<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 2000
REGISTRATION NO. 333-34664
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
PARTICIPATE.COM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 36-4321667
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
945 WEST GEORGE STREET, THIRD FLOOR
CHICAGO, ILLINOIS 60657-5007
(773) 665-0020
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
ALAN K. WARMS, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PARTICIPATE.COM, INC.
945 WEST GEORGE STREET, THIRD FLOOR
CHICAGO, ILLINOIS 60657-5007
(773) 665-0020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN T. SHERIDAN THOMAS J. MURPHY
KATHLEEN B. BLOCH STACEY T. KERN
JOHN B. TURNER McDERMOTT, WILL & EMERY
MICHELLE D. GREGORY 227 West Monroe Street
WILSON SONSINI GOODRICH & ROSATI Chicago, IL 60606
Professional Corporation (312) 372-2000
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES TO AGGREGATE OFFERING AMOUNT OF
BE REGISTERED PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Common stock, $0.001 par value.............................. $57,500,000 $15,180
</TABLE>
(1) Includes shares which the underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 9, 2000
[LOGO]
SHARES
COMMON STOCK
Participate.com is offering shares of common stock. This is our
initial public offering and no public market currently exists for our shares. We
have applied for approval for listing of our common stock on the Nasdaq National
Market under the symbol "PRTP." We anticipate that the initial public offering
price will be between $ and $ per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Participate.com................................. $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Participate.com has granted the underwriters a 30-day option to purchase up
to an additional shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS
CHASE H&Q
WILLIAM BLAIR & COMPANY
THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE>
[Artwork consists of a series of 30 logos of companies in a circle under the
heading "Participate.com Clients and Strategic Alliances." Within the circle is
the phrase "Growing and managing online communities that redefine business
relationships." The logos shown are for the following clients and strategic
alliances: accenthealth.com, Ace Commercial and Industrial Supply, Ask Jeeves,
AT&T Worldnet-Registered Trademark- Services, Breakaway Solutions, Consumers
Carclub.com, Cisco Systems, Columbia TriStar Interactive, Diamond Technology
Partners Incorporated, EXPAT Exchange, Freedom Nation, MuniGroup.com, Kana
Communications, MachineWeb.com, Multex Investor Network, mySAP, NBC Internet,
net32.com, NuvoMedia, OurHouse.com, Parlo, Quote.com, RealHome.com, Reuters,
Salesguy.com, SalesLogix, SciQuest.com, SideTalk Corporation, Staples.com,
TAP Pharmaceuticals and Wrenchead.com.]
<PAGE>
YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, THE
"COMPANY," "PARTICIPATE.COM," "WE," "US" AND "OUR" REFER TO PARTICIPATE.COM,
INC., A DELAWARE CORPORATION.
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN
ADDITION TO THE DEALERS' OBLIGATIONS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 1
Risk Factors................................................ 5
Forward-Looking Statements; Market Data..................... 14
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 24
Management.................................................. 34
Certain Transactions........................................ 42
Principal Stockholders...................................... 45
Description of Capital Stock................................ 47
Shares Eligible for Future Sale............................. 51
Underwriting................................................ 53
Legal Matters............................................... 55
Experts..................................................... 56
Where You Can Find More Information......................... 56
Index to Financial Statements............................... F-1
</TABLE>
------------------------
Community Management System-TM- and Community Roadmap-TM- are trademarks of
our company. Other service marks, trademarks and trade names referred to in this
prospectus are the property of their respective owners.
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS, INCLUDING RISK FACTORS AND
FINANCIAL STATEMENTS AND RELATED NOTES REGARDING OUR COMPANY AND THE COMMON
STOCK BEING SOLD IN THIS OFFERING.
PARTICIPATE.COM, INC.
OUR BUSINESS
We are a management service provider, or MSP, that enables successful
eBusiness strategies by offering an integrated management solution for online
communities. Online communities are groups of businesses, customers or employees
with common interests that interact via the Internet to share business
practices, provide feedback and build relationships. We receive recurring fees
to develop, manage and host successful online communities using our community
management expertise and proprietary service delivery platform, the Community
Management System, or CMS. Our full-service approach is designed to enable
eBusinesses to strengthen relationships, build loyalty, reduce their operating
and customer acquisition costs, and create new revenue opportunities. We provide
our services primarily to Global 1000 and leading Internet companies. Our
clients include Ace Hardware, Ask Jeeves, AT&T WorldNet-Registered Trademark-
Service, Columbia TriStar Interactive, Kodak, mySAP, NBC Internet, Reuters,
SciQuest.com and Staples.com. We expand our market opportunities through our
strategic channel relationships with a number of leading Internet professional
services firms and technology providers, including Breakaway Solutions, Cisco
Systems, Diamond Technology Partners Incorporated and Kana Communications.
OUR MARKET
The projected growth of the Internet over the next five years is dramatic,
particularly in the business-to-business market. The Gartner Group, an
independent research firm, projects that the volume of non-financial goods and
services sold through business-to-business eCommerce will grow from
$145.0 billion in 1999 to $7.3 trillion worldwide in 2004. To capitalize fully
on the new opportunities presented by the Internet, businesses demand both
solution DEVELOPMENT, which includes strategy, design, and implementation, and
solution MANAGEMENT, which includes ongoing active supervision, innovation,
strategic use of technology and hosting of applications. International Data
Corporation, an independent research firm, expects the worldwide market for
Internet services, including consulting, systems integration, management and
outsourcing services, to grow from $7.8 billion in 1998 to $78.5 billion in
2003.
We believe every enterprise will face significant ongoing challenges in the
management of its eBusiness initiatives, including the need to acquire and
retain customers, differentiate itself from competitors, scale its eBusiness and
build relationships with the most valuable business customers. Traditional
Internet services organizations presently provide development solutions,
technology and hosting services to build eBusiness initiatives. We believe that
these services providers lack the focus and expertise required to specifically
address the ongoing management challenges of eBusiness initiatives. We believe
that a professionally managed online community uniquely addresses these
recurring management challenges. As a result, we believe there is a significant
market opportunity for an MSP offering online community solutions.
OUR SOLUTION
We believe we are the only MSP to offer the full range of services needed to
manage our clients' online community needs. Our solution has the following key
elements:
1
<PAGE>
- INTEGRATED FULL-SERVICE APPROACH. We use our proprietary CMS methodology
to provide a completely outsourced, comprehensive community solution for
our clients. The CMS includes five key capabilities:
<TABLE>
<S> <C>
KEY CAPABILITY DESCRIPTION
- ----------------------- ----------------------------------------------------
<S> <C>
Strategy Design and develop integrated communities
Management Deliver a comprehensive approach to measure, analyze
and provide feedback on community participation
Research Conduct ongoing analysis of online community
evolution, metrics and best practices
Service Innovation Continually identify, develop and implement new
community service offerings
Application Hosting Rapidly implement a hosted community solution
</TABLE>
- SIGNIFICANT COMMUNITY MANAGEMENT EXPERTISE. Through our ongoing deployment
of a significant number of online community management programs, we have
developed extensive community knowledge that we disseminate across
multiple industries and clients.
