors authorized an increase in the
number of shares reserved under the 1998 stock option plan of 1,000,000 shares
of common stock.
SERIES C FINANCING
On June 30, 1999, the Company received a $500,000 bridge loan from one of
its existing investors. On July 7, 1999, the Company issued 2,228,000 shares of
Series C convertible preferred stock for $4.785 per share for total cash
proceeds of $10,160,000 and the conversion of the $500,000 bridge loan. The
holders of Series C convertible preferred stock are entitled to receive
dividends of $0.3825 per share per annum when declared by the board of directors
and $4.785 per share upon liquidation. Each share of Series C convertible
preferred stock converts automatically into one share of common stock upon the
closing of a firm commitment underwritten public offering.
STOCK SPLIT AND AMENDMENT TO ARTICLES OF INCORPORATION
On July 8, 1999, the board of directors approved a 2-for-1 forward split of
its preferred and common stock. All common stock data and common stock option
plan information in this report has been restated to reflect the split. In
addition, the conversion prices of the Company's Series A, Series B and Series C
convertible preferred stock have also been adjusted to reflect the effect of the
split.
Additionally, on August 16, 1999 the board of directors amended the
Articles of Incorporation to increase the number of common shares authorized to
54,000,000 and the number of preferred shares authorized to 16,000,000.
REINCORPORATION
On September 16, 1999, the Company authorized the reincorporation of the
Company in the State of Delaware.
Following the reincorporation, the Company will be authorized to issue
54,000,000 shares of $0.001 par value common stock and 16,000,000 shares of
$0.001 par
F-20
<PAGE> 90
DIGITAL IMPACT, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
value preferred stock. The board of directors has the authority to issue the
undesignated preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof.
AMENDED AND RESTATED 1998 STOCK PLAN
On September 16, 1999, the board of directors amended the 1998 stock option
plan, which provides for the grant of incentive stock options to employees and
non-statutory stock options to non-employees, directors and consultants. A total
of 8,795,000 shares of common stock has been reserved under the plan.
1999 DIRECTOR OPTION PLAN
On September 16, 1999, the Company adopted the 1999 director option plan
under which 500,000 shares have been reserved for issuance of common stock.
EMPLOYEE STOCK PURCHASE PLAN
On September 16, 1999, the board of directors adopted the employee stock
purchase plan under which 700,000 shares have been reserved for issuance and
approved for issuance. The 1999 employee stock purchase plan contains successive
six-month offering periods and the price of stock purchased under the plan is
85% of the lower of the fair value of the common stock either at the beginning
of the period or at the end.
STOCK-BASED COMPENSATION
In connection with certain stock option grants to employees and
non-employees during the three months ended June 30, 1999, the Company recorded
unearned stock-based compensation totalling $3,699,000, which is being amortized
over the vesting periods of the related options which is generally four years.
Amortization of stock-based compensation recognized during the three months
ended June 30, 1999 totalled approximately $977,000.
The Company also anticipates recognizing substantial additional stock-based
compensation based on options granted in July and August 1999. The Company
expects to record an additional $4.5 million of unearned stock-based
compensation for these option grants.
The total unamortized unearned stock-based compensation recorded for all
option grants through August 31, 1999 will be amortized as follows: $4.0 million
for the remainder of the year ending March 31, 2000; $2.7 million for the year
ending March 31, 2001; $1.3 million for the year ending March 31, 2002; $472,000
for the year ending March 31, 2003 and thereafter.
INITIAL PUBLIC OFFERING
On September 16, 1999, the board of directors approved the filing of a
registration statement for an underwritten public offering of the Company's
common stock whereupon the authorized number of shares of common stock will be
increased to 100,000,000 and the authorized number of shares of undesignated
preferred stock will be reduced to 5,000,000.
F-21
<PAGE> 91
[LOGO]
<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the securities being registered. All amounts shown are estimates except for
the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee....................................... $ 18,100
NASD filing fee............................................ 7,000
NASDAQ National Market Fees................................ 95,000
Blue Sky qualification fees and expenses................... 5,000
Printing and engraving expenses............................ 250,000
Accountant's fees and expenses............................. 325,000
Legal fees and expenses.................................... 500,000
Miscellaneous.............................................. 99,900
----------
Total.................................................... $1,300,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article VIII of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, in any criminal action or
proceeding, the indemnified party had no reason to believe his or her conduct
was unlawful.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since October 1997, the Registrant has issued and sold (without payment
of any selling commission to any person) the following unregistered securities:
(1) In March 1998, the Registrant completed a ten-for-one stock split
of its outstanding common stock in which each outstanding share of its
common stock was split into ten shares of common stock.
(2) In November 1998, the Registrant completed a three-for-one stock
split of its outstanding common and preferred stock in which each
outstanding share of common stock was split into three shares of common
stock, and each share of preferred stock was split into three shares of
preferred stock.
(3) In August 1999, the Registrant completed a two-for-one stock split
of its outstanding common and preferred stock in which each outstanding
share of common
II-1
<PAGE> 93
stock was split into two shares of common stock, and each outstanding share
of preferred stock was split into two shares of preferred stock.
(4) In July 1999, the Registrant issued and sold shares of series C
preferred stock convertible into an aggregate of 2,227,794 shares of common
stock to a total of 8 investors for an aggregate purchase price of
$10,659,995.
(5) In November 1998, the Registrant issued and sold shares of its
series B preferred stock convertible into an aggregate of 4,448,264 shares
of common stock to a total of 8 investors for an aggregate purchase price
of $5,375,060.
(6) In March 1998, the Registrant issued and sold shares of its series
A preferred stock convertible into an aggregate of 5,592,000 shares of
common stock to a total of 11 investors for an aggregate purchase price of
$1,165,000.00.
(7) As of September 30, 1999, 3,517,715 shares of common stock had
been issued upon exercise of options or pursuant to restricted stock
purchase agreements and 5,277,285 shares of common stock were issuable upon
exercise of outstanding options under the Registrant's 1998 stock plan.
(b) There was no underwritten offering employed in connection with any of
the transactions set forth in Item 15(a).
The issuances described in Items 15(a)(1), 15(a)(2) and 15(a)(3) were or
will be exempt from registration under Section 2(3) of the Securities Act on the
basis that such transaction did not involve a "sale" of securities. The
issuances described in Items 15(a)(4), 15(a)(5), and 15(a)(6) were deemed to be
exempt from registration under the Securities Act Section 4(2) as transactions
by an issuer not involving any public offering. The issuances described in Item
15(a)(7) were deemed to be exempt from registration under the Securities Act in
reliance upon Rule 701 promulgated thereunder in that they were offered and sold
either under written compensatory benefit plans or under a written contract
relating to compensation, as provided by Rule 701. In addition, such issuances
were deemed to be exempt from registration under Section 4(2) of the Securities
Act as transactions by an issuer not involving any public offering. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the securities issued in such transactions. All recipients had adequate
access, through their relationships with the Registrant, to information about
the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement..............................
3.1 Form of Certificate of Incorporation of Digital Impact......
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed promptly after the closing of the
offering....................................................
3.3 Bylaws of the Registrant....................................
4.1* Specimen Common Stock Certificate...........................
4.2** Amended and Restated Investor Rights Agreement..............
</TABLE>
II-2
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ------- ----------------------- ----------
<C> <S> <C>
5.1** Form of Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation....................................
10.1** Amended and Restated 1998 Stock Plan and form of agreements
thereunder..................................................
10.2** 1999 Employee Stock Purchase Plan and form of agreements
thereunder..................................................
10.3 1999 Director Option Plan and form of agreements
thereunder..................................................
10.4** Employment Agreement by and between Registrant and David
Oppenheimer.................................................
10.5** Employment Agreement by and between Registrant and Alan
Flohr.......................................................
10.6** Starter Kit Loan and Security Agreement by and between
Registrant and Imperial Bank................................
10.7 Master Lease Agreement by and between Registrant and
Comdisco, Inc. .............................................
10.8 Standard Form Lease by and between Registrant and Casiopea
Venture Corporation.........................................
10.9 Sublease Agreement by and Registrant and Legato Systems,
Inc. .......................................................
10.10 Form of Indemnification Agreement by and between Registrant
and each of its directors and officers......................
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.................................................
23.2* Consent of Counsel (see Exhibit 5.1)........................
24.1** Power of Attorney (see page II-6)...........................
27.1** Financial Data Schedules....................................
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant under the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. If 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
II-3
<PAGE> 95
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto, duly
authorized, in the City of San Mateo, California, on October 22, 1999.
DIGITAL IMPACT, INC.
By: /s/ WILLIAM PARK
-----------------------------------
William Park
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM PARK Chief Executive Officer and October 22, 1999
- ----------------------------- Chairman of the Board of
William Park Directors (Principal
Executive Officer)
* Vice President and Chief October 22, 1999
- ----------------------------- Financial Officer, Treasurer
David Oppenheimer and Secretary (Principal
Financial and Accounting
Officer)
* Director October 22, 1999
- -----------------------------
Gerardo Capiel
* Director October 22, 1999
- -----------------------------
Ruthann Quindlen
* Director October 22, 1999
- -----------------------------
Warren Packard
* Director October 22, 1999
- -----------------------------
Michael Brown
</TABLE>
II-5
<PAGE> 97
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Form of Certificate of Incorporation of Digital Impact
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant to be filed promptly after the closing of the
offering
3.3 Bylaws of the Registrant
4.1* Specimen Common Stock Certificate
4.2** Amended and Restated Investor Rights Agreement
5.1** Form of Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation
10.1** Amended and Restated 1998 Stock Plan and form of agreements
thereunder
10.2** 1999 Employee Stock Purchase Plan and form of agreements
thereunder
10.3 1999 Director Option Plan and form of agreements thereunder
10.4** Employment Agreement by and between Registrant and David
Oppenheimer
10.5** Employment Agreement by and between Registrant and Alan
Flohr
10.6** Starter Kit Loan and Security Agreement by and between
Registrant and Imperial Bank
10.7 Master Lease Agreement by and between Registrant and
Comdisco, Inc.
10.8 Standard Form Lease by and between Registrant and Casiopea
Venture Corporation
10.9 Sublease Agreement by and Registrant and Legato Systems,
Inc.
10.10 Form of Indemnification Agreement by and between Registrant
and each of its directors and officers
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.2* Consent of Counsel (see Exhibit 5.1)
24.1** Power of Attorney (see page II-6)
27.1** Financial Data Schedules
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
[INSERT NUMBER OF SHARES]
DIGITAL IMPACT, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
November __, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
HAMBRECHT & QUIST LLC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION, and
U.S. Bancorp Piper Jaffray Inc.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Digital Impact, Inc., a Delaware corporation
("COMPANY"), proposes to issue and sell shares ("FIRM SECURITIES") of its common
stock ("SECURITIES") and also proposes to issue and sell to the Underwriters, at
the option of the Underwriters, an aggregate of not more than ___________
additional shares ("OPTIONAL SECURITIES") of its Securities as set forth below.
The Firm Securities and the Optional Securities are herein collectively called
the "OFFERED SECURITIES". As part of the offering contemplated by this
Agreement, [Insert name of underwriter] (the "DESIGNATED UNDERWRITER") has
agreed to reserve out of the Firm Securities purchased by it under this
Agreement, up to ___________ shares, for sale to the Company's directors,
officers, employees and other parties associated with the Company (collectively,
"PARTICIPANTS"), as set forth in the Prospectus (as defined herein) under the
heading "Underwriters" (the "DIRECTED SHARE PROGRAM"). The Firm Securities to be
sold by the Designated Underwriter pursuant to the Directed Share Program (the
"DIRECTED SHARES") will be sold by the Designated Underwriter pursuant to this
Agreement at the public offering price. Any Directed Shares not orally confirmed
for purchase by a Participant by the end of the business day on which this
Agreement is executed will be offered to the public by the Underwriters as set
forth in the Prospectus. The Company hereby agrees with the several Underwriters
named in Schedule A hereto ("UNDERWRITERS") as follows:
2. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333- ) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("COMMISSION") and either (i) has
been declared effective under the Securities Act of 1933 ("ACT") and is
not proposed to be amended or (ii) is proposed to be amended by
amendment or
1
<PAGE> 2
post-effective amendment. If such registration statement ("INITIAL
REGISTRATION STATEMENT") has been declared effective, either (i) an
additional registration statement ("ADDITIONAL REGISTRATION STATEMENT")
relating to the Offered Securities may have been filed with the
Commission pursuant to Rule 462(b) ("RULE 462(b)") under the Act and, if
so filed, has become effective upon filing pursuant to such Rule and the
Offered Securities all have been duly registered under the Act pursuant
to the initial registration statement and, if applicable, the additional
registration statement or (ii) such an additional registration statement
is proposed to be filed with the Commission pursuant to Rule 462(b) and
will become effective upon filing pursuant to such Rule and upon such
filing the Offered Securities will all have been duly registered under
the Act pursuant to the initial registration statement and such
additional registration statement. If the Company does not propose to
amend the initial registration statement or if an additional
registration statement has been filed and the Company does not propose
to amend it, and if any post-effective amendment to either such
registration statement has been filed with the Commission prior to the
execution and delivery of this Agreement, the most recent amendment (if
any) to each such registration statement has been declared effective by
the Commission or has become effective upon filing pursuant to Rule
462(c) ("RULE 462(c)") under the Act or, in the case of the additional
registration statement, Rule 462(b). For purposes of this Agreement,
"EFFECTIVE TIME" with respect to the initial registration statement or,
if filed prior to the execution and delivery of this Agreement, the
additional registration statement means (i) if the Company has advised
the Representatives that it does not propose to amend such registration
statement, the date and time as of which such registration statement, or
the most recent post-effective amendment thereto (if any) filed prior to
the execution and delivery of this Agreement, was declared effective by
the Commission or has become effective upon filing pursuant to Rule
462(c), or (ii) if the Company has advised the Representatives that it
proposes to file an amendment or post-effective amendment to such
registration statement, the date and time as of which such registration
statement, as amended by such amendment or post-effective amendment, as
the case may be, is declared effective by the Commission. If an
additional registration statement has not been filed prior to the
execution and delivery of this Agreement but the Company has advised the
Representatives that it proposes to file one, "EFFECTIVE TIME" with
respect to such additional registration statement means the date and
time as of which such registration statement is filed and becomes
effective pursuant to Rule 462(b). "EFFECTIVE DATE" with respect to the
initial registration statement or the additional registration statement
(if any) means the date of the Effective Time thereof. The initial
registration statement, as amended at its Effective Time, including all
information contained in the additional registration statement (if any)
and deemed to be a part of the initial registration statement as of the
Effective Time of the additional registration statement pursuant to the
General Instructions of the Form on which it is filed and including all
information (if any) deemed to be a part of the initial registration
statement as of its Effective Time pursuant to Rule 430A(b) ("RULE
430A(b)") under the Act, is hereinafter referred to as the "INITIAL
REGISTRATION STATEMENT". The additional registration statement, as
amended at its Effective Time, including the contents of the initial
registration statement incorporated by reference therein and including
all information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "ADDITIONAL REGISTRATION
STATEMENT". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"REGISTRATION STATEMENTS" and individually as a "REGISTRATION
STATEMENT". The form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("RULE 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter
referred to as the "PROSPECTUS". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
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(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all respects to the requirements of
the Act and the rules and regulations of the Commission ("RULES AND
REGULATIONS") and did not include 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 not misleading, (ii) on the
Effective Date of the Additional Registration Statement (if any), each
Registration Statement conformed, or will conform, in all respects to
the requirements of the Act and the Rules and Regulations and did not
include, or will not include, any untrue statement of a material fact
and did not omit, or will not omit, to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading and (iii) on the date of this Agreement, the Initial
Registration Statement and, if the Effective Time of the Additional
Registration Statement is prior to the execution and delivery of this
Agreement, the Additional Registration Statement each conforms, and at
the time of filing of the Prospectus pursuant to Rule 424(b) or (if no
such filing is required) at the Effective Date of the Additional
Registration Statement in which the Prospectus is included, each
Registration Statement and the Prospectus will conform, in all respects
to the requirements of the Act and the Rules and Regulations, and
neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading. If the Effective Time of the Initial
Registration Statement is subsequent to the execution and delivery of
this Agreement: on the Effective Date of the Initial Registration
Statement, the Initial Registration Statement and the Prospectus will
conform in all respects to the requirements of the Act and the Rules and
Regulations, neither of such documents will include any untrue statement
of a material fact or will omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, and no Additional Registration Statement has been or will be
filed. The two preceding sentences do not apply to statements in or
omissions from a Registration Statement or the Prospectus based upon
written information furnished to the Company by any Underwriter through
the Representatives specifically for use therein, it being understood
and agreed that the only such information is that described as such in
Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus; and the Company is
duly qualified to do business as a foreign corporation in good standing
in all other jurisdictions in which its ownership or lease of property
or the conduct of its business requires such qualification, except where
failure to be so qualified would not individually or in the aggregate
have a material adverse effect on the condition (financial or other),
business, properties or results of operations of the Company ("MATERIAL
ADVERSE EFFECT").
(d) The Company has no subsidiaries.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered
Securities will have been, validly issued, fully paid and nonassessable
and will conform to the description thereof contained in the Prospectus;
and the stockholders of the Company have no preemptive rights with
respect to the Securities.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that
would give rise to a valid claim against
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the Company or any Underwriter for a brokerage commission, finder's fee
or other like payment in connection with this offering.
(g) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Act with respect to
any securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to a Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Act which may not have been validly waived.
(h) The Offered Securities have been approved for listing on Nasdaq
Stock Market's National Market subject to notice of issuance.
(i) No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required to be made or
obtained by the Company for the consummation of the transactions
contemplated by this Agreement in connection with the issuance and sale
of the Offered Securities by the Company, except such as have been
obtained and made under the Act and such as may be required under state
securities laws.
(j) The execution, delivery and performance of this Agreement, and
the issuance and sale of the Offered Securities will not result in a
breach or violation of any of the terms and provisions of, or constitute
a default under, any statute, any rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any of their properties, or any
agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of the properties of the Company is
subject, or the charter or by-laws of the Company, and the Company has
full power and authority to authorize, issue and sell the Offered
Securities as contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and delivered
by the Company.
(l) Except as disclosed in the Prospectus, the Company has good and
marketable title to all real properties and all other properties and
assets owned by them, in each case free from liens, encumbrances and
defects that would materially affect the value thereof or materially
interfere with the use made or to be made thereof by them; and except as
disclosed in the Prospectus, the Company hold any leased real or
personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof
by them.
(m) The Company possess adequate certificates, authorities or permits
issued by appropriate governmental agencies or bodies necessary to
conduct the business now operated by them and have not received any
notice of proceedings relating to the revocation or modification of any
such certificate, authority or permit that, if determined adversely to
the Company, would have a Material Adverse Effect.
(n) No labor dispute with the employees of the Company exists or, to
the knowledge of the Company, is imminent that might have a Material
Adverse Effect.
(o) The Company owns, possesses or can acquire on reasonable terms,
adequate trademarks, trade names and other rights to inventions,
know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "INTELLECTUAL PROPERTY RIGHTS")
necessary to conduct the business now operated by them, or presently
employed by them, and have not received any notice of infringement of or
conflict with asserted rights of others with
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<PAGE> 5
respect to any intellectual property rights that, if determined
adversely to the Company, would individually or in the aggregate have a
Material Adverse Effect. The Company represents and warrants that, to
the best of its knowledge, its services and products (and any underlying
technology related thereto) do not infringe any U.S. or foreign patent,
copyright, trade secret, trademark or other proprietary right of any
third party or otherwise conflict with the rights of any third party.
(p) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company or any of
their respective properties that, if determined adversely to the
Company, would individually or in the aggregate have a Material Adverse
Effect, or would materially and adversely affect the ability of the
Company to perform its obligations under this Agreement, or which are
otherwise material in the context of the sale of the Offered Securities;
and no such actions, suits or proceedings are threatened or, to the
Company's knowledge, contemplated.
(q) The financial statements included in each Registration Statement
and the Prospectus present fairly the financial position of the Company
as of the dates shown and their results of operations and cash flows for
the periods shown, and such financial statements have been prepared in
conformity with the generally accepted accounting principles in the
United States applied on a consistent basis the schedules included in
each Registration Statement present fairly the information required to
be stated therein; and the assumptions used in preparing the pro forma
financial statements included in each Registration Statement and the
Prospectus provide a reasonable basis for presenting the significant
effects directly attributable to the transactions or events described
therein, the related pro forma adjustments give appropriate effect to
those assumptions, and the pro forma columns therein reflect the proper
application of those adjustments to the corresponding historical
financial statement amounts.
(r) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there has
been no material adverse change, nor any development or event involving
a prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of the Company
taken as a whole, and, except as disclosed in or contemplated by the
Prospectus, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(s) The Company is not and, after giving effect to the offering and
sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(t) Furthermore, the Company represents and warrants to the
Underwriters that (i) the Registration Statement, the Prospectus and any
preliminary prospectus comply, and any further amendments or supplements
thereto will comply, with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection
with the Directed Share Program, and that (ii) no authorization,
approval, consent, license, order, registration or qualification of or
with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities law and
regulations of foreign jurisdictions in which the Directed Shares are
offered outside the United States.
(u) The Company has not offered, or caused the Underwriters to offer,
any offered Securities to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer
or supplier of the Company to alter the customer's or supplier's
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<PAGE> 6
level or type of business with the Company or (ii) a trade journalist or
publication to write or publish favorable information about the Company
or its products.
(v) The Company has reviewed its computer systems and has inquired of
any third parties with which the Company has a material relationship to
determine the extent to which the operations of the Company will be
affected by the Year 2000 Problem (defined below). To the knowledge of
the Company, the Year 2000 Problem will not have a Material Adverse
Effect. The "YEAR 2000 PROBLEM" as used herein means any significant
risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $ per share, the respective numbers of
shares of Firm Securities set forth opposite the names of the Underwriters in
Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, at the office of CSFBC, Eleven Madison Avenue,
New York, New York 10010-3629, against payment of the purchase price in Federal
(same day) funds by official bank check or checks or wire transfer to an account
at a bank acceptable to CSFBC drawn to the order of the Company at the office of
Wilson Sonsini Goodrich & Rosati, Professional Corporation in Palo Alto,
California, at A.M., New York time, on , or at such other time not later than
seven full business days thereafter as CSFBC and the Company determine, such
time being herein referred to as the "FIRST CLOSING DATE". For purposes of Rule
15c6-1 under the Securities Exchange Act of 1934, the First Closing Date (if
later than the otherwise applicable settlement date) shall be the settlement
date for payment of funds and delivery of securities for all the Offered
Securities sold pursuant to the offering. The certificates for the Firm
Securities so to be delivered will be in definitive form, in such denominations
and registered in such names as CSFBC requests and will be made available for
checking and packaging at the above office of CSFBC at least 24 hours prior to
the First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price per Security to be paid for the Firm Securities. The Company
agrees to sell to the Underwriters the number of shares of Optional Securities
specified in such notice and the Underwriters agree, severally and not jointly,
to purchase such Optional Securities. Such Optional Securities shall be
purchased for the account of each Underwriter in the same proportion as the
number of shares of Firm Securities set forth opposite such Underwriter's name
bears to the total number of shares of Firm Securities (subject to adjustment by
CSFBC to eliminate fractions) and may be purchased by the Underwriters only for
the purpose of covering over-allotments made in connection with the sale of the
Firm Securities. No Optional Securities shall be sold or delivered unless the
Firm Securities previously have been, or simultaneously are, sold and delivered.
The right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "OPTIONAL CLOSING DATE", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "CLOSING DATE"), shall be determined by
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<PAGE> 7
CSFBC but shall be not later than five full business days after written notice
of election to purchase Optional Securities is given. The Company will deliver
the Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, at the above
office of CSFBC in New York, against payment of the purchase price therefor in
Federal (same day) funds by official bank check or checks or wire transfer to an
account at a bank acceptable to CSFBC drawn to the order of the Company, at the
above office of Wilson Sonsini Goodrich & Rosati, Professional Corporation. The
certificates for the Optional Securities being purchased on each Optional
Closing Date will be in definitive form, in such denominations and registered in
such names as CSFBC requests upon reasonable notice prior to such Optional
Closing Date and will be made available for checking and packaging at the above
office of CSFBC in New York at a reasonable time in advance of such Optional
Closing Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance
with subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration Statement
is prior to the execution and delivery of this Agreement and an
additional registration statement is necessary to register a portion of
the Offered Securities under the Act but the Effective Time thereof has
not occurred as of such execution and delivery, the Company will file
the additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on
the date of this Agreement or, if earlier, on or prior to the time the
Prospectus is printed and distributed to any Underwriter, or will make
such filing at such later date as shall have been consented to by CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to amend
or supplement the initial or any additional registration statement as
filed or the related prospectus or the Initial Registration Statement,
the Additional Registration Statement (if any) or the Prospectus and
will not effect such amendment or supplementation without CSFBC's
consent; and the Company will also advise CSFBC promptly of the
effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or the
Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its best
efforts to prevent the issuance of any such stop order and to obtain as
soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CSFBC of such event and will promptly
prepare and file with the Commission, at
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<PAGE> 8
its own expense, an amendment or supplement which will correct such
statement or omission or an amendment which will effect such compliance.
Neither CSFBC's consent to, nor the Underwriters' delivery of, any such
amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its
securityholders an earnings statement covering a period of at least 12
months beginning after the Effective Date of the Initial Registration
Statement (or, if later, the Effective Date of the Additional
Registration Statement) which will satisfy the provisions of Section
11(a) of the Act. For the purpose of the preceding sentence,
"AVAILABILITY DATE" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such Effective
Date, except that, if such fourth fiscal quarter is the last quarter of
the Company's fiscal year, "AVAILABILITY DATE" means the 90th day after
the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (5 of which will be signed and will include all
exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be
delivered under the Act in connection with sales by any Underwriter or
dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as
soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year,
a copy of its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) as soon as available, a
copy of each report and any definitive proxy statement of the Company
filed with the Commission under the Securities Exchange Act of 1934 or
mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as CSFBC may reasonably request.
(h) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, for any filing fees and other
expenses (including fees and disbursements of counsel) incurred in
connection with qualification of the Offered Securities for sale under
the laws of such jurisdictions as CSFBC designates and the printing of
memoranda relating thereto, for the filing fee incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in
connection with, the review by the National Association of Securities
Dealers, Inc. of the Offered Securities, for any travel expenses of the
Company's officers and employees and any other expenses of the Company
in connection with attending or hosting meetings with prospective
purchasers of the Offered Securities and for expenses incurred in
distributing preliminary prospectuses and the Prospectus (including any
amendments and supplements thereto) to the Underwriters.
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(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make any
such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC, except issuances of Securities pursuant to the
conversion or exchange of convertible or exchangeable securities
outstanding on the date hereof, grants of stock options or restricted
stock pursuant to the terms of a plan in effect on the date hereof,
issuances of Securities pursuant to the exercise of such options or the
exercise of any other employee stock options outstanding on the date
hereof.
(j) In connection with the Directed Share Program, the Company will
ensure that the Directed Shares will be restricted to the extent
required by the National Association of Securities Dealers, Inc. (the
"NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. The Designated Underwriter
will notify the Company as to which Participants will need to be so
restricted. The Company will direct the transfer agent to place stop
transfer restrictions upon such securities for such period of time.
(k) The Company will pay all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Shares
Program and stamp duties, similar taxes or duties or other taxes, if
any, incurred by the underwriters in connection with the Directed Share
Program.
Furthermore, the company covenants with the Underwriters that the
company will comply with all applicable securities and other applicable
laws, rules and regulations in each foreign jurisdiction in which the
Directed Shares are offered in connection with the Directed Share
Program.
6. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and the Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received a letter, dated the date
of delivery thereof (which, if the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, shall be on or prior to the date of this Agreement or, if the
Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement, shall be prior to the
filing of the amendment or post-effective amendment to the registration
statement to be filed shortly prior to such Effective Time), of
PricewaterhouseCoopers LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Registration Statements
comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published
Rules and Regulations;
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(ii) they have performed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim
financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Company, inquiries of officials of the Company
who have responsibility for financial and accounting matters and
other specified procedures, nothing came to their attention that
caused them to believe that:
(A) the unaudited financial statements included in
the Registration Statements do not comply as to
form in all material respects with the
applicable accounting requirements of the Act
and the related published Rules and Regulations
or any material modifications should be made to
such unaudited financial statements for them to
be in conformity with generally accepted
accounting principles;
(B) at the date of the latest available balance
sheet read by such accountants, or at a
subsequent specified date not more than three
business days prior to the date of such letter,
there was any change in the capital stock or
any increase in short-term indebtedness or
long-term debt of the Company or, at the date
of the latest available balance sheet read by
such accountants, there was any decrease in
consolidated [net current assets or] net
assets, as compared with amounts shown on the
latest balance sheet included in the
Prospectus; or
(C) for the period from the closing date of the
latest income statement included in the
Prospectus to the closing date of the latest
available income statement read by such
accountants there were any decreases, as
compared with the corresponding period of the
previous year and with the period of
corresponding length ended the date of the
latest income statement included in the
Prospectus, in consolidated net sales, or any
increases in net operating loss or net
operating income, or in the total or per share
amounts of consolidated net loss,
except in all cases set forth in clauses (B) and (C) above for
changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter;
and
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Registration Statements (in each case to the
extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of
the Company subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from
inquiries, a reading of such general accounting records and other
procedures specified in such letter and have found such dollar
amounts, percentages and other financial information to be in
agreement with such results, except as otherwise specified in
such letter.
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For purposes of this subsection, (i) if the Effective Time of the
Initial Registration Statement is subsequent to the execution and
delivery of this Agreement, "REGISTRATION STATEMENTS" shall mean the
initial registration statement as proposed to be amended by the
amendment or post-effective amendment to be filed shortly prior to its
Effective Time, (ii) if the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement but
the Effective Time of the Additional Registration is subsequent to such
execution and delivery, "REGISTRATION STATEMENTS" shall mean the Initial
Registration Statement and the additional registration statement as
proposed to be filed or as proposed to be amended by the post-effective
amendment to be filed shortly prior to its Effective Time, and (iii)
"PROSPECTUS" shall mean the prospectus included in the Registration
Statements.
The Company shall have received from Pricewaterhouse Coopers LLP
(and furnished to the Representatives) an examination report with
respect to Management's Discussion and Analysis of Financial Condition
and Results of Operations of the Company for the fiscal years ending
March 31, 1999, and review report with respect to Management's
Discussion and Analysis of Financial Condition and Results of Operations
of the Company for the three-month period ending June 30, 1999, and the
corresponding period for the prior fiscal year, each in accordance with
Statement on Standards for Attestation Engagement No. 8 issued by the
Auditing Standards Board of the American Institute of Certified Public
Accountants, and such examination report shall be included in the
Registration Statement.
(b) If the Effective Time of the Initial Registration Statement
is not prior to the execution and delivery of this Agreement, such
Effective Time shall have occurred not later than 10:00 P.M., New York
time, on the date of this Agreement or such later date as shall have
been consented to by CSFBC. If the Effective Time of the Additional
Registration Statement (if any) is not prior to the execution and
delivery of this Agreement, such Effective Time shall have occurred not
later than 10:00 P.M., New York time, on the date of this Agreement or,
if earlier, the time the Prospectus is printed and distributed to any
Underwriter, or shall have occurred at such later date as shall have
been consented to by CSFBC. If the Effective Time of the Initial
Registration Statement is prior to the execution and delivery of this
Agreement, the Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 5(a) of this
Agreement. Prior to such Closing Date, no stop order suspending the
effectiveness of a Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or, to the
knowledge of the Company or the Representatives, shall be contemplated
by the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or
event involving a prospective change, in the condition (financial or
other), business, properties or results of operations of the Company
taken as one enterprise which, in the judgment of a majority in interest
of the Underwriters including the Representatives, is material and
adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities; (ii) any downgrading in the rating of any debt of
the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Act), or
any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Company
(other than an announcement with positive implications of a possible
upgrading, and no implication of a possible downgrading, of such
rating); (iii) any material suspension or material limitation of trading
in securities generally on the New York Stock Exchange, or any setting
of minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by U.S.
Federal or New York authorities; or (v) any
11
<PAGE> 12
outbreak or escalation of major hostilities in which the United States
is involved, any declaration of war by Congress or any other substantial
national or international calamity or emergency if, in the judgment of a
majority in interest of the Underwriters including the Representatives,
the effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with completion
of the public offering or the sale of and payment for the Offered
Securities.
(d) The Representatives shall have received an opinion, dated
such Closing Date, of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Company, to the effect that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions
in which its ownership or lease of property or the conduct of its
business requires such qualification, and the failure to be so
qualified would have a Material Adverse Effect;
(ii) The Company has no subsidiaries;
(iii) The Offered Securities delivered on such Closing
Date and all other outstanding shares of the Common Stock of the
Company have been duly authorized and validly issued, are fully
paid and nonassessable and conform to the description thereof
contained in the Prospectus; and the stockholders of the Company
have no preemptive rights with respect to the Securities;
(iv) There are no contracts, agreements or understandings
known to such counsel after due inquiry between the Company and
any person granting such person the right to require the Company
to file a registration statement under the Act with respect to
any securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to a Registration Statement or in
any securities being registered pursuant to any other
registration statement filed by the Company under the Act which
have not been validly waived;
(v) The Company is not and, after giving effect to the
offering and sale of the Offered Securities and the application
of the proceeds thereof as described in the Prospectus, will not
be an "investment company" as defined in the Investment Company
Act of 1940.
(vi) No consent, approval, authorization or order of, or
filing with, any governmental agency or body or any court is
required to be made or obtained by the Company for the
consummation of the transactions contemplated by this Agreement
in connection with the issuance or sale of the Offered Securities
by the Company, except such as have been obtained and made under
the Act and such as may be required under state securities laws;
(vii) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any
rule, regulation or order of any governmental agency or body or
any court having jurisdiction
12
<PAGE> 13
over the Company or any of their properties, or any agreement or
instrument known to us after due inquiry to which the Company is
a party or by which the Company is bound or to which any of the
properties of the Company is subject, or the charter or by-laws
of the Company, and the Company has full power and authority to
authorize, issue and sell the Offered Securities as contemplated
by this Agreement;
(viii) This Agreement has been duly authorized, executed
and delivered by the Company;
(ix) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport
to constitute a summary of the terms of the Securities, are
accurate, complete and fair summaries of the matters set forth
therein;
(x) Each Registration Statement and the Prospectus and any
amendments thereof or supplements thereto (other than the
financial statements and schedules and other financial data
derived therefrom, as to which no opinion need be rendered)
comply as to form in all material respects with the requirements
of the Act and the Regulations; and
(xi) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in such
opinion, the Additional Registration Statement (if any) was filed
and became effective under the Act as of the date and time (if
determinable) specified in such opinion, the Prospectus either
was filed with the Commission pursuant to the subparagraph of
Rule 424(b) specified in such opinion on the date specified
therein or was included in the Initial Registration Statement or
the Additional Registration Statement (as the case may be), and,
to the best of the knowledge of such counsel, no stop order
suspending the effectiveness of a Registration Statement or any
part thereof has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the
Act, and each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective
or issue dates, complied as to form in all material respects with
the requirements of the Act and the Rules and Regulations; such
counsel have no reason to believe that any part of a Registration
Statement or any amendment thereto, as of its effective date or
as of such Closing Date, contained any untrue statement of a
material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any amendment or supplement
thereto, as of its issue date or as of such Closing Date,
contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; the descriptions in the Registration
Statements and Prospectus of statutes, legal and governmental
proceedings and contracts and other documents are accurate in all
material respects and fairly present the information required to
be shown; and such counsel do not know of any legal or
governmental proceedings required to be described in a
Registration Statement or the Prospectus which are not described
as required or of any contracts or documents of a character
required to be described in a Registration Statement or the
Prospectus or to be filed as exhibits to a Registration Statement
which are not described and filed as required; it being
understood that such counsel need express no opinion as to the
financial statements or other financial data contained in the
Registration Statements or the Prospectus; and
13
<PAGE> 14
(e) The Representatives shall have received from Shearman &
Sterling, counsel for the Underwriters, such opinion or opinions, dated
such Closing Date, with respect to the incorporation of the Company, the
validity of the Offered Securities delivered on such Closing Date, the
Registration Statements, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to
such counsel such documents as they request for the purpose of enabling
them to pass upon such matters.
(f) The Representatives shall have received a certificate, dated
such Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable investigation,
shall state that: the representations and warranties of the Company in
this Agreement are true and correct; the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date; no stop order
suspending the effectiveness of any Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
contemplated by the Commission; the Additional Registration Statement
(if any) satisfying the requirements of subparagraphs (1) and (3) of
Rule 462(b) was filed pursuant to Rule 462(b), including payment of the
applicable filing fee in accordance with Rule 111(a) or (b) under the
Act, prior to the time the Prospectus was printed and distributed to any
Underwriter; and, subsequent to the date of the most recent financial
statements in the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company taken as a whole except as set
forth in or contemplated by the Prospectus or as described in such
certificate.
(g) The Representatives shall have received a letter, dated such
Closing Date, of PricewaterhouseCoopers LLP which meets the requirements
of subsection (a) of this Section, except that the specified date
referred to in such subsection will be a date not more than three days
prior to such Closing Date for the purposes of this subsection.
(h) All outstanding Securities, and all securities convertible
into or exercisable or exchangeable for Securities, are subject to valid
and binding agreements (collectively, "LOCK-UP AGREEMENTS") that
restrict the holders thereof from selling, making any short sale of,
granting any option for the purchase of, or otherwise transferring or
disposing of, any of such Securities, or any such securities convertible
into or exercisable or exchangeable for Securities, for a period of 180
days after the date of the Prospectus without the prior written consent
of Credit Suisse First Boston Corporation ("CSFBC").
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter
14
<PAGE> 15
for any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to the Company by any Underwriter through the Representatives specifically for
use therein, it being understood and agreed that the only such information
furnished by any Underwriter consists of the information described as such in
subsection (b) below and provided, further, that with respect to any untrue
statement or alleged untrue statement in or omission or alleged omission from
any preliminary prospectus, the indemnity agreement contained in this subsection
(a) shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased the Offered
Securities concerned, to the extent that a prospectus relating to such Offered
Securities was required to be delivered by such Underwriter under the Act in
connection with such purchase and any such loss, claim, damage or liability of
such Underwriter results from the fact that there was not sent or given to such
person, at or prior to the written confirmation of the sale of such Offered
Securities to such person, a copy of the Prospectus, if the Company had
previously furnished copies thereof to such Underwriter.
The Company agrees to indemnify and hold harmless the Designated
Underwriter and each person, if any, who controls the Designated Underwriter
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (the "DESIGNATED ENTITIES"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) (i) caused by any untrue statement or
alleged untrue statement of a material fact contained in any material prepared
by or with the consent of the Company for distribution to Participants in
connection with the Directed Share Program or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) caused by the
failure of any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase; or (iii) related to, arising out of, or
in connection with the Directed Share Program, other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
the Designated Entities.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representative[s] specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: the concession and reallowance figures appearing in the fourth
paragraph under the caption "Underwriting" and the information contained in the
fourth, sixth and twelfth paragraphs under the caption "Underwriting".
15
<PAGE> 16
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section, for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. Notwithstanding anything contained herein to
the contrary, if indemnity may be sought pursuant to the last paragraph in
Section 7 (a) hereof in respect of such action or proceeding, then in addition
to such separate firm for the indemnified parties, the indemnifying party shall
be liable for the reasonable fees and expenses of not more than one separate
firm (in addition to any local counsel) for the Designated Underwriter for the
defense of any losses, claims, damages and liabilities arising out of the
Directed Share Program, and all persons, if any, who control the Designated
Underwriter within the meaning of either Section 15 of the Act of Section 20 of
the Exchange Act. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified party unless
such settlement (i) includes an unconditional release of such indemnified party
from all liability on any claims that are the subject matter of such action and
(ii) does not include a statement as to, or an admission of, fault, culpability
or a failure to act by or on behalf of an indemnified party.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the 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 on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The 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 the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (d). Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged
16
<PAGE> 17
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any controlling person, and will survive delivery of
and payment for the Offered Securities. If this Agreement is terminated pursuant
to Section 8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company shall remain responsible for the
expenses to be paid or reimbursed by it pursuant to Section 5 and the respective
obligations of the Company and the Underwriters pursuant to Section 7 shall
remain in effect, and if any Offered Securities have been purchased hereunder
the representations and warranties in Section 2 and all obligations under
Section 5 shall also remain in effect. If the purchase of the Offered Securities
by the Underwriters is not consummated for any reason other than solely because
of the termination of this Agreement pursuant to Section 8 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 6(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
17
<PAGE> 18
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives, c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at , Attention: ; provided,
however, that any notice to an Underwriter pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the
several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
DIGITAL IMPACT, INC.
By
--------------------------
[Insert title]
The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
HAMBRECHT & QUIST LLC
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
18
<PAGE> 19
U.S. BANCORP PIPER JAFFRAY INC.
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By CREDIT SUISSE FIRST BOSTON CORPORATION
By
---------------------------------------
[Insert title]
19
<PAGE> 20
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER FIRM SECURITIES
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation....................
Hambrecht & Quist LLC.....................................
Donaldson, Lufkin & Jenrette Securities Corporation.......
U.S. Bancor Piper Jaffray Inc.............................
---------------
Total....................................... ===============
</TABLE>
20
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DIGITAL IMPACT, INC.
A DELAWARE CORPORATION
ARTICLE I
The name of this corporation is Digital Impact, Inc.
ARTICLE II
The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE IV
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock". The total number
of shares which the Corporation is authorized to issue is Seventy Million
(70,000,000) shares, Fifty-four Million (54,000,000) shares of which shall be
Common Stock (the "Common Stock"), par value $0.001 per share and Sixteen
Million (16,000,000) shares of which shall be Preferred Stock (the "Preferred
Stock"), par value $0.001 per share.
B. Six Million (6,000,000) of the authorized shares of Preferred Stock
are hereby designated "Series A Preferred Stock", Six Million (6,000,000) of the
authorized shares of Preferred Stock are hereby designated "Series B Preferred
Stock" and Four Million (4,000,000) of the authorized shares of Preferred Stock
are hereby designated "Series C Preferred Stock" (collectively, the "Series
Preferred").
C. The rights, preferences, privileges, restrictions and other matters
relating to the Series Preferred are as follows:
<PAGE> 2
1. Dividend Rights.
(a) Holders of Series Preferred, in preference to the holders of
any other stock of the Company ("Junior Stock"), shall be entitled to receive,
when and as declared by the Board of Directors, but only out of funds that are
legally available therefor, cash dividends at the rate of eight percent (8%) of
the applicable Original Issue Price (as defined below) per annum on each
outstanding share of Series Preferred (as adjusted for any stock dividends,
combinations, splits recapitalizations and the like with respect to such
shares). The "Original Issue Price" of the Series A Preferred Stock shall be
$0.20835, the "Original Issue Price" of the Series B Preferred Stock shall be
$1.20835, and the "Original Issue Price" of the Series C Preferred Stock shall
be $4.785. Such dividends shall be payable only when, as and if declared by the
Board of Directors and shall be non-cumulative.
(b) So long as any shares of Series Preferred shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any Junior Stock, nor
shall any shares of any Junior Stock of the Company be purchased, redeemed, or
otherwise acquired for value by the Company (except for acquisitions of Common
Stock by the Company pursuant to agreements which permit the Company to
repurchase such shares upon termination of services to the Company or in
exercise of the Company's right of first refusal upon a proposed transfer) until
all dividends (set forth in Section 1(a) above) on the Series Preferred shall
have been paid or declared and set apart. In the event dividends are paid on any
share of Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Series Preferred in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock. The provisions of this Section 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock, (ii) the acquisition of shares
of any Junior Stock in exchange for shares of any other Junior Stock, or (iii)
any repurchase of any outstanding securities of the Company that is unanimously
approved by the Company's Board of Directors.
2. Voting Rights.
(a) General Rights. Except as otherwise provided herein or as
required by law, the Series Preferred shall be voted equally with the shares of
the Common Stock of the Company and not as a separate class, at any annual or
special meeting of stockholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of Series Preferred shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of Series Preferred are convertible
(pursuant to Section 5 hereof) immediately after the close of business on the
record date fixed for such meeting or the effective date of such written
consent.
(b) Separate Vote of Series Preferred. For so long as at
4,140,220 shares of Series Preferred (subject to adjustment for any stock split,
reverse stock split or other similar event effecting the Series Preferred)
remain outstanding, in addition to any other vote or consent required herein or
by law, the vote or written consent of the holders of at least two-thirds (2/3)
of the outstanding Series Preferred shall be necessary for effecting or
validating the following actions:
-2-
<PAGE> 3
(i) Any amendment, alteration, or repeal of any
provision of the Certificate of Incorporation or the Bylaws of the Company
(including any filing of a Certificate of Determination) that adversely changes
the voting powers, preferences, or other special rights or privileges, or
restrictions of the Series Preferred;
(ii) Any increase or decrease (other than by conversion)
in the authorized number of shares of Preferred Stock;
(iii) Any authorization or any designation, whether by
reclassification or otherwise, of any new class or series of stock or any other
securities convertible into equity securities of the Company ranking senior to
or on parity with the Series Preferred in rights of redemption, liquidation
preference, voting or dividends or any increase in the authorized or designated
number of any such new class or series;
(iv) Any agreement by the Company or its stockholders
regarding an Asset Transfer or Acquisition (each as defined in Section 3c);
(v) Any action that results in the payment or
declaration of a dividend on any shares of Common Stock or Preferred Stock; or
(vi) Any voluntary dissolution or liquidation of the
Company.
(c) Election of Board of Directors. For so long as at least
4,140,220 shares of Series Preferred (subject to adjustment for any stock split,
reverse stock split or other similar event effecting the Series Preferred)
remain outstanding, (i) the holders of Series A Preferred Stock, voting as a
separate class, shall be entitled to elect one (1) member of the Company's Board
of Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal of
such director; (ii) the holders of Series B Preferred Stock, voting as a
separate class, shall be entitled to elect one (1) member of the Company's Board
of Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal of
such director; (iii) the holders of Common Stock, voting as a separate class,
shall be entitled to elect two (2) members of the Board of Directors at each
meeting or pursuant to each consent of the Company's stockholders for the
election of directors, and to remove from office such directors and to fill any
vacancy caused by the resignation, death or removal of such directors; and (iv)
the holders of Common Stock and Series Preferred, voting together as a class,
shall be entitled to elect all remaining members of the Board of Directors at
each meeting or pursuant to each consent of the Company's stockholders for the
election of directors, and to remove from office such directors and to fill any
vacancy caused by the resignation, death or removal of such directors.
3. Liquidation Rights.
(a) Upon any liquidation, dissolution, or winding up of the
Company, whether voluntary or involuntary, before any distribution or payment
shall be made to the holders of any Junior Stock, the holders of Series
Preferred shall be entitled to be paid out of the assets of the
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<PAGE> 4
Company an amount per share of Series Preferred equal to the applicable Original
Issue Price plus all declared and unpaid dividends on such shares of Preferred
Stock (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) for each share of
Series Preferred held by them. If, upon any liquidation, distribution, or
winding up, the assets of the Company shall be insufficient to make payment in
full to all holders of Series Preferred of the liquidation preference set forth
in this Section 3(a), then such assets shall be distributed among the holders of
Series Preferred at the time outstanding, ratably in proportion to the full
amounts to which they would otherwise be respectively entitled.
(b) After the payment of the full liquidation preference of the
Series Preferred as set forth in Section 3(a) above, the assets of the Company
legally available for distribution, if any, shall be distributed ratably to the
holders of the Common Stock.
(c) The following events shall be considered a liquidation under
this Section 3:
(i)any consolidation or merger of the Company with or
into any other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation. merger or reorganization, or
any transaction or series of related transactions to which the Company is a
party in which in excess of fifty percent (50%) of the Company's voting power is
transferred (an "Acquisition"); or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset Transfer").
(iii) In any of such events, if the consideration
received by this corporation is other than cash, its value will be deemed its
fair market value as determined in good faith by the Board of Directors or, if
requested by a majority of the holders of Series B and Series C Preferred Stock
voting together, by an independent appraisal by an investment banking firm
reasonably acceptable to such holders and to the Board of Directors. Any
securities shall be valued as follows:
(A) Securities not subject to investment letter
or other similar restrictions on free marketability covered by (2) below:
(1) If traded on a securities exchange
or through the Nasdaq National Market, the value shall be deemed to be the
average of the closing prices of the securities on such quotation system over
the thirty (30) day period ending three (3) days prior to the closing;
(2) If actively traded over-the-counter,
the value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty (30) day period ending three (3) days
prior to the closing; and
(3) If there is no active public market,
the value shall be the fair market value thereof, as determined by the Board of
Directors or, if requested by a majority of
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<PAGE> 5
the holders of Series B Preferred Stock, by an independent appraisal by an
investment banking firm reasonably acceptable to such holders and to the Board
of Directors.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free marketability (other
than restrictions arising solely by virtue of a stockholder's status as an
affiliate or former affiliate) shall be to make an appropriate discount from the
market value determined as above in (A)(1), (2) or (3) to reflect the
approximate fair market value thereof, as determined by the Board of Directors
or, if requested by a majority of the holders of Series C Preferred Stock, by an
independent appraisal by an investment banking firm reasonably acceptable to
such holders and to the Board of Directors.
4. Conversion Rights.
The holders of the Series Preferred shall have the following
rights with respect to the conversion of the Series Preferred into shares of
Common Stock (the "Conversion Rights"):
(a) Optional Conversion. Subject to and in compliance with the
provisions of this Section 4, any shares of Series Preferred may, at the option
of the holder, be converted at any time into fully-paid and nonassessable shares
of Common Stock. The number of shares of Common Stock to which a holder of
Series Preferred shall be entitled upon conversion shall be the product obtained
by multiplying the applicable Series Preferred Conversion Rate then in effect
(determined as provided in Section 4(b)) by the number of shares of Series
Preferred being converted.
(b) Series Preferred Conversion Rate. The conversion rate in
effect at any time for conversion of the Series Preferred (the "Series Preferred
Conversion Rate") shall be the quotient obtained by dividing the applicable
Original Issue Price of the Series Preferred by the applicable "Series Preferred
Conversion Price," calculated as provided in Section 4(c).
(c) Conversion Price. The conversion price for the Series
Preferred shall initially be the applicable Original Issue Price of the Series
Preferred (the "Series Preferred Conversion Price"). Such initial Series
Preferred Conversion Price shall be adjusted from time to time in accordance
with this Section 4. All references to the applicable Series Preferred
Conversion Price herein shall mean such Series Preferred Conversion Price as so
adjusted.
(d) Mechanics of Conversion. Each holder of Series Preferred who
desires to convert the same into shares of Common Stock pursuant to this Section
4 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Company or any transfer agent for the Series Preferred, and
shall give written notice to the Company at such office that such holder elects
to convert the same. Such notice shall state the number of shares of Series
Preferred being converted. Thereupon, the Company shall promptly issue and
deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay in cash or, to the extent sufficient funds are not then legally
available therefor, in Common Stock (at the Common Stock's fair market value
determined by the Board of Directors as of the date of such conversion), any
declared and unpaid dividends on the shares of Series Preferred being converted.
Such conversion shall be deemed to have been made at the close of business on
the date of such surrender of the certificates representing the shares of Series
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<PAGE> 6
Preferred to be converted, and the person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.
(e) Adjustment for Stock Splits and Combinations. If the Company
shall at any time or from time to time after the date that the first share of
Series C Preferred Stock is issued (the "Original Issue Date") effect a
subdivision of the outstanding Common Stock without a corresponding subdivision
of the Preferred Stock, the applicable Series Preferred Conversion Price in
effect immediately before that subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares without a corresponding combination of the Preferred
Stock, the applicable Series Preferred Conversion Price in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this Section 4(e) shall become effective at the close of business on the date
the subdivision or combination becomes effective.
(f) Adjustment for Common Stock Dividends and Distributions. If
the Company at any time or from time to time after the Original Issue Date
makes, or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the applicable Series Preferred
Conversion Price that is then in effect shall be decreased as of the time of
such issuance or, in the event such record date is fixed, as of the close of
business on such record date, by multiplying the applicable Series Preferred
Conversion Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which is the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution; provided, however, that if
such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the applicable Series
Preferred Conversion Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the applicable Series Preferred
Conversion Price shall be adjusted pursuant to this Section 4(f) to reflect the
actual payment of such dividend or distribution.
(g) Adjustment for Reclassification, Exchange and Substitution.
If at any time or from time to time after the Original Issue Date, the Common
Stock issuable upon the conversion of the Series Preferred is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer as defined in Section 3(c) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 4), in any such event each holder
of Series Preferred shall have the right thereafter to convert such stock into
the kind and amount of stock and other securities and property receivable upon
such recapitalization, reclassification or other change by holders of the
maximum number of shares of Common Stock into which such shares of Series
Preferred could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustment as provided herein
or with respect to such other securities or property by the terms thereof.
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<PAGE> 7
(h) Reorganizations, Mergers, Consolidations or Sales of Assets.
If at any time or from time to time after the Original Issue Date, there is a
capital reorganization of the Common Stock (other than an Acquisition or Asset
Transfer as defined in Section 3(c) or a recapitalization, subdivision,
combination, reclassification, exchange or substitution of shares provided for
elsewhere in this Section 4), as a part of such capital reorganization,
provision shall be made so that the holders of the Series Preferred shall
thereafter be entitled to receive upon conversion of the Series Preferred the
number of shares of stock or other securities or property of the Company to
which a holder of the number of shares of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, subject to
adjustment in respect of such stock or securities by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of Series
Preferred after the capital reorganization to the end that the provisions of
this Section 4 (including adjustment of the applicable Series Preferred
Conversion Price then in effect and the number of shares issuable upon
conversion of the Series Preferred) shall be applicable after that event and be
as nearly equivalent as practicable.
(i) Sale of Shares Below Series Preferred Conversion Price.
(i) If at any time or from time to time after the
Original Issue Date, the Company issues or sells, or is deemed by the express
provisions of this subsection (i) to have issued or sold, Additional Shares of
Common Stock (as defined in subsection (i)(iv) below), other than as a dividend
or other distribution on any class of stock as provided in Section 4(f) above,
and other than a subdivision or combination of shares of Common Stock as
provided in Section 4(e) above, for an Effective Price (as defined in subsection
(i)(iv) below) less than either then effective applicable Series Preferred
Conversion Price, then and in each such case the then existing applicable Series
Preferred Conversion Price shall be reduced, as of the opening of business on
the date of such issue or sale, to a price determined by multiplying the
applicable Series Preferred Conversion Price by a fraction (i) the numerator of
which shall be (A) the number of shares of Common Stock deemed outstanding (as
defined below) immediately prior to such issue or sale, plus (B) the number of
shares of Common Stock which the aggregate consideration received (as defined in
subsection (i)(ii)) by the Company for the total number of Additional Shares of
Common Stock so issued would purchase at such applicable Series Preferred
Conversion Price, and (ii) the denominator of which shall be the number of
shares of Common Stock deemed outstanding (as defined below) immediately prior
to such issue or sale plus the total number of Additional Shares of Common Stock
so issued. For the purposes of the preceding sentence, the number of shares of
Common Stock deemed to be outstanding as of a given date shall be the sum of (A)
the number of shares of Common Stock actually outstanding, (B) the number of
shares of Common Stock into which the then outstanding shares of Series
Preferred could be converted if fully converted on the day immediately preceding
the given date, and (C) the number of shares of Common Stock which could be
obtained through the exercise or conversion of all other rights, options and
convertible securities outstanding on the day immediately preceding the given
date.
(ii) For the purpose of making any adjustment required
under this Section 4(i), the consideration received by the Company for any issue
or sale of securities shall (A) to the extent it consists of cash, be computed
at the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale but without deduction of
any expenses
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<PAGE> 8
payable by the Company, (B) to the extent it consists of property other than
cash, be computed at the fair value of that property as determined in good faith
by the Board of Directors, and (C) if Additional Shares of Common Stock,
Convertible Securities (as defined in subsection (i)(iii) below) or rights or
options to purchase either Additional Shares of Common Stock or Convertible
Securities are issued or sold together with other stock or securities or other
assets of the Company for a consideration which covers both, be computed as the
portion of the consideration so received that may be reasonably determined in
good faith by the Board of Directors to be allocable to such Additional Shares
of Common Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required under
this Section 4(i), if the Company issues or sells any (i) stock or other
securities convertible into, Additional Shares of Common Stock (such convertible
stock or securities being herein referred to as "Convertible Securities") or
(ii) rights or options for the purchase of Additional Shares of Common Stock or
Convertible Securities and if the Effective Price of such Additional Shares of
Common Stock is less than the applicable Series Preferred Conversion Price, in
each case the Company shall be deemed to have issued at the time of the issuance
of such rights or options or Convertible Securities the maximum number of
Additional Shares of Common Stock issuable upon exercise or conversion thereof
and to have received as consideration for the issuance of such shares an amount
equal to the total amount of the consideration, if any, received by the Company
for the issuance of such rights or options or Convertible Securities, plus, in
the case of such rights or options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise of such rights or options, plus,
in the case of Convertible Securities, the minimum amounts of consideration, if
any, payable to the Company (other than by cancellation of liabilities or
obligations evidenced by such Convertible Securities) upon the conversion
thereof; provided that if in the case of Convertible Securities the minimum
amounts of such consideration cannot be ascertained, but are a function of
antidilution or similar protective clauses, the Company shall be deemed to have
received the minimum amounts of consideration without reference to such clauses;
provided further that if the minimum amount of consideration payable to the
Company upon the exercise or conversion of rights, options or Convertible
Securities is reduced over time or on the occurrence or non-occurrence of
specified events other than by reason of antidilution adjustments, the Effective
Price shall be recalculated using the figure to which such minimum amount of
consideration is reduced; provided further that if the minimum amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the
Effective Price shall be again recalculated using the increased minimum amount
of consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities. No further adjustment of the
applicable Series Preferred Conversion Price, as adjusted upon the issuance of
such rights, options or Convertible Securities, shall be made as a result of the
actual issuance of Additional Shares of Common Stock on the exercise of any such
rights or options or the conversion of any such Convertible Securities. If any
such rights or options or the conversion privilege represented by any such
Convertible Securities shall expire without having been exercised, the
applicable Series Preferred Conversion Price as adjusted upon the issuance of
such rights, options or Convertible Securities shall be readjusted to the
applicable Series Preferred Conversion Price which would have been in effect had
an adjustment been made on the basis that the only Additional Shares of Common
Stock so issued were the Additional Shares of Common Stock, if any, actually
issued or sold on the exercise of such rights or options or rights of conversion
of such Convertible Securities, and such Additional Shares of Common Stock, if
any, were issued or sold for the consideration
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<PAGE> 9
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such rights or
options, whether or not exercised, plus the consideration received for issuing
or selling the Convertible Securities actually converted, plus the
consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities; provided that such
readjustment shall not apply to prior conversions of Series Preferred.
(iv) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued by the Company or deemed to be issued pursuant to
this Section 4(i), whether or not subsequently reacquired or retired by the
Company other than (A) shares of Common Stock issued upon conversion of the
Series Preferred; (B) shares of Common Stock and/or options, warrants or other
Common Stock purchase rights and the Common Stock issued pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) after the Original Issue
Date to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board; (C) shares of capital stock
issued pursuant to the exercise of options, warrants or convertible securities
outstanding as of the Original Issue Date; (D) shares of Common Stock issued for
consideration other than cash pursuant to a merger, consolidation, acquisition
or similar business combination; and (E) shares of Common Stock issued pursuant
to any equipment leasing arrangement, or debt financing from a bank or similar
financial institution approved by the Board (including at least one
representative designated by the Series Preferred). The "Effective Price" of
Additional Shares of Common Stock shall mean the quotient determined by dividing
the total number of Additional Shares of Common Stock issued or sold, or deemed
to have been issued or sold by the Company under this Section 4(i), into the
aggregate consideration received, or deemed to have been received by the Company
for such issue under this Section 4(i), for such Additional Shares of Common
Stock.
(j) Certificate of Adjustment. In each case of an adjustment or
readjustment of the applicable Series Preferred Conversion Price for the number
of shares of Common Stock or other securities issuable upon conversion of the
Series Preferred, if the Series Preferred is then convertible pursuant to this
Section 4, the Company, at its expense, shall compute such adjustment or
readjustment in accordance with the provisions hereof and prepare a certificate
showing such adjustment or readjustment, and shall mail such certificate, by
first class mail, postage prepaid, to each registered holder of Series Preferred
at the holder's address as shown in the Company's books. The certificate shall
set forth such adjustment or readjustment, showing in detail the facts upon
which such adjustment or readjustment is based, including, as applicable, a
statement of (i) the consideration received or deemed to be received by the
Company for any Additional Shares of Common Stock issued or sold or deemed to
have been issued or sold, (ii) the applicable Series Preferred Conversion Price
at the time in effect, (iii) the number of Additional Shares of Common Stock and
(iv) the type and amount, if any, of other property which at the time would be
received upon conversion of the Series Preferred.
(k) Notices of Record Date. Upon (i) any taking by the Company
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(c) or other
capital reorganization of the Company, any reclassification or recapitalization
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of the capital stock of the Company, any merger or consolidation of the Company
with or into any other corporation, or any Asset Transfer (as defined in Section
3(c)), or any voluntary or involuntary dissolution, liquidation or winding up of
the Company, the Company shall mail to each holder of Series Preferred at least
twenty (20) days prior to the record date specified therein a notice specifying
(A) the date on which any such record is to be taken for the purpose of such
dividend or distribution and a description of such dividend or distribution, (B)
the date on which any such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up is expected to become effective, and (C) the date, if any, that is to
be fixed as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up.
(l) Automatic Conversion.
(i) Each share of Series Preferred shall automatically
be converted into shares of Common Stock, based on the then-effective applicable
Series Preferred Conversion Price, (A) at any time upon the affirmative election
of the holders of at least two-thirds (2/3) of the outstanding shares of the
Series Preferred, or (B) immediately upon the closing of a firmly underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company in which (i) the per share price values the
Company on a fully diluted basis to be at least $125 million and (ii) the gross
cash proceeds to the Company (before underwriting discounts, commissions and
fees) are at least $10,000,000. Upon such automatic conversion, any declared and
unpaid dividends shall be paid in accordance with the provisions of Section
4(d).
(ii) Upon the occurrence of the event specified in
paragraph (A) above, the outstanding shares of Series Preferred shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless the certificates evidencing such shares of
Series Preferred are either delivered to the Company or its transfer agent as
provided below, or the holder notifies the Company or its transfer agent that
such certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Series Preferred, the holders of Series Preferred shall
surrender the certificates representing such shares at the office of the Company
or any transfer agent for the Series Preferred. Thereupon, there shall be issued
and delivered to such holder promptly at such office and in its name as shown on
such surrendered certificate or certificates, a certificate or certificates for
the number of shares of Common Stock into which the shares of Series Preferred
surrendered were convertible on the date on which such automatic conversion
occurred, and any declared and unpaid dividends shall be paid in accordance with
the provisions of Section 4(d).
(m) Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Series Preferred. All shares of Common Stock
(including fractions thereof)
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<PAGE> 11
issuable upon conversion of more than one share of Series Preferred by a holder
thereof shall be aggregated for purposes of determining whether the conversion
would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of any
fractional share, the Company shall, in lieu of issuing any fractional share,
pay cash equal to the product of such fraction multiplied by the Common Stock's
fair market value (as determined by the Board of Directors) on the date of
conversion.
(n) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series Preferred, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series Preferred. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series Preferred, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
(o) Notices. Any notice required by the provisions of this
Section 4 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Company.
(p) Payment of Taxes. The Company will pay all taxes (other than
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series Preferred
so converted were registered.
(q) No Dilution or Impairment. Without the consent of the
holders of the then outstanding Series Preferred, as required under Section
2(b), the Company shall not amend its Restated Certificate of Incorporation or
participate in any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or take any other voluntary action, for
the purpose of avoiding or seeking to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company, but shall at
all times in good faith assist in carrying out all such action as may be
reasonably necessary or appropriate in order to protect the conversion rights of
the holders of the Series Preferred against dilution or other impairment.
5. Redemption.
The Series Preferred shall not be redeemable by the Company.
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6. No Reissuance of Series Preferred.
No share or shares of Series Preferred acquired by the Company
by reason of redemption, purchase, conversion or otherwise shall be reissued;
and in addition, the Certificate of Incorporation shall be appropriately amended
to effect the corresponding reduction in the Company's authorized stock.
7. No Preemptive Rights.
Stockholders shall have no preemptive rights.
ARTICLE V
The name and mailing address of the incorporator is as follows:
Ava M. Hahn
c/o Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
ARTICLE VI
The corporation is to have perpetual existence.
ARTICLE VII
A. Board of Directors. The management of the business and the conduct of
the affairs of the corporation shall be vested in the Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall be
fixed in the manner designated in the Bylaws of the corporation.
B. Bylaws. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to make, alter, amend
or repeal the Bylaws of the corporation.
C. Election of Directors. Elections of directors need not be by written
ballot unless a stockholder demands election by written ballot at the meeting
and before voting begins or unless the Bylaws of the corporation shall so
provide.
D. Cumulative Voting Rights. Until a Registration Statement regarding
the sale of the Common Stock to the public is declared effective by the
Securities and Exchange Commission, stockholders shall be entitled to cumulative
voting rights. At all elections of directors of the corporation, each holder of
stock or of any class or classes or of a series or series thereof shall be
entitled to as many votes as shall equal the number of votes which (except for
this provision as to
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cumulative voting) such stockholder would be entitled to cast for the election
of directors with respect to such stockholder's shares of stock multiplied by
the number of directors to be elected, and such stockholder may cast all of such
votes for a single director or may distribute them among the number of directors
to be voted for, or for any two or more of them as such stockholder may see fit.
As of the date that a Registration Statement regarding the sale of the Common
Stock to the public is declared effective by the Securities and Exchange
Commission, this Article VII, Section D, shall no longer be effective and may be
deleted herefrom upon any restatement of this Certificate of Incorporation.
ARTICLE VIII
A. Director Liability. To the fullest extent permitted by the Delaware
General Corporation Law as the same exists or as may hereafter be amended, a
director of the corporation shall not be personally liable to the corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director.
B. Indemnification. The corporation may indemnify to the fullest extent
permitted by law any person made or threatened to be made a party to an action
or proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he, his testator or intestate is or was a director,
officer, employee or agent of the corporation or any predecessor of the
corporation or serves or served at any other enterprise as a director, officer,
employee or agent at the request of the corporation or any predecessor to the
corporation.
C. Amendment or Repeal. Neither any amendment nor repeal of this Article
VIII, nor the adoption of any provision of this corporation's Certificate of
Incorporation inconsistent with this Article VIII, shall eliminate or reduce the
effect of this Article VIII, in respect of any matter occurring, or any action
or proceeding accruing or arising or that, but for this Article VIII, would
accrue or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
ARTICLE IX
Meetings of stockholders may be held within or outside the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
ARTICLE X
Vacancies created by the resignation of one or more members of the Board
of Directors and newly created directorships, created in accordance with the
Bylaws of this corporation, may be filled by the vote of a majority, although
less than a quorum, of the directors then in office, or by a sole remaining
director.
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<PAGE> 14
ARTICLE XI
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the corporation.
ARTICLE XII
The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
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<PAGE> 15
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purposes of forming a corporation pursuant to corporation law of the State of
Delaware, does make this certificate, hereby declaring and certifying, under
penalties of perjury, that this is my act and deed and the facts herein stated
are true, and accordingly, has hereunto set her hand this 6th day of October,
1999.
DIGITAL IMPACT, INC.
a Delaware corporation
By:
---------------------------------
Ava M. Hahn
Incorporator
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<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
DIGITAL IMPACT, INC.
A DELAWARE CORPORATION
Digital Impact, Inc., a corporation organized and existing under the
laws of the State of Delaware, does hereby certify:
1. The name of the corporation is Digital Impact, Inc. (the
"Corporation"). The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on October 6, 1999.
2. The amendment and restatement herein set forth has been duly approved
by the Board of Directors of the Corporation and by the stockholders of the
Corporation pursuant to Sections 141, 228 and 242 of the General Corporation Law
of the State of Delaware ("Delaware Law"). Approval of this amendment and
restatement was approved by a written consent signed by less than all of the
stockholders of the Corporation pursuant to Section 228 of the Delaware Law, and
notice has been given in accordance with Section 228(d) of the Delaware Law to
those stockholders not signing such written consent.
3. The restatement herein set forth has been duly adopted pursuant to
Section 245 of the Delaware Law. This Amended and Restated Certificate of
Incorporation restates and integrates and amends the provisions of the
Corporation's Certificate of Incorporation.
4. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
"ARTICLE I
The name of this corporation is Digital Impact, Inc. (hereinafter, the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
<PAGE> 2
ARTICLE IV
This Corporation is authorized to issue two classes of shares to be
designated, respectively, Common Stock and Preferred Stock. Each share of Common
Stock shall have a par value of $0.001 and each share of Preferred Stock shall
have a par value of $0.001. The total number of shares of Common Stock this
Corporation shall have authority to issue is 100,000,000, and the total number
of shares of Preferred Stock this Corporation shall have authority to issue is
5,000,000.
The Preferred Stock initially shall be undesignated as to series. Any
Preferred Stock not previously designated as to series may be issued from time
to time in one or more series pursuant to a resolution or resolutions providing
for such issue duly adopted by the Board of Directors (authority to do so being
hereby expressly vested in the Board), and such resolution or resolutions shall
also set forth the voting powers, full or limited or none, of each such series
of Preferred Stock and shall fix the designations, preferences and relative,
participating, optional or other special rights of each such series of Preferred
Stock and the qualifications, limitations or restrictions of such powers,
designations, preferences or rights. The Board of Directors is also authorized
to fix the number of shares of each such series of Preferred Stock. The Board of
Directors is authorized to alter the powers, designation, preferences, rights,
qualifications, limitations and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series of Preferred
Stock, to increase or decrease (but not below the number of shares of any such
series then outstanding) the number of shares of any such series subsequent to
the issue of shares of that series.
Each share of Preferred Stock issued by the Corporation, if reacquired
by the Corporation (whether by redemption, repurchase, conversion to Common
Stock or other means), shall upon such reacquisition resume the status of
authorized and unissued shares of Preferred Stock, undesignated as to series and
available for designation and issuance by the Corporation in accordance with the
immediately preceding paragraph.
The Corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion, if applicable, of the
Preferred Stock.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
The Board of Directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors. At the first annual meeting of stockholders following the date
hereof, the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three years. At the second annual
meeting of stockholders following the date hereof, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the date hereof, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed
-2-
<PAGE> 3
the directors of the class whose term expire at such annual meeting. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director.
ARTICLE VII
Section 1. The business and affairs of the Corporation shall be managed
by or under the direction of the Board of Directors.
Section 2. In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors is expressly authorized to adopt, alter,
amend or repeal the Bylaws of the Corporation. The affirmative vote of at least
a majority of the Board of Directors then in office shall be required to adopt,
amend, alter or repeal the Corporation's Bylaws. The Corporation's Bylaws also
may be adopted, amended, altered or repealed by the affirmative vote of the
holders of at least a majority of the voting power of the shares entitled to
vote at an election of directors. No Bylaw hereafter legally adopted, amended,
altered or repealed by the stockholders of the Corporation shall invalidate any
prior act of the directors or officers of the Corporation which would have been
valid if such Bylaw had not been adopted, amended, altered or repealed.
Section 3. Elections of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
Section 4. At the election of directors of the Corporation, each holder
of Common Stock shall be entitled to one vote for each share held. No
stockholder will be permitted to cumulate votes at any election of directors.
Section 5. The number of directors which constitute the whole Board of
Directors shall be fixed exclusively in the manner designated in the Bylaws of
the Corporation.
ARTICLE VIII
Section 1. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Section 2. The Corporation shall indemnify to the fullest extent
permitted by law, as now or hereinafter in effect, any person made or threatened
to be made a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that he, his testator or
intestate is or was a director or officer of the Corporation or any predecessor
of the Corporation or serves or served at any other enterprise as a director,
officer, employee or agent at the request of the Corporation or any predecessor
to the Corporation and such right to indemnification shall continue as to a
person who has ceased to be a director or officer of the Corporation and shall
inure to the benefit of his or her heirs, executors and personal and legal
representatives; PROVIDED, HOWEVER, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to indemnify
any director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors of the Corporation.. The right to indemnification
conferred by this Section 2 shall include the right to be paid by the
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<PAGE> 4
Corporation the expenses incurred in defending or otherwise participating in any
proceeding in advance of its final disposition. The Corporation may indemnify to
the fullest extent permitted by law, as now or hereinafter in effect, any person
made or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was an employee or agent of the Corporation or
any predecessor of the Corporation or serves or served at any other enterprise
as a director, officer, employee or agent at the request of the Corporation or
any predecessor to the Corporation. The rights to indemnification and to the
advancement of expenses conferred in this Section 2 shall not be exclusive of
any other right which any person may have or hereafter acquire under this
Amended and Restated Certificate Incorporation (as amended and restated from
time to time, the "Restated Certificate of Incorporation"), the Bylaws of the
Corporation, any statute, agreement, vote of the stockholders of the Corporation
or disinterested directors of the Corporation or otherwise.
Section 3. Neither any amendment nor repeal of any Section of this
Article VIII, nor the adoption of any provision of the Restated Certificate of
Incorporation inconsistent with this Article VIII, shall adversely affect any
right or protection of any director or officer established pursuant to this
Article VIII existing at the time of such amendment, repeal or adoption of an
inconsistent provision, including without limitation by eliminating or reducing
the effect of this Article VIII, for or in respect of any act, omission or other
matter occurring, or any action or proceeding accruing or arising (or that, but
for this Article VIII, would accrue or arise) prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
Section 1. Except as otherwise provided for or fixed by or pursuant to
the provisions of Article IV hereof in relation to the rights of the holders of
Preferred Stock to elect directors under specified circumstances, newly-created
directorships resulting from any increase in the number of directors, created in
accordance with the Bylaws of the Corporation, and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors, or by a sole remaining director. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been elected and
qualified, or until such director's earlier death, resignation or removal. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
Section 2. Any director or the entire Board of Directors may be removed
from office at any time, but only for cause, and only by the affirmative vote of
the holders of at least a majority of the voting power of the issued and
outstanding capital stock of the Corporation entitled to vote in the election of
directors.
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<PAGE> 5
ARTICLE XI
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
ARTICLE XII
Section 1. Stockholders of the Corporation may not take action by
written consent in lieu of a meeting but must take any actions at a duly called
annual or special meeting.
Section 2. Unless otherwise required by law, special meetings of the
stockholders of the Corporation, for any purpose or purposes, may be called only
by either (i) the Board of Directors of the Corporation, (ii) the Chairman of
the Board of Directors of the Corporation, if there be one, (iii) the Chief
Executive Officer of the Corporation or (iv) the President of the Corporation.
ARTICLE XIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation."
IN WITNESS WHEREOF, Digital Impact, Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by William C. Park and
attested to by David Oppenheimer, its Secretary, on October __, 1999.
Digital Impact, Inc.
a Delaware Corporation
By: _____________________________________
William C. Park,
Chief Executive Officer
ATTEST:
By: _______________________________
David Oppenheimer,
Secretary
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<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
DIGITAL IMPACT, INC.
(a Delaware corporation)
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
ARTICLE I CORPORATE OFFICES......................................................................1
<S> <C> <C>
1.1 REGISTERED OFFICE.................................................................1
1.2 OTHER OFFICES.....................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS..............................................................1
2.1 PLACE OF MEETINGS.................................................................1
2.2 ANNUAL MEETING....................................................................1
2.3 SPECIAL MEETING...................................................................1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS..................................................2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE......................................2
2.6 QUORUM............................................................................3
2.7 ADJOURNED MEETING; NOTICE.........................................................3
2.8 VOTING............................................................................3
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.................................4
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...........................4
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.......................5
2.12 PROXIES...........................................................................5
2.13 INSPECTORS OF ELECTION............................................................5
2.14 ADVANCE NOTICE OF STOCKHOLDER BUSINESS............................................6
2.15 ADVANCE NOTICE OF DIRECTOR NOMINATIONS............................................7
ARTICLE III DIRECTORS............................................................................8
3.1 POWERS............................................................................8
3.2 NUMBER AND TERM OF OFFICE.........................................................8
3.3 RESIGNATION AND VACANCIES.........................................................8
3.4 REMOVAL...........................................................................9
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..........................................9
3.6 REGULAR MEETINGS..................................................................9
3.7 SPECIAL MEETINGS; NOTICE..........................................................9
3.8 QUORUM...........................................................................10
3.9 WAIVER OF NOTICE.................................................................10
3.10 ADJOURNMENT......................................................................10
3.11 NOTICE OF ADJOURNMENT............................................................10
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................10
3.13 FEES AND COMPENSATION OF DIRECTORS...............................................11
3.14 APPROVAL OF LOANS TO OFFICERS....................................................11
3.15 INTERESTED DIRECTORS.............................................................11
ARTICLE IV COMMITTEES...........................................................................11
4.1 COMMITTEES OF DIRECTORS..........................................................11
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
PAGE
ARTICLE V OFFICERS..............................................................................12
<S> <C> <C>
5.1 OFFICERS.........................................................................12
5.2 ELECTION OF OFFICERS.............................................................13
5.3 SUBORDINATE OFFICERS.............................................................13
5.4 REMOVAL AND RESIGNATION OF OFFICERS..............................................13
5.5 VACANCIES IN OFFICES.............................................................13
5.6 CHAIRMAN OF THE BOARD............................................................13
5.7 CHIEF EXECUTIVE OFFICER..........................................................13
5.8 PRESIDENT........................................................................14
5.9 VICE PRESIDENTS..................................................................14
5.10 SECRETARY........................................................................14
5.11 CHIEF FINANCIAL OFFICER..........................................................14
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS..................15
6.1 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN THOSE BY
OR IN THE RIGHT OF THE CORPORATION...............................................15
6.2 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF
THE CORPORATION..................................................................15
6.3 AUTHORIZATION OF INDEMNIFICATION.................................................16
6.4 GOOD FAITH DEFINED...............................................................16
6.5 INDEMNIFICATION BY A COURT.......................................................16
6.6 EXPENSES PAYABLE IN ADVANCE......................................................17
6.7 NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES....................17
6.8 INSURANCE........................................................................17
6.9 CERTAIN DEFINITIONS..............................................................17
6.10 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES..........................18
6.11 LIMITATION ON INDEMNIFICATION....................................................18
6.12 INDEMNIFICATION OF EMPLOYEES AND AGENTS..........................................18
ARTICLE VII RECORDS AND REPORTS.................................................................18
7.1 MAINTENANCE AND INSPECTION OF RECORDS............................................18
7.2 INSPECTION BY DIRECTORS..........................................................19
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.................................................19
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................................19
ARTICLE VIII GENERAL MATTERS....................................................................19
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............................19
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS........................................20
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED...............................20
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES...........................................20
8.5 SPECIAL DESIGNATION ON CERTIFICATES..............................................20
</TABLE>
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<PAGE> 4
<TABLE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
<S> <C> <C>
8.6 LOST CERTIFICATES................................................................21
8.7 CONSTRUCTION; DEFINITIONS........................................................21
ARTICLE IX AMENDMENTS...........................................................................21
</TABLE>
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<PAGE> 5
BYLAWS
OF
DIGITAL IMPACT, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
Certificate of Incorporation of the corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated from time to time by the board of directors. In
the absence of any such designation, stockholders' meetings shall be held at the
registered office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated from time to time by the board of directors. In the absence
of such designation, the annual meeting of stockholders shall be held on the
first Wednesday of May in each year at 10:00 a.m. However, if such day falls on
a legal holiday, then the meeting shall be held at the same time and place on
the next succeeding full business day. At the meeting, directors shall be
elected, and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors, or by the chairman of the board, by the chief executive
officer, or by the president or by one of the foregoing if so requested by one
or more stockholders holding shares in the aggregate entitled to cast not less
than ten percent
<PAGE> 6
(10%) of the votes at that meeting. At and following such time as the
corporation files a Registration Statement with the Securities and Exchange
Commission for the purpose of effecting the initial public offering of its
common stock and such Registration Statement is declared effective by the
Commission (such time is hereinafter referred to as the "Public Offering Date"),
a special meeting of the stockholders may only be called by the board of
directors, by the chairman of the board, by the chief executive officer, or by
the president.
If a special meeting is called by any person or persons other than the
board of directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the chairman of the board, the president, chief
executive officer, or the secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in the notice of
such special meeting delivered to stockholders (or any supplement thereto
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings of stockholders shall be sent or otherwise given
in accordance with Section 2.5 of these bylaws not less than ten (10) nor more
than sixty (60) days before the date of the meeting. The notice shall specify
the place, date, and hour of the meeting and (i) in the case of a special
meeting, the general nature of the business to be transacted (no business other
than that specified in the notice (or in any supplement thereto) may be
transacted) or (ii) in the case of the annual meeting, those matters which the
board of directors, at the time of giving the notice, intends to present for
action by the stockholders (but any proper matter may be presented at the
meeting for such action). The notice of any meeting at which directors are to be
elected shall include the name of any nominee or nominees who, at the time of
the notice, the board intends to present for election.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given by
first-class mail or by facsimile, telegraphic or other written communication or
in such other manner as permitted by law. Notices shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
If any notice addressed to a stockholder at the address of that
stockholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
stockholder on written demand of the stockholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice (or
supplement thereto) of any stockholders' meeting, executed by the secretary,
assistant secretary or any transfer agent of the corporation giving the notice,
shall be prima facie evidence of the giving of such notice (or supplement
thereto).
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<PAGE> 7
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of stockholders. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to do business
for which such meeting is called until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy. In the absence
of a quorum, no other business may be transacted at that meeting except as has
been transacted while a quorum was present, if any, as provided in Section 2.6
of these bylaws.
When any meeting of stockholders, either annual or special, is adjourned
to another time or place, notice need not be given of the adjourned meeting if
the time and place are announced at the meeting at which the adjournment is
taken. However, if a new record date for the adjourned meeting is fixed or if
the adjournment is for more than thirty (30) days from the date set for the
original meeting, then notice of the adjourned meeting shall be given. Notice of
any such adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting in accordance with the provisions of Sections
2.4 and 2.5 of these bylaws. At any adjourned meeting the corporation may
transact any business which might have been transacted at the original meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint
owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation,
each outstanding share, regardless of class, shall be entitled to one vote on
each matter submitted to a vote of the stockholders.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the stockholders, unless the vote of a greater number or a vote by
classes is required by law, by the Certificate of Incorporation or by these
bylaws. The board of directors, in its discretion, or the officer of the
corporation presiding at a meeting of stockholders, in such officer's
discretion, may require that any votes cast at such meeting shall be cast by
written ballot.
At a stockholders' meeting at which directors are to be elected, a
stockholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such stockholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the stockholder has given notice prior
to commencement of the voting of the stockholder's intention to cumulate votes.
If any stockholder has given such a notice, then every stockholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes
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<PAGE> 8
to which that stockholder's shares are normally entitled or (ii) by distributing
the stockholder's votes on the same principle among any or all of the
candidates, as the stockholder thinks fit. The candidates receiving the highest
number of affirmative votes, up to the number of directors to be elected, shall
be elected; votes against any candidate and votes withheld shall have no legal
effect. Notwithstanding the foregoing provisions of this paragraph, unless
otherwise provided in the Certificate of Incorporation, a stockholder shall not
be entitled to cumulate votes at any time following the Public Offering Date.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of stockholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of stockholders. All such waivers, consents,
and approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the Certificate of Incorporation, any
action which may be taken at any annual or special meeting of stockholders may
be taken without a meeting and without prior notice, if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take that action at a meeting at which all shares entitled to
vote on that action were present and voted and shall be delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by this Section 2.10 to
the corporation, written consents signed by a sufficient number of holders to
take action are delivered to the corporation by delivery to its registered
office in the state of Delaware, its principal place of business, or an officer
or agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Notwithstanding the foregoing provisions
of this paragraph, unless otherwise provided in the Certificate of
Incorporation, stockholders shall not be entitled to take action by written
consent at any time following the Public Offering Date.
Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning
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any vote of stockholders, that written notice and written consent have been
given as provided in Section 228 of the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
If the board of directors does not so fix a record date:
(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 business day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held; and
(b) the record date for determining stockholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given as required by Section 2.10, or (ii) when prior action by the
board has been taken, shall be at the close of business on the day on which the
board adopts the resolution relating to that action.
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;
providing, however, that the board of directors may fix a new record date for
the adjourned meeting. The record date for any other purpose shall be as
provided in Article VIII of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
2.13 INSPECTORS OF ELECTION
The board of directors of the corporation may adopt by resolution such
rules and regulations for the conduct of the meeting of the stockholders as it
shall deem appropriate. Except to the extent inconsistent with such rules and
regulations as adopted by the board of directors, the chairman of any meeting of
the stockholders shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are appropriate for the proper conduct of the meeting. Such rules,
regulations or procedures, whether adopted by the board of directors or
prescribed by the
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chairman of the meeting, and such acts may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) the determination of when the polls shall open and close for any
given matter to be voted on at the meeting; (iii) rules and procedures for
maintaining order at the meeting and the safety of those present; (iv)
limitations on attendance at or participation in the meeting to stockholders of
record of the corporation, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (v) restrictions
on entry to the meeting after the time fixed for the commencement thereof; (vi)
limitations on the time allotted to questions or comments by participants; (vii)
determination of the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, and
the authenticity, validity, and effect of proxies; (viii) counting and
tabulation of all votes or consents; (ix) hearing and determining all challenges
and questions in any way arising in connection with the right to vote; (x) any
other acts that may be proper to conduct the election or vote with fairness to
all stockholders and (xi) the appointment of an inspector or inspectors of
election to act at the meeting or its adjournment in respect of one or more of
the foregoing matters. The board of directors or chairman may hear and determine
all challenges and questions in any way arising in connection with the right to
vote.
2.14 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
To be properly brought before an annual meeting, any business must be
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the board of directors, (b) otherwise properly brought
before the meeting by or at the direction of the board of directors, or (c)
otherwise properly brought before the meeting by a stockholder (i) who is a
stockholder of record on the date of the giving of the notice provided for in
this Section 2.14 and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section 2.14. For such nominations or other
business to be considered properly brought before the meeting by a stockholder
such stockholder must, in addition to any other applicable requirements, have
given timely notice and in proper form of such stockholder's intent to bring
such business before such meeting. To be timely, such stockholder's notice must
be delivered to or mailed and received by the Secretary of the corporation at
the principal executive offices of the corporation not less than ninety (90)
days prior to the anniversary date of the immediately preceding annual meeting;
provided, however, that in the event the annual meeting is called for a date
that is not within thirty (30) days before or after such anniversary date,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure made, whichever occurs
first. To be in proper form, a stockholder's notice to the Secretary shall set
forth:
(a) the name and record address of the stockholder who intends to
propose the business and the class or series and number of shares of capital
stock of the corporation which are owned beneficially or of record by such
stockholder;
(b) a representation that the stockholder is a holder of record
of stock of the corporation entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting introduce the business specified in
the notice;
(c) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting; and
(d) any material interest of the shareholder in such business.
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No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section; provided, however, that, once business has
been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 2.13 shall be deemed to preclude discussion
by any stockholder of any such business. The chairman of the meeting may refuse
to acknowledge the proposal of any business not made in compliance with the
foregoing procedure.
2.15 ADVANCE NOTICE OF DIRECTOR NOMINATIONS
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors of the corporation,
except as may be otherwise provided in the Restated Certificate of Incorporation
with respect to the right of holders of preferred stock of the corporation to
nominate and elect a specified number of directors in certain circumstances. To
be properly brought before an annual meeting, meeting of stockholders, or any
special meeting of stockholders called for the purpose of electing directors,
nominations for the election of director must be (a) specified in the notice of
meeting (or any supplement thereto), (b) made by or at the direction of the
board of directors (or any duly authorized committee thereof) or (c) made by any
stockholder of the corporation (i) who is a stockholder of record on the date of
the giving of the notice provided for in this Section 2.15 and on the record
date for the determination of stockholders entitled to vote at such meeting and
(ii) who complies with the notice procedures set forth in this Section 2.15.
In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the corporation. To be timely, a
stockholder's notice to the Secretary must be delivered to or mailed and
received at the principal executive offices of the corporation (a) in the case
of an annual meeting, not less than ninety (90) days prior to the anniversary
date of the immediately preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is
not within thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the close
of business on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made, whichever first occurs; and (b) in the case of a
special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth (10th) day following the day
on which notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth:
(a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and
(b) as to the stockholder giving the notice (i) the name and
record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the corporation which are owned beneficially or of
record by such stockholder, (iii) a description of all arrangements or
understandings between such stockholder and each proposed nominee and any other
person or persons (including their
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names) pursuant to which the nomination(s) are to be made by such stockholder,
(iv) a representation that such stockholder intends to appear in person or by
proxy at the meeting to nominate the persons named in its notice and (v) any
other information relating to such stockholder that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in this
Section 2.15. If the Chairman of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the nomination was defective and such defective nomination
shall be disregarded.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
to any limitations in the Restated Certificate of Incorporation or these bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 NUMBER AND TERM OF OFFICE
The authorized number of directors shall be established from time to
time by resolution of the board of directors or by amendment of this Section
3.2, duly adopted by the board of directors or by the stockholders.