- VALUE DRIVEN RESULTS. For each of our ongoing engagements, we generate and
analyze metrics that assess performance on several dimensions, including
return on investment, customer insight and community effectiveness.
- SPEED OF EXECUTION. Through our concentrated focus on online community
management, proprietary processes and dedicated resources, we believe that
our approach rapidly delivers continuously improving, comprehensive
management solutions to clients.
- SCALABLE SOLUTIONS. Our internal management practices and the architecture
of our solutions allow us to develop and expand programs and capabilities
as our clients' communities grow.
OUR STRATEGY
Our objective is to be the leading global MSP of online community solutions.
We intend to pursue this objective in the following ways:
- further penetrate an underserved market for management services;
- expand relationships with current clients;
- strengthen and expand strategic relationships;
- actively build the Participate.com brand within our target markets;
- continue to develop intellectual capital and proprietary methodologies;
and
- attract and retain high quality professionals.
OUR CORPORATE HEADQUARTERS
Our headquarters are located at 945 West George Street, Third Floor,
Chicago, Illinois 60657-5007 and our telephone number at that location is (773)
665-0020.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Participate.com..................... shares
Common stock to be outstanding after this offering.......... shares
Use of proceeds............................................. For general corporate and working
capital purposes, including increases
in our marketing initiatives, hiring
of additional personnel and
redemption of our Series A preferred
stock. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol...................... PRTP
</TABLE>
- ------------------------
Except as otherwise indicated, all information in this prospectus assumes:
- no exercise of the underwriters' over-allotment option; and
- a two-for-one stock split of our Series B preferred stock and common stock
effective in January 2000.
Except as otherwise indicated, the total number of shares to be outstanding
after the offering excludes:
- 2,062,604 shares issuable upon the exercise of stock options outstanding
at April 12, 2000 at a weighted average exercise price of $1.20 per share;
- 3,232,076 shares in aggregate available for future issuance under our 1999
Stock Plan, 2000 Stock Plan and 2000 Employee Stock Purchase Plan; and
- 525,000 shares issuable upon the exercise of outstanding warrants at a
weighted average exercise price equal to the price per share in this
offering.
3
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The summary financial information set forth below is derived from our
financial statements. You should read it in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the related notes included elsewhere in this
prospectus. The pro forma basic and diluted net loss per share attributable to
common stockholders gives effect to the assumed conversion of our Series B
preferred stock into shares of common stock, weighted for the period
outstanding, for the year ended December 31, 1999. The as adjusted balance sheet
data summarized below reflect the application of the net proceeds from the sale
of the shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting the underwriting discounts and
commissions and our estimated offering expenses.
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 30
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------
1997 1998 1999
-------------- ---------- -----------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.............................................. $ 6 $ 507 $ 1,885
Gross profit.......................................... 1 184 599
Operating loss........................................ (4) (93) (2,792)
Net loss attributable to common stockholders.......... (4) (98) (2,733)
========== ========== ===========
Basic and diluted net loss per share attributable to
common stockholders................................. $ 0.00 $ (0.02) $ (0.33)
========== ========== ===========
Shares used in computing basic and diluted net loss
per share attributable to common stockholders....... 5,752,050 6,368,178 8,200,621
========== ========== ===========
Pro forma basic and diluted net loss per share
attributable to common stockholders................. $ (0.26)
===========
Shares used in computing pro forma basic and diluted
net loss per share attributable to common
stockholders........................................ 10,703,930
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $10,609
Working capital........................................... 10,249
Total assets.............................................. 11,896
Capital lease obligations, net of current portion......... 91
Redeemable preferred stock................................ 13,214
Accumulated deficit....................................... (1,824)
Total stockholders' equity (deficit)...................... (2,528)
</TABLE>
4
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW BEFORE YOU DECIDE TO BUY OUR COMMON STOCK. IF ANY OF
THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS, RESULTS OF OPERATIONS OR
FINANCIAL CONDITION WOULD LIKELY SUFFER. IN THIS CASE, THE MARKET PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, THERE IS A LIMITED AMOUNT OF
INFORMATION ABOUT US WITH WHICH YOU CAN EVALUATE OUR BUSINESS AND POTENTIAL FOR
FUTURE SUCCESS.
We began operations in November 1997. Our limited operating history makes it
difficult to forecast our future operating results. Our revenue and income
potential is unproven. Because we do not have a long history upon which to base
forecasts of future operating results, any predictions about our future revenues
and expenses may not be as accurate as they would be if we had a longer business
history. You must also consider the risks and uncertainties frequently
encountered by early stage companies in new and rapidly changing markets, such
as uncertainties about the acceptance of the Internet as a business medium and
the market for Internet professional services. If we are unsuccessful in
addressing these risks and uncertainties, our ability to execute our business
plan would be materially and adversely affected and our stock price might
decline.
OUR RESULTS OF OPERATIONS MAY VARY FROM QUARTER-TO-QUARTER AND, AS A RESULT, WE
MAY NOT MEET THE EXPECTATIONS OF OUR INVESTORS AND ANALYSTS, WHICH COULD CAUSE
OUR STOCK PRICE TO FLUCTUATE OR DECLINE.
Our quarterly revenues, expenses and operating results have fluctuated in
the past and could fluctuate significantly in the future. As a result, we
believe that quarter-to-quarter comparisons of our operating results may not be
a good indication of our future performance, and you should not rely on them to
predict our future performance or the future performance of our stock price. A
substantial portion of our operating expense is related to personnel costs,
marketing programs and overhead, which we cannot adjust quickly. A significant
part of our current operating expenses are based on our expectations of future
revenues. As a result, a reduction in revenues in a quarter may harm our
operating results for that quarter. If our operating results in future quarters
fall below the expectations of market analysts and investors, the trading price
of our common stock could fall.
IF WE ARE UNABLE TO INCREASE OUR SERVICE REVENUES, OUR ABILITY TO BECOME
PROFITABLE WILL BE HARMED.
We derive our revenues from the sale of our services and we expect to
continue to rely on these service revenues in the future. If we do not continue
to develop our service revenues, our revenues may not meet our expectations or
may decline. Our growth and future success will depend on our ability to
increase the number of our clients, expand our service offerings, effectively
implement these services and increase the average revenue per project and per
client. Our ability to generate significant service revenues will also depend,
in part, on our ability to create new service offerings without diluting the
value of our existing programs. If we are unable to become profitable, our stock
price may decline.
WE HAVE HAD NET LOSSES SINCE INCEPTION OF $2.8 MILLION AS OF DECEMBER 31, 1999
AND OUR OPERATING LOSSES MAY CONTINUE AND EVEN INCREASE IN THE FUTURE.
As we grow our business, we expect to incur significant expenditures for
recruiting and hiring additional personnel and marketing. As a result, we expect
that our operating expenses will increase significantly in the near term and,
consequently, we expect to incur additional losses in the future. In addition,
if competition increases or our market grows more slowly than we anticipate, our
revenues
5
<PAGE>
may not grow at a desirable rate, or they may decline. We cannot be certain that
we will achieve profitability or that, if we do achieve profitability, we will
be able to sustain or increase our profitability.