No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors (including such director whose resignation is to be effective
at a later time) may elect a successor to take office when the resignation
becomes effective.
Prior to the Public Offering Date, vacancies in the board of directors
may be filled by a majority of the remaining directors, even if less than a
quorum, or by a sole remaining director; however, a vacancy created by the
removal of a director by the vote or written consent of the stockholders or by
court order may be filled only by the affirmative vote of a majority of the
shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute a majority of the
required quorum), or by the unanimous written consent of all shares entitled to
vote thereon. Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
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qualified. From and after the Public Offering Date, unless otherwise required by
law or the Restated Certificate of Incorporation, vacancies arising through
death, resignation, removal, an increase in the number of directors or otherwise
may be filled only by a majority of the directors then in office, though less
than a quorum, or by a sole remaining director. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified, or until such director's earlier death, resignation
or removal. No decrease in the number of directors constituting the board of
directors shall shorten the term of any incumbent director.
3.4 REMOVAL
Prior to the Public Offering Date, subject to any limitations imposed by
law or the Certificate of Incorporation, the board of directors, or any
individual director, may be removed from office at any time with or without
cause by the affirmative vote of the holders of at least a majority of the then
outstanding shares of the capital stock of the corporation entitled to vote at
an election of directors. From and after the Public Offering Date, any director
may be removed from office at any time only with cause by the affirmative vote
of the holders of at least a majority of the then outstanding shares of the
capital stock of the corporation entitled to vote at an election of directors.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of Delaware that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice if
the times of such meetings are fixed by the board of directors.
3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, or any
two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
facsimile or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by facsimile, it shall be delivered
personally or by telephone or by facsimile machine at least forty-eight (48)
hours before the time of the holding of the meeting or on such shorter notice as
the person or persons calling such meeting may deem necessary or appropriate in
the
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circumstances. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director.
3.8 QUORUM
Except as otherwise required by law, a majority of the authorized number
of directors shall constitute a quorum for the transaction of business, except
to adjourn as provided in Section 3.11 of these bylaws. Every act or decision
done or made by a majority of the directors present at a duly held meeting at
which a quorum is present shall be regarded as the act of the board of
directors, subject to the provisions of the Certificate of Incorporation and
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not be
given unless the meeting is adjourned for more than twenty-four (24) hours. If
the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all the members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
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3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 INTERESTED DIRECTORS
No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the board of
directors or committee thereof which authorizes the contract or transaction, or
solely because the director or officer's vote is counted for such purpose if (i)
the material facts as to the director or officer's relationship or interest and
as to the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board of directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified by the board of directors,
a committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the board of
directors or of a committee which authorizes the contract or transaction.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may designate one (1) or more committees, each
consisting of one (1) or more directors, to serve at the pleasure of the board.
The board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee. In
the absence or disqualification of a member of a committee, and in the absence
of a designation by the board of
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directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent permitted by law and provided in the resolution establishing such
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; provided, however, that no such committee shall have the power
or authority to (i) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the corporation or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the corporation), (ii) adopt an agreement of merger or consolidation
under Sections 251 or 252 of the General Corporation Law of Delaware, (iii)
recommend to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, (iv) recommend to
the stockholders a dissolution of the corporation or a revocation of a
dissolution, or (v) amend the bylaws of the corporation; and, unless the board
resolution establishing the committee, the bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware. Each committee shall keep regular minutes and
report to the board of directors when required
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the board of directors, and that notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The board of directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary, and a
chief financial officer. The corporation may also have, at the discretion of the
board of directors, a chairman of the board, a chief executive officer, a
treasurer, one or more vice presidents, one or more
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assistant secretaries, one or more assistant treasurers, and such other officers
as may be appointed in accordance with the provisions of Section 5.3 of these
bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board of directors, subject to the rights,
if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no chief
executive officer, then the chairman of the board shall also be the chief
executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.7 of these bylaws.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
chief executive officer shall be subject to the control of the board of
directors and have general supervision, direction and control of the business.
He or she shall preside at all meetings of the stockholders and, in the absence
or non-existence of the chairman of the board, at all meetings of the board of
directors. He or she shall have the general powers and duties of management
usually vested in
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the office of the chief executive officer of a corporation, and shall have such
other powers and perform such other duties as from time to time may be
prescribed by the board of directors or these bylaws.
5.8 PRESIDENT
In the absence or disability of the chief executive officer, and if
there is no chairman of the board, the president shall perform all the duties of
the chief executive officer and when so acting shall have the power of, and be
subject to all the restrictions upon, the chief executive officer. The president
shall have such other powers and perform such other duties as from time to time
may be prescribed for the president by the board of directors, these bylaws, the
chief executive officer or the chairman of the board.
5.9 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors and shareholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.11 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated in accordance with procedures established by the
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board of directors. He shall disburse the funds of the corporation as may be
ordered by the board of directors, shall render to the president and directors,
whenever they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the corporation, and shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES, AND OTHER AGENTS
6.1 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS OTHER THAN
THOSE BY OR IN THE RIGHT OF THE CORPORATION
Subject to Section 6.3 of this Article VI, 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 such person is or was a
director or officer of the corporation, or is or was a director or officer of
the corporation serving at the request of the corporation as a director or
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
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 such person's 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 such
person 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 such person's con-duct was unlawful.
6.2 POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION
Subject to Section 6.3 of this Article VI, 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 such
person is or was a director or officer of the corporation, or is or was a
director or officer of the corporation serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable 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.
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6.3 AUTHORIZATION OF INDEMNIFICATION
Any indemnification under this Article VI (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 or officer is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in Section 6.1 or Section 6.2 of this Article VI, as the case may be. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (i) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (ii) by a committee of such directors designated by a
majority vote of such directors, even though less than a quorum, or (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (iv) by the stockholders (but only if a
majority of the directors who are not parties to such action, suit or
proceeding, if they constitute a quorum of the board of directors, presents the
issue of entitlement to indemnification to the shareholders for their
determination). Such determination shall be made, with respect to former
directors and officers, by any person or persons having the authority to act on
the matter on behalf of the corporation. To the extent, however, that a present
or former director or officer of the corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith, without the necessity of
authorization in the specific case.
6.4 GOOD FAITH DEFINED
For purposes of any determination under Section 6.3 of this Article VI,
a person shall be deemed to have acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
corporation, or, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe such person's conduct was unlawful, if such
person's action is based on the records or books of account of the corporation
or another enterprise, or on information supplied to such person by the officers
of the corporation or another enterprise in the course of their duties, or on
the advice of legal counsel for the corporation or another enterprise or on
information or records given or reports made to the corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the corporation or another
enterprise. The term "another enterprise" as used in this Section 6.4 shall mean
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other enterprise of which such person is or was serving at the request
of the corporation as a director, officer, employee or agent. The provisions of
this Section 6.4 shall not be deemed to be exclusive or to limit in any way the
circumstances in which a person may be deemed to have met the applicable
standard of conduct set forth in Section 6.1 or 6.2 of this Article VI, as the
case may be.
6.5 INDEMNIFICATION BY A COURT
Notwithstanding any contrary determination in the specific case under
Section 6.3 of this Article VI, and not withstanding the absence of any
determination thereunder, any director or officer may apply to the Court of
Chancery in the State of Delaware for indemnification to the extent otherwise
permissible under Sections 6.1 and 6.2 of this Article VI. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standards of conduct set forth in
Section 6.1 or 6.2 of this Article VI, as the case may be. Neither a contrary
determination in the specific case under Section 6.3 of this Article VI nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any
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application for indemnification pursuant to this Section 5 shall be given to the
corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
6.6 EXPENSES PAYABLE IN ADVANCE
Expenses incurred by a director or officer in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the corporation as authorized in
this Article VI.
6.7 NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by or granted
pursuant to this Article VI shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under the Restated Certificate of Incorporation, any Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the corporation that indemnification of the
persons specified in Sections 6.1 and 6.2 of this Article VI shall be made to
the fullest extent permitted by law. The provisions of this Article VI shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 6.1 or 6.2 of this Article VI but whom the corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
6.8 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation, or is or was a
director or officer of the corporation serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
corporation would have the power or the obligation to indemnify such person
against such liability under the provisions of this Article VI.
6.9 CERTAIN DEFINITIONS
For purposes of this Article VI, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors or officers, so that any person who is or
was a director or officer of such constituent corporation, or is or was a
director or officer of such constituent corporation serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall stand in the same position under the provisions of this
Article VI with respect to the resulting or surviving corporation as such person
would have with respect to such constituent corporation if its separate
existence had continued. For purposes of this Article VI, references to "fines"
shall include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation "
shall include any service as a
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director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the corporation"
as referred to in this Article VI.
6.10 SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VI shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
6.11 LIMITATION ON INDEMNIFICATION
Notwithstanding anything contained in this Article VI to the contrary,
except for proceedings to enforce rights to indemnification (which shall be
governed by Section 6.5 hereof), the corporation shall not be obligated to
indemnify any director or officer in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the board of directors of the corporation.
6.12 INDEMNIFICATION OF EMPLOYEES AND AGENTS
The corporation may, to the extent authorized from time to time by the
board of directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the corporation similar to those conferred
in this Article VI to directors and officers of the corporation.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these bylaws as amended to date,
accounting books and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the
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meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders and its other books and records for a purpose
reasonably related to his or her position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, the president or
any other person authorized by the board of directors or the chief executive
officer or president, is authorized to vote, represent, and exercise on behalf
of this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any other lawful
action (other than action by stockholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
stockholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided by law.
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If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed in the name of the corporation by(a) the chairman or vice-chairman of the
board of directors, or the chief executive officer, president or vice-president,
and by (b) the chief financial officer, treasurer, secretary or an assistant
secretary of the corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
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rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of Delaware shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
ARTICLE IX
AMENDMENTS
These bylaws of the corporation may be altered, amended or repealed, in
whole or in part, or new bylaws may be adopted by the stockholders entitled to
vote or by the board of directors. All such amendments must be approved by
either the holders of a majority of the outstanding capital stock entitled to
vote thereon or by a majority of the board of directors then in office. The fact
that such power has been so conferred upon the board of directors shall not
divest the stockholders of the power, nor limit their power to adopt, alter,
amend or repeal bylaws.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
DIGITAL IMPACT, INC.
Adoption by Incorporator
The undersigned person appointed in the Certificate of Incorporation to
act as the Incorporator of Digital Impact, Inc. hereby adopts the foregoing
Bylaws, comprising twenty (20) pages, as the Bylaws of the corporation.
Executed this ____ day of September, 1999.
-----------------------------
Ava M. Hahn, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that he is the duly elected Secretary
of Digital Impact, Inc. and that the foregoing Bylaws, comprising twenty-one
(21) pages, were adopted as the Bylaws of the corporation on September __, 1999,
by the person appointed in the Certificate of Incorporation to act as the
Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this __th day of September, 1999.
-----------------------------
David Oppenheimer,
Secretary
<PAGE> 1
EXHIBIT 10.3
DIGITAL IMPACT, INC.
1999 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Director Option
Plan are to attract and retain the best available personnel for service as
Outside Directors (as defined herein) of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" means the common stock of the Company.
(d) "Company" means Digital Impact, Inc., a California
corporation.
(e) "Director" means a member of the Board.
(f) "Disability" means total and permanent disability as defined
in section 22(e)(3) of the Code.
(g) "Employee" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a Director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
<PAGE> 2
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock for the last market trading day prior
to the time of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Board.
(j) "Inside Director" means a Director who is an Employee.
(k) "Option" means a stock option granted pursuant to the Plan.
(l) "Optioned Stock" means the Common Stock subject to an Option.
(m) "Optionee" means a Director who holds an Option.
(n) "Outside Director" means a Director who is not an Employee.
(o) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1999 Director Option Plan.
(q) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section
10 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 500,000 Shares (the "Pool"), plus an annual increase to
be added on January 1 of each year, beginning in 2001, equal to the lesser of
250,000 shares or an amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
(a) Procedure for Grants. All grants of Options to Outside
Directors under this Plan shall be automatic and nondiscretionary and shall be
made strictly in accordance with the following provisions:
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(i) No person shall have any discretion to select which
Outside Directors shall be granted Options or to determine the number of Shares
to be covered by Options.
(ii) Each Outside Director shall be automatically granted
an Option to purchase 20,000 Shares (the "First Option") on the date on which
the later of the following events occurs: (A) the effective date of this Plan,
as determined in accordance with Section 6 hereof, or (B) the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted
an Option to purchase 5,000 Shares (a "Subsequent Option") on the date of the
annual stockholders meeting of each year provided he or she is then an Outside
Director and if as of such date, he or she shall have served on the Board for at
least the preceding six (6) months.
(iv) Notwithstanding the provisions of subsections (ii)
and (iii) hereof, any exercise of an Option granted before the Company has
obtained shareholder approval of the Plan in accordance with Section 16 hereof
shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be
as follows:
(A) the term of the First Option shall be ten (10)
years.
(B) the First Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option
shall become exercisable as to 25% percent of the Shares subject to the First
Option on each anniversary of its date of grant, provided that the Optionee
continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder
shall be as follows:
(A) the term of the Subsequent Option shall be ten
(10) years.
(B) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Subsequent Option.
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(D) subject to Section 10 hereof, the Subsequent
Option shall become exercisable as to 100% percent of the Shares subject to the
Subsequent Option on the anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such date.
(vii) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased under Options to exceed the Pool, then the
remaining Shares available for Option grant shall be granted under Options to
the Outside Directors on a pro rata basis. No further grants shall be made until
such time, if any, as additional Shares become available for grant under the
Plan through action of the Board or the shareholders to increase the number of
Shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors.
All Options shall be automatically granted in accordance with the terms set
forth in Section 4 hereof.
The Plan shall not confer upon any Optionee any right with
respect to continuation of service as a Director or nomination to serve as a
Director, nor shall it interfere in any way with any rights which the Director
or the Company may have to terminate the Director's relationship with the
Company at any time.
6. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method of payment,
shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case
of Shares acquired upon exercise of an option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which said Option shall be exercised, (iv) consideration
received by the Company under a cashless exercise program implemented by the
Company in connection with the Plan, or (v) any combination of the foregoing
methods of payment.
8. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
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An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance with the
terms of the Option by the person entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may consist of any consideration and
method of payment allowable under Section 7 of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. A share certificate for the number of Shares so acquired
shall be issued to the Optionee as soon as practicable after exercise of the
Option. No adjustment shall be made for a dividend or other right for which the
record date is prior to the date the stock certificate is issued, except as
provided in Section 10 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares which thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
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9. Non-Transferability of Options. The Option may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger
or Asset Sale.
(a) Changes in Capitalization. Subject to any required action by
the shareholders of the Company, the number of Shares covered by each
outstanding Option, the number of Shares which have been authorized for issuance
under the Plan but as to which no Options have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option, as well
as the price per Share covered by each such outstanding Option, and the number
of Shares issuable pursuant to the automatic grant provisions of Section 4
hereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." 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 an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Following such assumption or substitution, if the
Optionee's status as a Director or director of the Successor Corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to
Shares for which it would not otherwise be exercisable. Thereafter, the Option
or option shall remain exercisable in accordance with Sections 8(b) through (d)
above.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Option shall become fully vested and
exercisable, including as to Shares for which it would not otherwise be
exercisable. In such event the Board shall notify the Optionee that the Option
shall be fully exercisable for a period of thirty (30) days from the date of
such notice, and upon the expiration of such period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be considered
assumed if, following the merger or sale of assets, the Option confers the right
to purchase or receive, for each Share of
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<PAGE> 7
Optioned Stock subject to the Option immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger or sale of assets is not solely common stock of the successor corporation
or its Parent, the Administrator may, with the consent of the successor
corporation, provide for the consideration to be received upon the exercise of
the Option, for each Share of Optioned Stock subject to the Option, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
11. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and warrant at the time
of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of
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the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by
the shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the degree and
manner required under applicable state and federal law and any stock exchange
rules.
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EXHIBIT 10.7
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (THE "MASTER LEASE") DATED FEBRUARY 12, 1999 BY AND
BETWEEN COMDISCO, INC. ("LESSOR") AND DIGITAL IMPACT, INC. ("LESSEE"). IN
CONSIDERATION OF THE MUTUAL AGREEMENTS DESCRIBED BELOW, THE PARTIES AGREE AS
FOLLOWS (ALL CAPITALIZED TERMS ARE DEFINED IN SECTION 14.18):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. TERM.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes Lessor,
as Lessee's agent, and at Lessor's expense, to prepare, execute and file in
Lessee's name precautionary Uniform Commercial Code financing statements showing
the interest of the Owner, Lessor, and any Assignee or Secured Party in the
Equipment and to insert serial numbers in
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Summary Equipment Schedules as appropriate. Lessee will, at its expense, keep
the Equipment free and clear from any liens or encumbrances of any kind (except
any caused by Lessor) and will indemnity and hold the Owner. Lessor, any
Assignee and Secured Party harmless from and against any loss caused by Lessee's
failure to do so, except where such is caused by Lessor.
5.2 RELOCATION OR SUBLEASE. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee meets
the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the Assignee
and any Secured Party. However, any assignment, sale, or other transfer by
Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured Party,
despite any defense or claim which it has against Lessor. Lessee reserves its
right to have recourse directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment. Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Summary Equipment Schedule constitutes a net lease. Lessee's
obligation to pay Rent and all other amounts due hereunder is absolute and
unconditional and is not subject to any abatement, reduction, set-off, defense,
counterclaim, interruption, deferment or recoupment for any reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal property
tax returns for the Equipment and pay all such property taxes due. Lessee will
reimburse Lessor for property taxes within thirty (30) days of receipt of an
invoice.
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7. CARE, USE AND MAINTENANCE; INSPECTION BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided
re-certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 INSPECTION BY LESSOR. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be, located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not contravene any law or governmental rule, regulation or order
applicable to it, do not and will not contravene any provision of, or constitute
a default under, any indenture, mortgage, contract or other instrument to which
it is a party or by which it is bound, and the Master Lease and each Schedule
constitute legal, valid and binding agreements of the Lessee, enforceable in
accordance with their terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and rules of law
concerning equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or, to the
knowledge of the Lessee, threatened against or affecting the Lessee in any court
or before any governmental commission, board or authority which, if adversely
determined, will have a material adverse effect on the ability of the Lessee to
perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the Lessee
will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
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(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee is a
party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear and
tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the Equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. INDEMNITY.
With regard to bodily injury and property damage liability only, Lessee will
indemnity and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of the ownership (for strict liability
in tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will
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furnish appropriate evidence of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when due if
that failure continues for five (5) business days after written notice; or
(b) Lessee's failure to perform any other term or condition of the Schedule or
the material inaccuracy of any representation or warranty made by the Lessee in
the Schedule or in any document or certificate furnished to the Lessor hereunder
if that failure or inaccuracy continues for ten (10) business days after written
notice; or
(c) An assignment by Lessee for the benefit of its creditors, the failure by
Lessee to pay its debts when due, the insolvency of Lessee, the filing by Lessee
or the filing against Lessee of any petition under any bankruptcy or insolvency
law or for the appointment of a trustee or other officer with similar powers,
the adjudication of Lessee as insolvent, the liquidation of Lessee, or the
taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary Equipment
Schedule or other agreement between Lessee and Lessor or its Assignee or Secured
Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable Schedule by
appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and recover the
present value of the remaining payment stream of all Rent due under the
defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's security
requirements, Lessor may enter on Lessee's premises to remove and repossess the
Equipment without being liable to Lessee for damages due to the repossession,
except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by law,
are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages as described below. EXCEPT AS SET FORTH IN THIS
SECTION, LESSEE HEREBY
-5-
<PAGE> 6
WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY
REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S RIGHTS OR
REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise dispose of all or
any part of the Equipment at a public or private sale for cash or credit with
the privilege of purchasing the Equipment. The proceeds from any sale, lease or
other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair Market
Value of the Equipment at the expiration of the Initial Term less the Default
Costs; or
(b) if leased, the present value (discounted at three percent (3%) over the U.S.
Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. Upon invitation of Lessee, one representative of Lessor
will have the right to attend Lessee's corporate Board of Directors meetings and
Lessee will give Lessor reasonable notice in advance of any special Board of
Directors meeting, which notice will provide an agenda of the subject matter to
be discussed at such board meeting. Lessee will provide Lessor with a certified
copy of the minutes of each Board of Directors meeting within thirty (30) days
following the date of such meeting held during the term of this Master Lease.
14.2 FINANCIAL STATEMENTS. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at the
end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Master
-6-
<PAGE> 7
Lease and all relevant Schedules. If Lessor elects to consent to the assignment,
Lessee and its successor will sign the assignment documentation provided by
Lessor. If Lessor elects to terminate the Master Lease and all relevant
Schedules, then Lessee will pay Lessor all amounts then due and owing and a
termination fee equal to the present value (discounted at 6%) of the remaining
Rent for the balance of the Initial Term(s) of all Schedules, and will return
the Equipment in accordance with Section 9. Lessor hereby consents to any Merger
in which the acquiring entity has a Moody's Bond Rating of BA3 or better or a
commercially acceptable equivalent measure of creditworthiness as reasonably
determined by Lessor.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 NO WAIVER. No action taken by Lessor or Lessee will be deemed to constitute
a waiver of compliance with any representation, warranty or covenant contained
in this Master Lease or a Schedule. The waiver by Lessor or Lessee of a breach
of any provision of this Master Lease or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the benefit of
Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of (1)
actual receipt or (3) three days after mailing if mailed postage prepaid by
regular or airmail to Lessor (to the attention of "the Comdisco Venture Group")
or Lessee, at the address set out in the Schedule, (3) one day after it is sent
by courier or (4) on the same day as sent via facsimile transmission, provided
that the original is sent by personal delivery or mail by the sending party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master Lease or
any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
-7-
<PAGE> 8
14.13 LICENSED PRODUCTS. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 SECRETARY'S CERTIFICATE. Lessee will, upon execution of this Master Lease,
provide Lessor with a secretary's certificate of incumbency and authority. Upon
the execution of each Schedule with a purchase price in excess of $1,000,000,
Lessee will provide Lessor with an opinion from Lessee's counsel in a form
acceptable to Lessor regarding the representations and warranties in Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.17 EQUIPMENT PROCUREMENT CHARGES/ PROGRESS PAYMENTS. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Master Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Master Lease.
14.18 DEFINITIONS.
ADVANCE - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
COMMENCEMENT DATE - is defined in each Schedule.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
DELIVERY DATE - means date of delivery of Inventory Equipment to Lessee's
address.
EQUIPMENT - means the property described on a Summary Equipment Schedule and any
replacement for that property required or permitted by this Master Lease or a
Schedule.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LATE CHARGE - means the lesser of five percent (5%) of the payment due or the
maximum amount permitted by the law of the state where the Equipment is located.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
-8-
<PAGE> 9
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
MERGER - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets or stock of the Lessee by or to any other person or entity in which
Lessee is not the surviving entity.
NOTICE PERIOD - means not less than ninety (90) days nor more than twelve (12)
months prior to the expiration of the lease term.
OWNER - means the owner of Equipment.
RENT - means the rent Lessee will pay for each item of Equipment expressed in a
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
RENT INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means either an Equipment Schedule or a Licensed Products Schedule
which incorporates all of the terms and conditions of this Master Lease.
SECURED PARTY - means an entity to whom Lessor has granted a security interest
for the purpose of securing a loan.
SUMMARY EQUIPMENT SCHEDULE - means a certificate provided by Lessor summarizing
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the date and year first above written.
DIGITAL IMPACT, INC. COMDISCO, INC.
as Lessee as Lessor
By: By:
------------------------- --------------------------------------
JAMES P. LABE
Title: PRESIDENT Title: PRESIDENT
--------------------- --------------------------------------
COMDISCO VENTURES DIVISION
-9-
<PAGE> 10
ADDENDUM TO THE MASTER LEASE AGREEMENT
DATED AS OF FEBRUARY 12, 1999
BETWEEN COMDISCO, INC. ("LESSOR")
AND DIGITAL IMPACT, INC. ("LESSEE")
The undersigned hereby agrees that the terms and conditions of the
above-referenced Master Lease Agreement are amended and modified as follows:
1. SECTION 3, "RENT AND PAYMENT"
o In line 3 after the words "is not made" insert "within five
days of the date".
2. SECTION 5, "TITLE: RELOCATION OR SUBLEASE AND ASSIGNMENT"
o Subsection 5.2, second paragraph, line 8, add the word
"reasonably" after the word "documents". Subsection 5.3,
paragraph (b), first sentence, line 1, add the phrase "After
receipt of written notice of assignment from Lessor" before
the word "Lessee".
3. SECTION 6, "NET LEASE: TAXES AND FEES"
o Subsection 6.2, add the following paragraph at the end of this
subsection:
"Lessee shall not be liable for any taxes, fees or charges to
the extent the same result from any sale or assignment or
grant of security interest by Lessor, or to the extent any
such action increases the taxes, fees or charges that would
otherwise be payable. Lessee shall have the right to contest
by proper legal proceedings any taxes levied, upon prior
written notice to Lessor and Lessor will cooperate in any
legal proceedings being prosecuted by Lessee with regard to
any taxes, but Lessee will pay the expenses in such
litigation. Lessee shall have the right to contest in good
faith and by appropriate proceedings the validity or the
amount of taxes unless such contest would adversely affect the
title of the Lessor to the Equipment or would subject it to
forfeiture or sale. Lessee shall have the rights to any refund
received as a result of any such contest or proceeding to the
extent Lessee has previously reimbursed Lessor for such
taxes."
4. SECTION 7, "CARE, USE AND MAINTENANCE, INSPECTION BY LESSOR"
o Subsection 7.1, line 7, after the words "another party
acceptable to Lessor", add the words "including
self-maintenance by Lessee upon Lessor's prior written
consent, which consent shall not be unreasonably withheld".
o Subsection 7.1, last sentence, insert the following at the end
thereof "or Lessee has exercised its option to purchase such
Equipment."
5. SECTION 8 "REPRESENTATIONS AND WARRANTIES OF LESSEE"
o Paragraph (c), line 3, delete "if adversely determined, will"
and insert "are reasonably likely to".
<PAGE> 11
6. SECTION 9, "DELIVERY AND RETURN OF EQUIPMENT"
o Second sentence, insert "and provided that the equipment is
not purchased or the term extended as permitted by the
applicable Schedule" after "Schedule".
7. SECTION 11, "INDEMNITY"
o First sentence, line 6, after the word "Equipment", delete the
words "during the term of this Master Lease or until Lessee's
obligations under the Master Lease terminate" and insert
"arising from acts or events during the period from the
Commencement Date of each Summary Equipment Schedule until
re-delivery of the Equipment to Lessor in accordance with the
terms of this Master Lease."
o Second sentence, line 3, insert "or willful misconduct" at the
end of the sentence.
8. SECTION 13, "DEFAULT, REMEDIES AND MITIGATION"
o Subsection 13.1, paragraph (b), line 1, insert "applicable"
before the word "Schedule".
o Subsection 13.1, paragraph (c), line 4, insert the following
after "powers": "which petition or appointment is not
dismissed or vacated within sixty (60) days."
o Subsection 13.2, introduction, insert "and during the
continuance" after the word "occurrence".
o Subsection 13.2, paragraph (d), line 5, insert "or willful
misconduct" after "negligence".
o Subsection 13.3, second sentence, line 1, insert "AND TO THE
EXTENT PERMITTED BY LAW" after the words "IN THIS SECTION".
9. SECTION 14, "ADDITIONAL PROVISIONS"
o Subsection 14.1, "Board Attendance". Delete this section in
its entirety.
o Section 14.2, "Financial Statements". Delete the first
sentence in its entirety and replace it with the following:
"As soon as practicable at the end of each month (and in any
event within thirty (30) days), Lessee will provide to Lessor
a monthly income statement and balance sheet prepared in
accordance with generally accepted accounting principles,
consistently applied (except that such financials will not
include footnotes required by generally accepted accounting
principles) (the "Financial Statements").
o Subsection 14.4, "Merger and Sale Provisions". In line 2,
delete "sixty (60)" and replace with "thirty (30)". In line
10, after the words "with Section 9" add "or purchase the
Equipment for a mutually agreeable price, at Lessee's option."
To the end of this section add: "and Lessor shall not
unreasonably withhold its consent to a Merger in other cases."
o Subsection 14.7, second sentence, add the following at the end
thereof: "except any permitted assignment in accordance with
the terms of Subsection 14.4 of this Master Lease."
o Subsection 14.9, line 5, insert "applicable" before
"Schedule".
<PAGE> 12
o Subsection 14.10, change "Illinois" to "California" in lines 2
and 4, second sentence, delete "Article 2A of the Uniform
Commercial Code" and insert "California Commercial Code
Sections 10508-10522".
o Subsection 14.14, line 4, insert "reasonably" before
"acceptable" and in line 5, insert "(a), (b) and (c)" after
"8".
DIGITAL IMPACT, INC. COMDISCO, INC.
By: By:
-------------------------- --------------------------------------
JAMES P. LABE
Title: PRESIDENT Title: PRESIDENT
---------------------- ---------------------------------
COMDISCO VENTURES DIVISION
Date: February 16, 1999 Date: February 18, 1999
------------------------ -----------------------------------
<PAGE> 13
EQUIPMENT SCHEDULE VL-1
DATED AS OF FEBRUARY 12, 1999
TO MASTER LEASE AGREEMENT
DATED AS OF FEBRUARY 12, 1999 (THE "MASTER LEASE")
LESSEE: DIGITAL IMPACT, INC. LESSOR: COMDISCO, INC.
ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Contact:_____________________ 6111 North River Road
TEL: (650) 286-7300 Rosemont, Illinois 60018
FAX: (650) 286-7310 Attn.: Venture Group
Address for Notices:
177 Bovet Road, Suite 300
San Mateo, CA 94402-2712
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.: _______________
(24 digits maximum)
Location of Equipment: Initial Term: 42 months
same as above (Number of Rent Intervals)
Lease Rate Factor: 2.698%
Attn.:
EQUIPMENT (as defined below): Advance: $43,168
Interim Rent: Interest Only (7.5%)
Equipment specifically approved by Lessor, which shall be delivered to and
accepted by Lessee during the period February 12, 1999 through June 12, 2000
("Equipment Delivery Period"), for which Lessor receives vendor invoices
approved for payment, up to an aggregate purchase price of $1,600,000
(Commitment Amount"); excluding custom use equipment, leasehold improvements,
installation costs and delivery costs, rolling stock, special tooling,
"stand-alone" software, application software bundled into computer hardware,
hand held items, molds and fungible items.
1
<PAGE> 14
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease
to Lessee, either by one of the first three categories listed below or by
providing Lessee with Equipment from the fourth category, in an aggregate value
up to the Commitment Amount referred to on the face of this Schedule. If the
Equipment acquired is of category (i), (ii), (iii) below, the effectiveness of
this Schedule as it relates to those items of Equipment is contingent upon
Lessee's acknowledgment at the time Lessor acquires the Equipment that Lessee
has either received or approved the relevant purchase documentation between
vendor and Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment
which is obtained from a vendor by Lessee for its use subject
to Lessor's prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and
ownership may be considered by Lessor for inclusion under this
Lease (the "Sale-Leaseback Transaction"). Any request for a
Sale-Leaseback Transaction must be submitted to Lessor in
writing (along with accompanying evidence of Lessee's
Equipment ownership satisfactory to Lessor for all Equipment
submitted) no later than March 12, 1999*. Lessor will not
perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after
the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor prior approval of the Equipment; and (2) if
approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
<S> <C>
Between 12/12/98 - 03/12/99 (90 days) 100%
</TABLE>
Lessee represents that it has paid all California sales tax due on the cost of
that portion of Equipment to be installed in California and agrees to provide
evidence of such payment to Lessor, if specifically requested. As a result of
the election, Lessor agrees that it will not invoice Lessee for use tax on the
monthly rental rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except prior to
installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800
Direct Service, Lessor will purchase new or used Equipment
from a third party or Lessor will supply new or used Equipment
from its inventory for use by Lessee at rates provided by
Lessor.
2
<PAGE> 15
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price. The Commencement Date for 800 Number
Equipment shall be fifteen (15) days from the ship date, such ship date to be
set forth on the vendor invoice or if unavailable on the vendor invoice the ship
date will be determined by Lessor upon other supporting shipping documentation.
Lessor will summarize all approved invoices, purchase documentation and evidence
of delivery, as applicable, received in the same calendar month into a Summary
Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the
Initial Term will begin the first day of the calendar month thereafter. Each
Summary Equipment Schedule will contain the Equipment location, description,
serial number(s) and cost and will incorporate the terms and conditions of the
Master Lease and this Schedule and will constitute a separate lease.
3. OPTION TO EXTEND
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than ninety (90) days prior to the expiration of the Initial Term of a
Summary Equipment Schedule, Lessee will have the right to extend the Initial
Term of such Summary Equipment Schedule for a period of one (1) year. In such
event, the rent to be paid during said extended period shall be mutually agreed
upon and if the parties cannot mutually agree, then the Summary Equipment
Schedule shall continue in full force and effect pursuant to the existing terms
and conditions until terminated in accordance with its terms. The Summary
Equipment Schedule will continue in effect following said extended period until
terminated by either party upon not less than ninety (90) days prior written
notice, which notice shall be effective as of the date of receipt.
4. PURCHASE OPTION
So long as no Event of Default has occurred and is continuing
hereunder, and upon written notice no earlier than twelve (12) months and no
later than ninety (90) days prior to the expiration of the Initial Term or the
extended term of the applicable Summary Equipment Schedule, Lessee will have the
option at the expiration of the Initial Term of the Summary Equipment Schedule
to purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed 15% of Lessor's cost and upon terms and conditions
to be mutually agreed upon by the parties following Lessee's written notice,
plus any taxes applicable at time of purchase. Said purchase price shall be paid
to Lessor at least thirty (30) days before the expiration date of the Initial
Term or extended term. Title to the Equipment shall automatically pass to Lessee
upon payment in full of the purchase price but, in no event, earlier than the
expiration of the fixed Initial Term or extended term, if applicable. If the
parties are unable to agree on the purchase price or the terms and conditions
with respect to said purchase, then the Summary Equipment Schedule with respect
to this Equipment shall remain in full force and effect. Notwithstanding the
exercise by Lessee of this option and payment of the purchase price, until all
obligations under the applicable Summary Equipment
3
<PAGE> 16
Schedule have been fulfilled, it is agreed and understood that Lessor shall
retain a purchase money security interest in the Equipment listed therein and
the Summary Equipment Schedule shall constitute a Security Agreement under the
Uniform Commercial Code of the state in which the Equipment is located.
5. TECHNOLOGY EXCHANGE OPTION
If Lessee is not in default, and there is no material adverse change in
Lessee's credit, on or after the expiration of the 12th month of any Summary
Equipment Schedule, Lessee shall have the option to replace any of the Equipment
subject to such summary Equipment Schedule with new technology equipment ("New
Technology Equipment") utilizing the following guidelines:
A. Equipment being replaced with New Technology Equipment shall have an
aggregate original cost equal to or greater than $20,000 and be comprised of
full configurations of equipment.
B. This technology Exchange Option shall be limited to a maximum in the
aggregate of fifty percent (50%) of the original equipment cost and shall not
apply to software or any soft costs financed hereunder including but not limited
to tenant improvements and custom equipment.
C. The cost of the New Technology Equipment must be equal to or greater than the
original equipment cost of the replaced equipment, but in no event shall exceed
150% of the original equipment cost.
D. The remaining lease payments applicable to the equipment being replaced by
the New Technology Equipment will be discounted to present value at 6%.
The wholesale market value of the equipment being replaced will be established
by Comdisco based upon then current market conditions. Upon the return of the
replaced equipment, the wholesale price will be deducted from the present value
of the remaining rentals and the differential will be added to the cost of the
New Technology Equipment in calculating the new rental. The lease for the New
Technology Equipment will contain terms and conditions substantially similar to
those for the replaced equipment and will have an Initial Term not less than the
balance of the remaining Initial Term for the replaced equipment.
6. SPECIAL TERMS
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
1) Section 14, "Additional Provisions"
o Subsection 14.18, "Definitions": "Interim Rent", line
1, delete "pro-rata portion" and replace with
"interest-only portion".
4
<PAGE> 17
Master Lease: This Schedule is issued pursuant to the Lease identified on page 1
of this Schedule. All of the terms and conditions of the Lease are incorporated
in and made a part of this Schedule as
5
<PAGE> 18
if they were expressly set forth in this Schedule. The parties hereby reaffirm
all of the terms and conditions of the Lease (including, without limitation, the
representations and warranties set forth in Section 8) except as modified herein
by this Schedule. This Schedule may not be amended or rescinded except by a
writing signed by both parties.
DIGITAL IMPACT, INC. COMDISCO, INC.
AS LESSEE AS LESSOR
By: By:
-------------------------- -------------------------------------
JAMES P. LABE
Title: PRESIDENT Title: PRESIDENT
---------------------- ----------------------------------
COMDISCO VENTURES DIVISION
Date: February 16, 1999 Date: February 18, 1999
----------------------- -----------------------------------
6
<PAGE> 19
EQUIPMENT SCHEDULE VL-2
DATED AS OF FEBRUARY 12, 1999
TO MASTER LEASE AGREEMENT
DATED AS OF FEBRUARY 12, 1999 (THE "MASTER LEASE")
LESSEE: DIGITAL IMPACT, INC. LESSOR: COMDISCO, INC.
ADMIN. CONTACT/PHONE NO.: ADDRESS FOR ALL NOTICES:
Contact:_______________________ 6111 North River Road
TEL: (650) 286-7300 Rosemont, Illinois 60018
FAX: (650) 286-7310 Attn.: Venture Group
Address for Notices:
177 Bovet Road, Suite 300
San Mateo, CA 94402-2712
Central Billing Location: Rent Interval: Monthly
same as above
Attn.:
Lessee Reference No.: _______________
(24 digits maximum)
Initial Term: 30 months
Location of Equipment: (Number of Rent Intervals)
Lease Rate Factor: 3.664%
Attn.:
EQUIPMENT (as defined below): Advance: $14,656
Interim Rent: Interest Only (8.0%)
Software, consulting/implementation fees, and tenant improvements specifically
approved by Lessor, which shall be delivered to and accepted by Lessee during
the period February 12, 1999 through June 12, 2000 ("Equipment Delivery Period")
for which Lessor receives vendor invoices approved for payment, up to an
aggregate purchase price of $400,000 ("Commitment Amount"); excluding custom use
equipment installation costs and delivery costs, rolling stock, special tooling,
hand held items, molds and fungible items. Any unused Commitment Amount under
this Equipment Schedule VL-2 may be transferred and utilized under Equipment
Schedule VL-1.
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<PAGE> 20
1. EQUIPMENT PURCHASE
This Schedule contemplates Lessor's acquisition of Equipment for lease
to Lessee, either by one of the first three categories listed below or by
providing Lessee with Equipment from the fourth category, in an aggregate value
up to the Commitment Amount referred to on the face of this Schedule. If the
Equipment acquired is of category (i), (ii), (iii) below, the effectiveness of
this Schedule as it relates to those items of Equipment is contingent upon
Lessee's acknowledgment at the time Lessor acquires the Equipment that Lessee
has either received or approved the relevant purchase documentation between
vendor and Lessor for that Equipment.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment
which is obtained from a vendor by Lessee for its use subject
to Lessor's prior approval of the Equipment.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and
ownership may be considered by Lessor for inclusion under this
Lease (the "Sale-Leaseback Transaction"). Any request for a
Sale-Leaseback Transaction must be submitted to Lessor in
writing (along with accompanying evidence of Lessee's
Equipment ownership satisfactory to Lessor for all Equipment
submitted) no later than March 12, 1999*. Lessor will not
perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after
the date marked above by an asterisk (*). Further, any
sale-leaseback Equipment will be placed on lease subject to:
(1) Lessor prior approval of the Equipment; and (2) if
approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
<S> <C>
Between 12/12/98 - 03/12/99 (90 days) 100%
</TABLE>
Lessee represents that it has paid all California sales tax due on the cost of
that portion of Equipment to be installed in California and agrees to provide
evidence of such payment to Lessor, if specifically requested. As a result of
the election, Lessor agrees that it will not invoice Lessee for use tax on the
monthly rental rate. Lessee understands that this is an irrevocable election to
measure the tax by the Equipment cost and cannot be changed except prior to
installation of the Equipment.
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised value for such used Equipment.
(iv) 800 NUMBER EQUIPMENT. Upon Lessee's use of Comdisco's 1-800
Direct Service, Lessor will purchase new or used Equipment
from a third party or Lessor will supply new or used Equipment
from its inventory for use by Lessee at rates provided by
Lessor.
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<PAGE> 21
2. COMMENCEMENT DATE
The Commencement Date for each item of new on-order or used on-order
Equipment will be the install date as confirmed in writing by Lessee as set
forth on the vendor invoice of which a facsimile transmission will constitute an
original document. The Commencement Date for sale-leaseback Equipment shall be
the date Lessor tenders the purchase price. The Commencement Date for 800 Number
Equipment shall be fifteen (15) days from the ship date, such ship date to be
set forth on the vendor invoice or if unavailable on the vendor invoice the ship
date will be determined by Lessor upon other supporting shipping documentation.
Lessor will summarize all approved invoices, purchase documentation and evidence
of delivery, as applicable, received in the same calendar month into a Summary
Equipment Schedule in the form attached to this Schedule as Exhibit 1, and the
Initial Term will begin the first day of the calendar month thereafter. Each
Summary Equipment Schedule will contain the Equipment location, description,
serial number(s) and cost and will incorporate the terms and conditions of the
Master Lease and this Schedule and will constitute a separate lease.
3. MISCELLANEOUS
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<PAGE> 1
EXHIBIT 10.8
STANDARD FORM LEASE
Tenant: Digital Impact, Inc., a California corporation
Subject Property: Bovet Office Centre, Suite 300,177 Bovet Road, San Mateo,
California
Landlord: Casiopea Venture Corporation
Date: November 30, 1998
Table of Contents
<TABLE>
<CAPTION>
SECTION Page
- ------- ----
<S> <C>
1. Lease Of Premises 4
2. Uses 4
3. Condition Of The Premises 5
4. Rent 5
5. Payment Of Taxes, Assessments, And Operating Expenses 6
6. Security 9
7. Hazardous Substances 10
8. No Light, Air Or View Easement 10
9. Alteration 11
10. Repair Obligations 12
11. Liens 13
12. Signs; Names Of Building And Facility 13
13. Assignment And Subletting 13
14. Indemnification; Insurance; Allocation Of Risk 15
15. Security Services 18
16. Building Services 18
17. Force Majeure 19
18. Rules And Regulations 19
19. Holding Over 19
20. Subordination 20
21. Entry By Landlord 20
22. Defaults And Remedies 20
23. Damage Or Destruction 21
24. Eminent Domain 23
25. Sale By Landlord 24
26. Estoppel Certificates 24
27. Requirements Of Landlord's Lenders 24
28. Substitution Of Premises 25
29. Attorneys' Fees 25
30. Non-Waiver 25
31. Notices 25
32. Joint And Several Liability 26
33. Time 26
34. Successors 26
35. Entire Agreement 26
36. Restrictions On Options 26
37. Recording 27
38. Authorization To Sign Lease 27
39. Broker Participation 27
40. Survival Of Certain Rights And Obligations 28
41. Parking 28
42. Severability 28
43. Certain Rights Reserved By Landlord 28
44. Waiver Of Jury Trial 29
45. Interpretation 29
46. Cooperation With Government Sponsored Programs 29
47. Parties To Act Reasonably And In Good Faith 29
48. Offer 29
</TABLE>
List of Attachments:
Exhibit A-1: Site Plan.
Exhibit A-2: Floor Plan of the Premises.
Exhibit B: Landlord's Work
Exhibit C: Rules and Regulations.
Exhibit D: Standards for Utilities and Services.
Exhibit E: Acknowledgement of Commencement of Term
Exhibit F: Rental Adjustments
<PAGE> 2
Addendum A (Cash Deposit)
Addendum A-1 (Letter of Credit)
Addendum B (Limited Waiver of Recapture Rights)
Addendum C
Schedule 1
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<PAGE> 3
This Lease, between the parties named below as Landlord and Tenant, is dated
November 30, 1998 for reference purposes only.
INTRODUCTION
Salient Lease Terms And Definitions.
01 Salient Lease Terms.
a. Rent Payment Address: Casiopea Venture Corporation
c/o Rim Pacific Management
155 Bovet Road, Suite 460
San Mateo, CA 94402
b. Parties and Notice Addresses:
Landlord: Casiopea Venture Corporation
c/o Rim Pacific Management
155 Bovet Road, Suite 460
San Mateo, CA 94402
Tenant: Digital Impact, Inc.,
a California corporation
177 Bovet Road, Suite 300
San Mateo, CA 94402
With a copy to: Digital Impact, Inc.,
a California corporation
1730 South Amphlett Boulevard,
Suite 217
San Mateo, CA 94402
Attn: William C. Park
c. Premises:
1. Name and Location of Facility where the Building is
located:
Bovet Office Centre
2. Street Address of Building: 177 Bovet Road
3. Suite No. of Premises: 300, located on the 3rd floor of
the Building.
4. Approximate No. of net rentable square feet:
i. the Premises: 10,457
ii. the Building: 93,443
d. Term:
1. A period of three (3) years.
2. Term and rental obligations will commence on January
15, 1999 and end January 14, 2002.
e. Monthly Rent:
<TABLE>
<CAPTION>
Months Monthly Rent Rate
------ ------------ ----------
<S> <C> <C>
1 -- 12 $35,030.95 $3.35 psf.
13 -- 24 $36,076.65 $3.45 psf.
25 -- 36 $37,122.35 $3.55 psf.
</TABLE>
f. Deposit: See attached Addendum A and A-1
g. Permitted Uses:
The Premises shall be used solely for the following uses:
General office and software development and other legally
related uses.
h. Tenant's Percentage Share:
.112% (Subsection 5.1)
i. Base Years:
The Base Expense Year for Operating Expenses shall be calendar
year 1999, and the Base Tax Year shall be calendar year 1999.
j. Brokers:
Landlord's Broker: Cornish & Carey Commercial.
Tenant's Broker: Cornish & Carey Commercial.
k. Vehicle Parking Privileges Allocated to Tenant:
<PAGE> 4
3.5 parking spaces per 1,000 rentable square feet unassigned spaces.
l. Contents: This Lease consists of:
Pages 1 through 30, and Sections 1 through 48 Exhibits:
A-1. Site Plan or Legal Description of the Facility
A-2. Floor Plan of the Premises
B. Landlord's-Work
C. Rules and Regulations
D. Standards for Utilities and Services
E. Acknowledgment of Commencement of Term
F. Rental Adjustments
Addendum A (Cash Deposit)
Addendum A-1 (Letter of Credit)
Addendum B (Limited Waiver of Recapture Rights)
Addendum C
Schedule 1
2
<PAGE> 5
.02 Definitions
For the convenience of the parties, a listing of certain defined terms
used in this Lease is set forth below:
<TABLE>
<CAPTION>
TERM SECTION WHERE DEFINED
- ---- ---------------------
<S> <C>
ALTERATIONS Subsection 9.1
ASSESSMENTS Subsection 5.2.2
BASE EXPENSE YEAR Subsection 0.1(i)
BASE TAX YEAR Subsection 0.1(i)
BUILDING Subsection 1.2
CASUALTY Subsection 23.2
CLAIMS Subsection 14.1
COMMENCEMENT DATE Subsection 1.2
DEPOSIT Subsection 6.1
ENVIRONMENTAL REQUIREMENTS Subsection 7.1
EVENT OF DEFAULT Subsection 22.1.1
FACILITY Subsection 1.2
FORCE MAJEURE Section 17
GROSS RENT Subsection 13.5.1(iii)
HAZARDOUS SUBSTANCE Subsection 7.1
LANDLORD PARTIES Subsection 14.1
LAWS Subsection 2.2
MINIMUM MONTHLY RENT Subsection 4.1
OPERATING EXPENSES Subsection 5.3.1
OPTION Subsection 36.1
PREMISES Subsection 1.2
REAL PROPERTY Subsection 1.2
RENT Subsection 4.3
RULES AND REGULATIONS Section 18
SCHEDULED COMMENCEMENT DATE Subsection 1.2
TAXES Subsection 5.2.1
TENANT PARTIES Subsection 10.1
TENANT'S PERCENTAGE SHARE Subsection 5.1
TERM Subsection 1.2
TRANSFER Subsection 13.1
</TABLE>
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<PAGE> 6
1. LEASE OF PREMISES:
1.1 Demising Clause. Landlord hereby leases to Tenant, and Tenant hires
from Landlord, the Premises for the entire Term. Said letting and hiring are
upon and subject to the terms, covenants, and conditions set forth in this
Lease, including the Salient Terms and Definitions in Section 1 and the attached
exhibits. Tenant covenants as a material part of the consideration for this
Lease to keep and perform each and all of said terms, covenants, and conditions
applicable to Tenant hereunder. This Lease is made upon the condition of such
performance. Landlord reserves to Landlord the areas beneath and above the
Premises and the use thereof together with the right to install, maintain, use,
repair and replace pipes, ducts, conduits, wires, and structural elements
leading through the Premises and serving other parts of the Facility, so long as
such items are concealed by walls, flooring or ceilings. Such reservation shall
in no way affect the maintenance obligations imposed herein.
1.2 DESCRIPTION. As used herein, the following capitalized terms shall
have the indicated meanings:
a. The FACILITY shall mean that certain real property (including
the building(s), parking facilities, if any, and other improvements now located
and/or subsequently constructed thereon) owned by Landlord and described in
Exhibit A-1 attached hereto, said real property being described generally in
Subsection 0.1(c)(1) above.
b. The BUILDING shall mean that certain building in which the
Premises are located, said Building being a part of the Facility and being more
particularly described in Subsection 0.1(c)(2) above.
c. The PREMISES shall mean that certain space located in the
Building and described in Subsection 1.1(c)(3) above and delineated on Exhibit
A-2 attached hereto, which space consists of the approximate amount of rentable
square footage specified in said Subsection 0.1(c)(4).
d. The TERM shall mean the term of this Lease, which, subject to
the provisions of this Lease concerning early occupation, early termination, and
extensions, shall be for the period of time specified in Subsection 0.1(d)(1)
above and shall commence on the earliest of (a) the date that Landlord notifies
Tenant that the previous tenant occupying the Premises has vacated the same and
that they are available for Tenant's use and occupancy under, in accordance with
and pursuant to this Lease or (b) the date that Tenant, or any person occupying
any of the Premises with Tenant's permission, commences business operations from
the Premises (the Commencement Date). The anticipated commencement date of the
Term of this Lease is specified in Subsection 0.1(d)(2) (the Scheduled
Commencement Date). If the Term commences prior to the Scheduled Commencement
Date, the length of the initial Term shall be extended to include such early
occupancy period and the initial Term shall end on the scheduled termination
date set forth in Subsection 0.1(d)(2). If the Term commences after the
Scheduled Commencement Date, the initial Term shall expire on the last day of
the calendar month in which the period of time specified in Subsection 0.1(d)(1)
elapses.
1.3 DELIVERY OF PREMISES. The Premises shall be delivered to Tenant
when the Tenant Improvements (as defined in Exhibit B) have been completed and
the Premises are Ready For Occupancy. Delay of the Commencement Date to the
extent not caused by Tenant Delays shall be Tenant's sole remedy for any delay
in constructing the Tenant Improvements or making the Premises Ready For
Occupancy.
1.4 NOTICE OF COMMENCEMENT DATE. Landlord shall send Tenant notice of
the occurrence of the Commencement Date in the form of the attached Exhibit E,
which notice Tenant shall acknowledge by executing a copy of the notice and
returning it to Landlord. If Tenant fails to sign and return the notice to
Landlord within ten (10) days after receipt of the notice from Landlord, the
notice as sent by Landlord shall be deemed to have correctly set forth the
Commencement Date. Failure of Landlord to send such notice shall have no effect
on the Commencement Date.
2. USES:
2.1 PERMITTED USES. Except as otherwise expressly provided herein, the
Premises shall be used only for the Permitted Uses specified in Subsection
0.1(g) and for no other use or purpose.
2.2 RESTRICTION ON USE. Without limitation to the generally of the
foregoing use restriction, Tenant specifically covenants and agrees that it
shall not (a) do, bring, or keep, or permit to be done, brought, or kept,
anything in or about the Premises that will in any way (1) obstructor interfere
with the rights of any other tenants or occupants of the Facility or injure or
annoy them, (2) cause a weight load or stress on the floor or any other portion
of the Premises in excess of the weight load or stress that the floor or other
portion of the Premises is designed to bear, (3) increase the existing rate of,
or adversely affect, any fire or other insurance upon the Building or its
contents, or (4) violate any of Landlord's Rules and Regulations; (b) use the
Premises, or allow them to be used, for any residential or disreputable
purpose;_commit or suffer to be committed any waste in or upon the Premises or
the Facility; or (d) provided such exclusive does not prohibit Tenant from
primarily using the Premises for the Permitted Uses specified in Subsection
0.1(g), Tenant shall not conduct or permit to be conducted on or from the
Premises activities that violate any exclusive use right presently or
subsequently granted by Landlord to another tenant. Tenant, at Tenant's sole
cost, shall comply with all laws, statutes, rules, regulations, ordinances,
codes, licenses, permits, orders, decrees, judgments, approvals, plans,
authorizations, and similar items of any local, state, or federal governmental
or quasi-governmental authority (collectively, Laws, or individually, a Law)
affecting the Premises, and with the requirements of any Board of Fire
Underwriters or other similar body now or hereafter instituted, and shall also
comply with any order, directive or certificate of occupancy, issued
4
<PAGE> 7
pursuant to any Laws, that affects the condition, use, or occupancy of the
Premises, including, but not limited to, any requirements of structural changes
related to or affected by Tenant's acts or use of the Premises.
2.3 COMPLIANCE BY OTHER TENANTS. Upon Landlord's receipt of Tenant's
written notice that another tenant or occupant of the Facility is engaging in
conduct prohibited by this Section, to the material detriment of Tenant,
Landlord agrees to use commercially reasonable efforts, consistent with
Landlord's rights under the lease of such other tenant or occupant, to cause
such party to desist from such prohibited conduct. Notwithstanding the
foregoing, Landlord shall not be liable to Tenant for any such conduct on the
part of other tenants or occupants of the Building.
3. CONDITION OF THE PREMISES:
Except as otherwise expressly provided in Exhibit B attached hereto, it is
specifically understood and agreed that (a) Landlord has no obligation and has
made no promises to alter, remodel, improve, repair, decorate, or paint the
Premises or any part thereof, (b) Landlord has made no representations to Tenant
respecting the condition of the Premises or the Building or the suitability or
legality of the Premises for the uses contemplated by this Lease, and (c) by
accepting possession of the Premises after substantial completion of the work
(if any) to be performed by Landlord pursuant to such Exhibit B, Tenant
acknowledges that the Premises are in good condition, and with such acceptance
of possession Tenant waives any claim against Landlord or Landlord's agents or
contractors for the condition or functioning of any improvements within or about
the Premises.
4. RENT:
4.1 MONTHLY RENT. From and after the Commencement Date, Tenant shall
pay to the Landlord, for each calendar month of the Term, the Monthly Rent set
forth in Subsection 0.1(e)(1), as the same may be adjusted from time to time as
provided herein. Monthly Rent shall be due and payable to Landlord in lawful
money of the United States, in advance, on the first (1st) day of each calendar
month of the Term, without abatement, deduction, claim or offset, and without
prior notice, invoice or demand, at Landlord's address set forth in Subsection
1.1.(a) or at such place as Landlord may from time to time designate. Tenant's
payment of Monthly Rent for the first (1st) month of the Term shall be delivered
to Landlord concurrently with Tenant's execution of this Lease.
4.1.1 ADJUSTMENTS. Monthly Rent shall be adjusted from time to time
as provided in Exhibit F.
4.3 DEFINITION OF RENT; PRORATIONS. Any and all payments of Minimum
Monthly Rent and any and all taxes, assessments, fees, charges, costs, expenses,
insurance obligations, late charges, Common Area Costs, and all other payments,
disbursements, or reimbursements that are attributable to, payable by or the
responsibility of Tenant under this Lease shall constitute rent for all purposes
of this Lease and any applicable unlawful detainer statute. Any rent payable to
Landlord by Tenant for any fractional month shall be prorated based upon the
actual number of days in such calendar month.
5
<PAGE> 8
4.4 PLACE AND MANNER OF PAYMENT. All rent shall be paid by Tenant to
Landlord in lawful money of the United States of America at Landlord's address
set forth in Subsection 0.1(a) above, or to such other person or at such other
place as Landlord may from time to time designate. All payments of rent shall be
payable without prior notice or demand and shall be paid without deduction,
setoff or counterclaim for any reason whatsoever.
4.5 LATE CHARGES. Tenant acknowledges that the late payment of rent
will cause Landlord to incur damages, the exact amount of which would be
impractical and extremely difficult to ascertain. Such damages may include,
without limitation, processing, accounting, and other administrative costs, loss
of use of the overdue funds, and late charges that may be imposed on Landlord by
the terms of any encumbrance and note secured by any encumbrance covering the
Premises. Landlord and Tenant agree that if Landlord does not receive a payment
of rent within ten (10) days after such payment becomes due, Tenant shall pay to
Landlord a late charge in an amount equal to ten percent (10%) of such overdue
rent. If Landlord does not receive a payment of rent within thirty (30) days
after such payment becomes due, Tenant shall pay to Landlord additional late
charges computed at the interest rate of ten percent (10%) per annum or, if
lower, the maximum interest rate allowed by law. Such interest shall begin to
accrue as of such 30th day after such rent payment became due. The parties agree
that such late charges represent a fair and reasonable estimate of the cost that
Landlord will incur by reason of late payment by Tenant. Acceptance of any late
charge by Landlord shall not cure or waive Tenant's default, nor prevent
Landlord from exercising, before or after such acceptance, any of the rights and
remedies for a default provided by this Lease or at law. Tenant shall be liable
for late charges regardless of whether Tenant's failure to pay the rent when due
constitutes an Event of Default under this Lease.
4.6 TIME OF PAYMENT; DISPUTED AMOUNTS. Tenant agrees to pay all rent
required under this Lease within the applicable time limits set forth in this
Lease. If no such time period is elsewhere specified herein for payment of a
particular amount, then such amount shall be paid within ten (10) days after
Landlord's delivery of an invoice or demand therefor. If Tenant receives from
Landlord an invoice or statement, sent by Landlord in good faith, and Tenant in
good faith disputes whether all or any part of such rent is due and owing,
Tenant shall nevertheless pay to Landlord the amount of the rent indicated on
the invoice or statement until such time as the dispute is resolved by mutual
agreement of the parties or by final judgment from a court of competent
jurisdiction (or when arbitration is permitted or required, by a final award
from an arbitrator) relieving or mitigating Tenant's obligation to pay such
rent. Failure by Tenant to pay any disputed amounts when due (as if there were
no dispute) shall constitute an Event of Default under this Lease, and
Landlord's rights shall be as provided for in Section 22 (Defaults and
Remedies). In such instance where Tenant disputes its obligations to pay all or
part of the rent indicated on such invoice or statement, Tenant shall,
concurrently with the payment of such rent, provide Landlord with a written
notice specifying in detail why Tenant is not required to pay all or part of
such rent. Tenant shall be deemed to have waived its right to contest any past
payment of rent unless it has filed a lawsuit against Landlord (or when
arbitration is permitted or required, filed for arbitration) and has served
Landlord with notice of such filing within one (1) year after such payment.
4.7 PARTIAL PAYMENTS. Any partial payment of rents outstanding
hereunder shall be allocated to such outstanding rental charges as Landlord may
elect. In the absence of a contrary election made by Landlord, payments by
Tenant shall be applied against the then outstanding rental charges that first
became due.
5. PAYMENT OF TAXES, ASSESSMENTS, AND OPERATING EXPENSES:
5.1 TENANT'S PERCENTAGE SHARE. In addition to paying the Minimum
Monthly Rent, Tenant shall pay to Landlord the percentage set forth in
subsection 0.1(h) (Tenant's Percentage Share) of the amounts set forth below in
Subsections 5.2 and 5.3. Tenant's Percentage Share has been calculated by
dividing the number of square feet of rentable area of the Premises by the
number of square feet of rentable area in the Building, based upon the best
information available to Landlord as of the execution of this Lease. Said
Tenant's Percentage Share shall not be subject to correction or recalculation,
except in the event the rentable area of the Building is changed due to events
of damage, destruction, demolition, or construction. Tenant hereby approves and
accepts Landlord's calculations of the Tenant's Percentage Share as set forth in
Subsection 0.1(h).
5.2 TAXES AND ASSESSMENTS
5.2.1 Tenant shall pay to Landlord an amount equal to Tenant's
Percentage Share of any increase in Taxes above the amount of Taxes levied or
assessed for the Base Tax Year set forth in Subsection 0.1(i), either by way of
increase in the rate or in the assessed valuation of the Real Property (or any
portion thereof) or by imposition of any such charges by ordinance or statute of
any authority having jurisdiction. As used in this Section 5, the term Taxes
shall mean all taxes, excises, penalties (unless due solely to Landlord's
negligence or willful misconduct), fees (including, without limitation, all
license, permit and inspection fees), and other charges (but excluding
Assessments, as defined in Subsection 5.2.2 below) assessed, levied, charged,
confirmed, or imposed by any federal, state, or local government, any political
subdivision, public corporation, district, or other political or public entity
or public authority (a) on the Real Property (or any portion thereof), (b) on
Landlord with respect to the Real Property (or any portion thereof), (c) on the
act of leasing or entering into leases of space in the Real Property, (d) on or
measured by the rent payable under leases of space, or in connection with the
business of leasing space, in the Real Property, or (e) on personal property of
Landlord used in the operation of the Real Property (or any portion thereof).
Such Taxes may be general or specific, ordinary or extraordinary, or of any kind
or nature whatsoever, whether or not now customary or within the contemplation
of the parties to this Lease.
6
<PAGE> 9
Notwithstanding the foregoing, documentary transfer taxes, gift, inheritance,
succession, and estate taxes, and federal and state income taxes computed on
Landlord's income shall not be included as Taxes, nor shall the computation of
increases in Taxes for which Tenant shall pay Tenant's Percentage Share include
any amounts paid by Tenant under Subsections 5.2.3 and 5.2.4 or any amounts
separately billed to a particular tenant of the Real Property with respect to
similar matters (other than as its percentage share of increases in Taxes or
Assessments).
5.2.2 Tenant shall also pay to Landlord an amount equal to Tenant's
Percentage Share of any increase in Assessments above the amount of Assessments
levied or assessed against the Real Property for the Base Tax Year. As used in
this Section 5, the term Assessments shall mean all assessments, transit
charges, housing charges, and levies assessed, charged, levied, confirmed, or
imposed by any federal, state, or local government, any political subdivision,
public corporation, district, or other political or public entity or public
authority on or with respect to any of the items described in clauses (a)
through (e) of Subsection 5.2.1 or with respect to the use, occupancy,
management, maintenance, alteration, repair, or operation of the Real Property
(or any portion thereof) or any services or utilities furnished or consumed in
connection therewith.
5.2.3 In addition to paying Tenant's Percentage Share of increases
in the Taxes and Assessments described in Subsections 5.2.1 and 5.2.2, Tenant
shall pay one hundred per cent (100%) of the following, as reasonably determined
by Landlord: any increase in Texas or Assessments caused by the improvements
currently existing in the Premises or any other improvements or installations at
any time made to the Premises by or at the instance of Tenant. The total amounts
due under this Subsection 5.2.3 shall be paid to Landlord on or before the date
full payment of such Taxes or Assessments shall become due, or if payable in
installments, the date payment of the first installment of such Taxes or
Assessments shall become due. In the event such Taxes or Assessments are paid by
Landlord, Tenant forth with upon demand therefor shall reimburse Landlord for
all amounts of such Taxes or Assessments chargeable against Tenant pursuant to
this Subsection 5.2.3.
5.2.4 Tenant shall pay, before delinquency, any and all levied or
assessed taxes that become payable during or with respect to the Term upon
Tenant's equipment, furnishings, fixtures, and other personal property located
in the Premises, including carpeting installed by or at the instance of Tenant,
even though said carpeting has become a part of the Premises. In the event said
taxes are paid by Landlord, Tenant forthwith upon demand therefor shall
reimburse Landlord for all such taxes paid by Landlord.
5.2.5 Any Taxes or Assessments that may be paid over more than a
one-year period shall be apportioned evenly over the maximum period of time
permitted by Law and only the portion thereof attributable to a given year shall
be included in Taxes or Assessments for that year. In the event that Landlord
contests the amount of any Taxes or Assessments and receives a refund or credit
as a result thereof, then Landlord shall pay Tenant its pro rata share of such
refund to the extent that the refund relates to Taxes or Assessments that have
been paid by Tenant. Upon Tenant's request, Landlord shall provide a copy of all
applicable tax bills.
5.3 OPERATING EXPENSE INCREASES
5.3.1 Tenant shall pay to Landlord an amount equal to Tenant's
Percentage Share of any increase in Operating Expenses above the Operating
Expenses for the Base Expense Year. As used in this Section 5, the term
Operating Expenses shall mean all costs and expenses paid or incurred by
Landlord in connection with the operation, management, or maintenance of the
Real Property (which costs shall be accounted for under generally accepted
accounting principles and shall be amortized when and as required thereunder),
excluding, however, the items described in Subsection 5.3.2 below, which items
shall not be included in Operating Expenses for purposes of this Lease. By way
of illustration but not limitation, Operating Expenses shall include (subject to
the specific exclusions described in Subsection 5.3.2 below) all (a) costs for
heating, cooling, ventilation, fuel, and utilities; (b) costs and expenses for
maintenance, ordinary and extraordinary repairs and replacements, testing, and
operation of building systems and components; (c) costs and expenses for
security, landscaping, refuse disposal, janitorial services, labor, supplies,
materials, equipment, and tools, including any sales, use, or excise taxes
thereon; (d) reasonable management fees and other costs of managing the Real
Property, whether managed by Landlord or an independent contractor; (e) the
wages, salaries, bonuses, employee benefits and payroll burden of all Landlord's
(or its agents) on-site employees engaged in the operation, maintenance,
management, or security of the Real Property, including employers payroll,
social security, workers compensation, unemployment, and similar taxes with
respect to such employees;(f) all insurance premiums paid or incurred by
Landlord with respect to the Real Property and all amounts paid in connection
with claims or losses that are less than the amount of such deductibles or
self-insured retentions as Landlord may have deemed reasonable for its insurance
policies; (g) all costs and expenses of contesting by appropriate proceeding the
amount or validity of any Taxes or Assessments; (h) the cost of any capital
improvements or capital assets constructed, made, purchased, or installed in
order to comply with the requirements of any governmental or quasi-governmental
law or authority, or constructed, made, purchased, or installed in order to
conserve energy or reduce other Operating Expenses, amortized over the useful
life of such capital improvements or capital assets, as reasonably determined by
Landlord, together with such interest and finance charges as Landlord may pay in
financing such costs or (if such financing is not obtained) interest on the
unamortized balance of such costs accruing at an annual interest rate equal to
the interest rate from time to time publicly announced by the San Francisco Main
office of Bank of America, NT&SA (or any successor bank thereto), as its prime
annual interest rate (or reference rate) charged to substantial commercial
borrowers for 90-day loans; (i) the fair market rental value of the building
office and other space in the building occupied by Landlord or its
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manager in connection with the operation or management of the Real Property; and
(j) and all other costs and expenses that under generally accepted accounting
principles and practices would clearly be included in operating expenses.
5.3.2. The following costs and expenses shall be excluded from the
definition of Operating Expenses for purposes of this Lease: (a) any and all
Taxes and Assessments, as defined in Subsections 5.2.1 and 5.2.2 above; (b) any
costs or expenses separately billed to a particular tenant of the Real Property
and not billed as such tenant's percentage share of costs or expenses of that
type (provided, however, Tenant's Percentage Share, as applied to such cost
categories, shall be recomputed to exclude the rentable area of premises of
tenants being so billed separately); (c) costs for tenant improvements and
leasing commissions; (d) depreciation on the Building and the equipment therein;
(e) costs of capital improvements, other than such as are specifically included
as Operating Expenses in Subsection 5.3.1 above; (f) any costs recovered from
condemnation or insurance proceeds; (g) depreciation, amortization, and interest
on and capital retirement of debt, except to the extent such costs shall have
been elsewhere expressly included in the definition of Operating Expenses; (h)
attorneys fees, costs and disbursements and other expenses incurred in
connection with negotiations or disputes with tenants, other occupants, or
prospective tenants or other occupants of the Building; (i) costs of Landlord's
general administration, other than as specifically set forth in Subsection
5.3.1; (j) costs incurred in advertising and promotional activities for
marketing of the Building to persons other than the then occupants of the
Building; (k) when and if any service (such as janitorial service) that is
normally provided by Landlord to tenants of the Building is not provided by
Landlord to Tenant in the Premises pursuant to agreement with Tenant under the
specific terms of this Lease, then in determining Operating Expenses for Tenant,
the cost of that service (except as it relates to common areas) shall be
excluded; and (l) unless specifically included under Subsection 5.3.1 above, any
other expense that under generally accepted accounting principles and practice
would clearly be excluded from operating expenses;
5.3.3. If at any time less than ninety-five percent (95%) of the
rentable area of the Building is occupied, the Operating Expenses shall be
reasonably adjusted by Landlord to approximate such operating and maintenance
costs as would have been incurred if the Building had been at least ninety-five
percent (95%) occupied.
5.4 ALLOCATIONS OF CERTAIN COSTS. If any Taxes, Assessments, or
Operating Expenses paid in one year relate to more than one calendar year,
Landlord shall allocate such Taxes, Assessments, or Operating Expenses among the
appropriate calendar years. If the Term ends other than on December 31, Tenant's
obligations to pay Tenant's Percentage Share of estimated and actual amounts of
increases in Taxes, Assessments, and Operating Expenses for such final calendar
year shall be prorated to reflect the portion of such year included in the Term.
Such proration shall be made by multiplying the total estimated or actual (as
the case may be) Taxes, Assessments, and Operating Expenses for such calendar
year by a fraction, the numerator of which shall be the number of days of the
Term during such calendar year, and the denominator of which shall be 365.
Landlord may, but shall not be required to, calculate prorations with regard to
when during a calendar year particular items of Taxes, Assessments, and
Operating Expenses were incurred. If any Taxes, Assessments, or Operating
Expenses are not separately assessed against or separately charged to the Real
Property, but are (a) jointly assessed against or charged to the Real Property
and other land or improvements in the Facility, or (b) assessed against or
charged to land or improvements in the Facility that are used as common areas
for the benefit of the Building and one or more other buildings in the Facility,
an equitable portion, as reasonably determined by Landlord, of such Taxes,
Assessments, or Operating Expenses shall be allocated to the Real Property for
purposes of this Section 5.
5.5 ESTIMATED PAYMENTS. Landlord shall notify Tenant of the estimated
monthly amount of Tenant's Percentage Share of increases in Taxes, Assessments,
or Operating Expenses and Tenant shall pay Landlord such estimated amount at the
same time as and together with Tenant's Minimum Monthly Rent. Landlord may from
time to time, by notice to Tenant, change such estimated monthly or quarterly
amounts based upon Landlord's actual or projected Taxes, Assessments, or
Operating Expenses.
5.6 STATEMENT OF EXPENSES. Landlord shall, after December 31 of each
year, determine and furnish to Tenant a notice containing a computation of the
charge or credit to Tenant for any difference between (a) Tenant's allocable
share of the actual Taxes, Assessments, and Operating Expenses and (b) the
estimated portion(s) thereof paid by Tenant for the preceding calendar year, and
the amount of any underpayment shall be paid by Tenant within ten (10) days
after delivery of said notice. Such notice shall contain a line item detail
setting forth by categories the actual Operating Expenses incurred by Landlord
for the previous year. In the event of overpayment by Tenant, Landlord shall
credit such overpayment in full against Tenant's payment of rent next coming due
hereunder. Upon expiration or sooner termination of this Lease, if Tenant was
not in material default hereunder immediately prior thereto, Landlord shall
refund to Tenant any overpayment.
5.7 NON-WAIVER OF RIGHTS. Without limitation to the provisions of
Section 30 (Non-Waiver), no failure or determination of Landlord in any one year
to include or exclude certain items in its computation of Taxes, Assessments, or
Operating Expenses or to invoice Tenant for the full amount of Tenant allocable
share of Taxes Assessments, or Operating Expenses shall be construed as
depriving Landlord of the right to include such items as Taxes, Assessments, or
Operating Expenses or to invoice Tenant for the full amount of Tenant's
allocable share thereof in any subsequent year in strict accordance with the
provisions of this Section 5.
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5.8 RIGHT TO AUDIT:
5.8.1 The good-faith determination of the accountant then serving
Landlord shall be conclusive and determinative of what constitutes a Tax,
Assessment, or Operating Expense each year. During the 30-day period commencing
upon Tenant's receipt of any statement provided by Landlord under Subsection 5.6
above, Tenant shall have the right, at Tenant's expense and upon not less than
forty-eight (48) hours prior notice to Landlord, to inspect at reasonable times
Landlord's books and records for the Facility for the calendar year covered by
such statement, for purposes of verifying Landlord's calculation of Taxes,
Assessments, and Operating Expenses. Such inspection may only be done by an
accounting firm which is generally considered to be one of the ten (10) largest
accounting firms headquartered in the United States. If Tenant shall not have
availed itself of such inspection, Tenant shall be deemed to have accepted as
final and determinative the amounts shown on the statement of expenses. If
Tenant shall have availed itself of its right to inspect the books and records,
and then disputes the accuracy of the information set forth in Landlord's books
and records with respect to the statement of expenses, Tenant shall nevertheless
continue to pay the amounts as required by the provisions of this Section 5;
provided however, that no later than six (6) months after receipt of the
statement of expenses, Tenant must (or its right to contest such charges shall
be deemed waived) institute arbitration proceedings against Landlord, in an
arbitration proceeding governed by the rules of the American Arbitration
Association, to collect and recover any overpayment made by Tenant resulting
from errors in the books and records of Landlord; and provided further, that
Tenant shall, within ten (10) days after filing of the complaint, serve Landlord
with a copy of the complaint filed in any such proceeding. Tenant shall be
precluded from contesting Taxes, Assessments, or Operating Expenses, or
Landlord's computations of the amounts payable by Landlord or Tenant pursuant to
this Section 5, unless an arbitration complaint is filed and served within such
six (6) month period. Should the arbitrator find errors in excess of ten percent
(10%) of the statement of expenses, then Landlord shall be responsible for all
reasonable fees incurred by Tenant with respect to the arbitration proceeding.
Should the arbitrator find errors of less than four percent (4%) of the
statement, then Tenant shall be responsible for all the reasonable fees incurred
by Landlord with respect to the arbitration proceeding. Should the arbitrator
find errors of between four percent (4%) and ten percent (10%) of the statement,
then each party shall be responsible for all fees incurred by it with respect to
the arbitration proceeding.
5.8.2 If Tenant institutes such arbitration procedures, then the
arbitrator shall determine whether or not Tenant was over-charged for Tenant's
Percentage Share of increases in Taxes, Assessments, or Operating Expenses or
undercharged for its share of increases. At the conclusion of the arbitration,
the arbitrator shall issue a ruling as to what the Taxes, Assessments, and
Operating Expenses, and Tenants Percentage Share of increases therein, should
have been had Landlord strictly complied with the provisions of this Lease. If
Landlord overcharged Tenant for increases in Taxes, Assessments, or Operating
Expenses, the amount of the overcharge shall be returned to Tenant within thirty
(30) days following the conclusion of the arbitration. If the arbitrator
determines that Tenant was undercharged for increases in Taxes, Assessments, or
Operating Expenses, Tenant shall pay the amount of such undercharge to Landlord
within thirty (30) days following the issuance of the arbitration ruling.
6. SECURITY: (Refer to attached Addendum "A")
6.2 NO BAR OR DEFENSE TO OTHER REMEDIES. No security or guaranty that
may now or hereafter be furnished to Landlord for the payment of the rent herein
reserved or for performance by Tenant of the other covenants or conditions of
this Lease shall in any way be a bar or defense to any action in unlawful
detainer, or for the recovery of the Premises, or to any action that Landlord
may at any time commence for a breach of any of the covenants or conditions of
this Lease.
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7. HAZARDOUS SUBSTANCES:
7.1 DEFINITIONS. As used herein, Hazardous Substance shall mean any
substance, material, or waste that is or becomes regulated by any federal,
state, or local governmental authority because of its toxicity, infectiousness,
radioactivity, explosiveness, ignitability, corrosiveness, or reactivity; and
Environmental Requirements shall mean all Laws relating to industrial hygiene,
protection of human health, warnings, hazard communication, employee
rights-to-know, environmental protection, or any Hazardous Substance.
7.2 CONSENT REQUIRED FOR HAZARDOUS SUBSTANCES. Tenant shall not cause
or permit any Hazardous Substance to be brought upon, generated, produced, kept
or used in or about the Facility by Tenant or any Tenant Parties unless (a) such
Hazardous Substance is necessary for Tenant's business (and such business is a
Permitted Use) and (b) Tenant first obtains the consent of Landlord if such
Hazardous Substance is other than (i) an Article (as defined in 29 C.F.R.
910.1200) that is free of asbestos (whether friable or nonfriable) and
polychlorinated biphenyls (PCBs) or (ii) a consumer product that is used on the
Premises in quantities that would not require any notification or reporting
under any Environmental Requirement, or any warnings to any persons located
anywhere outside the Premises, if the entire quantities were released into the
environment. Any request by Tenant for such consent shall be in writing and
shall demonstrate to the reasonable satisfaction of Landlord that such Hazardous
Substance will be stored, used, and disposed of in a manner that complies with
all Environmental Regulations applicable to such Hazardous Substance. Such
consent shall not be unreasonably withheld, but Landlord shall in no case be
obligated to consent to the presence of any Hazardous Substance that will
increase the likelihood or magnitude of Landlord's liability, or to any
treatment, storage, or disposal upon the Premises or the Facility of any
Hazardous Substance whose treatment, storage, or disposal requires a permit or
variance under applicable Environmental Requirements. In no event shall Landlord
ever be obligated to execute any application for any such permit or variance.
7.3 NOTICES. Tenant shall promptly deliver to Landlord copies of any
reports made to any environmental agency arising out of or relating to any
Hazardous Substances in, on, or from the Premises and copies of all hazardous
waste manifests reflecting the legal and proper disposal of all hazardous wastes
removed by Tenant from the Facility. If at any time Tenant shall become aware,
or have reasonable cause to believe that any Hazardous Substances, other than
those already known by Landlord or permitted under this Lease, have come to be
located in or about the Premises, or that any known Hazardous Substances have
been, are being, or threaten to be released into the environment, Tenant shall,
immediately upon discovering same, give notice of that condition to Landlord.
7.4 COMPLIANCE WITH ENVIRONMENTAL REQUIREMENTS. Without limitation to
the generality of Subsection 2.2 (Restriction on Use), Tenant shall at its own
expense fully comply with all Environmental Requirements, prudent industry
practices, and Landlord's Rules and Regulations regarding use, handling,
disturbance, management, or disposal of Hazardous Substances, except as
otherwise provided in Subsection 7.5 below. Except as discharged into the
sanitary sewer in strict accordance and conformity with all applicable
Environmental Requirements, Tenant shall cause any and all Hazardous Substances
removed from the Premises (or from any other portion of the Facility, if their
removal is at the instance or direction of Tenant) to be removed and transported
solely by duly licensed haulers to duly licensed facilities for final disposal
of such materials and wastes. Upon expiration or earlier termination of the
Term, Tenant shall cause to be removed from the Premises and the Facility all
Hazardous Substances that Tenant or any Tenant Parties caused or permitted to be
located there. If the presence of Hazardous Substances brought onto the Facility
by any of such persons results in contamination of any portion of the Facility,
Tenant shall be solely responsible, at its sole expense, for taking any and all
necessary steps to return the affected portion of the Facility to its condition
prior to such contamination, as reasonably determined by Landlord; provided,
however, that Tenant shall not take any remedial action (except in emergencies)
in response to the presence of, nor enter into any settlement agreement, consent
decree, or other compromise in respect to any claims relating to, any Hazardous
Substance in any way connected with the Facility, without first notifying
Landlord of Tenant's intention to do so and affording Landlord ample opportunity
to appear, intervene, or otherwise appropriately assert and protect Landlord's
interest with respect thereto; and further provided, that Landlord shall have
the right (but not the obligation) to perform any such remediation on Tenant's
behalf, in which event Tenant shall reimburse Landlord for all of Landlord's
reasonable costs and expenses incurred in connection therewith.
7.5 LANDLORD'S OBLIGATION. Subject to Landlord's right to reimbursement
of certain costs or expenses under other provisions of this Lease, Landlord
agrees to use commercially reasonable efforts to comply with all applicable
Environmental Requirements regarding the use, management, or disposal of
Hazardous Substances (a) that were existing on the Premises as of the date
Tenant originally took occupancy thereof under a prior lease or (b) that were
otherwise brought upon or kept or used in or about the Facility by Landlord, its
agents, employees, or contractors.
8. NO LIGHT, AIR OR VIEW EASEMENT:
No diminution or shutting off of light, air, or view by any structure that may
be erected on the lands of the Facility or other nearby lands shall in any way
affect this Lease, abate any rent hereunder, or otherwise impose any liability
on Landlord.
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9. ALTERATIONS:
9.1 TENANT'S RIGHT TO MAKE ALTERATIONS. Tenant shall not make or suffer
to be made any alterations, additions, improvements, or utility installations
(collectively, Alterations) to the Premises or any part thereof without the
prior consent of Landlord. Tenant specifically acknowledges that it shall not be
unreasonable for Landlord to withhold approval of any proposed contractor or
subcontractor of Tenant on the grounds that Landlord believes that the
performance of work in the Building by such contractor or subcontractor could
result in labor disputes with Landlord's own contractors or Building employees
of Landlord or Landlord's contractors. Landlord may, at any time during the
Term, require Tenant to remove any or all Alterations made without Landlord's
consent or otherwise made in material violation of any of the provisions of this
Section 9. In no event shall Landlord be required to consent to any Alterations
that would not be normal for the Permitted Uses, that might adversely affect the
utility or value of the Premises or the Building for future tenants, that would
alter the exterior appearance of the Building, that would be of a structural
nature, that could adversely affect the plumbing, mechanical, or electrical
systems servicing the Facility, that would be excessively expensive to remove,
or that would otherwise be prohibited under this Lease. All permitted
Alterations shall be made in conformity with the requirements of Subsection 9.2
below. Once any such Alterations have been completed, whether prior to or during
the Term of this Lease, they shall thereafter be included in the designation of
the "Tenant Improvements" which term is defined as follows: The leasehold
improvements existing at the Premises now or upon the Commencement Date.
9.2 INSTALLATION OF ALTERATIONS. Any Alterations installed by Tenant
during the Term shall be done in strict compliance with all of the following
requirements:
9.2.1 No such work shall proceed without Landlord's prior written
approval of (i) Tenant's contractor(s); (ii) certificates of insurance from a
company or companies approved by Landlord, furnished to Landlord by Tenant's
contractor, for combined single limit bodily injury and property damage
insurance covering comprehensive general liability and automobile liability, in
an amount not less than One Million Dollars ($1,000,000) per occurrence and
endorsed to show Landlord, Landlord's property manager, and each general partner
of Landlord (if Landlord is a partnership) as additional insureds, and for
workers' compensation as required by law, endorsed to show a waiver of
subrogation by the insurer to any claims Tenant's contractor may have against
Landlord (provided, however, nothing in this Subsection 9.2.1 shall release
Tenant of its other insurance obligations hereunder); and (iii) detailed plans
and specifications for such work. Any changes in, deviations from, modifications
of, or amendments to the approved plans and specifications shall also require
Landlord's prior written approval.
9.2.2 Tenant shall cause its contractor(s) to coordinate with
Landlord's building management all construction and installation activities
covered by this Subsection 9.2 All such work shall be done in a skillful and
first class workmanlike manner, consistent with the best practices and standards
of the construction industry, and shall be pursued diligently and continuously
until completed, always in conformity with the approved plans and
specifications. All materials, equipment, and articles incorporated into the
Alterations shall be new, and of recent manufacture, and of the most suitable
grade for the purpose intended.
9.2.3 No Alterations shall be commenced without Tenant first having
obtained a valid building permit and/or all other permits or licenses when and
where required, copies of which shall be furnished to Landlord before the work
is commenced. Any work not acceptable to any governmental authority or agency
having or exercising jurisdiction over such work, or not reasonably satisfactory
to Landlord, shall be promptly replaced and corrected at Tenant's expense.
Landlord's approval or consent to any such work shall not impose any liability
upon Landlord. No work shall commence until and unless Landlord has received at
least ten(10) days' notice that such work is to commence.
9.2.4 Tenant shall immediately reimburse Landlord for any expense
incurred by Landlord in reviewing and approving the plans and specifications
(and any modifications thereto) for such work or the work itself.
9.2.5 If the estimated cost of the Alterations exceeds $5,000.00,
then (a) Tenant shall obtain any bonds required by Landlord pursuant to Section
11 below and (b) during all such times as the work is being performed, Tenant
shall carry, or cause its approved contractors to carry, builder's risk
completed value insurance, in an amount approved by Landlord.
9.2.6 Prior to undertaking any physical work in or around the
Premises, Tenant shall notify Landlord, in writing, of the exact nature and
location of the proposed work and shall promptly supply such additional
information regarding the proposed work as Landlord shall request. After receipt
of Tenant's notice, Landlord may, to the extent appropriate, supply Tenant with
the Building regulations and procedures for working in areas where there is a
risk of coming into contact with materials or building systems that, if not
properly handled, could cause health or safety risks or that could damage such
systems and/or the Building. Tenant shall cause its contractors, at Tenant's
sole cost and expense, strictly to comply with all such Building regulations and
procedures established by Landlord and with all applicable Laws. Landlord shall
have the right at all times to monitor the work for compliance with the Building
regulations and any applicable Laws. If Landlord determines that any applicable
Law or any Building regulations and/or procedures are not being strictly
complied with, Landlord may immediately require the cessation of all work being
performed in or around the Premises until such time as Landlord is satisfied
that the applicable Laws and Building regulations and procedures will be
observed. Neither Landlord's review
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and approval of the plans and specifications nor Landlord's monitoring of any
work in or around the Premises shall not be deemed a certification by Landlord
of compliance with any applicable Laws or with the Building regulations and
procedures or a waiver by Landlord of its right to require strict compliance
with such Laws, regulations, or procedures, nor shall such monitoring relieve
Tenant from any liabilities relating to such work.
9.2.7 Upon completion of any Alterations, Tenant shall provide
Landlord with as built plans, copies of all construction contracts, and proof of
payment for all labor and materials.
9.3 TENANT IMPROVEMENTS' TREATMENT AT END OF LEASE
9.3.1 All Tenant Improvements (and all Alterations, upon their
completion) made by or for Tenant, whether temporary or permanent in character,
and whether made by Landlord or Tenant, shall be Landlord's property, and shall
be surrendered to Landlord in good order, condition, and repair (ordinary wear
and tear excepted), broom clean, upon the expiration or earlier termination of
the Term, and Tenant shall not be entitled to any compensation therefor;
provided however, that at the election of Landlord, exercisable by notice to
Tenant, Tenant shall, at Tenant's sole expense, prior to the expiration of the
Term, remove from the Premises all Tenant Improvements and Alterations (or such
portion thereof as Landlord may require to be removed) and repair all damage to
the Premises caused by such removal. At least thirty (30) days prior to the
termination of this Lease, Tenant shall submit by notice to Landlord a written
request of Landlord for instructions as to whether or not Landlord elects to
require any such removal of Tenant Improvements or Alterations. Any damage or
deterioration of the Premises or any Tenant Improvements that could have been
prevented by good maintenance practices shall not be deemed to be ordinary wear
and tear.
9.3.2 All of Tenant's furniture, furnishings, trade fixtures
(including, but not limited to, refrigerator cases and countertop electrical
appliances as well as the other items listed in Section 54 of Addendum B
attached hereto), equipment not attached to the Building or the Premises, other
personal property, and all trash and debris (collectively, the Personal
Property), shall be completely removed by Tenant prior to the expiration of the
Term; provided, however, that Tenant shall repair all damage caused by such
removal prior to the expiration of the Term, and provided further, that any of
Tenant's Personal Property not so removed shall, at the option of Landlord,
automatically become the property of Landlord. Thereafter, Landlord may retain
or in any manner dispose of said Personal Property not so removed, without
liability to Tenant.
9.4 OTHER IMPROVEMENTS IN THE BUILDING. If as a result of any
Alterations or Tenant Improvements or as a result of Tenant's particular use of
the Premises, Landlord shall be required by any applicable Law to make other
improvements (including, without limitation, upgrading of installations of life
safety systems or compliance with standards for handicapped persons) in or upon
the Premises or any other portion of the Building or Facility, then Landlord
shall have the right to charge Tenant for the cost of such other improvements.