WE HAVE GROWN VERY QUICKLY AND IF WE FAIL TO MANAGE OUR GROWTH, OUR ABILITY TO
GENERATE NEW REVENUES AND ACHIEVE PROFITABILITY WOULD BE HARMED.
Since we began operations in November 1997, we have significantly increased
the size of our operations and our operating expenses. The number of our
employees has increased from eight as of December 31, 1998 to 63 as of
December 31, 1999. We expect to continue to hire new employees at a rapid pace.
For example, our work force has grown by 63 people between December 31, 1999 and
March 31, 2000. This recent growth has placed, and we expect that any future
growth we experience will continue to place, a significant strain on our
management, personnel, systems and other resources. To manage any future growth
effectively, we must improve and expand our financial and accounting systems,
controls, reporting systems and procedures, integrate new employees and manage
expanded operations. If we fail to manage growth effectively, the quality of our
services, our ability to respond to clients and retain key personnel, and our
business generally would suffer.
IF CURRENT OR POTENTIAL CLIENTS FAIL TO CONTINUE TO USE ONLINE COMMUNITIES OR IF
OUR SERVICES ARE NOT ACCEPTED, DEMAND FOR OUR SERVICES MAY NOT DEVELOP.
Online communities are a new and rapidly evolving business solution and our
business will be harmed if sufficient demand for our services does not develop.
Demand for our services may not materialize if businesses that have already
invested substantial resources in other eBusiness strategies are reluctant to
adopt new eBusiness initiatives.
Moreover, even if online communities continue to expand, businesses may not
perceive the services we offer to be valuable. If online community participation
does not grow as quickly or become as important to businesses as we anticipate,
or if businesses do not accept our services, our revenues will likely be
reduced.
WE MAY NOT SUCCESSFULLY MAINTAIN AND EXPAND OUR STRATEGIC ALLIANCES, WHICH COULD
HAMPER OUR ABILITY TO DELIVER SOLUTIONS NEEDED BY OUR CLIENTS AND LIMIT OUR
ABILITY TO INCREASE OR SUSTAIN OUR REVENUES AND ACHIEVE OR MAINTAIN
PROFITABILITY.
A key part of our strategy is expanding our strategic relationships. If we
are unable to maintain these relationships, the benefits that we derive from
these relationships, including the receipt of important sales leads,
cross-marketing opportunities, access to emerging technology and other benefits,
may be lost. Consequently, we may not be able to offer desired solutions to
clients, which would result in a loss of revenues and our inability to
effectively compete for clients.
WE MAY BE UNABLE TO HIRE AND RETAIN THE SKILLED PERSONNEL NECESSARY TO DEVELOP
OUR OPERATIONS, SALES, CONSULTING, PROFESSIONAL SERVICES AND SUPPORT
CAPABILITIES IN ORDER TO CONTINUE TO GROW, WHICH WOULD HARM OUR BUSINESS.
Our ability to grow will be adversely impacted if we do not attract
qualified operations, sales, consulting, professional services and support
personnel in the near future. Competition for these individuals is intense, and
we may not be able to attract, train or retain highly qualified personnel in the
future. Our failure to attract and retain highly trained personnel in these
areas may limit the rate at which we can develop, which would harm our business.
We expect to face greater difficulty attracting qualified personnel with equity
incentives as a public company than we did as a privately held company.
6
<PAGE>
IF WE DO NOT PROVIDE COMMUNITY MANAGEMENT SERVICES EFFECTIVELY AND ACCORDING TO
SCHEDULE, OUR REVENUES AND PROFITABILITY COULD BE HARMED.
If we fail to effectively provide high quality client services, or if we are
unable to expand our internal professional services organization as needed to
meet our clients' needs, our ability to compete successfully could be diminished
and our revenues could be harmed. Any defects or errors in these services or
failure to meet clients' specifications or expectations could result in:
- delayed or lost revenues due to adverse client reaction;
- requirements to provide additional services to a client at no charge or a
limited charge;
- refunds of fees for failure to meet obligations;
- negative publicity about us and our services; and
- claims for substantial damages against us.
WE HAVE A HIGH LEVEL OF CLIENT CONCENTRATION AND OUR BUSINESS COULD BE
MATERIALLY AND ADVERSELY AFFECTED IF WE WERE TO LOSE A MAJOR CLIENT.
Historically, a few of our clients have accounted for a substantial portion
of our revenues. AT&T WorldNet-Registered Trademark- Service and Quote.com
collectively generated 28% of our revenues in the year ended December 31, 1999.
If we lose one or more of these clients, if our clients reduce their use of our
services, or if we fail to successfully market our services to new clients, our
business would suffer.
OUR LACK OF LONG-TERM CONTRACTS WITH CLIENTS AND OUR CLIENTS' ABILITY TO
TERMINATE CONTRACTS WITH LITTLE NOTICE COULD REDUCE THE PREDICTABILITY OF OUR
REVENUES AND COULD INCREASE THE POTENTIAL VOLATILITY OF OUR STOCK PRICE.
Our current clients can generally cancel or reduce their use of our services
without penalty and with little notice. As a result, our revenues are difficult
to predict. Because we incur costs based on our expectations of future revenues,
if we fail to predict our revenues accurately our expenses may exceed our
revenues, which could cause us to incur increased operating losses and our stock
price could decline.
IF OUR EFFORTS TO BUILD OUR BRAND ARE NOT SUCCESSFUL, WE MAY NOT BE ABLE TO
INCREASE OUR REVENUES OR OFFSET ANY MARKETING COSTS THAT WE MAY INCUR.
Because the Internet professional service provider industry is expanding
rapidly, an element of our business strategy is to actively build our brand name
in our target markets. To build our brand, we may increase our marketing
activities. If our marketing activities are not successful, we may not obtain
increases in revenues to offset any increase in our marketing expenses, which
may cause our operating margins to decline. In addition, if we are unable to
further develop our brand, we may not attain the growth in revenues that we
seek.
LOSS OF ANY KEY PERSONNEL, INCLUDING OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER,
COULD HARM OUR ABILITY TO OBTAIN AND RETAIN CLIENT ENGAGEMENTS, MAINTAIN A
COHESIVE CULTURE OR COMPETE EFFECTIVELY.
Our success will depend in large part upon the continued service of our
executive officers, in particular our President and Chief Executive Officer,
Alan K. Warms. We do not have an employment contract with Mr. Warms. The loss of
Mr. Warms' services could harm us and cause investors to lose confidence in our
business, which could cause the trading price of our stock to decline. In
addition, if Mr. Warms resigns to join a competitor or to form a competing
company, the loss of Mr. Warms and any resulting loss of existing or potential
clients to any competitor could harm our business. If we lose Mr. Warms, we may
be unable to prevent the unauthorized disclosure or use by other companies of
our
7
<PAGE>
technical knowledge, practices, or procedures. In addition, due to the
substantial number of shares of our common stock owned by Mr. Warms, the loss of
Mr. Warms' services could cause investor or analyst concern that Mr. Warms may
sell a large portion of his shares, which could cause a rapid and substantial
decline in the trading price of our common stock.
CURRENT AND POTENTIAL COMPETITORS COULD DECREASE OUR MARKET SHARE, LIMIT OUR
GROWTH AND HARM OUR BUSINESS.