10. REPAIR OBLIGATIONS:
10.1 TENANT'S OBLIGATIONS. Except as otherwise provided in Section 9
(Alterations), Section 16 (Building Services). and Section 23 (Damage or
Destruction), Tenant, at its sole cost and expense, shall keep the Premises and
every part thereof in good, clean, pest-free, and sanitary condition and repair
at all times during the Term. All damage, injury or breakage to any part or
portion of the Premises or the Facility caused by the willful or negligent act
or omission of Tenant or any of its officers, directors, trustees, partners,
agents, contractors, employees, licensees, invitees, visitors, customers, or
trespassers (collectively, the Tenant Parties) shall be promptly repaired at
Tenant's sole cost and expense, to the satisfaction of Landlord; provided,
however, that Tenant shall be entitled to receive reimbursement for such expense
to the extent that the cost of any such repair is covered by insurance obtained
by Landlord as part of Operating Expenses. Landlord shall have the right to
perform such repair work. Tenant shall be solely responsible for the design and
function of all of Tenant Improvements, whether or not installed by Landlord at
Tenant's request. Tenant waives all rights to make repairs to the Premises or to
the Facility at the expense of Landlord, or to deduct the cost of such repairs
from any payment owed to Landlord under this Lease.
10.2 LANDLORD'S OBLIGATIONS. Provided that no Event of Default shall
have occurred and then remain uncured, Landlord shall keep in good condition and
repair the foundations, exterior walls, structural condition of the interior
bearing walls, and the roof of the Building, as well as any parking lots,
parking structures, walkways, driveways, landscaping, fences, signs, and utility
installations of the common areas. Landlord shall not, however, be obligated to
paint the Facility; nor shall Landlord be required to maintain, repair, or
replace windows, skylights, doors, or plate glass of the Premises. Landlord's
obligations under this Subsection shall not apply to any non-insured damage or
wear and tear caused by any breach or default by Tenant under this Lease or by
any negligent or willful act or omission of Tenant or the Tenant Parties.
Landlord shall not be obligated to perform repairs for which Tenant has
expressly assumed responsibility under other provisions of this Lease. Landlord
shall have no obligation to make any repairs under this Subsection until a
reasonable time after receipt of notice from Tenant of the need for such
repairs. Tenant hereby acknowledges that the foregoing description of certain
obligations and rights of Landlord is not intended to limit or restrict
Landlord's rights under other provisions of this Lease to reimbursement for
costs and expenses incurred in connection with such matters.
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11. LIENS:
Tenant shall keep the Premises, the Building, and the rest of the Facility free
from liens arising out of any work or materials actually or allegedly performed
or furnished, or obligations incurred, by or for Tenant. At any time Tenant
either desires or is required to make any Alterations whose estimated cost is
greater than $5,000.00, Landlord may, without limitation to the provisions of
Section 9 (Alterations) above, (a) require Tenant, at Tenant's sole cost and
expense, to obtain and provide to Landlord a completion or performance bond, in
a form and by a surety acceptable to Landlord and in an amount not less than one
and one-half (1-1/2) times the estimated cost of such Alterations, to insure
Landlord against liability from mechanics' and materialmen's liens and to insure
completion of the work, and (b) require such additional items or assurances as
Landlord in its sole discretion may deem reasonable or desirable. Tenant agrees
to indemnify and hold Landlord harmless from and against any and all claims for
mechanics', materialmen's or other liens in connection with any Alterations,
repairs, or any work performed, materials furnished, or obligations incurred by
or for Tenant. In the event any such lien is filed or asserted, Tenant shall
immediately post any bond required to release the Premises and the Facility
therefrom.
12. SIGNS; NAMES OF BUILDING AND FACILITY:
Except for a sign (which shall comply with Landlord's building standard
criteria) placed on the entry door to the Premises, Tenant shall not place any
logo, sign, advertisement, announcement, warning, or notice upon or in front of
the Premises or any common areas. Tenant shall not use any name, insignia, or
logotype of the Building or Facility for any purpose. Tenant shall not use any
picture of the Building or Facility in its advertising or stationery or in any
other manner. Landlord expressly reserves the right, in Landlord's sole and
absolute discretion, at any time to change the name, insignia, logotype, or
street address of the Building or the Facility without in any manner being
liable to Tenant.
13. ASSIGNMENT AND SUBLETTING:
13.1 TRANSFER DEFINED. As used herein, the term Transfer shall mean any
assignment of this Lease (including, without limitation, assignment by operation
of law-e.g., death of an individual tenant or merger, dissolution,
consolidation, or other reorganization of a corporate tenant), subletting of all
or any part the Premises, or transfer of possession, or right of possession or
contingent right of possession of all or any portion of the Premises, including
without limitation, concession, mortgage, encumbrance, devise, hypothecation,
agency, franchise, or management agreement, or to suffer any other person (the
agents and employees of Tenant excepted) to occupy or use the said Premises or
any portion thereof. If Tenant is a corporation that is not deemed a public
corporation, or is an unincorporated association or partnership, or if Tenant
consists of more than one party, the transfer, assignment (including, without
limitation, assignment by operation of law), or hypothecation of any stock of or
interest in Tenant in the aggregate in excess of forty percent (40%), shall also
be deemed to be a Transfer. If Tenant is a partnership or consists of more than
one party, then any of the foregoing events with respect to any such party
comprising Tenant, or with respect to any general partner of Tenant or any such
party, shall also be deemed to be a Transfer. Notwithstanding the foregoing,
occupancy of all or part of the Premises by parent, subsidiary, or affiliated
companies of Tenant shall not be deemed a Transfer, provided that such parent,
subsidiary or affiliated companies were not formed as a subterfuge to avoid the
obligations of this Section 13.
13.2 NO TRANSFER WITHOUT CONSENT. Tenant shall not, either voluntarily
or by operation of law or otherwise, suffer a Transfer without the prior written
consent of Landlord, which consent shall not be unreasonably withheld, except as
otherwise expressly provided below. Landlord's consent to one Transfer shall not
be deemed to be a consent to any subsequent Transfer; nor shall Landlord's
consent constitute an acknowledgment that no default then exists under this
Lease of the obligations to be performed by Tenant; nor shall such consent be
deemed a waiver of any then existing default, except as may be otherwise stated
in writing by Landlord at the time; nor shall Landlord's acceptance of rent from
any person be deemed a waiver by Landlord of any provision of this Section 13.
If Landlord's approval or consent for any agreement or instrument is required
hereunder, then no amendment or modification shall be made thereto without
Landlord's prior consent. Any Transfer that is not in compliance with the
provisions of this Section 13 shall be voidable at Landlord's election.
13.3 PROCEDURE FOR ASSIGNMENT AND SUBLETTING/LANDLORD'S RECAPTURE
RIGHTS. Tenant shall advise Landlord by written notice of (a) Tenant's intent to
make a Transfer, (b) the name of the proposed transferee, and evidence
reasonably satisfactory to Landlord that such proposed transferee is comparable
in reputation, stature and financial condition to the other tenants then leasing
comparable space in the Facility (such evidence shall include, without
limitation, [i] a description of the proposed transferee's business background
and experience, [ii] the past two year's Federal Income Tax returns of the
proposed transferee, [iii] the proposed transferee's annual Balance Sheets and
Profit and Loss Statements for the past two years, certified correct by a
Certified Public Accountant, [iv] banking references of the proposed transferee,
and [v] at least five business and three personal references for the proposed
transferee), and (c) the terms of the proposed assignment or subletting
(including the financial terms and the intended use of the Premises), together
with a copy of the proposed Transfer documents. Landlord need not commence its
review of any proposed Transfer, or respond to any request by Tenant with
respects to such, unless and until
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Landlord has received all of the foregoing documentation from Tenant. Landlord
shall, within thirty (30) days after receipt of such notice and documentation,
and any additional information reasonably requested by Landlord, elect one of
the following:
(i) Consent to such proposed Transfer; or
(ii) Refuse such consent, which refusal shall be on reasonable
grounds, subject to the provisions of Subsection 13.4 below.
(iii) Elect to terminate this Lease in the event of an assignment,
or in the case of a sublease, terminate this Lease as to the
portion of the Premises proposed to be sublet for the proposed
term of the sublease. If Landlord exercises such termination
option, then (A) this Lease shall terminate as to all or such
portion, as the case may be, of the Premises effective as of
the date on which the proposed Transfer was intended to have
become effective, or in the event of a sublease the Lease
shall be deemed suspended as to the sublet premises for the
period of the proposed sublease, (B) Tenant shall vacate such
portion of the Premises prior to such date, and (C) Landlord
and Tenant shall have no further liability to each other under
this Lease from and after such date, except as otherwise
provided in Section 41 (Survival of Certain Rights and
Obligations). If this Lease is terminated as to less than all
of the Premises pursuant to the preceding sentence, the rent
under this Lease shall be equitably adjusted by Landlord on
the basis that the rentable area of the portion of the
Premises remaining bears to the rentable area of the entire
Premises. No failure of Landlord to exercise its termination
option hereunder shall be deemed a waiver of the right to
terminate this Lease subsequently in accordance with the terms
hereof, as it is intended that this option to terminate shall
continue to exist during the entire Term. See Addendum "B" for
Limited Waiver of Recapture Rights.
13.4 CONDITIONS TO APPROVAL
13.4.1 It is understood and agreed that, without limiting
Landlord's right of consent as provided herein, Landlord's withholding consent
shall be deemed reasonable if the proposed assignment or sublease fails to meet
any one or more of the following criteria: (i) neither the proposed Transfer nor
the proposed use of the Premises by the proposed transferee shall conflict with
or result in a breach of Subsections 2.2 (Restriction on Use), 7.2 (Consent
Required for Hazardous Substances), or 13.8 (Non-Competition), or any other
provision of this Lease, nor shall it violate any exclusivity arrangement that
Landlord may then have with any other tenant of the Facility; (ii) the proposed
transferee shall not be a governmental entity; (iii) if Tenant's obligations
under this Lease have been guaranteed by one or more third parties, then each
such guarantor's written consent to the proposed Transfer shall have been
furnished to Landlord; (iv) the tenancy of the proposed transferee shall not
have a disadvantageous impact on the Common Areas or the other occupants of the
Facility; (v) the occupation of the proposed transferee in the Premises shall
not cause a diminution in the reputation of the Facility or the other businesses
located therein; (vi) the proposed transferee shall be at least comparable in
reputation, stature and financial condition to the other tenants then leasing
comparable space in the Facility; and (vii) the rent payable by any proposed
assignee or subtenant be at least at the then current rental rates for the
Premises or comparable premises in the Facility, but not less than the then
current Minimum Monthly Rent under this Lease.
13.4.2 In the event that Landlord shall consent to a proposed
Transfer, or shall reasonably disapprove a proposed Transfer (other than in
connection with an exercise of Landlord's recapture rights under Subsection
13.3), pursuant to the provisions of this Section 13, Tenant shall pay
Landlord's processing costs and attorneys' fees (including reasonable costs of
Landlord's in-house counsel) incurred in connection with such matter, as
reasonably determined by Landlord.
13.5 LANDLORD'S RIGHT TO BONUS RENTALS
13.5.1 If Tenant at any time duly assigns this Lease (including,
without limitation, a sale of all or substantially all of Tenant's assets or
corporate stock) or subleases the Premises or any part thereof, then Tenant
shall pay to Landlord, immediately upon Tenant's receipt thereof, fifty percent
(50%) of the Rent Differential received by Tenant in connection with or in
respect to such assignment or subletting. For purposes of this Subsection, the
following definitions shall apply:
(i) the term Rent Differential shall mean the excess of
(a) any and all Proceeds payable to Tenant over (b)
Tenant's Allowed Costs;
(ii) the term Proceeds shall mean any and all fees, rents,
charges, payments, or other sums or consideration
payable or deliverable to Tenant in connection with
such assignment or subletting, regardless of whether
any or all of such Proceeds are deemed to be allocable
to the leasehold or to Tenant's corporate stock or to
Tenant's business at the Premises or to Tenant's trade
fixtures, equipment, furnishings, accounts receivable,
or inventory at the Premises or to any other tangible
or intangible personal property of Tenant connected
with the Premises or Tenants business there conducted;
and
(iii) the term Allowed Costs shall mean (a) reasonable
attorneys' fees and reasonable broker's commissions
and fees paid by Tenant to nonaffiliated attorneys or
brokers in connection with such assignment or
subletting, plus (b) the reasonable costs of
constructing any tenant improvements Tenant is
required to furnish to such assignee or subtenant,
plus (c) in the case of an assignment, all of the
Gross Rent, or in the case of a subletting, the
proportionate amount of the Gross Rent allocable to
the portion of the Term and portion of the Premises
(if less than all) covered by such subletting, as
reasonably determined by Landlord, plus (d) the lesser
of (1) the fair market value, as reasonably determined
by Landlord, of any
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of Tenant's trade fixtures, equipment, furniture,
accounts receivable, and/or tangible or intangible
personal property sold to such subtenant or assignee
in connection with such assignment or subletting or
(2) the actual consideration therefor received by
Tenant. For purposes of this Lease, the term Gross
Rent shall mean Minimum Monthly Rent and the sums
payable pursuant to Subsections 5.1, 5.2.1, 5.2.2,
5.2.3, 5.3.1, and 5.5 of this Lease.
13.5.2 In the event the Proceeds are paid in installments (e.g.,
monthly subrent), then the Allowed Costs shall be amortized over the scheduled
number of installment payments, and Landlord's share of the Rent Differential
shall be payable at the same time such installment payments are made.
13.5.3 Tenant covenants that any allocation of payments or other
consideration payable or deliverable to Tenant in connection with any subletting
of the Premises or assignment of this Lease shall be made in good faith and not
with a purpose to avoid Tenant's obligation to pay 50% of the Rent Differential
to Landlord.
13.6 JOINT AND SEVERAL OBLIGATIONS. Each permitted subtenant or
assignee shall assume all obligations of Tenant under this Lease with respect to
the Premises, or such portion thereof as may be covered by the sublease, and
shall be and remain jointly and severally liable with Tenant for the payment of
Minimum Monthly Rent and additional rent and the performance of all of the
terms, covenants, conditions, and agreements herein contained on Tenant's part
to be performed with respect to such space; provided, however, that without
limiting the obligations of Tenant under this Lease, such subtenant shall be
liable to Landlord for rent only in the amount set forth in the sublease, unless
otherwise agreed in writing by the parties thereto. No Transfer shall be valid
and no transferee shall take possession of the Premises or any part thereof
unless, within ten (10) days after the execution of the documentary evidence
thereof, Tenant shall deliver to Landlord a duly executed duplicate original of
the Transfer instrument in a form satisfactory to Landlord that (i) provides
that the transferee assumes Tenant's obligations for the payment of rent and for
the full and faithful observance and performance of the covenants, terms and
conditions contained herein, applicable to the Premises in the event of an
assignment or applicable to the subleased space in the event of a sublease, (ii)
provides that the transferee will, at Landlord's election, attorn directly to
Landlord in the event Tenant's Lease is terminated for any reason on the terms
set forth in the instrument of transfer, and (iii) contains such other
assurances as Landlord reasonably deems necessary. The failure or refusal of a
transferee to execute such an instrument of assumption shall not release or
discharge the assignee from its obligations set forth above.
13.7 ASSIGNMENT OF SUBRENTS. Tenant hereby assigns and transfers to
Landlord all of Tenant's interest in any rentals or other income arising from
any sublease heretofore or hereafter made by Tenant. Landlord may collect such
rentals and income and apply same toward Tenant's obligations under this Lease;
provided, however, that until an Event of Default shall have occurred, Tenant
shall be entitled to receive, collect, and enjoy such rentals and income,
subject to the provisions of Subsection 13.5 above. Landlord shall not, by
reason of this or any other assignment of any sublease to Landlord, nor by
reason of any collection of rentals from a subtenant, be deemed liable to such
subtenant for any failure of Tenant to perform or comply with any of Tenant's
obligations to such subtenant under its sublease. Tenant hereby irrevocably
authorizes and directs any such subtenant, upon receipt of a written notice from
Landlord stating that an Event of Default has occurred under this Lease, to pay
to Landlord the rentals due and to become due under the sublease. Tenant agrees
that such subtenant shall have the right to rely upon any such statement and
request from Landlord, and that such subtenant shall pay such rents to Landlord
without any obligation or right to inquire as to whether such Event of Default
has occurred and notwithstanding any notice from or claim from Tenant to the
contrary. Tenant shall have no right or claim against such subtenant or Landlord
for any such rentals so paid by such subtenant to Landlord.
13.8 NON-COMPETITION. In no event shall Tenant, without Landlord's
prior consent, assign this Lease or sublet the Premises or any portion thereof
to any then tenant or occupant of space in the Facility, or any prospective
tenant with whom Landlord is then, or has within six (6) months prior thereto,
engaged in lease negotiations or discussions that included the delivery of
written correspondence concerning same by at least one of the parties thereto,
or by its broker agent or representative.
13.9 NO MERGER. The voluntary or other surrender of this Lease by
Tenant or mutual cancellation of this Lease shall not work a merger. At the
option of Landlord, any such surrender or cancellation of this Lease shall
either terminate any and all then existing subleases or subtenancies or operate
as an assignment to Landlord of Tenant's interest in any and all such subleases
or subtenancies.
13.10 LANDLORD'S RIGHT TO ASSIGN. Landlord shall have the right to
sell, encumber, convey, transfer, and/or assign any of its rights and
obligations under this Lease.
14. INDEMNIFICATION; INSURANCE; ALLOCATION OF RISK:
14.1 INDEMNIFICATION. Except as to any Claims (as defined below) from
which Landlord releases Tenant from liability pursuant to Subsection 14.5 below,
Tenant shall at its expense defend (by counsel reasonably approved by Landlord),
protect, indemnify, and hold harmless Landlord and Landlord's subsidiaries,
affiliates, partners, and agents, their respective directors, officers,
stockholders, trustees, attorneys, employees, successors, and assigns
(collectively, the Landlord Parties) from and against any and all Claims for
injury (including death and physical, psychological, and emotional injuries) to
any person or damage to any property whatsoever, arising from or caused by
(whether in whole or in part, directly or indirectly) any of the following
occurrences or circumstances:
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(i) any occurrence in, on, or about the Premises or any
part thereof, arising from any cause whatsoever,
except to the extent caused by the sole or gross
negligence or willful misconduct of Landlord and/or
the Landlord Parties, unless covered by insurance
obtained by Tenant, in which event such
indemnification and agreement to hold harmless shall,
to the extent of such insurance, apply even if
Landlord or the Landlord Parties were solely
negligent or engaged in gross negligence and/or
willful misconduct;
(ii) any occurrence in, on, or about any part of the
Facility, the use of which Tenant may have in
conjunction with other tenants or occupants of the
Facility, to the extent such injury or damage shall
be caused in whole or in part by Tenant or any Tenant
Parties;
(iii) any Hazardous Substances that Tenant or any Tenant
Parties caused or permitted to be used, analyzed,
stored, transported, disposed, deposited, generated,
discharged, or released in, on, under, to, from, or
about the Facility or any nearby property; or
(iv) any misrepresentation, breach, or default under this
Lease by Tenant.
As used herein, the term Claims shall mean claims, liabilities, penalties,
fines, judgments, forfeitures, losses (including, without limitation, diminution
in the value of the Facility, and damages for the loss or restriction on use of
rentable or usable space or of any amenity of the Facility), expenses
(including, without limitation, reasonable attorneys' fees, consultant fees,
expert fees, and court costs), and costs, including, without limitation, and
whether foreseeable or unforeseeable, any and all costs incurred in connection
with any investigation of site conditions, and any and all costs of any required
or necessary repair, cleanup, detoxification, decontamination, or other remedial
work concerning the Facility. BY SIGNING ITS INITIALS BELOW, TENANT ACKNOWLEDGES
THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THE PROVISIONS
SET FORTH IN THIS SUBSECTION AND FURTHER ACKNOWLEDGES THAT SUCH PROVISIONS WERE
SPECIFICALLY NEGOTIATED.
_____________ TENANT'S INITIALS
14.2 TENANT'S INSURANCE. Tenant shall have the following insurance obligations:
14.2.1 Liability Insurance. Tenant shall, at Tenant's expense,
obtain and keep in force at all times during the Term, a policy of commercial
general liability and property damage insurance (including automobile
liability). The minimum limits of liability shall be a combined single limit of
not less than ONE MILLION DOLLARS ($1,000,000.00) per occurrence. The policy
shall state that Landlord and the Landlord Parties are named as additional
insureds and are entitled to recovery for the negligence of Tenant. The policy
shall also provide for severability of interest; shall provide that an act or
omission of one of the insured or additional insureds that would void or
otherwise reduce coverage shall not void or reduce coverages as to other insured
or additional insureds; shall insure performance by Tenant of the indemnity
provisions of this Lease; and shall afford coverage after the Term of this Lease
(by separate policy or extension if necessary) for all claims based on acts,
omissions, injury or damage that occurred or arose in whole or in part during
the term of this Lease. The policy shall be primary coverage for Tenant and
Landlord for any liability arising out of Tenant's and the Tenant Parties' use,
occupancy or maintenance of the Premises and all areas appurtenant thereto. The
limits of said insurance shall not, however, limit any liability of Tenant under
Subsection 14.1.
14.2.2 Personal Property Insurance. Tenant shall maintain in full
force and effect on all of its fixtures, personal property, and equipment the
Premises a policy or policies of fire and casualty insurance in all risk form
(including water damage) to the extent of at least ninety percent (90%) of their
replacement cost (without deduction for depreciation), or that percentage of the
replacement cost required to negate the effect of a coinsurance provision,
whichever is greater. No such policy shall have a deductible in a greater amount
than FIVE HUNDRED DOLLARS ($500.00). Tenant shall also insure in the same manner
the physical value of all its leasehold improvements, if any, in the Premises.
The full replacement value of the improvements to be insured under this
Subsection 14.2.2 shall be determined by the company issuing the insurance
policy at the time the policy is initially obtained. Not less frequently than
once every three (3) years, Landlord shall have the right to notify Tenant that
it elects to have the replacement value redetermined by an insurance company or
insurance consultant. The redetermination shall be made promptly and in
accordance with the rules and practices of the Board of Fire Underwriters, or a
like board recognized and generally accepted by the insurance company, and each
party shall be promptly notified of the results by the company. The insurance
policy shall be adjusted according to the redetermination. During the Term, the
proceeds from any such policy or policies of insurance shall be used for the
repair or replacement of the fixtures, equipment, and leasehold improvements so
insured. Landlord shall have no interest in said insurance, and will sign all
documents necessary or proper in connection with the settlement of any claim or
loss by Tenant. Tenant shall also maintain insurance for all plate glass upon
the Premises. All such insurance shall contain waivers of subrogation to the
extent available on a commercially reasonable basis.
14.2.3 Worker's Compensation Insurance. Tenant shall carry and
maintain Workers Compensation and Employer's Liability insurance as required by
applicable Laws.
14.2.4 Business Interruption. Tenant shall maintain loss of income
and business interruption insurance in an amount not less than the Gross Rent
payable hereunder for six (6) months. All such insurance shall contain waivers
of subrogation to the extent available on a commercially reasonable basis.
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14.2.5 Other Coverage. Not more frequently than every three (3)
years, if, in the reasonable opinion of Landlord's lender or of the insurance
consultant retained by Landlord, the amount of public liability and property
damage insurance coverage at that time is not adequate, or additional coverages
not specified above should be obtained, Tenant, at its cost, shall increase such
insurance coverage, and/or obtain such additional coverages, as required by
either Landlord's lender or Landlord's insurance consultant, consistent with the
then prevailing custom for new leases of similar space in the business district
where the Facility is located.
14.2.6 Insurance Criteria. All the insurance required to be carried
by Tenant (except Tenant's Personal Property Insurance and Workers Compensation
Insurance) hereunder shall:
(i) Be issued by insurance companies that are qualified
and admitted to do business in the State where the
Facility is located and that carry a designation in
Best's Insurance Reports, as issued from time to time
throughout the Term, as follows: Policy holders'
rating of A; financial rating of not less than X;
(ii) Be issued in a form acceptable to Landlord.
(iii) Contain an endorsement requiring thirty (30) days'
written notice from the insurance company to both
parties and to Landlord's lender before cancellation
or expiration or decrease in the coverage, scope, or
amount of any policy.
(iv) Waive subrogation, as required by Subsections 14.2.2,
14.2.4, and 14.5, with respect to property loss or
damage by fire or other casualty.
(v) Name Landlord and its property manager as additional
insureds and, at Landlord's request, shall carry a
lender's loss payee endorsement in favor of Landlord's
lender and such other endorsement(s) as Landlord may
reasonably require from time to time.
14.2.7 Evidence of Coverage. An executed copy of each insurance
policy, or a certificate thereof with the actual policy attached, shall be
delivered to Landlord prior to Tenant's commencing remodeling work in or taking
occupancy of the Premises, and Tenant shall keep each such policy in full force
and effect throughout the Term. Renewal policies or certificates thereof shall
be delivered to Landlord at least thirty (30) days in advance of the expiration
dates of the expiring policies.
14.2.8 Tenant Insurance Default. In the event that Tenant fails to
deliver to Landlord any policy, certificate, or renewal notice hereunder
required within the prescribed time period, or if any such policy is canceled or
modified during the Term without Landlord's consent, Landlord may at its option,
but shall not be obligated to, obtain such insurance on behalf of Tenant and
bill Tenant, as additional rent, for the cost thereof. The provisions of this
Section 14 are for the benefit of Landlord and its lenders only and are not nor
shall they be construed to be for the benefit of any employee of Tenant, any
other tenant or occupant of the Building or the Facility, or any other person
whatsoever.
14.3 LANDLORD'S INSURANCE. Landlord shall maintain policies of
insurance covering loss of or damage to the Building in the full amount of its
replacement cost. Such policies shall provide protection (subject to reasonable
deductibles) against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, special extended perils (all
risk), sprinkler leakage, and any other perils (e.g., flood and earthquake) that
Landlord reasonably deems appropriate. Landlord shall not obtain insurance for
Tenant's trade fixtures or equipment.
14.4 EXCULPATION. Except to the extent otherwise expressly provided
below in this Subsection, Tenant hereby waives all Claims against Landlord and
the Landlord Parties for any loss, theft, or damage to Tenant's business or
Personal Property or injury (including death and physical, psychological, and
emotional injuries) to persons, in, upon or about the Premises and/or the
Facility from any cause whatsoever, including, without limitation, the active or
passive negligence of Landlord or the Landlord Parties. Without limiting the
generality of the foregoing, Tenant specifically acknowledges that such waived
Claims includes injuries, losses, and damage resulting from the following
causes:
Fire; smoke; explosion; falling plaster, ceiling tiles, fixtures, or
signs; broken glass; steam; gas; fumes; vapors; odors; dust; dirt;
grease; acid; oil; any other Hazardous Substance; debris; noise; air or
noise pollution; vibration; theft; breakage; vermin; electricity;
computer or electronic equipment or systems malfunction or stoppage;
water; rain; flooding; freezing; windstorm; snow; sleet; hail; frost;
ice; excessive heat or cold; sewage; sewer backup; toilet overflow;
leaks or discharges from or into the Premises or any other part of the
Facility, or from any pipes, sprinklers, appliances, equipment
(including, without limitation, heating, ventilating, and
air-conditioning equipment); electrical or other wiring; plumbing
fixtures; roofs; windows; skylights; doors; trapdoors; the surface or
subsurface of any floor or ceiling of any part of the Facility;
dampness or climatic conditions; maintenance, repair, or construction
activities; renovation work; and any interruption, cessation, or
failure of any public or other utility service.
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The foregoing notwithstanding, neither Landlord nor the Landlord Parties shall
be released from liability for their own gross negligence or willful misconduct
or Landlord's negligent failure to respond to written notice from Tenant of
deficiencies that result in such loss, damage, or injury (provided that the
correction of such deficiencies is the obligation of Landlord hereunder).
However, Landlord's liability shall be subject to the further limitations set
forth in Subsection 22.6. BY SIGNING ITS INITIALS BELOW, TENANT ACKNOWLEDGES
THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THE PROVISIONS
SET FORTH IN THIS SUBSECTION AND FURTHER ACKNOWLEDGES THAT SUCH PROVISIONS WERE
SPECIFICALLY NEGOTIATED.
_________ TENANT'S INITIALS
14.5 ALLOCATION OF INSURED RISKS/SUBROGATION.
14.5.1 Landlord and Tenant release each other from any Claims of
whatever nature for damage, loss, or injury to the Premises, the Building,
and/or the Facility, or to the other's property in, on, or about the Premises
and the Facility, to the extent of any insurance proceeds that are received or
receivable (or that would have been receivable but for such releasing party's
breach or default of its obligations under this Lease), even if such damage,
loss, or injury shall have been caused by the fault or negligence (but not
willful misconduct) of the other party or anyone for whom such party may be
responsible. Landlord and Tenant shall each cause their respective insurance
policies to provide that the insurance company waives all right of recovery by
way of subrogation against either Landlord or Tenant in connection with any
damage covered by any policy. To the extent of any insurance proceeds actually
received, or that would have payable but for a breach of this Lease, neither
Landlord nor Tenant shall be liable to the other for any damage caused by fire
or any of the risks insured against under any insurance policy required by this
Lease.
14.5.2 If an insurance policy cannot be obtained with a waiver of
subrogation, or is obtainable only by the payment of an additional premium
charge above that charged by insurance companies issuing policies without waiver
of subrogation, the party undertaking to obtain the insurance shall notify the
other party of this fact. The other party shall have a period of ten (10) days
after receiving the notice either to place the insurance with a company that is
reasonably satisfactory to the other party and that will carry the insurance
with a waiver of subrogation, or to agree to pay the additional premium if such
a policy is obtainable at additional cost. If the insurance cannot be obtained
or the party in whose favor a waiver of subrogation is desired refuses to pay
the additional premium charged, the other party is relieved of the obligation to
obtain a waiver of subrogation with respect to the particular insurance
involved.
15. SECURITY SERVICES:
15.1 LANDLORD'S OBLIGATION TO FURNISH SECURITY SERVICES. Landlord may,
but shall not be obligated to, furnish security services for the Premises and/or
the Building and/or the Facility as Landlord deems appropriate in its sole and
absolute discretion. In the event Landlord does furnish or contract to furnish
any such services, Tenant shall nevertheless have sole responsibility for the
protection of itself, the Tenant Parties and all property of Tenant and the
Tenant Parties located in, on, or about the Premises or the Building or the
Facility, and the provisions of Section 14 shall nevertheless continue in full
force and effect.
15.2 TENANT'S RIGHT TO INSTALL SECURITY SYSTEM. If Tenant wishes to
establish or install any automated and/or non-automated security system in, on,
or about the Premises, Tenant shall first notify Landlord of Tenant's plan for
any such system, and Landlord shall have the right to review and approve or
disapprove said plan in Landlord's reasonable discretion. If Landlord approves
any such plan and Tenant establishes or installs any automated and/or
non-automated security system in, on, or about the Premises, and should such
system adversely affect the Premises or the Facility or the desirability of the
Premises or the Facility as commercial space for its then current uses, or have
an adverse effect on other tenants, respectively, Landlord shall subsequently
have the right to review Tenant's security system from time to time and request
Tenant to make such changes in personnel and/or equipment. Tenant shall make
said requested changes immediately thereafter.
16. BUILDING SERVICES:
16.1 STANDARD BUILDING SERVICES. Subject to the full performance by
Tenant of all of Tenant's obligations under the Lease, Landlord shall furnish
the Premises with the standard building services and utilities as set forth in
the attached Exhibit D.
16.2 ADDITIONAL SERVICES. Tenant shall not, without the consent of
Landlord, (a) use any equipment, apparatus, or device in the Premises that will
in any way increase the amount of electricity, cooling capacity, or water
usually furnished or supplied for use of the Premises for general office
purposes or (b) connect with electric current, except through existing
electrical outlets in the Premises, or connect to water pipes, any apparatus or
device for the purpose of using electric current or water. Tenant agrees to pay
immediately upon demand all reasonable charges imposed by Landlord from time to
time for all building services and utilities supplied to or used by Tenant in
excess of or in addition to those standard building services and utilities
described in Exhibit D. Such excess and additional building services and
utilities are hereinafter referred to as Additional Services. Landlord may at
any time cause a switch and/or metering
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system to be installed at Tenant's expense (which expense Tenant shall pay
within ten (10) working days after receipt of an invoice from Landlord covering
the installment cost of such switch or metering system) to measure the amount of
building services, utilities, and/or Additional Services consumed by Tenant or
used in the Premises.
16.3 CONSERVATION. Tenant shall cooperate fully with Landlord to effect
conservation of all utilities in the Building and shall use its best efforts to
minimize its use of water, heat, electricity, and air conditioning.
16.4 LANDLORD'S RIGHT TO CEASE PROVIDING SERVICES. Landlord reserves
the right, in its sole and absolute discretion with respect to item (a) below,
and in its reasonable discretion with respect to item (b) below, to reduce,
interrupt, or cease service of the heating, air conditioning, ventilation,
elevator, plumbing, electrical systems, telephone systems, and/or utility
services of the Premises, the Building, or the Facility, for any of the
following reasons or causes:
(a) any accident, emergency, Law, or Force Majeure (as defined in
Section 17); or
(b) the making of any repairs, additions, alterations, or improvements
to the Premises, the Building, or the Facility, until such repairs,
additions, alternations, or improvements shall have been completed.
No such interruption, reduction, or cessation of any such building services or
utilities shall constitute an eviction or disturbance of Tenant's use or
possession of the Premises or common areas, or a breach of Landlord's
obligations hereunder, or render Landlord liable for any damages (including,
without limitation, any damages, compensation, or claims arising from any
interruption or cessation of Tenant's business), or entitle Tenant to be
relieved from any of its obligations under the Lease, or result in any abatement
of rent. However, Landlord shall use commercially reasonable diligence to (i)
give prior written notice to Tenant of such anticipated interruption, reduction
or cessation, where commercially reasonable to do so, and (ii) restore such
service and minimize any disturbance to Tenant, where it is within Landlord's
commercially reasonable control to do so.
17. FORCE MAJEURE:
Except as otherwise expressly provided elsewhere in this Lease with respect to
Tenant's right to abatement of Gross Rent under certain circumstances, Landlord
shall not be chargeable with, liable for, or responsible to Tenant for anything
or in any amount for any failure to perform or delay caused by any of the
following events (collectively, Force Majeure): fire; earthquake; explosion;
flood; hurricane; the elements; acts of God or the public enemy; actions,
restrictions, limitations or interference of governmental or quasi-governmental
authorities or agents; war; invasion; insurrection; rebellion; riots; strikes or
lockouts; inability to obtain necessary materials, goods, equipment, services,
utilities or labor; accident; breakage; or any other cause whether similar or
dissimilar to the foregoing which is beyond the reasonable control of Landlord;
and any such failure or delay due to said causes or any of them shall not be
deemed a breach of or default in the performance of this Lease by Landlord.
18. RULES AND REGULATIONS:
Tenant, its agents, employees, and servants and those claiming under Tenant will
at all times observe, perform, and abide by all of the general rules and
regulations promulgated by Landlord as set forth in Exhibit C, and as reasonably
modified, supplemented, or amended by Landlord from time to time (the Rules and
Regulations). Landlord shall not be responsible to Tenant for the nonperformance
by any other tenant or occupant of the Facility of any of said rules and
regulations, and Landlord reserves the right to make reasonable exceptions for
specific tenants or occupants with respect to the application of certain rules
and regulations. Subject to the foregoing, Landlord agrees to use commercially
reasonable efforts, consistent with Landlord's rights under applicable leases,
to apply the Rules and Regulations in a fair, responsible, and equitable manner.
If there is a conflict between the Rules and Regulations and any provision of
this Lease, the provisions of this Lease shall prevail.
19. HOLDING OVER:
19.1 SURRENDER OF POSSESSION. Tenant shall surrender possession of the
Premises immediately upon the expiration of the Term or termination of this
Lease. If Tenant retains possession of the Premises or any part thereof after
the expiration or earlier termination of the Term, whether with or without
Landlord's consent, all of the provisions of this Lease pertaining to the
obligations of Tenant and the rights of Landlord during the Term shall apply to
such hold over period, except as expressly modified by this Section 19.
19.2 HOLDING OVER WITH CONSENT. If Tenant, with Landlord's consent,
retains possession of the Premises after the expiration of the Term, Tenant
shall become a tenant from month-to-month, at a monthly rental equal to one
hundred fifty percent (150%) of the Minimum Monthly Rent applicable immediately
prior to the expiration of the Term. Such month-to-month tenancy shall be
terminable in the manner provided by law.
19.3 HOLDING OVER WITHOUT CONSENT. If Tenant, without Landlord's
consent, retains possession of the Premises after the expiration or earlier
termination of Term (or, in the case of a month-to-month tenancy under
Subsection 19.2, after the duly noticed termination date of such tenancy), then
Tenant shall pay to
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Landlord monthly rental equal to two hundred percent (200%) of the Minimum
Monthly Rent applicable immediately prior to the expiration or earlier
termination of the Term, and Tenant shall indemnify Landlord from and against
all losses, costs, claims, liabilities, and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) sustained by Landlord
by reason of such retention (including, without limitation, claims for damages
by any other person to whom Landlord may have agreed to lease all or any part of
the Premises effective on or after the date Tenant was obligated to surrender
possession of the Premises). No acceptance by Landlord of rent during any such
holding over without Landlord's approval shall reinstate, continue, or extend
the Term of this Lease or shall affect any notice of termination given to Tenant
prior to the payment of such money, it being agreed that after the service of
such notice or the commencement of any suit by Landlord to obtain possession of
the Premises, Landlord may receive and collect when due any and all payments
owed by Tenant under this Lease, and otherwise exercise its rights and remedies.
The making of any such payments by Tenant shall not waive such notice, or in any
manner affect any pending suit or judgment obtained.
20. SUBORDINATION:
This Lease shall, at Landlord's sole option, be subject and subordinate at all
times to the lien of any mortgages or deeds of trust in any amounts whatsoever
now or hereafter placed on or against the Facility (or any portion thereof) or
on or against Landlord's interest or estate therein without the necessity of
having further instruments on the part of Tenant to effectuate such
subordination. Notwithstanding such subordination, Tenant's right to quiet
possession of the Premises shall not be disturbed as a result of any foreclosure
or deed in lieu of any mortgage or deed of trust hereafter placed on or against
the Facility, if and so long as Tenant is not in default of any of its
obligations under this Lease, unless this Lease is otherwise terminated pursuant
to its terms. If any mortgagee, trustee or ground lessor shall elect to have
this Lease deemed to be prior to the lien of its mortgage, deed of trust, or
ground lease, and shall give written notice thereof to Tenant, then this Lease
shall be deemed to be prior to such instrument, regardless of whether this Lease
is dated prior or subsequent to the execution or recording date thereof. Tenant
covenants and agrees to execute and deliver, upon demand, such further
instruments evidencing such subordination of this Lease as may be required by
Landlord, provided that said instruments recognize that Tenant's right to quiet
possession of the Premises shall not be disturbed if and so long as Tenant is
not in default of its obligations under this Lease. Tenant hereby irrevocably
appoints Landlord the attorney-in-fact of Tenant to execute and deliver any such
instruments for or in the name of Tenant.
21. ENTRY BY LANDLORD:
21.1 Landlord reserves and shall have the right to enter the Premises
at any and all reasonable times to inspect the same, to verify Tenant's
compliance with its obligations under this Lease, to post notices of
non-responsibility (if permitted by the Laws of the State where the Facility is
located), to post any notices Landlord reasonably believes are required by law
to be posted on the Premises, to deliver notices to Tenant or any subtenant or
occupant of any portion of the Premises, to supply any service to be provided by
Landlord to Tenant hereunder, to submit the Premises to prospective lender,
purchasers, investors, or tenants. Landlord may, during the last six (6) months
of the Term, place For Lease signs on or about the Premises.
21.2 Landlord also reserves and shall have the right to enter the
Premises, upon reasonable prior written notice (except in emergencies), to
alter, improve, renovate, or repair the Premises and any portion of the Facility
or its mechanical systems, and Landlord may for such purposes erect scaffolding
and other appropriate structures where reasonably required by the character of
the work to be performed. In the event that any such entry by Landlord into the
Premises, or such work performed by Landlord at the Facility, prevents Tenant
from gaining access to all or any significant portion of the Premises for more
than five (5) consecutive business days, then Minimum Monthly Rent shall be
abated in proportion to the part of the Premises (if less than all) to which
Tenant shall have been denied access, but there shall be no abatement of rent by
reason of all or any portion of the Premises being inaccessible for a period of
five (5) or fewer consecutive business days. Further, Tenant shall not be
entitled to any abatement of rent on account of any noise, vibration, or other
disturbance to Tenant's business at the Premises that may arise out of any such
entry by Landlord into the Premises or out of Landlord's performance of any such
work at the Facility, and under no circumstances shall any such noise,
vibration, disturbance, work, or entry by Landlord be construed or deemed to be
a forcible or unlawful entry into or a detainer of the Premises or an eviction
of Tenant from the Premises or any portion thereof. Landlord shall use
commercially reasonable efforts (which shall not include any obligation to
employ labor at overtime rates) to avoid or minimize disruption of Tenant's
business during any such entry or work by Landlord.
21.3 Landlord shall have the right to use any and all means that
Landlord may deem appropriate to open any doors in an emergency in order to
obtain entry to the Premises.
22. DEFAULTS AND REMEDIES:
22.1 EVENTS OF DEFAULT
22.1.1 Definition. In addition to those events designated as
Events of Default in other provisions of this Lease, each of the following shall
constitute an Event of Default by Tenant and a material breach of this Lease:
(1) Tenant's failure to make any payment owed by Tenant under this
Lease, as and when due, where such failure is not cured within
three (3) days following Tenant's receipt
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of Landlord's written notice thereof; or
(2) Tenant's failure to observe, keep, or perform any of the terms,
covenants, agreements, or conditions under this Lease that Tenant
is obligated to observe or perform, other than that described in
subdivision (1) above, for a period of ten (10) days after delivery
of notice to Tenant of said failure; provided however, that if the
nature of Tenant's default is such that more than ten (10) days are
reasonably required for its cure, then Tenant shall not be deemed
to be in default under this Lease if Tenant shall commence the cure
of such default so specified within said ten (10) day period and
diligently prosecute the same to completion; or
(3) Landlord's discovery that any financial statement given to
Landlord by Tenant, by any assignee or subtenant of Tenant, by any
successor in interest of Tenant, or by any guarantor of any
obligations of Tenant under this Lease, was materially false, where
Tenant fails, within ten (10) days after delivery of Landlord's
written demand, to give Landlord such additional assurances or
security for the full and faithful performance of all Tenant's
obligations under this Lease as Landlord shall reasonably have
demanded; or
(4) The occurrence of any of the events described in Subsection
36.5 (Events of Bankruptcy) below with respect to any guarantor of
any obligations of Tenant under this Lease, where Tenant fails to
furnish a substitute guarantor, or alternative security,
satisfactory to Landlord within ten (10) days after Landlord's
delivery of Landlord's written demand therefor.
22.1.2 NOTICE OF DEFAULT. The notices of default provided for in
Subsection 22.1.1(1) and (2), and the written demands provided for in Subsection
22.1.1(3) and (4), shall in each case be in lieu of, and not in addition to, any
notice required under applicable unlawful detainer Laws;
22.2 REMEDIES. Upon the occurrence of any Event of Default, Landlord
may exercise any one or more of the termination rights and other remedies
described in Addendum A, in addition to all other rights and remedies now or
hereafter provided at law or in equity.
22.3 RIGHT TO CURE. All covenants and agreements to be performed by
Tenant under this Lease shall be performed by Tenant at Tenant's sole cost and
expense. If Tenant shall fail to perform any action its part to be performed
under this Lease, and such failure shall continue for three (3) days after
notice thereof to Tenant (except that no notice shall be required in cases of
emergency), Landlord may, but shall not be obligated to do so, without waiving
or releasing Tenant from any obligations of Tenant, perform any such act on
Tenant's part to be performed as provided in this Lease. All costs incurred by
Landlord with respect to any such performance by Landlord (including reasonable
attorneys' fees) shall be paid by Tenant to Landlord immediately upon demand.
22.4 WAIVER OF REDEMPTION. Tenant hereby waives, for itself and all
persons claiming by and under Tenant, all rights and privileges which it might
have under any present or future law to redeem the Premises or to continue the
Lease after being dispossessed or ejected from the Premises.
22.5 REMEDIES CUMULATIVE. All remedies of Landlord under this Lease are
cumulative. Efforts by Landlord to mitigate the damages caused by Tenant's
default shall not constitute a waiver of Landlord's right to recover damages,
nor shall Landlord have any obligation to mitigate damages, except to the extent
otherwise provided by applicable Laws.
22.6 DEFAULT BY LANDLORD. In no event shall Landlord be deemed to be in
default of any obligation hereunder unless and until thirty (30) days have
expired after delivery of notice of such deficiency to Landlord and to anyone
else, or to any lien holder, to whom Landlord has instructed Tenant to send
duplicative notices, specifying in detail Landlord's failure to perform, to
Landlord and to the holder of any recorded interest pertaining to the Building;
provided, however, that if such deficiency cannot be cured or corrected within
such 30-day period Landlord shall not be in default if Landlord or anyone on
behalf of Landlord commences such cure or correction within such 30-day period
and thereafter diligently prosecutes the same to completion. If Landlord is
deemed to be in default under the provisions of this Subsection, Tenant shall be
entitled to bring an action for declaratory judgment or specific performance, or
for damages (subject to the provisions of this Lease limiting Landlord's
liability) shown by Tenant to have been proximately caused by such default.
Notwithstanding anything to the contrary in this Lease, Tenant agrees that, in
the event that it becomes entitled to receive damages from Landlord, Tenant
shall not be allowed to recover from Landlord consequential damages or damages
in excess of the out-of-pocket expenditures incurred by Tenant as a result of a
default by Landlord. Landlord's liability to Tenant for damages resulting from
Landlord's breach of any provision or provisions of the Lease shall not exceed
the value of Landlord's equity interest in the Facility. Tenant hereby expressly
waives its rights under any and all Laws, now or hereafter in effect, to
terminate this Lease (whether prior to or after the commencement of the Term) or
to withhold any payment owed by Tenant under this Lease, on account of any
damage, condemnation, destruction, or state of disrepair of the Premises, or any
part thereof, it being the parties' intent that the provisions of this Lease
shall govern the parties' rights and obligations with respect to such matters.
23. DAMAGE OR DESTRUCTION:
23.1 TOTAL OR SUBSTANTIAL DESTRUCTION. In the event that the Facility
or Building shall be destroyed to the extent of forty percent (40%) or more of
the replacement cost thereof, Landlord may elect to terminate this Lease,
whether the Premises be damaged or not, upon written notice to Tenant not later
than the 60th day after the date of such destruction.
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23.2 LOSS COVERED BY INSURANCE. If, at anytime prior to the expiration
or termination of this Lease, (a) all or any portion of the Premises, or any
portion of the Common Areas whose use is required for Tenant's business, shall
be wholly or partially damaged or destroyed by fire or other casualty or peril
(collectively, a Casualty), and (b) at least ninety percent (90%) of the total
costs of performing the necessary repairs and replacements under then applicable
Law will be fully covered and paid for by available proceeds of insurance
maintained by Landlord, and such damage or destruction shall render the Premises
totally or partially inaccessible or unusable by Tenant in the ordinary conduct
of Tenant's business, then:
23.2.1 Repairs That Can Be Completed Within One Hundred Eighty
Days. Within sixty (60) days after the date of Tenant's notice to Landlord of
such damage or destruction (the Damage Notice Date), Landlord shall give Tenant
notice of Landlord's good faith determination of whether the damage or
destruction can be repaired under applicable Laws, without the payment of
overtime or other premiums, within one hundred eighty (180) days after the date
such determination of Landlord is made. If all such repairs to the Premises
and/or such portions of the Common Areas can, in Landlord's good faith judgment,
be substantially completed in such manner within such one hundred eighty (180)
day period, Landlord shall undertake such repairs and this Lease shall remain in
full force and effect.
23.2.2 Repairs That Cannot Be Completed Within One Hundred Eighty
Days. In the event that Landlord ever determines that such repairs to the
Premises or to such portions of the Common Areas cannot, in Landlord's good
faith judgment, be substantially completed under applicable Laws, without the
payment of overtime or other premiums, within one hundred eighty days after the
date of such determination, then Landlord shall notify Tenant of such
determination. In such notice Landlord shall either agree to undertake such
repairs (in which even the notice shall include Landlord's estimate of the time
required to complete same) or elect to terminate this Lease. If Landlord so
agrees to undertake repairs, but states that the required repairs will not be
completed within 180 days after delivery of such notice, then Tenant shall have
an option, exercisable by written notice thereof delivered to Landlord not later
than the tenth (10th) after Landlord's delivery of Landlord's notice that the
repairs will not be completed within such 180-day period, to terminate this
Lease. If neither Landlord nor Tenant exercise such a right of termination
following Landlord's determination that repairs will take more than 180 days,
then Landlord shall diligently undertake to repair such damage or destruction.
23.3 LOSS NOT COVERED BY INSURANCE. If, at anytime prior to the
expiration or termination of this Lease, (a) all or any portion of the Premises,
or any portion of the Common Areas whose use is required for Tenant's business,
is wholly or partially damaged or destroyed by a Casualty, and (b) less than
ninety percent (90%) (if any) of the total costs of performing the necessary
repairs and replacements will be fully covered and paid for by available
proceeds of insurance maintained by Landlord, and such damage or destruction
renders the Premises totally or partially inaccessible or unusable by Tenant in
the ordinary conduct of Tenant's business, then:
23.3.1 Landlord shall deliver to Tenant, within sixty (60) days
after the Damage Notice Date, a written notice whereby Landlord shall either (a)
elect to terminate this Lease or (b) agree to undertake such repairs, in which
latter event such notice shall include a statement of Landlord's good faith
estimate of the number of days required in order to achieve substantial
completion, under applicable Laws, of such repair and restoration work. If
Landlord does not elect by such notice to Tenant to repair such damage, this
Lease shall be deemed to have been terminated by Landlord.
23.3.2 If pursuant to Subsection 23.3.1 Landlord elects to
undertake such repairs, but states that the required repairs will not be
completed within 180 days after delivery of such notice, then Tenant shall have
an option, exercisable by written notice thereof delivered to Landlord not later
than the tenth (10th) after Landlord's delivery of Landlord's notice that the
repairs will not be completed within such 180-day period, to terminate this
Lease. If neither Landlord nor Tenant exercise such a right of termination with
respect to a Casualty covered by this Subsection 23.3, then Landlord shall
diligently undertake to repair such damage or destruction.
23.4 DESTRUCTION DURING FINAL YEAR. Notwithstanding anything to the
contrary contained in Subsections 23.1 or 23.2, if the Premises or the Building
or a portion of the Common Areas required for Tenant's business are wholly or
partially damaged or destroyed within the final twelve (12) months of the Term
of this Lease, and no renewal rights have been exercised prior to such damage or
destruction, and if as a result of such damage or destruction Tenant is denied
access or use of the Premises for the conduct of its business operations for a
period of ten (10) consecutive business days, Landlord or Tenant may, at its
option, by giving the other written notice prior to substantial completion of
the repairs, and in no event later than the 60th day after the Damage Notice
Date, elect to terminate this Lease.
23.5 EFFECTIVE DATE OF A LEASE TERMINATION. Any notice of Tenant's
election to terminate under this Section 23 shall include a statement of the
effective date of such termination, which shall not be more than sixty (60) days
after the date such notice is delivered. Any notice of Landlord's election to
terminate under this Section 23 shall be effective (a) on the tenth (10th) day
after delivery of the notice, if the damage or destruction shall have prevented
Tenant from conducting business at the Premises, or (b) on the sixtieth (60th)
day after delivery of the notice, in the event that Tenant shall not have been
so prevented from conducting business at the Premises.
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23.6 ABATEMENT OF GROSS RENT. In the event that all or any portion of
the Premises shall be rendered inaccessible or unusable to Tenant, and unused by
Tenant, for a period of more than ten (10) consecutive days as a result of any
damage or destruction caused by any Casualty (and provided that such Casualty
shall not have arisen in whole or in part out of any gross negligence or willful
misconduct on Tenant), then Gross Rent shall be reduced proportionately for such
portion of the Premises as shall be rendered inaccessible or unusable to Tenant,
and unused by Tenant, during the period of time that such portion is unusable or
inaccessible to Tenant, and unused by Tenant.
23.7 DESTRUCTION OF TENANT'S PERSONAL PROPERTY, TENANT IMPROVEMENTS OR
PROPERTY OF THE TENANT PARTIES. In the event a Casualty causes damage to or
destruction of the Premises or the Building or the Facility, under no
circumstances shall Landlord be required to repair damage to, or make any
repairs to or replacements of, Tenant's Personal Property. However, as part of
Common Area Costs, Landlord shall cause to be insured Tenant Improvements and
Alterations that do not consist of Tenant's Personal Property and shall cause
proceeds of such insurance to be applied to the cost of repairing or restoring
such Tenant Improvements and Alterations, but Tenant shall pay for such portion
of those costs as may be uninsured or be subject to a deductible. Landlord shall
have no responsibility for any contents placed or kept in or on the Premises or
the Building or the Facility by Tenant or the Tenant Parties.
23.8 EXCLUSIVE REMEDY. The remedies provided for in this Section 23
shall be Tenant's sole and exclusive remedy in the event a Casualty causes
damage to or destruction of all or any portion of the Premises, Building, or
Facility, and Tenant, as a material inducement to Landlord's entering into this
Lease, irrevocably waives and releases the provisions of any Law that would
automatically terminate this Lease or otherwise be contrary to the provisions of
this Section in the event of any such damage or destruction.
24. EMINENT DOMAIN:
24.1 DEFINITIONS. The following terms shall have the indicated
definitions as used herein: (a) Condemnation or Taking means (i) the exercise of
any governmental or power, whether by legal proceedings or otherwise, by a
Condemnor and/or (ii) a voluntary sale or transfer by Landlord to any Condemnor,
either under threat of eminent domain or while legal proceedings for eminent
domain are pending; (b) Date of Taking means the date the Condemnor has the
right to possession of the property being condemned; (c) Award means all
compensation, sums, or anything of value awarded, paid, or received on a total
or partial Condemnation; and (d) Condemnor means any public or quasi-public
authority, or private corporation or individual, having the power of eminent
domain.
24.2 PERMANENT TAKING.
24.2.1 Total Taking. If the Premises are totally taken by
Condemnation, this Lease shall terminate on the Date of Taking.
24.2.2 Partial Taking; Common Areas
24.2.2.1 If any portion of the Premises is taken by Condemnation,
this Lease shall remain in effect, except that Tenant shall have the right to
elect to terminate this Lease if forty percent (40%) or more of the rentable
square footage of the Premises is taken, or if the portion taken renders the
remainder of the Premises economically unusable by Tenant, as determined by
Landlord's architect. To be effective, such election to terminate must be made
by written notice delivered to Landlord within twenty (20) days after Tenant's
obtaining knowledge of the impending acquisition of such portion of the Premises
by Condemnation. Tenant shall be deemed to have knowledge of such impending
acquisition if Tenant enters into negotiations with the Condemnor's
representatives, on receipt of service of complaint and summons or order for
immediate possession, or on receipt of a letter of inquiry from Landlord
advising Tenant of the impending acquisition and requesting notice of Tenant's
resulting elections and contentions. Tenant's notice shall contain a clear and
unequivocal statement of its election to terminate, and its reasons for this
election.
24.2.2.2 If any part of the Common Areas of the Facility is
taken by Condemnation, this Lease shall remain in full force and effect
so long as there is no material interference with the access to the
Premises. If such a Taking materially interferes with access to the
Premises, either party shall have the election to terminate this Lease
pursuant to this Section 24.
24.2.2.3 If forty percent (40%) or more of the Building or the
Facility is taken by Condemnation (whether or not any Portion of the
Premises shall have been taken), Landlord shall have the election to
terminate this Lease in the manner prescribed herein.
24.2.3 TERMINATION OR ABATEMENT. If either party elects to
terminate this Lease under the provisions of Subsection 24.2.2 (such party is
hereinafter referred to as the Terminating Party), it must terminate by giving
notice to the other party (the Nonterminating Party) within twenty (20) days
after the nature and extent of the Taking have been finally determined (the
Decision Period). The Terminating Party shall notify the Nonterminating Party of
the date of termination, which date shall not be earlier than sixty (60) days
after the Terminating Party has notified the Nonterminating Party of its
election to terminate, nor later than the Date of Taking. If such notice of
termination is not given within the Decision Period, this Lease shall continue
in full force and effect except that the Gross Rent shall be reduced by
subtracting therefrom an amount calculated by multiplying the Gross Rent in
effect prior to the Taking by a fraction the numerator of which is the square
footage taken from the Premises and the denominator of which is the
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square footage in the Premises prior to the Taking.
24.2.4 RESTORATION. If there is a partial Taking of the Premises
and this Lease remains in full force and effect pursuant to this Section 24,
Landlord, at its cost, shall accomplish all necessary restoration so that the
Premises are returned as near as practical to their condition immediately prior
to the Date of Taking, but in no event shall Landlord be obligated to expend
more for such restoration than the extent of funds actually paid to Landlord by
the Condemnor.
24.2.5 AWARD. Any Award arising from the Condemnation or the
settlement thereof shall belong to and be paid to Landlord and Tenant hereby
assigns to Landlord any right of Tenant thereto, except that Tenant shall
receive from the Award compensation for the following, if specified by amount in
the Award by the Condemnor, so long as it does not reduce Landlord's Award in
respect of the real property: Tenant's trade fixtures, tangible personal
property, goodwill, loss of business, and relocation expenses. Tenant shall have
the right to participate in condemnation proceedings for the purposes permitted
under this Section 24 and to complain against the Condemnor authority for a
separate award for such losses. At all events, Landlord shall be solely entitled
to all Awards in respect of the real property, including the bonus value of the
leasehold. Tenant shall not be entitled to any Award until Landlord has received
the total amount to which Landlord is entitled hereunder.
24.3 TEMPORARY TAKING. No temporary taking of the Premises or any part
of the Premises and/or of Tenant's rights to the Premises or under this Lease
shall terminate this Lease or give Tenant any right to any abatement of any
rents owed to Landlord pursuant to this Lease. Any award made to Tenant by
reason of such temporary taking shall belong entirely to Tenant.
25. SALE BY LANDLORD:
In the event Landlord shall sell, assign, convey, or transfer all or a part of
its interest in the Facility or any part of the Facility, Tenant agrees to
attorn to such transferee, assignee, or new owner. If all of Landlord's interest
in the Facility shall be sold, assigned, conveyed, or transferred, then upon
consummation of such sale, assignment, conveyance, or transfer, Landlord shall
automatically be freed and relieved from all liability and obligations accruing
or to be performed from and after the date of such sale, assignment, transfer,
or conveyance, and in such event Tenant agrees to look solely to the
responsibility of such transferee, assignee, or new owner. In the event of such
sale, assignment, transfer, or conveyance, Landlord shall transfer, or in lieu
thereof grant a credit at closing, to such transferee, assignee, or new owner of
the Facility the balance of the Deposit, if any, remaining after lawful
deductions and in accordance with applicable Law, after notice to Tenant, and
Landlord shall thereupon be relieved of all liability with respect to the
Deposit.
26. ESTOPPEL CERTIFICATES:
Upon either party's prior request from time to time, the other party shall
execute, acknowledge, and deliver to the requesting party, not later than ten
(10) days after such request, a statement (i) certifying the date of
commencement of this Lease, (ii) stating that this Lease is unmodified and in
full force and effect (or if there have been modifications, that this Lease is
in full force and effect as modified and the date and nature of such
modifications), (iii) stating the dates to which rent has been paid, (iv)
acknowledging that there are not, to the certifying party's knowledge, any
uncured defaults on the part of the other party, or specifying each such default
if any are claimed, and (v) setting forth such other matters as may reasonably
be requested. Landlord and Tenant intend that any such statement delivered
pursuant to this Section may be relied upon by any permitted subtenant,
assignee, or lender of Tenant, by the mortgagee or the beneficiary of any deed
of trust, or by any purchaser or prospective purchaser of the Real Property. If
Tenant's failure to deliver such statement within the required time is not cured
within three (3) days after Landlord's delivery of written notice of such
default, such failure to deliver the statement shall, at Landlord's option, be
an Event of Default under this Lease by Tenant, or it shall be conclusive upon
Tenant that (a) this Lease is then in full force and effect, without
modification except as may be represented by Landlord, (b) there are no uncured
defaults in Landlord's performance, and not more than one month's rent has been
paid in advance. Tenant further agrees, from time to time upon Landlord's
request, promptly to furnish to Landlord financial statements reflecting
Tenant's then current financial condition and, if rendered in the ordinary
course of conducting Tenant's business, a copy of Tenant's then most current
certified financial statements.
27. REQUIREMENTS OF LANDLORD'S LENDERS:
27.1 FINANCING CONDITION. Landlord may from time to time desire to
mortgage all or a portion of the Facility for the purpose of securing financing
from an institutional lender. In the event such institutional lender requires,
as a condition of granting Landlord such financing, that this Lease be amended
or modified, then Tenant shall, within ten (10) days after Landlord's request,
consent to and execute any such reasonable amendment or modification of this
Lease; provided, however, that such modification or amendment only concerns (a)
the lender's right to notification, (b) the lender's right to cure defaults by
Landlord, (c) requirements for the lender's consent or approval when Landlord's
consent or approval is required hereunder, (d) requirements for the lender's
prior consent or approval for any amendment, modification, or early termination
of the Lease, for any waiver of any of the terms or conditions of the Lease to
be performed or observed by Tenant, or for any estoppel certificate to be
provided by Landlord, (e) restrictions on prepayments of rent, (f) the lender's
right to require that rents be paid directly to the lender, (g) the resolution
of ambiguities or correction or errors or omissions contained in this Lease,
and/or (h) such other
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matters as Tenant may consent to, which consent shall not be unreasonably
withheld. At Landlord's option, Tenant's failure to execute and deliver such a
Lease modification or amendment within the required time shall be an Event of
Default under this Lease by Tenant, without any further notice to Tenant.
27.2 MORTGAGEE PROTECTION. Tenant agrees to give any present or future
mortgagee and/or trust deed holders, by registered mail, a copy of any notice of
default served upon Landlord, provided that prior to such notice Tenant has been
notified, in writing (by way of notice of assignment of rents and leases, or
otherwise), of the address of such mortgagee and/or trust deed holder. Tenant
further agrees that if Landlord shall have failed to cure such default within
the time provided for in this Lease (if any), then the mortgagees and/or trust
deed holders shall have an additional thirty (30) days within which to cure such
default or if such default cannot be cured within that time, then such
additional time as may be necessary if, within such thirty (30) days, any
mortgagee and/or trust deed holder has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure), in
which event this Lease shall not be terminated while such remedies are being
diligently pursued.
28. SUBSTITUTION OF PREMISES:
Landlord hereby reserves the right, from time to time prior to the Commencement
Date or during the Term, to relocate Tenant to other premises in the Facility on
the following terms and conditions: (a) the new premises shall be substantially
the same in size, dimensions, configuration, decor, and quality as the Premises
described in this Lease, and shall be placed in that condition by Landlord at
its cost; (b) the physical relocation of the Premises shall be accomplished by
Landlord at its cost; (c) Landlord shall give Tenant at least sixty (60) days'
notice of Landlord's intention to relocate the Premises; (d) the physical
relocation of the Premises shall take place on a weekend, if practicable, and
shall be accomplished as quickly as reasonably practicable; (e) all reasonable
actual out-of-pocket costs incurred by Tenant as a result of the relocation,
including, without limitation, costs incurred in changing addresses on
stationery, business cards, directories, advertising, and other such items, but
excluding any lost revenues or any intangible costs, shall be paid by Landlord;
(f) if the relocated premises are smaller than the Premises as they existed
before the relocation, Gross Rent shall be reduced to a sum computed by
multiplying the Gross Rent specified in Sections 5 and 6 by a fraction, the
numerator of which shall be the total number of rentable square feet in the
relocated premises, and the denominator of which shall be the total number of
rentable square feet in the Premises before relocation; and (g) from and after
the date of such relocation and substitution, the term "Premises" as used in
this Section shall mean the substituted premises in the Facility, and Landlord
and Tenant shall execute an amendment to this Lease stating the relocation of
the Premises and the reduction of Gross Rent, if any.
29. ATTORNEYS' FEES:
In the event either party requires the services of an attorney in connection
with enforcing the terms of this Lease (including an action or proceeding
between one party and the trustee or debtor in possession while the other party
is a debtor in a proceeding under the Bankruptcy Code (Title 11 of the United
States Code or any successor statute to such Code)), or in the event suit is
brought for the recovery of any amount due and owing under this Lease, the
prevailing party shall be entitled to recover all its costs and expenses in
connection therewith (including court costs and reasonable attorneys' fees,
costs and disbursements) from the unsuccessful party, whether or not such
action, proceeding or appeal is prosecuted to judgment or other final
determination. The term prevailing party shall include, without limitation, a
party who obtains legal counsel or brings an action against the other party by
reason of the other party's breach or default and obtains substantially the
relief sought, whether by compromise, settlement, or judgment. If such
prevailing party shall recover in any such action, proceeding, or appeal, such
costs and expenses (including court costs and reasonable attorneys' fees, costs
and disbursements) shall, be included in and as a part of such judgment.
30. NON-WAIVER:
The waiver by Landlord or Tenant of any term, covenant, agreement or condition
contained in this Lease shall not be deemed to be a waiver of any subsequent
breach of the same or of any other term, covenant, agreement, condition or
provision of this Lease. Nor shall any consent by Landlord or Tenant in any one
instance dispense with necessity of consent in any subsequent or other instance.
Nor shall any custom or practice that may develop between the parties in the
administration of this Lease be construed to waive or lessen the right of
Landlord or Tenant to insist upon performance by the other in strict accordance
with all of the terms, covenants, agreements, conditions, and provisions of this
Lease. The subsequent acceptance by Landlord of any payment owed by Tenant to
Landlord under this Lease, or the payment of rent by Tenant, shall not be deemed
to be a waiver of any preceding breach by Tenant of any term, covenant,
agreement, condition, or provision of this Lease, other than the failure of
Tenant to make the specific payment so accepted by Landlord, regardless of
Landlord's or Tenant's knowledge of such preceding breach at the time of the
making or acceptance of such payment.
31. NOTICES:
All notices, notifications, demands, requests, consents, approvals,
designations, elections, and waivers that may or are required to be given by
either party to the other hereunder shall be in writing and shall be deemed to
have been duly given when delivered personally, or one business day after such
notice or demand is sent by a reliable overnight courier service, or three (3)
business days after it is sent by United States certified or registered mail, in
each case with postage prepaid and the notice or demand addressed to the
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other party at its address set forth in Subsection 1.1(b) of this Lease, or to
such other place as such party may from time to time by like notice designate.
Written notice given in any other manner shall have been duly given when
actually received by Landlord's manager of the Facility (in the case of notice
to Landlord) or by any of the undersigned representatives of Tenant or any other
executive level employee or officer of Tenant. If there is more than one tenant
under this Lease, then notice to any one of them shall constitute notice to all
and notice from any one of them shall constitute notice from all.
32. JOINT AND SEVERAL LIABILITY:
If Tenant consists of more than one person or other entity, Tenant's obligations
hereunder shall be joint and several as between such persons and/or entities.
33. TIME:
Subject to provisions of Section 17 (Force Majeure), time is of the essence of
this Lease and each and all of its provisions.
34. SUCCESSORS:
Subject to the provisions of Section 13 (Assignment and Subletting) and Section
25 (Sale by Landlord), and except as otherwise provided to the contrary in this
Lease, the terms, covenants, and conditions herein contained shall apply to,
bind, and inure to the benefits of the heirs, successors, executors,
administrators, and permitted assigns of the respective parties hereto.
35. ENTIRE AGREEMENT:
This Lease (including the exhibits, riders, addenda, and schedules referred to
herein and made a part hereof) embodies the entire agreement between, and
understanding of, the parties and supersedes all prior agreements and
understandings (oral or written) between the parties with respect to the subject
matter hereof. This Lease shall not be modified by any oral agreement, either
express or implied, and all modifications hereof shall be in writing and signed
by both Landlord and Tenant.
36. RESTRICTIONS ON OPTIONS:
36.1 DEFINITION. As used in this Section 36, the word Option shall mean
any of the following rights or options of Tenant, if any such rights or options
are granted pursuant to an addendum or other modification to this standard lease
form: (1) any right or option to extend the term of this Lease, (2) any option
or any right of first refusal or first offer to lease the Premises or any other
space within the Facility or other property of Landlord or its affiliates, and
(3) any right or option of Tenant to terminate or cancel this Lease prior to the
last day of the initial Term contemplated by Subsection 0.2(d).
36.2 OPTIONS PERSONAL. Each Option, if any, granted to Tenant in this
Lease is personal to the original Tenant and may be exercised only by the
original Tenant while directly (and not through subleases) occupying more than
sixty percent (60%) of the Premises, and may not be exercised or assigned,
voluntarily or involuntarily, by or to any person or entity other than the
original Tenant. If the original Tenant consists of more than one person or
other entity, each such person or entity must join in the exercise of the Option
in order for it to be effective. The Options, if any, herein granted to Tenant
are not assignable separate and apart from this Lease, nor may any Option be
separated from this Lease in any manner, by reservation or otherwise.
36.3 MULTIPLE OPTIONS. In the event that Tenant has multiple Options to
extend or renew the term of this Lease, a later Option cannot be exercised
unless the prior Option to extend or renew this Lease has been so exercised.
36.4 STRICT ENFORCEMENT OF CONDITIONS AND LIMITATIONS UPON OPTIONS.
36.4.1 Tenant hereby specifically acknowledges and agrees that the
time limitations upon the exercise of any Option will be strictly enforced, that
any attempt to exercise such Option at any other time shall be void and of no
force or effect, and that if any such Option is not exercised within the
applicable time period, Landlord intends immediately thereafter to undertake
appropriate efforts relating to the marketing or management of the space
affected by the Option. The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Tenant's inability to
exercise such Option because of the provisions of this Subsection or for any
other reason whatsoever.
36.4.2 Tenant further agrees that if Tenant is in default
hereunder on the date of giving the required notice of exercise of such Option,
such notice shall be totally ineffective, and if Tenant is in default hereunder
on the date any extension or renewal of the term of this Lease was to commence,
such extension or renewal of the term shall not commence, and this Lease shall
expire at the end of the Term as theretofore in effect. Notwithstanding any
provision of this Lease to the contrary, all Options shall automatically be
void, and shall have no further effect, upon the commencement of any holdover by
Tenant after the expiration or earlier termination of the Term.
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36.4.3 Tenant further agrees that if (a) more than once during the
twelve (12) month period immediately preceding delivery of a notice of exercise
of Option Tenant shall have failed to make timely payment of any rent or any
Event of Default shall have occurred, or (b) more than three (3) times during
the twenty-four (24) month period immediately preceding delivery of such notice
Tenant shall have failed to make timely payment of rent or any Events of
Defaults shall have occurred, then such Option of Tenant shall at once be void
and of no further effect, notwithstanding Tenant's timely exercise of such
Option.
36.5 EVENTS OF BANKRUPTCY. In addition to those events and occurrences
constituting defaults or Events of Default under other provisions of this Lease,
the occurrence of any of the following events shall also constitute a default
and Event of Default for purposes of Subsection 36.4:
36.5.1 Filing by Tenant of a voluntary petition under any
applicable bankruptcy Law, or the issuance of an order for relief entered under
any applicable bankruptcy Law, or the filing by Tenant of any petition or answer
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief for Tenant under the present or any future
applicable Law relative to bankruptcy, insolvency, or other relief for debtors,
or Tenant's consent to or acquiescence in the appointment of any trustee,
receiver, conservator, or liquidator of Tenant or of all or any substantial part
of its properties or its interest in the Premises (the term acquiesce, as used
in this clause, includes but is not limited to the failure to file a petition or
motion to vacate, appeal, or discharge any order, judgment, or decree within ten
(10) days after entry of such order, judgment, or decree);
36.5.2 Issuance or entry, by a court of competent jurisdiction, of
any order, judgment, or decree approving a petition filed against Tenant seeking
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future applicable Law
relating to bankruptcy, insolvency, or other relief for debtors, and
acquiescence by Tenant in the entry of such order, judgment, or decree; or the
failure of such order, judgment, or decree to be vacated or stayed within an
aggregate of thirty (30) days (whether or not consecutive) after the date of
entry thereof; or the appointment, without the consent or acquiescence of
Tenant; of any trustee, receiver, conservator, or liquidator of Tenant or of all
or any substantial part of its properties or its interest in the Premises and
the failure of such appointment to be vacated or stayed within an aggregate of
thirty (30) days (whether or not consecutive);
36.5.3 The inability of Tenant, or Tenant's admitting in writing
its inability, to pay its debts as they mature;
36.5.4 Tenant's giving notice to any governmental body of Tenant's
insolvency or pending insolvency, or suspension or pending suspension of
operations; or
36.5.5 Tenant's making a general arrangement or general assignment
for the benefit of creditors or taking any other similar action for the
protection or benefit of creditors.
37. RECORDING:
Tenant shall not record this Lease or any memorandum hereof without Landlord's
prior consent.
38. AUTHORIZATION TO SIGN LEASE:
If Tenant is a corporation, each individual executing this Lease on behalf of
Tenant represents and warrants that he/she is duly authorized to execute and
deliver this Lease on behalf of Tenant in accordance with a duly adopted
resolution of Tenant's Board of Directors, and that this Lease is binding upon
Tenant in accordance with its terms, and Tenant shall, concurrently with its
execution of this Lease, deliver to Landlord upon its request a certified copy
of a resolution of its Board of Directors authorizing the execution of this
Lease. If Tenant is a partnership or trust, each individual executing this Lease
on behalf of Tenant represents and warrants that he/she is duly authorized to
execute and deliver this Lease on behalf of Tenant in accordance with the terms
of such entity's partnership agreement or trust agreement, respectively, and
that this Lease is binding upon Tenant in accordance with its terms, and Tenant
shall, concurrently with its execution of this Lease, deliver to Landlord upon
its request such certificates or written assurances from the partnership or
trust as Landlord may request authorizing the execution of this Lease. If Tenant
consists of more than one legal entity, the foregoing representations,
warranties, and covenants shall apply to any such entity that is a corporation
or partnership, as the case may be. Each individual signing this Lease on behalf
of Tenant shall personally indemnify, defend, and hold harmless Landlord from
and against any claim arising out of any actual or alleged breach or inaccuracy
of any of the foregoing representations and warranties or any loss suffered by
reason thereof.
39. BROKER PARTICIPATION:
In consideration for brokerage services rendered to Landlord in this
transaction, Landlord shall pay its licensed real estate broker named in
Subsection 1.1(j) a commission as set forth in a separate agreement between
Landlord and said broker. Tenant's broker, if any is named in Subsection 1.1(j),
will be paid its commission from a portion of the commission paid to Landlord's
Broker, as set forth in a separate agreement between Landlord's Broker and
Tenant's Broker. Except as otherwise set forth in the preceding sentence, each
party agrees to indemnify, defend, and hold harmless the other party from any
claim or loss arising out of any actual or alleged dealings of the indemnifying
party with any real estate broker, agents or finder in connection with this
transaction.
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40. SURVIVAL OF CERTAIN RIGHTS AND OBLIGATIONS:
The respective parties' remedies, payment obligations, indemnities, waivers and
releases under this Lease, with respect to Tenant's use or possession of the
Premises during the Term and any holdover period, and with respect any cost or
expense incurred during or with respect to the Term or any holdover period,
shall survive the termination of this Lease.
41. PARKING:
Landlord shall have the right, by written notice to Tenant, to designate
specific areas of the Facility for employee parking. If Landlord designates an
employee parking area, then automobiles of Tenant, its employees, and agents
shall not park within the parking area except in areas delineated by Landlord as
employee parking. Subject to the foregoing, Tenant shall be entitled to use, in
common with other tenants and Landlord, the number of undesignated vehicle
parking spaces allocated to Tenant in Subsection 1.1(k). Tenant's use of such
parking spaces shall be subject to payment by Tenant of such standard monthly
parking rates, if any, as may be charged from time to time to persons other than
the officers and employees of Landlord and its affiliates, and subject to such
rules and regulations as may be established or altered from time to time by
Landlord or its manager of such parking facilities. At Landlord's request,
Tenant (or its designated employees with parking privileges) shall enter into
parking licenses or lease agreements or other arrangements then in use by
Landlord (or Landlord's operator of the parking facilities) with respect to such
monthly parking. Tenant agrees not to overburden the parking facilities and
agrees to cooperate with Landlord and other tenants in the use of parking
facilities. Landlord reserves the right, in its absolute discretion, to
determine whether parking facilities are becoming crowded and, in such event, to
allocate and assign parking spaces among Tenant and other tenants. Upon request,
Tenant shall provide Landlord with the license plate numbers of all vehicles
used at the Facility by Tenant's employees. In the event that, pursuant to any
modification or amendment to this standard form lease, Tenant is at any time
given any right to the exclusive use of any designated parking stalls or
facilities, Landlord shall nevertheless have the right from time to time to
substitute other designated parking stalls or facilities therefor, so long as
such substitute stalls or facilities are, in Landlord's judgment, reasonably
comparable. If Tenant parks more vehicles in the Facility's parking area than
are permitted under this Section, Landlord shall have the right, without
limitation to Landlord's other remedies under this Lease, to collect from Tenant
a daily charge, to be determined by Landlord, for each such additional vehicle.
42. SEVERABILITY:
Should any provision of this Lease be illegal, void, invalid, inoperative, or
unenforceable, no other provision of this Lease shall be affected thereby, and
the remainder of this Lease shall be effective as though such illegal, void,
invalid, inoperative, or unenforceable provision had not been included herein.
43. CERTAIN RIGHTS RESERVED BY LANDLORD:
Landlord hereby expressly reserves the rights set forth in the Subsections of
this Section 43. Such rights shall be exercisable (a) without notice, (b)
without liability to Tenant for damage or injury to property, persons, or
business, (c) without effecting a constructive or actual eviction of Tenant or
disturbance of Tenant's use, possession, or enjoyment of its Premises, and (d)
without giving rise to any claim for setoff or abatement of rent. The
enumeration of such rights of Landlord in the following Subsections is not
intended to limit any other rights of Landlord, whether expressed or implied, at
law or under other provisions of this Lease.
43.1 Landlord shall have the right to decorate and make repairs,
alterations, additions, changes, and/or improvements, whether structural or
otherwise, in and about the Building and elsewhere in the Facility, including,
without limitation, construction of additional buildings or other new
improvements and changes in the location, size, shape, and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, sidewalks, and walkways. For
such purposes Landlord may enter upon the Premises and, during the continuance
of any such work, temporarily close doors, entryways, public space and corridors
in the Building or elsewhere in the Facility, to interrupt or temporarily
suspend building services and facilities and to change the arrangement and
location of entrances, or passageways, doors and doorways, corridors, elevators,
stairs, toilets, or other public parts of the Building or Facility, all without
abatement of rent and without affecting any of Tenant's obligations hereunder,
except as otherwise expressly provided in this Lease (e.g., Subsections 21.2 and
23.6).
43.2 Landlord shall have the right to designate additional land outside
the current boundaries of the Facility to be a part of the Common Areas.
43.3 Landlord shall have the right to take all such reasonable measures
as Landlord may deem advisable for the security of the Building or the Facility
and their occupants, including, without limitation, the search or any person
entering or leaving the Building, the evacuation of the Building (or any part
thereof) for cause, suspected cause, or for drill purposes, the temporary denial
of access to the Building (or any part thereof), and the closing of the Building
after normal business hours and on Sundays and holidays, subject, however, to
Tenant's right to admittance, when the Building is so closed, under such
reasonable regulations as Landlord may prescribe from time to time.
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44. WAIVER OF JURY TRIAL:
EACH PARTY HEREBY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS LEASE. THIS
WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY TENANT AND TENANT
ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON ACTING ON BEHALF OF LANDLORD
HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR
IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. TENANT FURTHER ACKNOWLEDGES THAT IT
HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE
SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL. TENANT FURTHER ACKNOWLEDGES THAT IT HAS READ
AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF THIS WAIVER PROVISION AND AS
EVIDENCE OF THIS FACT SIGNS ITS INITIALS.
_________________ TENANT'S INITIALS
45. INTERPRETATION:
The words Landlord and Tenant as used herein shall include the plural as well as
the singular and, when appropriate, shall refer to action taken by or on behalf
of Landlord or Tenant by their respective employees, agents, or authorized
representatives. Words in masculine gender include the feminine and neuter. The
titles of the Sections, Subsections, and other provisions of this Lease are for
convenience only and they shall not in any way limit or amplify the terms or
provisions of this Lease. All provisions, whether covenants or conditions, on
the part of Tenant shall be deemed to be both covenants and conditions. In the
event of variation or discrepancy, the duplicate original of this Lease
(including Exhibits, if any) held by Landlord shall control. This Lease shall in
all respects be governed by and construed and enforced in accordance with the
Laws of the State where the Facility is located, and any litigation concerning
this Lease between the parties hereto shall be initiated in the county where the
Facility is located.
46. COOPERATION WITH GOVERNMENT SPONSORED PROGRAMS:
Tenant hereby covenants and agrees, at its sole cost and expense, to participate
in and cooperate with the requirements of any and all government promulgated or
sponsored programs adopted for the Building or the Facility concerning
transportation system management, child care facilities, recycling, energy or
water conservation, safety, or the like.
47. PARTIES TO ACT REASONABLY AND IN GOOD FAITH:
Except in those instances where this Lease provides for a contrary standard,
whenever in this Lease the consent or approval of the Landlord or Tenant is
required, such consent or approval shall not be unreasonably withheld or delayed
(except, however, with respect to any Landlord consent, for matters which could
possibly have an adverse effect on the Building's plumbing, heating, mechanical,
life safety, ventilation, air conditioning, or electrical systems, which could
affect the structural integrity of the Building, or which could affect the
exterior appearance of the Building, Landlord may withhold such consent or
approval in its sole discretion but shall act in good faith). Except in those
instances where a contrary standard or right is set forth in this Lease,
whenever the Landlord or Tenant is granted a right to take action, exercise
discretion, or make an allocation, judgment, or other determination, such party
shall act reasonably and in good faith and take no action that might result in
the frustration of the reasonable expectations of a sophisticated tenant and a
sophisticated landlord concerning the benefits to be enjoyed under this Lease.
48. OFFER:
Preparation of this Lease by Landlord or Landlord's agent and submission of same
to Tenant shall not be deemed an offer to lease and neither party shall act in
reliance on said Lease being thereafter signed. This Lease shall become binding
upon Landlord and Tenant only when fully executed by both Landlord and Tenant;
provided, however, that in the event Landlord or Landlord's agent permits Tenant
to take occupancy of all or any portion of the Premises without Landlord first
having executed this Lease, then in the event that Landlord elects not to
execute this Lease, Tenant's occupancy of the Premises shall automatically be
deemed to be a tenancy-at-will, subject to all the terms, provisions, and
conditions of this Lease, except those terms, provisions, and conditions
pertaining to the Term. Any such tenancy-at-will may be terminated by Landlord
or Tenant upon five (5) days' prior notice to the other party.
29
<PAGE> 32
IN WITNESS WHEREOF, the parties have executed this Lease as of the date first
set forth above, acknowledging that each party has carefully read each and every
provision of this Lease, that each party has freely entered into this Lease of
its own free will and volition, and that the terms, conditions, and provisions
of this Lease are commercially reasonable as of said date.
Landlord: CASIOPEA VENTURE CORPORATION
By: RIM PACIFIC MANAGEMENT,
its authorized agent
By: ________________________________________ Date: _________________
Jonathon Feucht
Tenant: DIGITAL IMPACT, INC.,
a California corporation
By: ________________________________________ Date: _____________________
William C. Park, President
30
<PAGE> 33
EXHIBIT A-1
Site Plan or Legal Description of the Facility
BOVET OFFICE CENTRE
SITE PLAN
[EXHIBIT OMITTED]
<PAGE> 34
EXHIBIT A-2
Floor Plan of the Premises
[EXHIBIT OMITTED]
<PAGE> 35
EXHIBIT "B"
WORK LETTER
This Exhibit "B" is attached to and made a part of that certain Lease dated
November 30, 1998 by and between Casiopea Venture Corporation ("Landlord"), and
Digital Impact, Inc., a California corporation ("Tenant") for the Premises known
as Bovet Office Centre, 177 Bovet Road, Suite 300, San Mateo, California 94404.
1. APPLICATION OF EXHIBIT
Capitalized terms used and not otherwise defined herein shall have the
same definitions as set forth in the Lease. The provisions of this Work Letter
shall apply to the planning and completion of leasehold improvements requested
by Tenant (the "Tenant Improvements") for the fitting out of the initial
Premises, as more fully set forth herein.
2. LANDLORD AND TENANT PRE-CONSTRUCTION OBLIGATIONS
a) Preliminary Space Plans. Attached to this Work Letter as Exhibit
"A-1" is preliminary space plans for the Tenant Improvements ("the Preliminary
Space Plans"), which include without limitation, sketches and/or drawings
showing locations of doors, partitioning, electrical fixtures, outlets and
switches, plumbing fixtures and other requirements, mutually agreed upon by
Landlord and Tenant and determined by Tenant as required for its use of the
Premises. Tenant acknowledges that the Preliminary Space has been prepared by
Landlord's Architect after consultation and cooperation between Tenant and
Landlord's Architect regarding the proposed Tenant Improvements and Tenant's
requirements and that the Preliminary Space is complete with respect thereto.
Landlord and Landlord's Architect shall be entitled, in all respects, to rely
upon all information supplied by Tenant regarding the Tenant Improvements.
b) Working Drawings. Within ten (10) days following full execution of
this Lease by both Landlord and Tenant, Landlord's Architect shall prepare
working drawings ("the Working Drawings") for the Tenant Improvements based upon
the approved Preliminary Space Plans. The Working Drawings shall include
architectural drawings for the Tenant Improvements based on the Preliminary
Space Plans. Notwithstanding the Preliminary Space Plans, in all cases the
Working Drawings (i) shall be subject to Landlord's final approval, which
approval shall not be unreasonably withheld, (ii) shall not be in conflict with
building codes for the City or County or with insurance requirements for a fire
resistive Class A office building, and (iii) shall be in a form satisfactory to
appropriate governmental authorities responsible for issuing permits and
licenses required for construction.
c) Approval of Working Drawings. Landlord or Landlord's Architect shall
submit the Working Drawings to Tenant for Tenant's review to confirm compliance
with the Preliminary Space Plan, and Tenant shall notify Landlord and Landlord's
Architect within five (5) business days after delivery thereof of any requested
revisions. Within five (5) business days after receipt of Tenant's notice,
Landlord's Architect shall make all approved revisions to the Working Drawings
and submit two (2) copies thereof to Tenant for its final review and approval,
which approval shall be given within three (3) business days thereafter.
Concurrently with the above review and approval process, Landlord may submit all
plans and specifications to City or other governmental agencies in an attempt to
expedite City approval and issuance of all necessary permits and Licenses to
construct the Tenant Improvements as shown on the Working Drawings. Any changes
which are required by City or other governmental agencies shall be immediately
submitted to Landlord for Landlord's review and reasonable approval, and
Landlord shall promptly notify Tenant of such changes.
d) Schedule of Critical Dates. Set forth below is a schedule of certain
critical dates relating to Landlord's and Tenant's respective obligations for
the design and construction of the Tenant Improvements. Such dates and the
respective obligations of Landlord and Tenant are more fully described elsewhere
in this Work Letter. The purpose of the following schedule is to provide a
reference for Landlord and Tenant and to make certain the Final approval date
occurs as set forth herein. Following the Final Approval Date, Tenant shall be
deemed to have released Landlord to commence construction of the Tenant
Improvements as set forth in Section 4 below.
<PAGE> 36
<TABLE>
<CAPTION>
Reference Date Due Responsible Party
- --------- -------- -----------------
<S> <C> <C>
A. "Preliminary Space Contemporaneously with Tenant & Landlord
Plan Approval" Lease execution
B. "Working Drawings Ten (10) days after full Landlord
Completion" execution of the Lease
C. "Working Drawing Review" Five (5) business days after Tenant
Landlord submits Working
Drawings to Tenant
D. "Working Drawing" Five (5) business days after Landlord
"Revisions" Tenant returns Working
Drawings to Landlord
E. "Final Approval Date" Three (3) business days Tenant
after Landlord submits
revised Working Drawings
to Tenant
</TABLE>
3. BUILDING PERMIT
After the Final Approval Date has occurred, Landlord shall, if Landlord
has not already done so, submit the Working Drawings to the appropriate
governmental body or bodies for final plan checking and a building permit.
Landlord, with Tenant's cooperation, shall cause to be made any change in the
Working Drawings necessary to obtain the building permit; provided, however,
after the Final Approval Date, no changes shall be made to the Working Drawings
without the prior written approval of both Landlord and Tenant, and then only
after agreement by Tenant to pay any excess costs resulting from such changes.