The market for our services is already competitive, and we expect
competition to increase in the future. In addition, there are a significant
number of potential competitors who could develop services similar to those we
offer. Our target market is rapidly evolving and is subject to continuous
technological change. Unanticipated changes may favor our competition, or our
competition may react more favorably to these changes, which could adversely
affect our business and stock price. Our existing or future competitors may
develop or offer management services that provide significant creative, price,
technological or other advantages over the services we offer. In addition,
existing businesses with greater financial resources or name recognition may
become our competitors in the future, which could limit our growth and harm our
business.
THE PRODUCTS WE USE ARE NEW, AND IF THEY ARE NOT PERCEIVED AS HIGH QUALITY OR IF
THEY CONTAIN DEFECTS, WE COULD LOSE POTENTIAL CLIENTS AND OUR BUSINESS MIGHT
SUFFER.
The products we use in providing our services are complex and may contain
errors, defects or failures, particularly because many of these products were
released recently. We may not be able to detect and correct errors before using
these products commercially. If these products contain errors, we may be
required to expend significant resources to locate and correct the error. In
addition, client dissatisfaction may harm our reputation. In addition, products
we develop or use could contain defects that introduce a breach of security to
our own or our clients' systems and proprietary information. A breach of
security could be exploited by third parties, which could harm our business.
WE INTEND TO EXPAND OUR OPERATIONS INTERNATIONALLY, WHICH COULD DIVERT
MANAGEMENT'S ATTENTION AND EXPOSE US TO ADDITIONAL RISKS, INCLUDING INCREASED
REGULATION AND PRIVACY PROTECTION LAWS.
We intend to develop our international operations in the future, which will
require substantial financial resources. We have very limited experience in
marketing and supporting our services abroad. If we are unable to grow our
international operations successfully and in a timely manner, our business and
operating results could be harmed. In addition, doing business internationally
involves substantial expense and many additional risks, particularly:
- longer sales cycles and slower collection of accounts receivable;
- unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;
- reduced protection of intellectual property rights in some countries;
- differing labor regulations;
- changes in a country's or region's political or economic conditions;
- difficulty in staffing and managing foreign operations;
- increased financial accounting and reporting burdens and complexities; and
- fluctuating exchange rates.
Our international operations will increase our exposure to international
laws and regulations. If we cannot comply with foreign laws and regulations,
which are often complex and subject to variation and unexpected changes, we
could incur unexpected costs and face potential litigation. For example, the
8
<PAGE>
governments of foreign countries might attempt to regulate our services or levy
sales or other taxes relating to our activities. In addition, foreign countries
may impose tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers, any of which could make it more difficult to
conduct our business. The European Union recently enacted its own privacy
regulations that may result in limits on the collection and use of certain user
information, which, if applied to the sale of our services, could negatively
impact our results of operations. We cannot be certain that our investments in
establishing operations in other countries will produce desired revenues or
profitability.
TECHNICAL PROBLEMS WITH EITHER OUR INTERNAL OR OUR OUTSOURCED COMPUTER AND
COMMUNICATIONS SYSTEMS COULD INTERRUPT OUR SERVICES.
The success of our services depends on the efficient and uninterrupted
operation of our own and outsourced computer and communications hardware and
software systems. These systems and operations are vulnerable to damage or
interruption from human error, natural disasters, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and similar
adverse events. We have entered into Internet-hosting agreements with various
companies to provide hosting for both us and our clients. Our operations depend
on the ability of outsourced service providers to protect their and our systems
in their data centers against damage or interruption. Our outsourced service
providers do not guarantee that our Internet access will be uninterrupted,
error-free or secure. We have no formal disaster recovery plan in the event of
damage or interruption. Furthermore, our insurance policies may not adequately
compensate us for any losses that we may incur. Any system failure that causes
an interruption in our service or a decrease in responsiveness could harm our
relationships with our clients and result in reduced revenues.
OUR INTELLECTUAL PROPERTY PROTECTION MAY BE LIMITED, AND AS A RESULT WE COULD
LOSE COMPETITIVE ADVANTAGES THAT DIFFERENTIATE OUR CAPABILITIES.
We rely upon trademarks, copyrights and trade secrets to protect our
proprietary rights, which may not be sufficient to protect our intellectual
property. We also rely on a combination of laws, such as copyright, trademark
and trade secret laws, and contractual restrictions, such as confidentiality
agreements and licenses, to establish and protect our proprietary rights.
Despite any precautions that we have taken:
- laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing similar
technologies;
- other companies may claim common law trademark rights based upon use of
marks that precede the registration of our marks;
- policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the extent
of this unauthorized use; and
- current federal laws that prohibit software copying provide only limited
protection from software "pirates," and effective trademark, copyright and
trade secret protection may be unavailable or limited in foreign
countries.
Also, the laws of other countries in which we market our products may offer
little or no effective protection for our proprietary technology. Through
reverse engineering, unauthorized copying or other misappropriation of our
proprietary technology, third parties could benefit from our technology without
paying us for it, which could significantly harm our business.
9
<PAGE>
WE MAY BECOME INVOLVED IN LITIGATION OVER PROPRIETARY RIGHTS, WHICH COULD BE
COSTLY AND TIME CONSUMING.
There is substantial litigation regarding intellectual property rights in
our industry. We expect that software, business processes and other property
rights in our industry may be increasingly subject to infringement claims as the
number of competitors grows and the functionality of products in different
industry segments overlaps. Other parties may currently have, or may eventually
be issued, patents that the proprietary rights we use infringe. Any of these
parties might make a claim of infringement against us. Any litigation brought by
us or others could cause us to spend significant financial resources and divert
management's time and efforts. In addition, from time to time, we may encounter
disputes over rights and obligations concerning intellectual property. We may
not prevail in intellectual property disputes regarding infringement,
misappropriation or other disputes. Litigation in which we are accused of
infringement or misappropriation might cause a delay in our ability to provide
new services, require us to develop non-infringing technology or require us to
enter into royalty or license agreements, which might not be available on
acceptable terms, or at all. If anyone brings a successful claim of infringement
and we cannot develop non-infringing technology or license the infringed or
similar technology on a timely and cost-effective basis, our business could be
significantly harmed.
IF WE MAKE UNPROFITABLE ACQUISITIONS OR ARE UNABLE TO SUCCESSFULLY INTEGRATE ANY
FUTURE ACQUISITIONS, OUR BUSINESS COULD SUFFER.
From time to time, we may acquire businesses, client lists, products or
technologies that complement or expand our existing business. Acquisitions of
this type involve a number of risks, including the possibility that an
acquisition will be unprofitable or that our management's attention will be
diverted from the day-to-day operation of our business. An unsuccessful
acquisition could harm our business. As a result of an acquisition we may issue
additional equity securities that are dilutive to our common stock, incur debt
and lose key employees. We cannot assure you that we will successfully complete
a proposed acquisition or that, if we complete one or more acquisitions, the
acquired businesses, client lists, products or technologies will generate
sufficient revenue to offset the associated costs or other adverse effects.