4. COST PROPOSAL
After the Final Approval Date Working Drawings are signed by Landlord
and Tenant, Landlord shall solicit bids from the Bidding Contractors for the
construction of the Tenant Improvements in accordance with the Approved Working
Drawings, which cost proposals shall include, as nearly as possible, the cost of
all Tenant Improvements to be incurred in connection with the design and
construction of the Tenant Improvements. Landlord shall provide Tenant with a
cost proposal from each bidding contractor and select the cost proposal ("Cost
Proposal") of the Bidding Contractor whom Landlord elects for landlord to retain
to construct the Tenant Improvements ("Contractor") and Landlord shall deliver
the selected Cost Proposal and notice of its selection of Contractor to Tenant
within five business days of the receipt of the cost proposals. Tenant shall
approve and deliver the Cost Proposal to Landlord within three (3) business days
of the receipt of the same, and upon receipt of the same by Landlord, Landlord
shall be released by Tenant to purchase the items set forth in the Cost Proposal
and to commence the construction relating to such items. The date by which
Tenant must approve and deliver the Cost Proposal to Landlord shall be known
hereafter as the "Cost Proposal Delivery Date".
5. CONSTRUCTION OF TENANT IMPROVEMENTS
After the Final Approval Date has occurred and a building permit for
the work has been issued, Landlord shall, through a construction contract
("Construction Contract") with a reputable, licensed contractor selected by
Landlord ("Contractor"), cause the construction of the Tenant Improvements to be
carried out in substantial conformance with the Working Drawings in a good and
workmanlike manner using first-class materials, The costs associated with the
construction of the Tenant Improvements shall be paid as set forth in Section 5
and 6 of this Work Letter. Landlord shall see that the construction complies
with all applicable building, fire, health, and sanitary codes and regulations,
the satisfaction of which shall be evidenced by a certificate of occupancy for
the Premises. Landlord or Contractor shall maintain a comprehensive general
liability insurance policy with a limit of not less than One Million Dollars
($1,000,000.00) to insure against bodily injury and property damage during the
construction work prior to the Lease Commencement Date.
6. TENANT IMPROVEMENT ALLOWANCE
Landlord shall provide Tenant with a Tenant Improvement Allowance of
Seventy Three Thousand, One Hundred Ninety-Nine Dollars and no /100 ($73,199.00)
towards the cost of the design, purchase and construction of the Tenant
Improvements, including without limitation design, engineering and consulting
fees (collectively, the "Tenant Improvement Costs"). The Tenant
<PAGE> 37
Improvement Allowance shall be used for payment of the following Tenant
Improvements Costs:
(i) Preparation by Landlord's Architect of the Preliminary Space Plans
and the Working Drawings as provided in Section 2 of this Work Letter, including
without limitation all fees charged by City (including without limitation fees
for building permits and plan checks) in connection with the Tenant Improvements
work in the Premises;
(ii) Construction work for completion of the Tenant Improvements as
reflected in the Construction Contract;
(iii) All contractor's charges, general conditions, performance bond
premiums and construction fees; and
(iv) Tenant Improvements as shown on the approved Preliminary Space
Plans attached hereto as Exhibit "A-2".
(v) Property Management Construction Fee of 5%.
Tenant and Landlord acknowledge that the Tenant Improvement Costs may exceed the
Tenant Improvement Allowance. On the Cost Proposal Delivery Date, Tenant shall
deliver to Landlord cash in an amount (the "Over-Allowance Amount") equal to the
difference between (I) the amount of the Cost Proposal, and (ii) the amount of
the Tenant Improvement Allowance (less any portion thereof already disbursed by
Landlord, or in the process of being disbursed by Landlord, on or before the
Cost Proposal Delivery Date).
In the event that Tenant does request modifications, changes or
alterations of the Tenant Improvements from what is shown on said approved
Preliminary Space Plans, or causes any Tenant Delays as defined in Section 7 of
this Work Letter, then all associated costs shall be borne by Tenant. If Tenant
does seek to modify change or alter the Tenant Improvements from the approved
Preliminary Space Plans, or does cause a Tenant Delay, Tenant shall pay to
Landlord any excess costs resulting therefrom in accordance with Section 6 of
this Work Letter.
7. CHANGE ORDERS
Tenant may from time to time request and obtain change orders before or
during the course of construction provided that: (i) each such request shall be
reasonable, shall be in writing an signed by or on behalf of Tenant, and shall
not result in any structural change in the Building, as reasonably determined by
Landlord, (ii) all additional charges and costs, including without limitation
architectural and engineering costs, construction and material costs, and
processing costs of any governmental entity shall be the sole and exclusive
obligation of Tenant, and (iii) any resulting delay in the completion of the
Tenant Improvements shall be deemed a Tenant Delay and in no event shall extend
the Commencement Date of the Lease. Upon Tenant's request for a change order,
Landlord shall as soon as reasonably possible submit to Tenant a written
estimate of the increased or decreased cost and anticipated delay if any,
attributable to such requested change. Within three (3) business days of the
date such estimated costs adjustment and delay are delivered to Tenant, Tenant
shall advise Landlord whether it wishes to proceed with the change order, and if
Tenant elects to proceed with the change order, Tenant shall remit, concurrently
with Tenant's notice to proceed, the amount of the increased costs, if any,
attributable to such change order. Unless Tenant includes in its initial change
order request that the work in process at the time such request is made be
halted pending approval and execution of a change order, Landlord shall not be
obligated to stop construction of the Tenant Improvements, whether or not the
change order relates to the work then in process or about to be started.
8. TENANT DELAYS
In no event shall the Commencement Date of the Lease be extended or
delayed due or attributable to delays due to the fault of Tenant ("Tenant
Delays"). Tenant Delays shall include, but are not limited to, delays caused by
or resulting from any one or more of the following:
a) Tenant's failure to timely review and reasonably approve
the Working Drawings or to furnish information to Landlord or
Landlord's Architect for the preparation by Landlord or
Landlord's Architect of the Working Drawings;
b) Tenant's request for or use of special materials, finishes
or installations which are not readily available, provided
that Landlord shall notify Tenant in writing that the
particular material, finish, or installation is not readily
available promptly upon Landlord's discovery of same;
c) Change orders requested by Tenant;
<PAGE> 38
d) Interference by Tenant or by Tenant's Agents with
Landlord's construction activities;
e) Tenant's failure to approve any other item or perform any
other obligation in accordance with and by the dates specified
herein or in the Construction Contract;
f) Tenant's requested changes in the Preliminary Space Plans,
Working Drawings or any other plans and specifications after
the approval thereof by Tenant or submission thereof by Tenant
to Landlord;
g) Tenant's failure to approve written estimates of costs in
accordance with this Work Letter; and
h) Tenant's obtaining or failure to obtain any necessary
governmental approvals or permits for Tenant's intended use of
the Premises.
i) Tenant's failure to remit to Landlord in cash any amount
the "Over Allowance Amount" within five (5) days of written
demand by Landlord.
If the Commencement Date of the Lease is delayed by any Tenant delays, whether
or not within the control of Tenant, then the Commencement Date of the Lease and
the payment of Rent shall be accelerated by the number of days of such delay.
Landlord shall give Tenant written notice within a reasonable time of any
circumstance that Landlord believes constitute a Tenant Delay.
9. TRADE FIXTURES AND EQUIPMENT
Tenant acknowledges and agrees that Tenant is solely responsible for
obtaining, delivering and installing in the Premises all necessary and desired
furniture, trade fixtures, equipment and other similar items, and that Landlord
shall have no responsibility whatsoever with regard thereto. Tenant further
acknowledges and agrees that neither the Commencement Date of the Lease nor the
payment of Rent shall be delayed for any period of time whatsoever due to any
delay in the furnishing of the Premises with such items.
10. FAILURE OF TENANT TO COMPLY
Any failure of Tenant to comply with any of the provisions contained in
this Work Letter within the times for compliance herein set forth shall be
deemed a default under the Lease. In addition to the remedies provided to
Landlord in this Work Letter upon the occurrence of such a default by Tenant,
Landlord shall have all remedies available at law or equity to a landlord
against a defaulting tenant pursuant to a written lease, including but not
limited to those set forth in the Lease.
<PAGE> 39
EXHIBIT C
Rules and Regulations
ATTACHED TO AND MADE A PART OF THIS LEASE
<PAGE> 40
RULES AND REGULATIONS
OF
BOVET OFFICE CENTRE
1. Building Hours. Normal hours for the operation of the building HVAC
systems shall be 8:00 a.m. to 6:00 p.m., Monday through Friday,
excluding generally observed Federal holidays and the Friday following
Thanksgiving. HVAC service for additional hours shall be available at
Landlord's then standard hourly rates (two-hour minimum). Any tenant
requiring service during nonstandard hours, weekends, or holidays shall
submit its request for additional HVAC service on Landlord's standard
form to the management office prior to 3:00 p.m. on the same business
day, or 3:00 p.m. on the preceding business day, in the case of holiday
and weekend service.
2. After Hours Access. On weekends and holidays observed by the Office
Centre, and between the hours of 6:00 p.m. and 8:00 a.m., Monday
through Friday, access to any building may be refused unless the person
seeking access is known to the person charged with responsibility for
the safety and protection of such building, or such person seeking
access has a building key or is properly identified. In no case shall
Landlord be liable for any loss or damage for any error with respect to
any person's admission to or exclusion from any building. Landlord
reserves the right to lock the building entry doors on weekends and
holidays and from 8:00 p.m. until 7:45 a.m. on business days and during
such other hours as Landlord deems necessary for the safety and
protection of the building or its tenants or contents. Further, in case
of invasion, mob, riot, public excitement, or other commotion and at
such times as Landlord deems necessary for the safety and protection of
any building, its tenants, or the property located therein, Landlord
may prohibit and prevent access to such building by all persons by any
reasonable means Landlord deems appropriate.
3. Securing the Premises. Each tenant shall see that the exterior doors of
its premises are closed and securely locked when not in use and at all
times described in the first sentence of Rule and Regulation No. 2
above. Each tenant shall keep its corridor doors closed except for
normal ingress and egress to and from its premises. Each tenant shall
exercise extraordinary care and caution that all water faucets or water
apparatus are entirely shut off each day before its premises are left
unoccupied and that all electricity or gas shall likewise be carefully
shut off so as to prevent waste of such utility or possible property
damage or injury to Landlord's janitor or other employees or
representatives or to other occupants of the building. No tenant shall
tamper with or attempt to adjust temperature control thermostats in its
premises or elsewhere in any building. Landlord shall adjust
thermostats as required to maintain the building standard temperatures.
4. Signs. Except as provided or required by Landlord in accordance with
the Office Centre's building standards, no tenant shall inscribe,
display, print, paint, or affix any sign, notice, placard, picture,
advertisement, or name on or to any part of the building or exterior of
such tenant's premises or to door thereof without the prior written
consent of Landlord. Landlord shall have the right, without notice and
at the expense of any tenant who violates the foregoing restriction, to
remove any such sign, notice, placard, picture, advertisement, or name
that does not comply herewith.
<PAGE> 41
5. Use of Bovet Office Centre's Name. No tenant shall, without Landlord's
prior written consent, use the name of the Office Centre in connection
with any promotion or advertising of the tenant's business, except as
such tenant's address.
6. Building Directories. The building directories shall be used primarily
for display of the name and location of tenants. Landlord reserves the
right to exclude any other names therefrom, to limit the number of
names associated with tenants to be placed thereon, and to charge for
names associated with tenants to be placed thereon at rates generally
applicable to all tenants.
7. Building Address. Landlord, without notice and without liability to any
tenant, may at any time change the name or the street address of any
building or any premises therein.
8. Window Coverings. Except as provided or required by Landlord in
accordance with the Office Centre's building standards, no draperies,
curtains, blinds, shades, screens, awnings, hangings, decorations, or
other devices shall be attached to, hung at, placed in, or used in
connection with any window or exterior door of any tenant's premises.
Any articles placed or kept on the window sills or next to the sills so
as to be visible from the exterior of the building shall be immediately
and permanently removed upon Landlord's written request. No doors,
windows, light fixtures, or any lights or skylights that reflect or
admit light into halls or other places of any building shall be covered
or obstructed.
9. Wall Decorations. Except as expressly approved in writing by Landlord,
no tenant shall mark, drive nails, screw, or drill into any woodwork or
any brick or masonry walls or in any way deface any building or any
premises for any purpose whatsoever, except that tenants may drive
nails or screws into sheetrock or plaster walls as necessary for
supporting pictures, paintings, and other similar decorative items,
provided that the weight thereof does not exceed fifteen (15) pounds.
10. Ceiling Clearance. No tenant shall stock, pile, store, or place any
objects closer than 18 inches to the ceiling of its premises. All costs
of relocating or adding sprinkler heads (if any) due to walls or
objects in a tenant area that project closer than 18 inches to the
ceiling, shall be at such tenant's cost.
11. Floor Coverings. No tenant shall affix any floor covering in any manner
except as approved by Landlord.
12. Corrosion Damage; Chair Mats. Each tenant shall be responsible for any
damage to carpeting and flooring as a result of rust or corrosion of
such tenant's file cabinets, pot holders, roller chairs, or other metal
objects. Chair mats shall be placed under all non-stationary chairs.
13. Telecommunication Devices. No tenant shall install any radio or
television antenna, loudspeaker, earth station, or any other device on
the exterior walls or the roof of any building without Landlord's prior
written approval. No tenant shall interfere with radio or television
broadcasting or reception from or in any building in the Office Centre.
<PAGE> 42
14. Telephone and Electric Wires. No boring or cutting for telephone or
electric wires shall be allowed without the written consent of Landlord
and any such wires shall be introduced at the place and in the manner
required by Landlord. The location of each tenant's call boxes,
telephones, speakers, fire extinguishers, and all other office
equipment affixed to its premises shall be subject to the approval of
Landlord. Each tenant shall pay all expenses incurred in connection
with the installation of its equipment, including any telephone and
electricity distribution equipment.
15. Burglar Alarms. No burglar alarm system may be installed without
Landlord's prior written approval of such system, which approval shall
not be unreasonably withheld.
16. Extension Cords. Landlord reserves the right to restrict the use of any
electrical extension cord. At no time shall more than two electrical
devices be connected to any one duplex outlet. Multiple adapters are
prohibited. Any extension cord used shall be a two-wire cord with
ground, and shall be sized according to the power draw on the circuit.
17. Use of Passageways and Roof. No tenant shall obstruct, or sweep or
throw dirt or any other substance into, or temporarily or permanently
store or dispose of any trash, garbage, waste, or refuse in, any
sidewalk, hall, passage, balcony, exit, entrance, elevator, or stairway
of any building or other area of the Office Centre or use the same for
any purpose other than for ingress to and egress from such tenant's
premises. The halls, passages, exits, entrances, elevators, stairways,
and balconies of each building in the Office Centre are not for the use
of the general public, and Landlord in all cases reserves the right to
control the same and prevent access thereto by any person whose
presence, in the judgment of Landlord, is or may be prejudicial to the
safety, character, reputation, or interests of such building or its
tenants; provided however, that Landlord shall not prevent such access
to persons with whom tenants deal in the ordinary course of business
unless such persons are engaged in illegal or disruptive activities. No
person shall go upon or use the roof of any building unless expressly
so authorized by Landlord.
18. Deliveries and Use of Elevators. No mail, furniture, packages,
supplies, equipment, merchandise, or deliveries of any kind shall be
received in any building or carried up or down in the elevators except
between such hours and in such elevators as shall be designated by
Landlord. All routine deliveries to any tenant's premises shall be made
through the elevators designated for freight usage. Passenger elevators
shall be used only for the movement of persons, except as otherwise
approved in writing by Landlord.
19. Moving and Installation of Equipment. Furniture, freight, and equipment
of every kind shall be moved into or out of buildings only at such
times and in such manner as Landlord shall designate. All hand trucks
used anywhere in any building shall be equipped with rubber tires and
side guards. Landlord may prescribe and limit the weight, size, or
position of any equipment to be used by tenants, other than standard
office desks, chairs, tables, and portable office machines. Safes and
other heavy equipment, if any, approved by Landlord shall stand on wood
strips of such thickness as Landlord deems necessary to distribute
properly the weight thereof. If moving or maintaining any property of a
tenant causes any damage to the premises or any other portion of the
<PAGE> 43
building, the damage shall be repaired at such tenant's expense. All
removals, or the carrying in or out of any building or moving within
any building, of any safe, freight, furniture, fixtures, or bulky
matter of any description shall only take place during such hours as
Landlord may determine from time to time. The moving of all such items
shall only be made upon previous written notice to Landlord and under
its supervision, and the persons employed by any tenant for such work
must be acceptable to Landlord. Landlord reserves the right to inspect
all safes, furniture, fixtures, freight, and other bulky matter to be
brought into any building and to exclude therefrom any such item that
violates any of these rules and regulations or the lease of the tenant
responsible for such item.
20. Trash Disposal. No trash, garbage, waste, or refuse shall be stored or
disposed of in any common area of the Office Centre, except in the
dumpsters or trash containers provided by Landlord for that purpose.
All cardboard and wooden boxes shall be broken down and flattened
before the nightly janitorial crew will dispose of them. Tenants shall
only use such dumpsters and trash containers for disposal of
nonhazardous trash or waste generated at the Office Centre in
connection with the ordinary conduct of such tenants' business at the
Office Centre in accordance with the terms and conditions of their
respective leases.
Any tenant desiring Landlord's services for removal or disposal of
additional quantities of nonhazardous trash or waste generated by such
tenant at the Office Centre shall so notify Landlord, and Landlord
shall endeavor to provide such service at its then standard charges.
21. Tenant's Authorized Representative. Each tenant shall by written notice
to Landlord appoint a person to act as such tenant's Authorized
Representative. All tenant requests to Landlord or its management for
services shall be made through the Authorized Representatives. Each
tenant's Authorized Representative shall also serve as the tenant
contact in the event of building emergencies, interruptions of
services, or security problems.
22. Services. Except as may otherwise be agreed to in writing by Landlord,
no tenant shall hire, employ, or contract with any person or firm for
janitorial, maintenance, or other like service to be provided to such
tenant's premises, and no person shall be permitted to enter any
building for such purpose. Tenants shall not cause any unnecessary
labor by carelessness or indifference to the preservation of good order
and cleanliness in their premises or any other area of their building
or the Office Centre. Landlord shall not be responsible to any tenant
for loss of property in its premises or elsewhere in the Office Centre,
however occurring, or for any damage to the property of any tenant
caused by the employees or independent contractors of Landlord or by
any other person. Janitor service shall not be furnished when rooms are
occupied during the regular hours when janitor service is provided.
Regular janitor service provided by landlord shall include ordinary
dusting and cleaning, but shall not include cleaning of carpets or rugs
(except normal vacuuming) or moving of furniture, file cabinets, or
equipment. Window cleaning shall be done only at the times determined
by Landlord, in accordance with its normal business practice, for such
services.
23. Landlord's Employees. Special requirements of tenants shall be attended
to only upon application to Landlord at its office in the Office
Centre. Employees of Landlord shall not perform any work for tenants
outside such employees' regular
<PAGE> 44
duties unless under special instructions from Landlord, and no employee
of Landlord shall be required to admit any person (tenant or otherwise)
to any premises in any building.
24. Preparation for Maintenance/Repairs/Alterations. In the event Landlord
shall elect, or be required, to perform any maintenance, repairs,
alterations, improvements, or installations on a tenant's premises,
such tenant shall, upon Landlord's request, move any file cabinets,
furniture, or equipment as required by Landlord's workers in order for
them to obtain full, unobstructed access to the area where their work
is to be performed.
25. Locks and Keys Furnished by Landlord. Landlord shall at its expense
provide a lockset and two keys for each corridor door entering the
tenant's premises. No tenant shall make or cause to be made any copies
of such keys, except through Landlord, who shall make additional keys
available upon request at Landlord's then standard charges. Landlord
shall endeavor to provide such additional keys within five (5) working
days after the tenant's request. Upon a tenant's written request,
Landlord shall rekey any locksets, or install additional locksets, on
corridor or interior doors of such tenant's premises, and such tenant
shall pay Landlord for such service at Landlord's then standard charge
therefor. Landlord shall endeavor to rekey or install such locksets (if
available locally) within five (5) working days after the tenant's
request therefor. In emergencies, a temporary lockset may be installed,
and the same shall be replaced as soon as the permanent lockset is
available. No tenant shall rekey or install, or cause to be rekeyed or
installed, any lockset on any door except in the foregoing manner. All
such locksets and keys shall be keyed to the building master lock
system. Notwithstanding the foregoing, no tenant shall be required to
provide Landlord with keys to such tenant's safes or vaults or to those
areas of its premises appropriately designated by such tenant in
writing to Landlord as "Restricted Areas".
26. Return of Keys. All door keys and locksets furnished to any tenant
shall remain the property of Landlord. Upon termination of occupancy of
its premises, each tenant shall deliver to Landlord all keys furnished
by Landlord, and any reproductions thereof made by or at the direction
of such tenant. In the event of loss of any keys so furnished, the
affected tenant shall immediately report the loss to Landlord and such
tenant shall reimburse Landlord, at Landlord's then standard rates, for
(a) the cost of replacing such keys or (b) should Landlord decide that
rekeying the locks is necessary for the security of such premises, the
cost (including labor and materials) of rekeying all locks keyed to
such lost keys. Upon termination of occupancy of its premises, each
tenant shall also deliver to Landlord all keys to any other locks
remaining in the premises and shall give Landlord written notice of the
combinations of any locks to any safes, cabinets, vaults, or doors to
"Restricted Areas", if the same are not removed by such tenant.
27. Hazardous Substances. The following rule concerns "Hazardous
Substances", which term shall mean any kerosene, gasoline, oils,
solvents, paint thinner, acids, caustics, insecticides, pesticides,
herbicides, corrosives, flammable explosives, asbestos, PCBs, vinyl
chloride, cyanide solutions, urea formaldehyde, waste chemicals,
sludges, radioactive materials, infectious or medical waste, or other
substance or material that, after release into the environment and upon
exposure, ingestion, inhalation, or assimilation, either directly from
the environment or indirectly by ingestion
<PAGE> 45
through food chains, will or may reasonably be anticipated to cause
death, disease, behavior abnormalities, cancer, reproductive harm, or
genetic abnormalities. No tenant shall cause or permit any Hazardous
Substance to be brought upon or kept, used, or generated in or about
its premises or any other area of its building or the Office Centre
unless (a) such Hazardous Substance is necessary for the tenant's
business (and such business is a permitted use under its lease) and (b)
the tenant first obtains the written consent of Landlord if such
Hazardous Substance is other than an ordinary consumer product that is
used at the premises in the same manner as an ordinary consumer use and
is present in quantities that are not substantially greater quantities
than may be present in an ordinary household and that would not require
reporting under any federal, state, or local law or regulation if such
quantities were released into the environment. Any tenant who at any
time becomes aware, or has reasonable cause to believe, that any
Hazardous Substance, other than those permitted under these rules and
regulations, has come to be located in, on, or beneath its premises or
any other area of its building or the Office Centre, such tenant shall,
immediately upon discovering such presence or suspected presence of
such Hazardous Substance, give Landlord written notice, in reasonable
detail, of such condition.
28. Nuisance. No tenant shall, in or about its premises, (a) use or keep or
permit to be used or kept any foul or noxious gas or substance, (b)
engage in or permit any activities or uses offensive or objectionable
to Landlord or other tenants or occupants by reason of noise, odors, or
vibrations, (c) interfere in any way with other tenants or persons
having business in any building in the Office Centre, or (d) without
Landlord's prior written consent, bring or keep, or permit to be
brought or kept, any pets or animal life form, other than human, except
seeing eye dogs when in the company of their masters.
29. Certain Other Prohibited Uses. No cooking shall be done or permitted by
tenants in their premises or elsewhere in the Building or on the
grounds of the Office Centre, except as otherwise specifically
consented to in writing by Landlord. No premises shall be used for the
storage of merchandise (except storage incidental to a use expressly
permitted under tenant's lease), washing clothes, lodging, sleeping or
any improper, objectionable, or immoral purpose. No tenant shall,
without Landlord's prior written consent, use any method of heating or
air-conditioning other than that supplied by Landlord.
30. No Smoking. Smoking of cigarettes, cigars, and pipes is prohibited in
the buildings. All cigarettes, cigars, and pipes shall be extinguished
before entering any building.
31. Intoxication. Landlord may exclude or expel from the Office Centre any
person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
material violation of any of the rules or regulations of the Office
Centre.
32. No Soliciting. Canvassing, soliciting, peddling, and distribution of
written material in any building or in the parking lots or grounds of
the Office Centre are prohibited, and each tenant shall cooperate to
prevent the same.
<PAGE> 46
33. No Loitering. No one shall loiter in any entrances, exits, stairways,
elevators, or corridors, or, except as otherwise consented to in
writing by Landlord, in any way obstruct any sidewalk, driveway, lobby,
stairway, or elevator.
34. No Shopping Carts. No shopping carts may be brought onto the grounds of
the Office Centre or into any building.
35. No Vehicles in Premises. No bicycles or vehicles of any kind shall be
brought into or kept in or about any tenant's premises or other area of
any building. Please contact the Property Management Office for keys to
the enclosed bicycle rack.
36. Christmas Trees. Live/Cut Christmas trees, wreaths, etc. are allowed in
the buildings. The local fire department dictates that they be
fireproofed. Keep the fireproof tag throughout the season.
37. Vending Machines. No vending, arcade, game, or food or beverage
dispensing machine of any description shall be installed, maintained,
or operated in any tenant's premises or elsewhere in any building
without the prior written consent of Landlord.
38. Toilet Fixtures. No toilet room, toilet, urinal, wash bowl, or other
apparatus shall be used for any purpose other than that for which it
was constructed and no foreign substance of any kind whatsoever shall
be thrown or placed therein. The expense of any breakage, stoppage, or
damage resulting from the violation of this rule shall be borne by the
tenants who, or whose employees or invitees, cause such breakage,
stoppage, or damage.
39. Parking Rules and Regulations:
a. Landlord reserves the right to designate the use of parking
spaces at the Office Centre, and parking shall be prohibited
except in areas specifically marked for parking. All parked
vehicles shall be parked within (and never across) the striped
lanes designated for such purpose, and no portion of any
parked vehicle may block any driveway. Parking spaces marked
as reserved for visitors, handicapped persons, or a specific
occupant of the Office Centre shall only be used by such
persons for whom the spaces are reserved.
b. Areas marked as "loading" zones shall be used solely for
purposes of loading and unloading of equipment, personal
property, or materials used at the Office Centre. Any vehicles
being loaded or unloaded shall be properly parked in a parking
space or stopped in such a marked "loading" zone. No vehicle
stopped in a "loading" zone may be left unattended.
c. Only passenger vehicles may be parked at the Office Centre.
The parking of trucks, trailers, recreational vehicles, and
boats is specifically prohibited. Landlord may, in its sole
discretion, designate separate areas for bicycles and
motorcycles.
d. No "For Sale" or other advertising signs or signs referring to
the Office Centre may be placed on or about any vehicle parked
at the Office Centre.
<PAGE> 47
e. No vehicles may be parked overnight at the Office Centre
without Landlord's prior written consent.
f. No vehicle that exceeds thirty (30) feet in length may enter
the Office Centre for any purpose.
g. While driving in the driveways and parking lots, drivers shall
comply with all directional signs and arrows and shall not
exceed the speed limit of 5 miles per hour.
h. Washing, waxing, cleaning, and servicing of vehicles in the
Office Centre are prohibited.
i. Upon Landlord's request to any tenant, such tenant shall
provide Landlord with a list of license plate numbers of all
automobiles used by its employees and agents who are
authorized to park at the Office Centre.
j. Landlord reserves the right to have any vehicle that violates
any provision of these parking rules and regulations towed at
the vehicle owner's expense.
k. Parking stickers or any other device or form of identification
supplied by Landlord shall remain the property of Landlord.
Such parking identification device shall be displayed as
requested and may not be mutilated in any manner. Such devices
shall not be transferable, and any device in the possession of
an unauthorized holder shall be void. There shall be a
replacement charge to the tenant, at Landlord's then standard
rates (currently $25), for loss of any such device. Loss or
theft of any such device shall be reported to Landlord
immediately. Any parking identification devices found on or
used for an unauthorized car may be confiscated and the
illegal holder shall be subject to prosecution. Lost or stolen
devices previously reported and then found shall be reported
found to Landlord immediately.
40. Responsibility for Employees and Guests. Each tenant shall be
responsible for the observance of all the rules and regulations by such
tenant's employees, agents, clients, customers, contractors, invitees,
visitors, and guests.
41. Enforcement of Rules. Each tenant shall be liable to Landlord and to
each other tenant of the Office Centre for any loss, cost, expense,
damage, or liability, including attorneys' fees, caused or occasioned
by the failure of such first named tenant to comply with these rules
and regulations, but Landlord shall have no liability for such failure
or for failing or being unable to enforce compliance therewith by any
tenant and such failure by Landlord or non-compliance by any other
tenant shall not be a ground for abatement of rent or termination of
any lease.
42. Collection of Charges. Landlord's right to charge particular tenants
for certain costs and expenses pursuant to these rules and regulations
shall not impose any obligation upon Landlord to impose or collect such
charges from any such particular tenant, and in the event Landlord, for
whatever reason, is not reimbursed by any tenant for such costs and
expenses, the same may be included in the calculation of building
operating expenses for purposes of determining each tenant's percentage
share of increases therein in accordance with the provisions of its
lease.
<PAGE> 48
43. Waivers. Landlord may waive any one or more of these rules and
regulations for the benefit of any particular tenant or tenants, but no
such waiver by Landlord shall constitute a waiver of such rule or
regulation in favor of any other tenant.
44. Changes to Rules. Landlord reserves the right to rescind any of these
rules and regulations and to make such changes therein, and add such
other and further rules and regulations, as Landlord in its reasonable
judgment shall, from time to time, deem appropriate. Such changed or
additional rules and regulations shall be binding upon each tenant upon
Landlord's giving such tenant written notice thereof.
<PAGE> 49
EXHIBIT D
UTILITIES AND SERVICE
The furnishing of building services and utilities to Tenant shall be
accomplished in accordance with and subject to the terms and conditions set
forth in this Exhibit D and elsewhere in the Lease. Landlord reserves the right
to adopt from time to time such reasonable modifications and additions hereto as
Landlord may deem appropriate.
1. Subject to the full performance by Tenant of all of Tenant's obligations
under the Lease, Landlord shall provide the standard building services
and utilities set forth in this Paragraph
1. Landlord shall:
A. Provide to the Premises heating, ventilation, and air
conditioning (HVAC) in accordance with the terms and provisions
set forth in the Lease.
B. Provide electric current to the Premises, for purposes consistent
with the Permitted Uses specified in Section 1.1(g) of the Lease
and in accordance with the terms and provisions set forth in the
Lease.
C. Provide at all times reasonably necessary amounts of hot and cold
water for restrooms furnished by Landlord.
D. Provide janitorial services to the Common Areas and to any
exterior window coverings. Landlord shall not be responsible or
liable for any act or omission or commission on the part of the
persons employed to perform said janitorial services, and said
janitorial services shall be performed at Landlord's direction
without interference by Tenant or Tenant's employees.
E. Provide trash removal services from the trash disposal areas
located in the Facility. Landlord shall only be responsible for
the removal and disposal of properly containerized, nonhazardous,
ordinary trash or waste in quantities ordinary and customary for
the Permitted Uses, as reasonably determined by Landlord.
F. When reasonably necessary, provide appropriate vermin and pest
control services to the Common Areas.
2. Landlord shall have the exclusive right to make any replacement of
electric light bulbs, tubes and ballasts in the Premises throughout the
Term. The Landlord may, at Landlord's sole discretion, adopt a system of
relamping and reballasting periodically on a group basis in accordance
with good practice.
3. Landlord shall not provide in the Premises any reception outlets or
television or radio antennas for television or radio broadcast or
reception, and Tenant shall not install any such equipment without the
prior consent of Landlord which can be withheld in Landlord's sole and
absolute discretion.
4. Tenant acknowledges and understands that at the commencement of the
Term, if this is a new Building, portions of the Building and the
Property and the Building's HVAC, security (if any), electrical and
plumbing systems may not be fully completed, adjusted, and running
smoothly and that Tenant will suffer certain annoyances and
inconveniences. These annoyances and inconveniences shall not give rise
to any rent abatement or reduction or create any other claim by Tenant
against the Landlord.
<PAGE> 50
EXHIBIT E
SAMPLE ACKNOWLEDGMENT OF COMMENCEMENT OF TERM
ACKNOWLEDGMENT OF COMMENCEMENT OF TERM
THIS ACKNOWLEDGMENT is made as of ______________, 19 __ by and between Casiopea
Venture Corporation, as (Landlord) and ________________________ as (Tenant).
RECITALS
A. Pursuant to a written lease dated as of ____________, 19 __ (the Lease),
Tenant leases from Landlord certain premises commonly known as Suite/Unit(s)
of the ________ story building located at __________________________________
in the City of _____________________, State of _____________________________
(the Premises), as more particularly described in the Lease.
B. Subject to and upon the terms and conditions set forth in this
Acknowledgment, the parties desire to confirm the term of the Lease.
ACCORDINGLY, the parties agree as follows:
AGREEMENT
1. The parties to this Acknowledgment hereby agree to confirm the establishment
of the commencement and expiration dates of the term of the Lease, and the
rental commencement date as follows:
a. the date of ________________________, 19 __, shall be the commencement date
of the term of the Lease;
b. the date of _________________________, 19 __, shall be the scheduled
expiration date of the term of the Lease;
c. the period commencing on _____________, 19 __, and ending on
__________________,19__, shall be the period to which Tenant's rent payment of
$_________________ made pursuant to Subsections 0.1(e)(2) and 4.1 (prepaid rent)
of the Lease (receipt of which amount is hereby acknowledged, by Landlord),
shall be applied;
d. subject to the provisions of the Lease concerning the recapture of free rent
upon any early termination of the Lease, no scheduled monthly rent shall be
payable for the months of _______________________________________; and
e. the date of ______________________, 19 __, is the next date on which
scheduled monthly rent shall be paid by Tenant, which payment shall be in the
amount of $_____________________ and ending on the period commencing on
___________________________, 19__, and ending on ______________________________,
19__. Thereafter, scheduled monthly rent shall be payable as provided in the
Lease, except as follows [if no modifications, write none]: ________________
___________________________________________.
2. Tenant hereby confirms the following:
a. that it has accepted possession of the Premises pursuant to the terms of the
Lease;
b. that the improvements and space required to be furnished by Landlord
according to the Lease have been furnished;
c. that other than this Acknowledgment there has been no modification,
alteration, or amendment to the Lease, except as follows [if none, write none]:
_____________________________________________;
d. that there are no offsets or credits against rentals, nor has any security
deposit been paid, except as provided by the Lease;
e. that Tenant has not made any assignment of the Lease or any sublease of all
or any portion of the Premises; and
f. that the Lease, as confirmed, modified, and amended by this Acknowledgment,
is in full force and effect and represents the entire agreement between Landlord
and Tenant concerning the Premises and the matters covered by the Lease.
3. This Acknowledgment, and each and all of he provisions hereof, shall inure to
the benefit of, or bind, as the case may require, the parties hereto, and their
respective heirs, successors, and assigns subject to the restrictions upon
assignment and subletting contained in the Lease.
<PAGE> 51
EXHIBIT F
Rental Adjustments
<TABLE>
<CAPTION>
Months Monthly Rent Rate
------ ------------ ----
<S> <C> <C>
1 -- 12 $35,030.95 $3.35 psf.
13 --24 $36,076.65 $3.45 psf.
25 -- 36 $37,122.35 $3.55 psf.
</TABLE>
<PAGE> 52
ADDENDUM A
TO STANDARD FORM LEASE
----------------------
This Addendum A ("Addendum") is attached to, incorporated in and made a
part of the Standard Form Lease dated ___________, 1998 between Casiopea
Venture Corporation as Landlord and Digital Impact, Inc. as Tenant (the
"Lease"). In the event of any conflict between the provisions of this Addendum
and the remainder of the Lease, the provisions of this Addendum shall be
controlling. Capitalized terms used herein and not otherwise defined herein
shall have the same meanings given in the Lease.
Subsection 6.1 of the standardized portion of the Lease is deleted and
replaced in its entirety by the following:
6.1 DEPOSITS.
6.1.1 CASH DEPOSIT. To the extent Landlord holds from time to time any
cash amount paid by Tenant to Landlord as a deposit under this Lease (including,
but not limited to, any proceeds of a draw against the Letter of Credit as
hereinafter defined), such deposit, as adjusted from time to time by any
subsequent additions thereto or reductions therein from time to time in
accordance with the terms of this Lease (as so adjusted, the "Deposit"), shall
be held by Landlord as security for the full and faithful performance of
Tenant's covenants and obligations under this Lease. The Deposit is not an
advance Minimum Monthly Rent deposit, an advance payment of any other kind, or a
measure of Landlord's damages in case of Tenant's default. If Tenant fails to
comply with the full and timely performance of any of Tenant's covenants and
obligations set forth in this Lease, then Landlord may (but shall not be
required to), from time to time, without waiving any other remedy available to
Landlord, use the Deposit, or any portion of it, to the extent necessary to cure
or remedy such failure or to compensate Landlord for all damages sustained by
Landlord resulting from Tenant's failure to comply fully and timely with its
obligations pursuant to this Lease. No acceptance of such payment shall be
construed as an admission that Tenant has performed all of its obligations
hereunder. If Landlord elects to make such application of all or any portion of
the Deposit, Landlord shall notify Tenant of the nature and amount thereof and
Tenant shall within ten (10) days thereafter deposit with Landlord an amount
sufficient to increase the Deposit to an amount equal to one hundred ten percent
(110%) of the amount of the total Deposit (including, but not limited to, the
then applicable Required L/C Amount as hereinafter defined) that Tenant was
required to maintain under this Section 6 immediately prior to such application
by Landlord, taking into account any prior adjustments in the required Deposit
pursuant to any portion of this Section 6, and any failure of Tenant to
immediately do so shall constitute an Event of Default under this Lease. If
Tenant is in compliance with this Lease's covenants and obligations as of the
sixtieth (60th) day after the expiration or earlier termination of this Lease
and Tenant's vacating of the Premises, Landlord shall thereupon return to Tenant
the unused portion of the Deposit and any advance rent paid by Tenant.
Landlord's obligations with respect to the Deposit are those of a debtor and not
a trustee. Landlord shall not be required to maintain the Deposit separate and
apart from Landlord's general or other funds, and Landlord may commingle the
Deposit with any of Landlord's general or other funds. Tenant shall not at any
time be entitled to interest on the Deposit.
6.1.2 LETTER OF CREDIT DEPOSIT. As a condition of and as a material
inducement to Landlord's willingness to enter into this Lease with Tenant,
within ten (10) days after mutual execution of this Lease by the parties, Tenant
shall deliver to Landlord, and shall thereafter maintain in full force and
effect for the duration of the Term of this Lease, an irrevocable standby letter
of credit issued in favor of Landlord by a federally insured commercial bank or
trust company approved in writing by Landlord (which approval shall not be
unreasonably withheld), in the form (with appropriate insertions) of Attachment
A-1 attached hereto and incorporated herein by this reference (the "Letter of
Credit"), to be held by Landlord as security for the faithful performance of all
the obligations of Tenant under this Lease, subject to the following terms and
conditions:
A-1
<PAGE> 53
6.1.2.1 The minimum required amount of the Letter of Credit (the
"Required L/C Amount") shall initially be One Hundred Eight Thousand Two Hundred
Twenty-Nine and 95/100 Dollars ($108,229.95). Effective as of the date which is
eighteen (18) months after the Commencement Date under this Lease, the Required
L/C Amount shall be reduced to Seventy-Two Thousand One Hundred Fifty-Three and
30/100 Dollars ($72,153.30), provided that Tenant is not then in default in the
performance of any of its obligations under this Lease. Effective as of the date
which is thirty-six (36) months after the Commencement Date under this Lease,
the Required L/C Amount shall be reduced to zero ($0.00) and Tenant shall be
released from any further obligation to maintain any Letter of Credit hereunder,
provided that Tenant is not then in default in the performance of any of its
obligations under this Lease. Upon any reduction in the Required L/C Amount,
Landlord shall cooperate with Tenant in taking all reasonable and appropriate
steps to implement such reduction, provided that any endorsement, replacement,
substitution or other action with respect to the Letter of Credit shall be
handled in such a manner that Landlord holds at all times a Letter of Credit in
at least the Required L/C Amount.
6.1.2.2 Landlord shall be entitled (but shall not be required) to draw
against the Letter of Credit and to receive and retain proceeds thereof upon any
default by Tenant in the payment of any rent or other amounts required to be
paid by Tenant under this Lease or upon any other default in Tenant's
obligations under this Lease, subject to the conditions set forth in this
Subsection 6.1.2.2 and to any other applicable conditions set forth in this
Subsection 6.1.2. Subject to any other limitations expressly set forth herein,
the amount of any such draw under this Subsection 6.1.2.2 shall not exceed the
amount of the payments as to which Tenant is then in default or the amount
reasonably necessary to cure any non-monetary default by Tenant, and shall be
applied by Landlord against such payment obligations or against the cure of such
non-monetary default. Any draw by Landlord pursuant to this Subsection 6.1.2.2
shall specify that it is being made as a default-related draw pursuant to
Subsection 6.1.2.2 of this Lease. The conditions applicable to any such draw
under this Subsection 6.1.2.2 include the following:
6.1.2.2.1 In the case of a default in the payment of rent or any
other monetary amounts due from Tenant to Landlord, Landlord shall not draw
against the Letter of Credit to cure any such default unless and until Landlord
has first given Tenant at least ten (10) days' prior written notice of
Landlord's intent to draw against the Letter of Credit, specifying the amount of
the proposed draw, and such default remains uncured at the expiration of such
ten-day period.
6.1.2.2.2 In the case of any other breach or default by Tenant
under this Lease (other than in the circumstances contemplated in Subsections
6.1.2.4 or 6.1.2.6 of this Lease), Landlord shall not draw against the Letter of
Credit to cure such breach or default unless and until Landlord has first given
Tenant at least thirty (30) days' prior written notice of Landlord's intent to
draw against the Letter of Credit, specifying the amount of the proposed draw,
and such default remains uncured at the expiration of such thirty-day period;
provided, however, that with respect to any non-monetary default that is curable
in nature but cannot reasonably be cured within thirty (30) days, Tenant's
thirty-day cure period shall be extended for the length of time reasonably
required to cure the default, but only if Tenant commences a cure promptly and
in all events within such thirty-day period, or within such shorter period of
time as may be permitted by applicable laws or by governmental authorities
having jurisdiction if the default involves noncompliance with any applicable
laws, ordinances, regulations or directives of any governmental authority, and
thereafter diligently pursues such cure to completion.
6.1.2.2.3 In the event of any default-related draw by Landlord
under this Subsection 6.1.2.2, Tenant shall furnish to Landlord, within thirty
(30) days after the date of such draw, a further Letter of Credit in an amount
equal to the lesser of the then applicable Required L/C Amount or the amount of
Landlord's draw and otherwise satisfying all of the terms and conditions
applicable to the original Letter of Credit under this Subsection 6.1.2, so that
Landlord will continue to hold a Letter or Letters of Credit in an aggregate
amount at least equal to the Required L/C Amount (subject to any reductions
expressly permitted hereunder).
6.1.2.3 The conditions set forth in this Subsection 6.1.2 are
applicable only to Landlord's right to proceed against the Letter of Credit
under the circumstances described herein,
A - 2
<PAGE> 54
and shall not limit or impair in any way Landlord's other rights and remedies,
following any default by Lessee, under any other applicable provisions of this
Lease or under applicable law. Any notice periods prescribed in this Subsection
6.1.2 may run concurrently with any other notice periods required under any
other applicable provision of this Lease or under applicable law, and shall not
be construed to extend or be cumulative with respect to any such other notice
periods.
6.1.2.4 Notwithstanding any provisions of Subsection 6.1.2.2
above, Landlord shall also be entitled (but shall not be required) to draw
against the then remaining balance of the Letter of Credit in full and to
receive the entire proceeds of such draw if the Letter of Credit in effect from
time to time will expire as of a date prior to the expiration of the Term of
this Lease and Tenant fails to provide to Landlord an extension or replacement
of such Letter of Credit, in at least the then applicable Required L/C Amount,
at least thirty (30) days prior to the scheduled expiration date of the Letter
of Credit. Any draw by Landlord pursuant to this Subsection 6.1.2.4 shall
specify that it is being made as an expiration-related draw pursuant to
Subsection 6.1.2.4 of this Lease.