RISKS RELATED TO EBUSINESS AND THE INTERNET
WE MAY FACE CLAIMS FOR ACTIVITIES OF OUR CLIENTS, WHICH COULD HARM OUR BUSINESS.
Our services involve monitoring the transmission of information over the
Internet. Our clients' online communities could be used to transmit harmful
applications, negative messages, unauthorized reproductions of copyrighted
material, inaccurate data or computer viruses to end users. Any transmission of
this kind could damage our reputation or give rise to legal claims against us.
We could spend a significant amount of time and money defending against these
legal claims. In addition, our clients may not comply with federal, state and
local laws when promoting their products and services. We cannot predict whether
our role in facilitating these marketing activities would expose us to liability
under these laws. Active management of online communities may expose us to
additional liability. Any claims made against us could be costly and
time-consuming to defend. 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.
10
<PAGE>
WE DEPEND ON THE INCREASING USE OF THE INTERNET AND ON THE GROWTH OF ECOMMERCE.
IF THE USE OF THE INTERNET AND ELECTRONIC COMMERCE DO NOT GROW AS ANTICIPATED,
OUR BUSINESS WOULD BE HARMED.
Our future revenues depend upon the increased acceptance and use of the
Internet and other online services as a medium of commerce. Rapid growth in the
use of the Internet, the Web and online services is a recent phenomenon that may
not continue. Demand and market acceptance for recently-introduced services and
products over the Internet are subject to a high level of uncertainty and few
proven services and products exist.
The Internet may not be accepted as a viable long-term commercial
marketplace for a number of reasons, including inadequate development of the
necessary network infrastructure or delayed
development of performance improvements. If the Internet continues to expand
significantly in the number of users, frequency of use or bandwidth
requirements, the infrastructure for the Internet may be unable to support the
demands placed upon it. In addition, the Internet could lose its viability as a
commercial medium due to delays in the development or adoption of new standards
and protocols required to handle increased levels of Internet activity, or due
to increased governmental regulation. Changes in, or insufficient availability
of, telecommunications services to support the Internet also could result in
slower response times and adversely affect the use of the Internet generally. If
for any of these reasons the Internet and electronic commerce do not continue to
grow, our business could be harmed and our stock price may fall.
TO SUCCEED WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGE AND THE INTENSE
COMPETITION IN THE INTERNET INDUSTRY.
Our market is characterized by rapidly changing technologies, frequent new
service and product introductions and evolving industry standards. The recent
growth of the Internet and intense competition in our industry exacerbate these
market characteristics. To succeed, we will need to effectively integrate the
various software programs and tools required to enhance and improve our service
offerings and manage our business. Any enhancements or new services or features
must meet the requirements of our current and prospective clients. Our success
also will depend on our ability to adapt to changing technologies by continually
improving the performance features and reliability of our services. We may
experience difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services. We could also incur
substantial costs if we need to modify our services or infrastructure to adapt
to these changes.
WE MIGHT BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION AND LEGAL
UNCERTAINTIES.
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws, including those governing intellectual property,
privacy, libel and taxation, apply to the Internet generally and to community
management in particular. Legislation could dampen the growth in the use of the
Internet generally and decrease the acceptance of the Internet as a
communications and commercial medium. If this happened, it could harm our
business and our stock price could fall.
The growing popularity of the Internet has burdened telecommunications
infrastructure. If Internet service providers and online service providers are
subject to higher costs, through fees or taxes levied to provide for additional
infrastructure development, the growth of the Internet may slow. Also, due to
the global nature of the Internet, state and local governments, the federal
government or foreign countries might attempt to regulate or tax our activities.
If this were to occur, it could harm our business.
11
<PAGE>
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MIGHT BE VOLATILE AND YOU MIGHT NOT BE ABLE TO RESELL YOUR
SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
There has been no public market for our common stock prior to this offering.
The initial public offering price for our common stock will be determined
through negotiations between the underwriters and us. You should read the
"Underwriting" section for a more complete discussion of the factors that were
considered in determining the initial public offering price of our common stock.
This initial public offering price may vary from the market price of our common
stock after the offering. If you purchase shares of common stock, you may not be
able to resell those shares at or above the initial public offering price. The
market price of our common stock may fluctuate significantly in response to
various factors, some of which are beyond our control, including the following:
- actual or anticipated fluctuations in our annual and quarterly operating
results;
- changes in market valuations of other technology companies;
- changes in financial estimates by securities analysts;
- variations in our operating results, which may cause us to fail to meet
analysts' or investors' expectations;
- announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
- additions or departures of key personnel;
- future sale of equity or debt securities; and
- general economic, industry and market conditions.
In addition, the stock market in general, and the stock of Internet
companies in particular, have experienced extreme volatility that often has been
unrelated to the performance of these companies. These market fluctuations may
cause our stock price to fall regardless of our performance. In the past,
companies that have experienced volatility in the market price of their stock
have been the object of securities class action litigation. If we were involved
in securities class action litigation, we could incur substantial costs and
management's attention and resources could be diverted.
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS, AND IF WE ISSUE
ADDITIONAL EQUITY SECURITIES TO RAISE CAPITAL, OUR STOCKHOLDERS MAY EXPERIENCE
ADDITIONAL DILUTION.
We may be required to seek additional funding to meet our capital
requirements, particularly if we elect to acquire complementary businesses,
products or technologies. If we are required to raise additional funds, we may
not be able to do so on favorable terms, if at all. Further, if we issue new
equity securities, stockholders may experience dilution or the holders of new
equity securities may have rights, preferences or privileges senior to those of
existing holders of common stock. If we are unable to raise additional capital
on acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities, or respond to clients and competition.
SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS
OUR STOCK PRICE.
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock after this offering could cause
our stock price to fall. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional stock. You should read
"Shares Eligible for Future Sale" for a full discussion of shares that may be
sold in the public market in the future.
12
<PAGE>
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
SHARES.
The price for each share in the initial public offering is substantially
higher than the book value per share of our outstanding common stock immediately
after the offering. This is referred to as dilution. Accordingly, if you
purchase common stock in the offering, you will incur immediate dilution of
approximately in the book value of our common stock from the price
you pay for our common stock. For additional information on this calculation,
see "Dilution."
BECAUSE SOME EXISTING STOCKHOLDERS WILL TOGETHER OWN A MAJORITY OF OUR STOCK,
THE VOTING POWER OF OTHER STOCKHOLDERS, INCLUDING PURCHASERS IN THIS OFFERING,
MIGHT BE LIMITED.
After this offering, we anticipate that our officers, directors, and five
percent or greater stockholders will beneficially own or control, directly or
indirectly, % of our shares of common stock. As a result, if some of these
existing stockholders choose to act together, they will have the ability to
control certain matters submitted to our stockholders for approval, including
the election and removal of directors and the approval of any business
combinations. This may delay or prevent an acquisition or cause the market price
of our stock to decline. Some of these persons or entities may have interests
different from yours. For example, they may be more interested than other
investors in selling our company or pursuing different business strategies.
THE PROVISIONS OF OUR CHARTER DOCUMENTS MAY INHIBIT POTENTIAL ACQUISITION BIDS
THAT A STOCKHOLDER COULD BELIEVE ARE DESIRABLE, AND THE MARKET PRICE OF OUR
COMMON STOCK COULD BE LOWER AS A RESULT.
Upon completion of this offering, our board of directors will have the
authority to issue up to five million shares of preferred stock. Our board of
directors can fix the price, rights, powers, preferences, privileges and
restrictions of the preferred stock without any further vote or action by our
stockholders. The issuance of shares of preferred stock may delay or prevent a
change in control transaction. As a result, the market price of our common stock
and the voting and other rights of our stockholders may be adversely affected.
The issuance of preferred stock may result in the loss of voting control to
other stockholders. We have no current plans to issue any shares of preferred
stock. Our charter documents also contain other provisions which may discourage,
delay or prevent a merger, acquisition or other change in control, including:
- only one of the three classes of directors is elected each year;
- our stockholders have limited rights to remove directors without cause;
- our stockholders have no right to act by written consent;
- our stockholders have limited rights to call a special meeting of
stockholders; and
- our stockholders must comply with advance notice requirements to nominate
directors or submit proposals for consideration at stockholder meetings.
These provisions could also have the effect of discouraging others from
making tender offers for our common stock. As a result, these provisions may
prevent the market price of our common stock from increasing substantially in
response to actual or rumored takeover attempts. These provisions may also
prevent changes in our management.
WE HAVE BROAD DISCRETION IN HOW WE USE THE PROCEEDS OF THIS OFFERING, AND WE
MIGHT NOT USE THESE PROCEEDS EFFECTIVELY.
Our management has broad discretion in the use of the net proceeds of this
offering and could spend the net proceeds in ways that do not yield a favorable
return or to which stockholders object. We may also use the proceeds to acquire
complementary businesses or technologies, although no such acquisitions are
currently planned. Until we need to use the proceeds of this offering, we plan
to invest the net proceeds in investment grade, interest-bearing securities.
13
<PAGE>
FORWARD-LOOKING STATEMENTS; MARKET DATA
Some of the assertions in this prospectus contain "forward-looking"
information as that term is defined by the federal securities laws. These
assertions include, among others, those found under "Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." Forward-looking assertions may be
identified by use of the terms "may," "will," "expect," "anticipate," "estimate"
and similar words, although some forward-looking assertions are expressed
differently. You should be aware that our actual results could differ materially
from those contained in the forward-looking assertions due to a number of
factors, some of which are beyond our control. Factors that could materially and
adversely affect our results and cause them to differ from those contained in
this prospectus include, but are not limited to:
- the competitive environment in which we operate;
- our ability to attract or retain qualified personnel and maintain good
employee relations; and
- any legal claims asserted against us.
You should also consider carefully the statements under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and other sections of this prospectus which address
additional factors that could cause our actual results to differ from those set
forth in this prospectus.
This prospectus contains market data related to our business and the
Internet professional services industry. These market data include projections
prepared by third parties that are based on a number of assumptions. If these
assumptions turn out to be incorrect, actual results may differ from the
projections based on these assumptions. As a result, our markets may not grow at
the rates projected by these data, or at all. The failure of these markets to
grow at these projected rates may have a material adverse effect on our
business, results of operations and financial condition, and the market price of
our common stock.
The forward-looking statements made in this prospectus relate only to events
as of the date on which the statements are made. We undertake no obligation to
update any forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of
unanticipated events.
14
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the shares of common stock we are offering
will be approximately $ million. If the underwriters fully exercise the
over-allotment option, the net proceeds of the shares sold by us will be
approximately $ million. "Net proceeds" is what we expect to receive after
paying underwriting discounts and commissions and estimated offering expenses.
Net proceeds are calculated using the estimated initial public offering price of
$ per share
We intend to use the proceeds for general corporate purposes, including
working capital, to expand our sales and marketing and professional services
organizations, to expand internationally and to redeem our Series A preferred
stock. We may also use some of the proceeds to acquire other companies,
technology or products that complement our business, although we are not
currently planning any of these transactions. Pending these uses, the net
proceeds of this offering will be invested in short-term, interest-bearing
securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently expect to retain our future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999.
Our capitalization is presented:
- On an actual basis.
- On a pro forma basis and pro forma as adjusted basis to reflect the filing
of an amendment to our certificate of incorporation to provide for
authorized capital stock consisting of 100,000,000 shares of common stock
and 5,000,000 shares of preferred stock; and the issuance of our Series C
preferred stock in March and April 2000.
- On a pro forma as adjusted basis to reflect:
- the sale of shares of common stock in this offering at an assumed
initial offering price of $ per share and our receipt of the
estimated net proceeds, after deducting underwriting discounts and
estimated offering expenses;
- the conversion of Series B and C preferred stock into common stock; and
- the redemption of our Series A preferred stock.
You should read this table in conjunction with our Financial Statements and
the accompanying Notes, Selected Financial Data, and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Current portion of capital lease obligations................ $ 90 $ 90 $
Long-term portion of capital lease obligations.............. 91 91
Redeemable preferred stock, $0.001 par value,
9,325,980 shares authorized actual, 13,169,604 pro forma
and none pro forma as adjusted, issuable in series:
Series A preferred stock: 624,000 shares authorized,
issued and outstanding, actual and pro forma and none
pro forma as adjusted................................... 588 588
Series B convertible stock: 8,701,980 shares authorized,
issued and outstanding, actual and pro forma and none
pro forma as adjusted................................... 12,626 12,626
Series C convertible stock: 3,843,624 shares authorized,
3,784,001 shares issued and outstanding, pro forma and
none pro forma as adjusted.............................. -- 20,234
Stockholders' equity (deficit):
Preferred stock: 5,000,000 shares authorized, none issued
and outstanding, pro forma and pro forma as adjusted.... -- --
Common stock, $0.001 par value: 24,000,000 shares
authorized, actual, 100,000,000 shares authorized, pro
forma and pro forma as adjusted, 8,331,226 shares issued
and outstanding, actual and pro forma and pro
forma as adjusted....................................... 8 8
Additional paid-in capital.................................. 244 244
Deferred stock compensation................................. (956) (956)
Accumulated deficit......................................... (1,824) (1,824)
------- ------- -------
Total stockholders' equity (deficit)........................ (2,528) (2,528)
------- ------- -------
Total capitalization...................................... $10,867 $31,101 $
======= ======= =======
</TABLE>
The foregoing table does not include stock options and warrants to purchase
common stock, which are more fully described in "Description of Capital Stock."
16
<PAGE>
DILUTION
Our net tangible book value as of December 31, 1999 was $(2.5) million, or
$(0.30) per share of common stock. Net tangible book value per share is
calculated by subtracting our total liabilities from our tangible assets, and
dividing the total by 8,331,226 shares of common stock outstanding as of
December 31, 1999. The pro forma book value per share before the offering gives
effect to the issuance of the Series C preferred stock and the conversion of the
Series B preferred stock and Series C preferred stock into common stock
immediately preceding our initial public offering.