6.1.2.5 If Landlord draws against the Letter of Credit in any of
the circumstances described in Subsection 6.1.2.4 above or in Subsection 6.1.2.6
below, then Landlord shall be entitled (but shall not be required) to use, apply
and/or retain all or any part of the amount thus drawn or received for the
payment of any amount in default at, or subsequent to, the time of the draw or
deposit. Any amount drawn or received that is not immediately so used or applied
by Landlord shall be retained by Landlord as a cash Deposit on the terms set
forth in Subsection 6.1.1 above. Such funds may thereafter be used and applied
by Landlord, in accordance with the provisions of Section 6.1.1 relating to the
Deposit, to cure any subsequent default in the payment of rent or other sums due
from Tenant hereunder, or to reimburse Landlord for any other amount which
Landlord may spend or become obligated to spend by reason of Tenant's default,
or to compensate Landlord for any other loss or damage which Landlord may suffer
by reason of Tenant's default.
6.1.2.6 In the event of any early termination of this Lease as a
result of Landlord's exercise of its rights under this Lease and/or under
applicable law following any breach or default in Tenant's obligations under
this Lease, or in the event Landlord has given a notice of intention to draw
against the Letter of Credit under any provision of this Subsection 6.1.2 and
Landlord has neither withdrawn such notice nor completed the proposed draw, then
in any of such events the Letter of Credit shall not terminate or be released
until all liabilities of Tenant arising out of or in connection with this Lease
and/or the termination hereof and/or the breach or default giving rise to
Landlord's notice of intention to draw against the Letter of Credit have been
determined and satisfied in full by Tenant. If the expiration date specified in
the Letter of Credit would occur prior to final determination and payment of
Tenant's obligations as contemplated in this Subsection 6.1.2.6, then
notwithstanding any provisions of Subsection 6.1.2.2 hereof, Landlord shall be
entitled to draw against the Letter of Credit prior to the expiration thereof
and the amount so drawn by Lessor shall be held by Lessor as a cash Deposit in
accordance with Subsection 6.1.1 hereof pending resolution of Tenant's
liabilities to Landlord as contemplated herein, unless Tenant either (i)
furnishes a timely extension of the Letter of Credit as contemplated in
Subsection 6.1.2.4 hereof or (ii) furnishes to Landlord a cash deposit in the
amount of the then remaining balance of the Letter of Credit (which deposit
shall likewise be held by Landlord as a cash Deposit in accordance with
Subsection 6.1.1 hereof pending resolution of Tenant's liabilities to Landlord).
Any draw by Landlord pursuant to this Subsection 6.1.2.6 shall specify that it
is being made as an expiration-related draw pursuant to Subsection 6.1.2.6 of
this Lease.
<PAGE> 55
ATTACHMENT A-1
FORM OF LETTER OF CREDIT
------------------------
______________________, 1998
Irrevocable Standby Letter of Credit No. ______
Casiopea Venture Corporation
c/o Rim Pacific Management
155 Bovet Road, Suite 460
San Mateo, CA 94402
Dear Sirs:
We hereby establish our Irrevocable Standby Letter of Credit No. ______
in your favor for the account of Digital Impact, Inc. ("Tenant"), in the total
maximum aggregate amount of $108,229.95 (ONE HUNDRED EIGHT THOUSAND TWO HUNDRED
TWENTY-NINE AND 95/100 U.S. DOLLARS).
This Letter of Credit may be drawn upon at sight by your draft or demand
for payment referring to this Letter of Credit and presented at our offices as
set forth below, accompanied by this original Letter of Credit and by your
written statement (a) certifying that Tenant has failed to perform a payment
obligation or other obligation under the terms of its Lease dated ____________,
1998 covering the premises at 155 Bovet Road, Suite ____, San Mateo, California
(the "Lease"), and that as a result of such failure, you are entitled to draw
against and receive proceeds under this Letter of Credit in the amount of
$__________ [TO BE SPECIFIED IN YOUR NOTICE], and (b) specifying either (i) that
your draw is being made as a default-related draw pursuant to Subsection 6.1.2.2
of the Lease, or (ii) that your draw is being made as an expiration-related draw
pursuant to Subsection 6.1.2.4 or Subsection 6.1.2.6 of the Lease.
We agree to honor any draw or payment demand which, on the face of the
documentation submitted to us, complies with the foregoing requirements (as
applicable) and with the other applicable requirements set forth herein, and
agree that we shall neither be entitled to nor be required to determine
independently the accuracy or existence of any of the facts or circumstances set
forth in your draw or payment demand and related documentation as submitted to
us.
This Letter of Credit is issued in your favor and/or transferee. This
Letter of Credit is transferable only in its entirety, and only to the successor
owner of the building covered by the Lease, in the event of a change in
ownership of that building. Should you desire to transfer this Letter of Credit,
such transfer will be subject to the return to us of this Letter of Credit (for
reissuance in favor of the transferee) together with your written instructions
and your payment of our usual transfer charge.
This Letter of Credit may be drawn against in whole or in part. In the
event of a draw for less than the full amount of this Letter of Credit, a new
Letter of Credit shall be issued in the amount of the remaining balance of the
funds available under the surrendered Letter of Credit and otherwise in form
substantially identical to this Letter of Credit.
Our liability under this Letter of Credit is limited to the lesser of
the amount the Lease entitles you to draw hereunder from time to time or
$108,229.95 (ONE HUNDRED EIGHT THOUSAND TWO HUNDRED TWENTY-NINE AND 95/100 U.S.
DOLLARS) maximum.
This Letter of Credit is an irrevocable standby letter of credit and
shall be subject to and governed by the Uniform Customs and Practice for
Documentary Credits (UCP 500), effective January 1, 1994, and any subsequent
amendments thereof.
A-4
<PAGE> 56
Any claims of yours hereunder must be received by us at our office
located at ______________________________ (or at such other address as shall be
designated by us in a written notice to you from time to time) on or before
_____________________, ________ (the expiration date of this Letter of Credit).
Yours very truly,
[NAME OF ISSUER]
By:
-----------------------------------
Authorized Signature
A - 5
<PAGE> 57
ADDENDUM B
TO STANDARD FORM LEASE
----------------------
This Addendum B ("Addendum") is attached to, incorporated in and made a
part of the Standard Form Lease dated _______________, 1998, between Casiopea
Venture Corporation as Landlord and Digital Impact, Inc. as Tenant (the
"Lease"). In the event of any conflict between the provisions of this Addendum
and the remainder of the Lease, the provisions of this Addendum shall be
controlling. Capitalized terms used herein and not otherwise defined shall have
the same meanings given in the Lease.
1. Limited Waiver of Recapture Rights. In recognition that Tenant may
initially desire to sublease a portion of the Premises, Landlord waives its
recapture right under Section 13.3(iii) of the Lease with respect to any
sublease of the Premises to which Landlord has consented under Section 13 of the
Lease (based on the criteria set forth therein) and which sublease is entered
into by Tenant prior to the expiration of the initial twelve (12) months of the
Term, so long as (a) the term of such sublease commences during such initial
twelve (12) months of the Term and (b) the term of such sublease (including any
rights given to the subtenant to extend the sublease term) does not exceed
twelve (12) months from its commencement date. If Tenant wishes to sublease the
Premises or any portion thereof at any time after the initial twelve (12) months
of the Term, all of the provisions of Section 13 of the Lease (including; but
not limited to, Landlord's recapture rights as well as all other consent rights
and other restrictions set forth therein) shall apply fully, in accordance with
their terms, to any such sublease.
B-1
<PAGE> 58
ADDENDUM C
ATTACHED TO AND MADE A PART OF THIS LEASE
49. Standard Addendum to California Leases.
a. Unlawful Detainer Notice. Tenant hereby specifically agrees that any notice
of default provided for in Subsection 22.1 of the Lease shall be in lieu of, and
not in addition to, any notice required under Section 1161 of the California
Code of Civil Procedure.
b. Additional Remedies of Landlord. Upon the occurrence of any Event of Default
described in Subsection 22.1 of this Lease, Landlord may exercise any one or
more of the following remedies, in addition to all other rights and remedies
provided elsewhere in this Lease or now or hereafter provided at law or in
equity:
(i) Right To Terminate. Landlord shall have the right, in addition to
all other rights available to Landlord under this Lease or now or later
permitted by law or equity, to terminate this Lease by providing Tenant
with a notice or termination. Upon termination, Landlord may recover any
damages proximately caused by Tenant's failure to perform under the
Lease, including, without limitation, any amount expended or to be
expended by Landlord in an effort to mitigate damages (including,
without limitation, any amount expended or to be expended by Landlord in
an effort to mitigate damages (including, without limitation,
advertising costs, brokerage fees, attorneys' fees, and costs for
maintaining the Premises and putting them into good order, condition,
and repair, and performing such remodeling, renovations, or alterations
as may be desirable to prepare the Premises for reletting), as well as
any other damages to which Landlord is entitled to recover under any Law
now or hereafter in effect.
(ii) Right to Recover Rent as it Becomes Due. Landlord may exercise the
remedy described in California Civil Code Section 1951.2 (Landlord may
continue lease in effect after tenant's breach and abandonment, and
recover rent as it becomes due, if tenant has right to sublet or assign,
subject only to reasonable limitations). Tenant hereby specifically
acknowledges and agrees that the limitations on its right to sublet or
assign, as set forth in Section 13 of the Lease, are reasonable.
(iii)Right to Remove Personal Property. Upon any reentry by Landlord
into the Premises under this Section, Landlord shall have the right to
cause any movable furniture, equipment, trade fixtures, or other
personal property left on the Premises to be removed and stored in a
public warehouse or elsewhere at Tenant's sole cost and expense, and/or
to dispose of or sell such property and apply the proceeds therefrom
pursuant to applicable Law. In the event Landlord stores such property
at premises owned or leased by Landlord, Landlord may charge Tenant for
such storage at such reasonable rates as Landlord shall from time to
time determine. The foregoing notwithstanding, nothing set forth in this
paragraph or elsewhere in this Lease shall impose on Landlord any
obligation for the care or preservation of such property so left upon
the Premises, except to the extent otherwise expressly provided by
applicable Laws.
c. Waiver Of Certain California Code Sections. The parties understand and agree
that the provisions of this Lease shall govern the parties rights and
obligations with respect to the matters addressed in the statutory provisions
described below. Accordingly, and without limitation to the generality of the
provisions of the Lease concerning the waiver of certain statutory provisions,
Tenant hereby specifically waives its rights under the following provisions of
California law:
(i) Civil Code Sections 1932 and 1933(4), concerning the termination
of a lease (whether prior to or after the commencement of the lease
term) on account of the condition of the premises;
(ii) Civil Code Sections 1941 and 1942, concerning the making of
repairs at a landlord's expense;
(iii) Code of Civil Procedure Section 1265.130, concerning the right to
petition the Superior Court to terminate a lease in the event of a
partial taking of the premises by condemnation; and
(iv) Code of Civil Procedure Sections 473 and 1179 and Civil Code
Section 3275, concerning rights of redemption or reinstatement of a
tenant after being dispossessed from its premises.
d. Landlord's Disclosure Regarding Hazardous Substances. By signing this Lease,
Tenant represents that Tenant has read and understood the statutorily required
disclosures, if any, of Landlord set forth in Schedule 1 attached to this
Addendum, which disclosures relate to certain Hazardous Substances known or
suspected to exist at the Premises, Building, or Facility.
<PAGE> 59
SCHEDULE 1
In accordance with California law, we are providing you with information
concerning the presence of asbestos containing materials (ACM's) and certain
chemicals in Bovet Office Centre. California law also requires Tenants and
Contractors to give their respective employees, contractors, subcontractors,
agents, lessors and subtenants written notification regarding the presence of
ACM's in the buildings within 15 days after receipt of such information.
Many building construction materials and furnishings, when new, tend to emit
small amounts of gases, such as formaldehyde or urethane, that the State of
California has determined to be carcinogens and/or reproductive toxins. We have
implemented a policy of requiring all contractors to minimize the use of
hazardous chemicals in connection with work performed in the buildings.
Nevertheless, detectable amounts of such gases may be present in the building
air from time to time.
Accordingly, we are providing the following warning in accordance with
Proposition 65 (Health and Safety Code Sections 25249.6 et seq.):
WARNING: This building may contain chemicals known to the State of
California to cause cancer or reproductive harm.
ACM's pose no health risks unless they are broken up or disturbed so that
asbestos fibers may become airborne and are inhaled. Inhalation of asbestos
fibers has been associated with increased incidence of lung cancer,
mesothelioma, and respiratory disease. Therefore, any activity that could
disturb these materials must be taken with care and in accordance with
applicable laws, lease provisions, and the rules and regulations of Bovet Office
Centre.
Asbestos surveys of both buildings in the Office Centre were performed in
1988-89 by EnviroGroup, and in 1993 by H+GCL, both firms being highly regarded
environmental consultants.
The 1988-89 surveys included inspections and samplings in certain areas believed
to be representative. Samples were analyzed by a polarized light microscopy in
accordance with procedures approved by the Environmental Protection Agency. The
only ACM identified was vinyl flooring and the adhesive used to attach it to the
floor. These materials are located throughout both buildings (sometimes under
carpets). The asbestos fibers in these materials are believed to be fully bonded
and encapsulated, so they are not likely to become airborne unless they are
sanded, sawed, cored or broken up.
The 1993 asbestos survey included a review of the 1988-89 survey reports and
inspections of representative areas, but no testing. The 1993 report states that
additional asbestos testing of roofing materials, pipe elbow packing, acoustical
ceiling tiles, gypsum board, and joint tape and joint compound may be advisable
prior to engaging in renovation, maintenance or demolition activities affecting
such materials. Accordingly, we require that any area scheduled for construction
activities affecting such materials be evaluated for potential ACM's and that
all suspect materials be tested for asbestos content. Only certified asbestos
consultants or EPA-accredited asbestos inspectors are permitted to perform such
evaluations.
Only properly trained and equipped personnel are permitted to disturb ACM in
connection with repairs or remodeling. If more than 100 square feet of ACM will
be removed or disturbed, the work must be performed by a contractor registered
with Cal OSHA to perform asbestos-related work.
In 1991, JMC Environmental & Occupational Health Services performed air
monitoring on the fourth floor of 177 Bovet Road in connection with floor
renovation activities. The results of JMC's testing demonstrated consistency
with our current building standard for airborne asbestos, which is <0.005
asbestos structures per cubic centimeter of air (s/cc), as measured by the state
of the art technology known as Transmission Electron Microscopy (TEM). The
concentration level identified as involving "no significant risk" under
regulations implementing Proposition 65 is not readily measurable. However, our
building standard is much more stringent than the current OSHA action level of
0.1 asbestos fibers per cubic centimeter (f/cc), as measured by Phase Contrast
Microscopy (a less accurate technique than TEM), and significantly lower than
the EPA clearance level of approximately 0.01 s/cc (by TEM) currently required
for schools.
Casiopea Venture Corporation and Birtcher Property Services are committed to
maintaining a safe and pleasant physical working environment for all employees
and tenants at Bovet Office Centre.
<PAGE> 60
Copies of all asbestos survey and monitoring reports and test results from air
monitoring and bulk samplings of materials are available for your inspection and
photocopying at the building office.
<PAGE> 1
EXHIBIT 10.9
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is made effective as of the ____
day of May, 1999, (the "Effective Date") by and between Legato Systems, Inc., a
California corporation ("Sublessor"), and Digital Impact, Inc., a California
corporation ("Sublessee"). Sublessor agrees to sublease to Sublessee, and
Sublessee agrees to sublease from Sublessor, those certain premises situated
in the City of San Mateo, County of San Mateo, State of California,
consisting of approximately 18,886 square feet of space known as Suite 110 and
200 in the building at 177 Bovet Road, San Mateo, California 94402, more
particularly set forth on Exhibit "A" hereto (the "Subleased Premises").
ARTICLE 1
MASTER LEASE AND OTHER AGREEMENTS
1.1 Subject to Master Lease. Except as specifically set forth herein,
this Sublease is subject and subordinate to all of the terms and conditions of
the lease (the "Original Lease") dated April 24, 1997, between Casiopea Venture
Corporation ("Master Lessor") and Sublessor's assignor, Qualix Group, Inc., as
Lessee. The Original Lease and attached Addenda A and B, Exhibits, and
Acknowledgment of Lease Commencement dated October, 28, 1998, are referred to
herein as the "Master Lease". Sublessee hereby assumes and agrees to perform the
obligations of Lessee under the Master Lease as more particularly set forth
hereafter. Unless otherwise defined, all capitalized terms used herein shall
have the same meanings as given them in the Master Lease. A copy of the Master
Lease is attached hereto as Exhibit "B" and incorporated herein by this
reference. Sublessee shall not commit or permit to be committed any act or
omission which would violate any term or condition of the Master Lease.
Sublessee shall neither do nor permit anything to be done which would cause the
Master Lease to be terminated or forfeited by reason of any right of termination
or forfeiture reserved or vested in Master Lessor under the Master Lease, and
Sublessee shall indemnify and hold Sublessor harmless from and against all
liability, judgments, costs, demands, claims, and damages of any kind whatsoever
(including, without limitation, attorneys' fees and court costs) by reason of
any failure on the part of Sublessee to perform any of the obligations of Lessee
under the Master Lease which Sublessee has become obligated hereunder to
perform. In the event of the termination of Sublessor's interest as Lessee under
the Master Lease, then this Sublease shall terminate automatically upon such
termination without any liability of Master Lessor to Sublessee. In the event of
the termination of Sublessor's interest as Lessee under the Master Lease for any
reason other than for Sublessor's breach, then this Sublease shall terminate
automatically upon such termination without any liability of Sublessor to
Sublessee. Sublessee represents and warrants to Sublessor that it has read and
is familiar with the Master Lease.
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<PAGE> 2
Sublessor represents to Sublessee that the Master Lease is in full force
and effect, and that no default or event that, with the passing of time or the
giving of notice or both, would constitute a default, exists on the part of
Sublessor. Sublessor agrees to maintain the Master Lease in full force and
effect throughout the term of this Sublease, except to the extent that any
failure to maintain the Master Lease is due to the failure of Sublessee to
comply with any of its obligations under this Sublease.
Sublessor shall not amend or modify the Master Lease in such a manner as
to materially adversely affect Sublessee's use of the Subleased Premises or
increase the obligations or decrease the rights of Sublessee hereunder, without
the prior written consent of Sublessee which may be granted or withheld at
Sublessee's sole discretion. In the event that Sublessee desires to take any
action that will require the consent of Master Lessor, Sublessor shall use
reasonable and diligent efforts at no cost to Sublessor to obtain such consent
on behalf of Sublessee, provided that Sublessor shall not be liable in any way
for the failure of Master Lessor to so consent.
1.2 Applicable Provisions. All of the terms and conditions contained in
the Master Lease as they may apply to the Subleased Premises, except those
directly contradicted or incorporated by the terms and conditions contained in
this document, and specifically except for Paragraphs I.1a, b, d, e, f, j, 1.2d,
1.3, 1.4, 3, 4.1, 4.2, 4.4, 5, 6, 19, 36, 39, 49, 50, Lease Rider No. 1, Lease
Rider No. 2, Exhibits B, D, and F are incorporated herein and shall be terms and
conditions of this Sublease (with each reference therein to "Landlord,"
"Tenant," and "Lease" to be deemed to refer to Sublessor, Sublessee, and
Sublease, respectively, as appropriate) and along with all of the following
terms and conditions set forth in this document, shall constitute the complete
terms and conditions of this Sublease. Paragraphs 15, 16, 23, 24, 27, 28, 29,
31, 41 and 43 when referencing Landlord shall mean Master Lessor and shall not
mean Sublessor in this Sublease.
1.3 Obligations of Sublessor. Notwithstanding anything herein contained,
the only services or rights to which Sublessee is entitled hereunder are those
to which Sublessor is entitled under the Master Lease, and for all such services
and rights Sublessee shall look solely to the Master Lessor under the Master
Lease, and the obligations of Sublessor hereunder shall be limited to using its
reasonable good faith efforts to obtain the performance by Master Lessor of its
obligations. Such reasonable good faith efforts shall include, without
limitations, upon Sublessee's request, (a) immediately notifying Master Landlord
of its non-performance under the Master Lease and requesting that Master
Landlord perform its obligations under the Master Lease and/or (b) assigning
Sublessor's rights under the Master Lease to Sublessee to the extent necessary
to permit Sublessee to institute legal proceedings against Master Landlord to
obtain the performance of Master Landlord's obligations under the Master Lease;
provided, however, that if Sublessee commences a lawsuit or other action,
Sublessee shall pay all costs and expenses incurred in connection therewith, and
Sublessee shall indemnify Sublessor against, and hold Sublessor harmless from,
all costs and expenses incurred by Sublessor in connection therewith. Sublessor
shall have no liability to Sublessee or any other person for damage of any
nature whatsoever as a result of the failure of Master
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<PAGE> 3
Lessor to perform said obligations except for Master Lessor's termination of the
Sublessor's interest as Lessee under the Master Lease in the event of
Sublessor's breach of the Master Lease, and Sublessee shall indemnify and hold
Sublessor harmless from any and all claims and liability whatsoever for any such
damage including, without limitation, all costs and attorneys' fees incurred in
defending against same.
ARTICLE 2
TERM
2.1 Term. The term of this Sublease shall commence on June 1, 1999. This
shall be referred to as the "Commencement Date." The term of this Sublease shall
end on April 3, 2003, unless sooner terminated pursuant to any provision of the
Master Lease applicable to the Subleased Premises (the "Expiration Date").
Sublessor shall have no obligation to Sublessee to exercise any of its options
to extend under the Master Lease.
2.2 Option to Extend. Sublessee shall have no option to extend this
Sublease.
2.3 Sublessor's Inability to Deliver Premises. In the event Sublessor is
unable to deliver possession of the Subleased Premises on or before the
Commencement Date, Sublessor shall not be liable for any damage caused thereby,
nor shall this Sublease be void or voidable, but Sublessee's obligations
hereunder shall abate until such time as Sublessor delivers possession of the
Subleased Premises to Sublessee, but the term hereof shall not be extended by
such delay. If Sublessee, with Sublessor's consent, takes possession prior to
commencement of the term. Sublessee shall do so subject to all the covenants and
conditions hereof and if for the purpose of conducting business therein, shall
pay pro rated Base Rent for each day at the same rate as that prescribed for the
first month of the term. In the event Sublessor has been unable to deliver
possession of the Subleased Premises within thirty (30) days after June 1, 1999,
Sublessee, at Sublessee's sole option, may terminate this Sublease, and
Sublessor shall return all sums paid by Sublessee to Sublessor.
ARTICLE 3
RENT
3.1 Rent. Subject to the provisions of Paragraph 13.7 of the Master
Lease, Sublessee shall pay to Sublessor each month during the term of this
Sublease, rent in the amounts set for in Exhibit C hereto, in advance, with the
first months rent due on Sublease execution and on or before the first of each
month thereafter ("Base Rent"). Rent for partial months at the commencement or
termination of this Sublease shall be prorated. Rent for partial paid to the
Sublessor at its business address noted herein, or at any other place Sublessor
may from time to time designate by written notice mailed or delivered to
Sublessee.
3.2 Personal Property Acquisition Sublessee shall pay to Sublessor upon
written notice of Master Lessor consent to this Sublease the sum of $110,000 for
purchase of
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<PAGE> 4
Sublessor's personal property (the "Personal Property") in the Subleased
Premises comprised of the existing cubicle systems, wiring, two conference rooms
(off main lobby) tables and chairs and reception area furniture, all as more
particularly set forth in Exhibit D attached hereto.
Sublessor warrants that title to all Personal Property will pass to
Sublessee upon the receipt of payment therefore free and clear of all liens,
claims, security interests or encumbrances. In the event of any breach of the
foregoing warranty, Sublessor shall promptly rectify the same as its sole cost
and expense and shall indemnify, defend, and hold Sublessee harmless
from and against any damages, liability, suits, losses, claims, actions, costs,
or expenses (including attorneys' and consultants' fees and costs) suffered by
Sublessee in connection with any such breach.
3.3 Additional Rent. Sublessor is charged for Taxes, Assessments and
Operating Expenses pursuant to Section 5 of the Master Lease and Sublessee shall
be liable for such sums. If Sublessee shall procure any additional services from
Master Lessor, Sublessee shall make such payment to Sublessor or Master Lessor,
as Sublessor shall direct. Any rent or other sums payable by Sublessee under
this Section 3 shall constitute and be due as additional rent. Base Rent,
Operating Expenses due under the Master Lease and additional rent shall herein
be referred to as "Rent".
3.4 Pro Rata Share Sublessee's pro rata share under this Sublease shall
be as set forth in the Master Lease Paragraph 1.1h. Sublessee acknowledges all
square footage measurements noted and relied on in this Sublease and the Master
Lease are estimates, and no adjustments shall be made based upon any actual
measurements which may be made.
ARTICLE 4
SECURITY DEPOSIT
4.1 Security Deposit. Upon execution hereof, Sublessee shall deposit
with Sublessor the sum of Sixty-Six Thousand One Hundred and One Dollars
($66,101.00) as and for a Security Deposit to secure Sublessee's full and timely
performance of all of its obligations hereunder. If Sublessee fails to pay Rent
or any other sums as and when due hereunder, or otherwise defaults with respect
to any provision of this Sublease, Sublessor may (but shall not be obligated to)
use, apply, or retain all or any portion of said deposit for payment of any sum
for which Sublessee is obligated or which will compensate Sublessor for any loss
or damage which Sublessor may suffer thereby. Any such use, application, or
retention shall not constitute a waiver by Sublessor of its right to enforce its
other remedies hereunder, at law, or in equity. If any portion of said deposit
is so used, applied, or retained, Sublessee shall, within 10 days after delivery
of written demand from Sublessor, restore said deposit to its original amount.
Sublessee's failure to do so shall constitute a material breach of this
Sublease, and in such event Sublessor may elect, among or in addition to other
remedies, to terminate this Sublease. Sublessor shall not be a trustee of such
deposit, and shall not be required to keep this deposit separate from its
accounts. Sublessor alone shall be
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<PAGE> 5
entitled to any interest or earnings thereon and Sublessor shall have the free
use of same. If Sublessee fully and faithfully performs all of its obligations
hereunder, then so much of the deposit as remains shall be returned to Sublessee
(without payment of interest or earnings thereon) within 30 days after the later
of (i) expiration or sooner termination of the term hereof, or (ii) Sublessee's
surrender of possession of the Premises to Sublessor.
ARTICLE 5
CONDITION OF PREMISES
5.1 Condition of the Premises Sublessee acknowledges that as of the
Commencement Date, the Premises, and every part thereof, are in good condition
and without need of repair, and Sublessee accepts the Premises "as is",
Sublessee having made all investigations and tests it has deemed necessary or
desirable in order to establish to its own complete satisfaction the condition
of the Premises. Sublessee accepts the Premises in their condition existing as
of the Commencement Date, subject to all applicable zoning, municipal, county
and state laws, ordinances, and regulations governing and regulating the use of
the Premises and any covenants or restrictions of record. Sublessee acknowledges
that neither Sublessor nor Master Lessor have made any representations or
warranties as to the condition of the Premises or its present or future
suitability for Sublessee's purposes.
ARTICLE 6
INSURANCE
6.1 Sublessee's Insurance With respect to the Tenant's insurance under
the Master Lease, the same is to be provided by Sublessee as described in the
Master Lease, and such policies of insurance shall include as named insureds
Master Lessor, Sublessor and any lender as required by Master Lessor.
6.2 Waiver of Subrogation With respect to the waiver of subrogation
contained in the Master Lease, such waiver shall be deemed to be modified to
constitute an agreement by and among Master Lessor, Sublessor and Sublessee (and
Master Lessor's consent to this Sublease shall be deemed to constitute its
approval of this modification).
ARTICLE 7
USE OF PREMISES; ALTERATIONS
7.1 Use of Premises Sublessee shall use the Subleased Premises only for
those purposes permitted in the Master Lease. Sublessee shall not use any
Hazardous Substances as defined in the Master Lease except for ordinary office
supplies (and then only in compliance with the provisions of the Master Lease)
in its use of the Sublease Premises.
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<PAGE> 6
7.2 Alterations Sublessee shall not make any alterations, improvements,
or modifications to the Subleased Premises without the express prior written
consent of Sublessor and of Master Lessor, which consent by Sublessor shall not
be unreasonably withheld. On termination of this Sublease, Sublessee shall
remove any or all of such improvements and to restore the Subleased Premises (or
any part thereof) to the same condition as of the Commencement Date of this
Sublease, reasonable wear and tear and damage due to casualty excepted and
except as otherwise instructed in writing by either Sublessor or Master Lessor
to not remove certain alterations. Should Sublessee fail to remove such
improvements and restore the Subleased Premises on termination of this Sublease
unless instructed otherwise in writing as set forth above, Sublessor shall have
the right to do so, and charge Sublessee therefor. In no event shall Sublessee
be required to remove any Tenant Improvements or Alterations installed by or on
behalf of Sublessor.
ARTICLE 8
ASSIGNMENT, SUBLETTING & ENCUMBRANCE
8.1 Consent Required. Sublessee shall not assign this Lease or any
interest therein nor shall Sublessee sublet, license, encumber or permit the
Premises or any part thereof to be used or occupied by others, without
Sublessor's and Master Lessor's prior written consent, which consent by
Sublessor shall not be unreasonably withheld and which consent by Master Lessor
shall be granted or withheld in accordance with the provisions of the Master
Lease. The consent by Sublessor and Master Lessor to any assignment or
subletting shall not waive the need for Sublessee (and Sublessee's assignee or
subtenant) to obtain the consent of Sublessor and Master Lessor to any different
or further assignment or subletting. All conditions and standards set forth in
the Master Lease regarding assignments and subletting shall apply, and to the
extent there is any Bonus Rental, (Rent paid by such Assignee or SubSublessee in
excess of Rent paid by Sublessee hereunder) the Bonus Rental shall first be
split per the Master Lease and any Bonus Rental to go to Sublessee shall be
split 50/50 with Sublessor to be paid to Sublessor within five (5) days of
receipt by Sublessee.
8.2 Form of Document. Every assignment, agreement, or sublease shall (i)
recite that it is and shall be subject and subordinate to the provisions of this
Sublease, that the assignee or subtenant assumes Sublessee's obligation
hereunder, that the termination of this Sublease shall at Sublessor's sole
election, constitute a termination of every such assignment or sublease, and
(ii) contain such other terms and conditions as shall be reasonably requested or
provided by Sublessor's attorneys.
8.3 No Release of Sublessee. Regardless of Sublessor's consent, no
subletting or assignment shall release Sublessee of Sublessee's obligation or
alter the primary liability of Sublessee to pay the Rent and to perform all
other obligations to be performed by Sublessee hereunder. The acceptance of Rent
by Sublessor from any other person shall not be deemed to be a waiver by
Sublessor of any provision hereof. In the event of default by any assignee,
subtenant or any other successor of Sublessee, in the performance of any of the
terms hereof,
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<PAGE> 7
Sublessor may proceed directly against Sublessee without the necessity of
exhausting remedies against such assignee, subtenant or successor.
ARTICLE 9
DEFAULT
9.1 Default Described. The occurrence of any of the following shall
constitute a material breach of this Sublease and a default by Sublessee: (i)
failure to pay Rent or any other amount within three (3) business days after
delivery to Sublessee of written notice that such amount has not been paid when
due; (ii) abandonment of the Premises; (iii) assignment, encumbrance or
subletting in violation of the provisions hereof, or waste or nuisance or an
act, omission or condition prohibited hereunder at the Premises or use of the
Premises for an unlawful purpose or failure to perform any provision of this
Sublease which cannot, after such failure, be performed; or (iv) Sublessee's
failure to perform timely any other provision of this Sublease or the Master
Lease as incorporated herein.
9.2 Sublessor's Remedies. Sublessor shall have the remedies set forth in
the Master Lease as if Sublessor is Master Lessor. These remedies are not
exclusive; they are cumulative and in addition to any remedies now or later
allowed by law.
9.3 All Sums Due and Payable as Rent. Sublessee shall also pay without
notice, or where notice is required under this Sublease, immediately upon demand
without any abatement, deduction, or setoff, as additional rent all sums,
impositions, costs, expenses, and other payments which Sublessee in any of the
provisions of this Sublease assumes or agrees to pay, and, in case of any
nonpayment thereof, Sublessor shall have, in addition to all other rights and
remedies, all the rights and remedies provided for in this Sublease or by law in
the case of nonpayment of rent.
9.4 Sublessor Default. For purposes of this Sublease, Sublessor shall
not be deemed in default hereunder unless and until Sublessee shall first
deliver to Sublessor thirty (30) days' prior written notice, and Sublessor shall
fail to cure said default within said thirty (30) day period, or in the event
Sublessor shall reasonably require in excess of thirty (30) days to cure said
default, shall fail to commence said cure with said thirty (30) day period, and
thereafter diligently to prosecute the same to completion.
9.5 Notice of Event of Default under Master Lease Sublessor shall notify
Sublessee of any Event of Default under the Master Lease, or of any other event
of which Sublessor has actual knowledge which will impair Sublessee's ability to
conduct its normal business at the Subleased Premises, as soon as reasonably
practicable following Sublessor's receipt of notice from Master Lessor of an
Event of Default or Sublessor's actual knowledge of such impairment.
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<PAGE> 8
ARTICLE 10
CONSENT OF MASTER LESSOR
10.1 Precondition. The Master Lease requires that Sublessor obtain the
consent of Master Lessor to any subletting by Sublessor. This Sublease shall not
be effective unless Master Lessor signs a consent to this subletting
satisfactory to Sublessor and Sublessee.
Sublessor shall use commercially reasonable efforts to obtain the timely
consent of Master Lessor.
ARTICLE 11
MISCELLANEOUS
11.1 Conflict with Master Lease; Interpretation. In the event of any
conflict between the provisions of the Master Lease and this Sublease as between
Sublessor and Sublessee, the Master Lease shall govern and control except to the
extent directly contradicted by the terms of this Sublease. As between Master
Lessor on the one hand and Sublessor and Sublessee on the other hand, the Master
Lease shall govern and control, except to the extent this Sublease or Master
Lessor's consent hereto reflects an express agreement by Master Lessor to be
bound by the terms of this Sublease. No presumption shall apply in the
interpretation or construction of this Sublease as a result of Sublessor having
drafted the whole or any part hereof.
11.2 Remedies Cumulative. The rights, privileges, elections, and
remedies of Sublessor in this Sublease, at law, and in equity are cumulative and
not alternative.
11.3 Waiver of Redemption. Sublessee hereby expressly waives any and all
rights of redemption to which it may be entitled by or under any present or
future laws in the event Sublessor shall obtain a judgment for possession of the
Premises.
11.4 Holding Over. This Sublease is subject to the terms of Paragraph 19
of the Master Lease where Tenant shall mean Sublessee and Landlord shall mean
Sublessor.
ARTICLE 12
BROKER'S COMMISSIONS
12.1 Commission. Sublessor and Sublessee represent and warrant to each
other that each has dealt with the following brokers: BT Commercial (Sublessor's
Broker) and Cornish & Carey (Sublessee's Broker) and with no other agent,
finder, or other such person with respect to this Sublease and each agrees to
indemnify and hold the other harmless from any claim asserted against the other
by any broker, agent, finder, or other such person not
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<PAGE> 9
identified above as Sublessor's Broker or Sublessee's Broker. The commission to
the Brokers is pursuant to separate agreement.
ARTICLE 13
NOTICES AND PAYMENTS
13.1 Certified Mail. Any notice, demand, request, consent, approval,
submittal or communication that either party desires or is required to give to
the other party or any other person shall be in writing and either served
personally or sent by prepaid, first-class certified mail or commercial
overnight delivery service. Such Notice shall be effective on the date of actual
receipt (in the case of personal service or commercial overnight delivery
service) or two days after deposit in the United States mail, to the following
addresses:
Sublessor at: Legato Systems, 3210 Porter Drive, Palo Alto, CA 94304.
Sublessee at the Premises, unless Sublessee has abandoned or vacated
the Premises and notified the Sublessor of any other address.
ARTICLE 14
ATTORNEYS' FEES
14.1 Attorneys' Fees. In the event any party shall bring any action,
arbitration proceeding or legal proceeding alleging a breach of any provision of
this Sublease, to recover rent, to terminate this Sublease, or to enforce,
protect, determine or establish any term or covenant of this Sublease or rights
or duties hereunder of either party, the prevailing party (as defined in
Paragraph 29 of the Master Lease) shall be entitled to recover from the
non-prevailing party as a part of such action or proceeding, or in a separate
action for that purpose, reasonable attorneys' fees, expert witness fees, court
costs and other reasonable expenses incurred by the prevailing party.
ARTICLE 15
EXHIBITS
15.1 Exhibits and Attachments. All exhibits and attachments to this
Sublease are a part hereof.
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<PAGE> 10
IN WITNESS WHEREOF, Sublessor and Sublessee have executed and delivered
this Sublease on the date first set forth above.
SUBLESSOR SUBLESSEE
LEGATO SYSTEMS, INC. DIGITAL IMPACT, INC.
a California corporation a California corporation
By: By:/s/ Signature Illegible
--------------------------
Its: Its: PRESIDENT
-------------------------
By: By:
------------------------- -----------------------
Its: Its:
------------------------- -----------------------
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<PAGE> 11
EXHIBIT "C"
BASE RENT
---------
<TABLE>
<CAPTION>
RENTAL PERIOD Monthly Rent
------------- ------------
<S> <C>
From Lease Commencement through $40,200.00
3/31/2000 (to allow for phase-in of
the space used)
4/01/2000 through 3/31/2001 $64,212.40
4/01/2001 through 3/31/2002 $65,156.70
4/01/2002 through Expiration Date $66,701.00
</TABLE>
-1-
<PAGE> 1
EXHIBIT 10.10
DIGITAL IMPACT, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is made as of October ___,
1999 by and between Digital Impact, Inc., a California corporation (the
"COMPANY"), and ___________________ ("INDEMNITEE").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty
in obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve as officers and
directors of the Company and to indemnify its officers and directors so as to
provide them with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action or proceeding if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe Indemnitee's conduct
was unlawful. The termination of any action 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 (i) Indemnitee did not act in
good faith and
<PAGE> 2
in a manner which Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company, or (ii) with respect to any criminal action or
proceeding, Indemnitee had reasonable cause to believe that Indemnitee's conduct
was unlawful.
(b) Proceedings By or in the Right of the Company. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or proceeding by
or in the right of the Company or any subsidiary of the Company to procure a
judgment in its favor by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees) and, to the fullest extent
permitted by law, amounts paid in settlement, in each case to the extent
actually and reasonably incurred by Indemnitee in connection with the defense or
settlement of such action or proceeding if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company and its shareholders, except that no indemnification
shall be made in respect of any claim, issue or matter as to which Indemnitee
shall have been finally adjudicated by court orders or judgment to be liable to
the Company in the performance of Indemnitee's duty to the Company and its
shareholders unless and only to the extent that the court in which such action
or proceeding is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for expenses and then only to the extent that the court
shall determine.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) Advancement of Expenses. The Company shall advance all
expenses incurred by Indemnitee in connection with the investigation, defense,
settlement or appeal of any civil or criminal action or proceeding referenced in
Section 1(a) or (b) hereof (but not amounts actually paid in settlement of any
such action or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification is or will be sought under this Agreement.
Notice to the Company shall be directed to the Chief Executive Officer of the
Company at the address shown on the signature page of this Agreement (or such
other address as the Company shall designate in writing to Indemnitee). Notice
shall be deemed received three business days after the date postmarked if sent
by domestic certified or registered mail, properly addressed; otherwise notice
shall be deemed received when such notice shall actually be received by the
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<PAGE> 3
Company. In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
(c) Procedure. Any indemnification and advances provided for in
Section 1 and this Section 2 shall be made no later than forty-five (45) days
after receipt of the written request of Indemnitee (or at such earlier time as
is provided in the applicable section). If a claim under this Agreement, under
any statute, or under any provision of the Company's Articles of Incorporation
or Bylaws providing for indemnification, is not paid in full by the Company
within the time allowed, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 12 of this Agreement, Indemnitee shall also be entitled
to be paid for the expenses (including attorneys' fees) of bringing such action.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with any action or
proceeding in advance of its final disposition) that Indemnitee has not met the
standards of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Subsection 2(a) unless and
until such defense may be finally adjudicated by court order or judgment from
which no further right of appeal exists. It is the parties' intention that if
the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its shareholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
shareholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a
notice of a claim pursuant to Section 3(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be
obligated under Section 2(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, which approval
shall not be reasonably withheld, upon the delivery to Indemnitee of written
notice of its election so to do. Notwithstanding the foregoing, the Company
shall not be permitted to settle any action or claim on behalf of Indemnitee in
any manner which would require any acknowledgment of wrongdoing on the part of
Indemnitee without Indemnitee's written consent, which consent shall not be
unreasonably withheld. After delivery of such notice, approval of such counsel
by Indemnitee and the retention of such counsel by the Company, the Company will
not be
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<PAGE> 4
liable to Indemnitee under this Agreement for any fees of counsel subsequently
incurred by Indemnitee with respect to the same proceeding, provided that (i)
Indemnitee shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) Scope. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Articles of Incorporation, the Company's Bylaws or by statute. In the event of
any change, after the date of this Agreement, in any applicable law, statute or
rule which expands the right of a California corporation to indemnify a member
of its Board of Directors, an officer or other corporate agent, such changes
shall be ipso facto, within the preview of Indemnitee's rights and Company's
obligations, under this Agreement. In the event of any change in any applicable
law, statute or rule which narrows the right of a California corporation to
indemnify a member of its Board of Directors, an officer or other corporate
agent, such changes, to the extent not otherwise required by such law, statute
or rule to be applied to this Agreement shall have no effect on this Agreement
or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this
Agreement shall not be deemed exclusive of any rights to which Indemnitee may be
entitled under the Company's Articles of Incorporation, its Bylaws, any
agreement, any vote of shareholders or disinterested Directors, the Corporation
Law of the State of California, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such
office. The indemnification provided under this Agreement shall continue as to
Indemnitee for any action taken or not taken while serving in an indemnified
capacity even though he may have ceased to serve in such capacity at the time of
any action, suit or other covered proceeding.
4. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
5. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. Indemnitee understands and acknowledges that the Company
has undertaken or may be required in the future to undertake
-4-
<PAGE> 5
with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
6. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall,
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain a policy or policies of
insurance with reputable insurance companies providing the officers and
directors of the Company with coverage for losses from wrongful acts, or to
ensure the Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
7. SEVERABILITY. Nothing in this Agreement is intended to require
or shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or
omissions or transactions from which a director may not be relieved of liability
under the California General Corporation Law.
(b) Claims Initiated by Indemnitee. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 317 of the California Corporation Law, but such indemnification or
advancement of
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<PAGE> 6
expenses may be provided by the Company in specific cases if the Board of
Directors has approved the initiation or bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement), but
such exception shall only apply to the extent such expenses or liabilities have
been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company, provided
that such limitation shall not apply to any expenses incurred by Indemnitee
which except for this paragraph would be paid hereunder and which remain
outstanding after all payments are received from an insurance company.
(e) Claims Under Section 16(b). To indemnify Indemnitee for
expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
9. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and employees
or agents, so that if Indemnitee is or was a director, officer, employee or
agent of such constituent 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,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
10. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
-6-
<PAGE> 7
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
12. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all costs and expenses, including reasonable attorneys' fees, incurred
by Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
13. NOTICE. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
14. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
15. CHOICE OF LAW. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
16. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable to
corporation effectively to bring suit to enforce such rights.
17. CONTINUATION OF INDEMNIFICATION. All agreements and obligations
of the Company contained herein shall continue during the period that Indemnitee
is a director, officer or agent of the Company and shall continue thereafter so
long as Indemnitee shall be subject to any possible claim or threatened, pending
or completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Indemnitee was
serving in the capacity referred to herein.
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<PAGE> 8
18. AMENDMENT AND TERMINATION. Subject to Section 17, no amendment,
modification, termination or cancellation of this Agreement shall be effective
unless in writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
DIGITAL IMPACT, INC.
By:
---------------------------------
Title:
------------------------------
Address: 177 Bovet Road, Suite 200
San Mateo, CA 94402
AGREED TO AND ACCEPTED:
INDEMNITEE:
- ------------------------------
(signature)
- ------------------------------
(print name)
Address:
----------------------
- ------------------------------
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated June 16, 1999, except as to items described in Note 10 as to
which the date is September 16, 1999, relating to the financial statements of
Digital Impact, Inc., which appear in such Registration Statement. We also
consent to the references to us under the headings "Experts" and "Selected
Financial Data" in such Registration Statement.
PricewaterhouseCoopersLLP
San Jose, California
October 22, 1999