Assuming the sale by us of shares of common stock in this offering at
an initial public offering price of $ per share and the application of the
estimated net proceeds from this offering, our net tangible book value as of
December 31, 1999 would have been $ million, or $ per share of common
stock. Assuming completion of this offering, there will be an immediate increase
in the net tangible book value of $ per share to existing stockholders and
an immediate dilution in pro forma net tangible book value of $ per share
to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $
Net tangible book value per share as of December 31,
1999.................................................... $(0.30)
Increase per share attributable to pro forma
adjustments............................................. 1.76
------
Pro forma book value per share before the offering.......... 1.46
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after the
offering..................................................
------
Pro forma dilution per share to new investors............... $
======
</TABLE>
The following table summarizes the total number of shares of common stock
purchased from us, the total consideration paid to us and the average price per
share paid by the existing stockholders and by new investors. The average price
per share paid was based upon the number of shares of common stock outstanding
as of December 31, 1999 and assuming the issuance of the Series C preferred
stock and the conversion of the Series B preferred stock and Series C preferred
stock into common stock:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------------- -------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 20,817,207 % $ 33,286,074 % $ 1.60
New investors...............
-------------- ----- --------------- ------
Total....................... 100.0% $ 100.0%
============== ===== =============== ======
</TABLE>
If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by existing shareholders will be reduced to
, or % of the total number of shares of common stock to be
outstanding after this offering, and will increase the number of shares of
common stock held by the new investors to shares, or % of the total
number of shares of common stock to be outstanding immediately after this
offering.
The tables and calculations above assume no exercise of outstanding options
and exclude a warrant to purchase 525,000 shares of common stock with an
exercise price of $ per share, which was issued on March 28, 2000. At
December 31, 1999, there were 1,114,318 shares of common stock reserved for
issuance upon exercise of outstanding options with a weighted average exercise
price of $0.25 per share. To the extent that this warrant or these options are
exercised, there will be further dilution to new investors.
17
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following selected financial data in conjunction with
our financial statements and notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus. The statement of operations data for the period from October 30,
1997 (inception) to December 31, 1997 and the years ended December 31, 1998 and
1999 and the balance sheet data as of December 31, 1998 and 1999 are derived
from our financial statements that have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere in this prospectus.
The pro forma basic and diluted net loss per share attributable to common
stockholders gives effect to the assumed conversion of our Series B preferred
stock into shares of common stock, weighted for the period outstanding, for the
year ended December 31, 1999.
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 30
(INCEPTION) TO
DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------- --------------------------
1997 1998 1999
-------------- ---------- ----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 6 $ 507 $ 1,885
Cost of services..................................... 5 323 1,286
---------- ---------- ----------
Gross profit......................................... 1 184 599
Operating expenses:
Selling, general and administrative................ 5 277 3,104
Noncash compensation expense....................... -- -- 287
---------- ---------- ----------
Operating loss....................................... (4) (93) (2,792)
Other income, net.................................... -- -- 144
Interest expense..................................... -- (5) (14)
---------- ---------- ----------
Net loss............................................. $ (4) $ (98) $ (2,662)
========== ========== ==========
Net loss attributable to common stockholders......... $ (4) $ (98) $ (2,733)
========== ========== ==========
Basic and diluted net loss per share attributable to
common stockholders................................ $ 0.00 $ (0.02) $ (0.33)
========== ========== ==========
Number of shares used in computing basic and diluted
net loss per share................................. 5,752,050 6,368,178 8,200,621
========== ========== ==========
Pro forma basic and diluted net loss per share
attributable to common stockholders................ $ (0.26)
==========
Number of shares used in computing pro forma basic
and diluted net loss per share attributable to
common stockholders................................ 10,703,930
==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4 $10,609
Working capital (deficit)................................... (107) 10,249
Total assets................................................ 172 11,896
Capital lease obligations, net of current portion........... 13 91
Redeemable preferred stock.................................. -- 13,214
Accumulated deficit......................................... -- (1,824)
Total stockholders' deficit................................. (91) (2,528)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING
THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are an MSP that enables successful eBusiness strategies by focusing on
offering an integrated management solution for online communities. We develop,
manage and host successful online communities using our community management
expertise and proprietary service delivery platform, the Community Management
System, or CMS. Our full-service approach is designed to enable eBusinesses to
strengthen relationships, build loyalty, reduce their operating and customer
acquisition costs, and create new revenue opportunities. We provide our services
primarily to Global 1000 and leading Internet companies. Our clients include Ace
Hardware, Ask Jeeves, AT&T WorldNet-Registered Trademark- Service, Columbia
TriStar Interactive, Kodak, mySAP, NBC Internet, Reuters, SciQuest.com and
Staples.com. We expand our market opportunities through our strategic channel
relationships with a number of leading Internet professional services firms and
technology providers, including Breakaway Solutions, Cisco Systems, Diamond
Technology Partners Incorporated and Kana Communications.
We derive our revenues primarily from the sale of community management
services. We recognize revenues generated from our community management services
as they are performed. The majority of our clients are billed on a monthly
basis.
Costs of our community management services consist primarily of salaries,
benefits, equipment costs and other related direct costs.
Selling, general and administrative expenses consist of compensation,
benefits, advertising, and professional service fees.
We expect to continue to invest heavily in sales, marketing and business
development personnel, advertising and general and administrative
infrastructure. We expect to incur losses in each of the four quarters of 2000.
We believe that our future revenue growth and profitability will depend on our
success in increasing sales of services. If we fail to increase revenues, our
business and results of operations would be significantly harmed. In view of our
limited operating experience, we believe that period to period comparisons of
our operating results are not necessarily meaningful and should not be relied
upon as an indication of future performance.
RESULTS OF OPERATIONS
Since our company was founded during the fourth quarter of 1997, results
from the period of inception through December 31, 1997 are not comparable to
those for the year ended December 31, 1998 or 1999.
19
<PAGE>
The following table sets forth certain financial data for the periods
indicated expressed as a percentage of revenues:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1998 1999
-------- --------
<S> <C> <C>
Revenues................................................... 100.0 % 100.0 %
Cost of services........................................... 63.7 68.2
----- ------
Gross margin............................................... 36.3 31.8
Operating expenses:
Selling, general and administrative...................... 54.6 164.7
Noncash compensation expense............................. -- 15.2
----- ------
Operating loss............................................. (18.3) (148.1)
Other income, net.......................................... -- 7.6
Interest expense........................................... (1.0) (0.7)
----- ------
Net loss................................................... (19.3)% (141.2)%
===== ======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues increased 272% to $1.9 million in 1999, from
approximately $507,000 in 1998. The increase was primarily due to an increase in
community management clients in 1999 compared to 1998, as well as an increase in
services provided to existing clients.
GROSS PROFIT. Gross profit increased to $599,000 in 1999 from $184,000 in
1998. Gross margin decreased to 31.8% in 1999, from 36.3% for 1998. This
decrease in gross margin was primarily due to increased investment in personnel
and technology resources to enable the scalable delivery of our services. We
expect the dollar amount of our investment in infrastructure and personnel costs
to continue to increase in future periods.
SELLING, GENERAL AND ADMINISTRATIVE. Total selling, general and
administrative expenses increased to approximately $3.1 million in 1999, from
$277,000 in 1998. The increase in selling, general and administrative expenses
was primarily attributable to increased costs of personnel, advertising, website
development and public relations associated with implementing our business plan.
We expect the dollar amount of selling, general and administrative expenses to
continue to increase as we hire additional personnel.
NONCASH COMPENSATION EXPENSE. In 1999, we recorded a noncash compensation
charge related to the issuance of stock options in 1999. We recorded deferred
compensation in the amount of $1.2 million in 1999. This deferred compensation
charge is being amortized to operations over the vesting period of the options.
Total noncash compensation expense in 1999 was approximately $287,000.
Amortization of this deferred compensation expense will be $320,000 in 2000,
$305,000 in 2001, $201,000 in 2002 and $130,000 in 2003.
OTHER INCOME, NET. Other income, net consists primarily of interest income
on our cash balances in 1999. Other income, net was $144,000 in 1999. We did not
have cash balances available for investment purposes in 1998.
INCOME TAXES. We have not generated taxable income during 1998 or 1999 and
therefore, we have not recorded a provision for income taxes. At December 31,
1999, we had a tax net operating loss carryforward of approximately
$1.5 million, which we may use to offset future taxable income. Due to the
uncertainty surrounding our prospective use of the tax benefit, we have
established a full valuation allowance against the income tax benefit of such
carryforwards.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth the summary of our unaudited quarterly
operating results for each of the eight quarters in the period ended
December 31, 1999 and the percentage of our revenues represented by each item in
the respective quarters. This data has been derived from our unaudited interim
financial statements which, in our opinion, have been prepared on substantially
the same basis as the audited financial statements contained elsewhere in the
prospectus and include all recurring adjustments necessary for a fair
presentation of the financial information for the periods presented. You should
read these unaudited quarterly results in conjunction with our audited financial
statements and notes thereto included elsewhere in the prospectus. The operating
results for any quarter are not necessarily indicative of the results that may
be expected for a full year or in any future periods.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
STATEMENT OF OPERATIONS DATA: 1998 1998 1998 1998 1999 1999 1999 1999
- ----------------------------- --------- --------- ---------- --------- --------- --------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $80 $108 $142 $177 $343 $ 278 $ 473 $ 791
Cost of services.............. 40 73 101 109 188 265 322 511
--- ---- ---- ---- ---- ----- ----- -------
Gross profit.................. 40 35 41 68 155 13 151 280
Operating expenses
Selling, general &
administrative............ 21 55 88 113 140 376 739 1,849
Noncash compensation
expense................... -- -- -- -- -- -- -- 287
--- ---- ---- ---- ---- ----- ----- -------
Operating profit (loss)....... 19 (20) (47) (45) 15 (363) (588) (1,856)
Interest expense.............. -- (3) (1) (1) (2) -- (5) (7)
Other income, net............. -- -- -- -- 1 1 13 129
--- ---- ---- ---- ---- ----- ----- -------
Net income (loss)............. $19 $(23) $(48) $(46) $ 14 $(362) $(580) $(1,734)
=== ==== ==== ==== ==== ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
AS A PERCENTAGE OF REVENUES: 1998 1998 1998 1998 1999 1999 1999 1999
- ---------------------------- --------- --------- ---------- --------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of services.............. 50.6 67.6 71.0 61.3 54.7 95.7 68.0 64.6
----- ----- ----- ----- ----- ------ ------ ------
Gross profit.................. 49.4 32.4 29.0 38.7 45.3 4.3 32.0 35.4
Operating expenses
Selling, general &
administrative............ 26.0 50.7 62.2 64.1 40.9 135.3 156.1 233.6
Noncash compensation
expense................... -- -- -- -- -- -- -- 36.4
----- ----- ----- ----- ----- ------ ------ ------
Operating profit (loss)....... 23.4 (18.3) (33.2) (25.4) 4.4 (131.0) (124.1) (234.6)
Interest expense.............. (0.2) (2.3) (1.0) (0.7) (0.6) -- (1.0) (0.9)
Other income, net............. -- -- -- -- 0.2 0.6 2.5 16.3
----- ----- ----- ----- ----- ------ ------ ------
Net income (loss)............. 23.2 % (20.6)% (34.2)% (26.1)% 4.0 % (130.4)% (122.6)% (219.2)%
===== ===== ===== ===== ===== ====== ====== ======
</TABLE>
Quarterly revenues have increased in seven of the last eight quarters as a
result of increased community management service engagements. In the quarter
ended March 1999, we completed certain non-recurring community management
services that resulted in a revenue decrease in the second quarter of 1999 from
the level of revenues recognized in the first quarter of 1999. We expect
revenues to fluctuate from quarter to quarter and depend on the number and size
of community management engagements we perform and complete in any given
quarter. Factors that might cause fluctuations from
21
<PAGE>
quarter to quarter include the number, timing, scope and contractual terms of
client projects, delays incurred in the performance of such projects, accuracy
of estimates of resources and time required to complete ongoing projects, and
general economic conditions. Should these factors occur, a decrease from quarter
to quarter revenues may adversely impact the results of operation from that of
the prior quarter.
Cost of services has increased in each of the last eight quarters. These
increases have been a result of increased personnel and operating costs. The
decrease in gross margin in the second quarter of each of 1998 and 1999 compared
to the previous quarter is a result of increased personnel added in anticipation
of an increased number of community management engagements prior to the
beginning of the revenue producing activities. We anticipate continuing to add
management service personnel prior to the beginning of the revenue producing
activities. This may have an adverse impact on the comparison of quarter to
quarter gross margin and may cause gross margin to decrease from that of the
prior quarter, as personnel are added in anticipation of an increase in the
number and size of community management engagements.
Selling, general and administrative operating expenses have increased from
the prior quarter in each of the last eight fiscal quarters. These increases
reflect continued investment in infrastructure, personnel and selling and
marketing activities directed at revenue growth.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through founder
loan financing and the private placement of preferred equity securities, through
which we have raised aggregate proceeds of approximately $33.8 million through
March 31, 2000. We raised $624,000 in a Series A preferred stock financing in
February 1999. We used these proceeds primarily to pay operating expenses. We
raised $12.8 million in a Series B preferred stock private financing in
September 1999 from new and existing stockholders. These proceeds were used to
provide working capital and to fund operations. In March and April 2000, we
raised $20.4 million in a Series C preferred stock private financing from new
and existing stockholders. These proceeds will also be used for working capital
and operating purposes.
As of December 31, 1999, we had approximately $10.6 million of cash and cash
equivalents. Net cash used in operating activities was $68,000 in 1998 and
$2.2 million in 1999. Cash used in operating activities in 1998 was primarily
the result of funding operations and an increase in accounts receivable which
were partially offset by increases in accounts payable and accrued expenses.
Cash used in operating activities in 1999 was primarily the result of funding
operations and increases in accounts receivable and prepaid expenses, which were
partially offset by noncash compensation charges related to the issuance of
stock options and increases in accounts payable and accrued expenses.
Cash used in investing activities was related to purchases of property and
equipment for the years ended 1998 and 1999. Net cash provided by financing
activities was $69,000 in 1998 related to loans from our founder, used to
finance operations and $13.1 million in 1999, resulting from the proceeds of our
Series A preferred stock and Series B preferred stock financings.
In 1999, we obtained a working capital line of credit from a financial
institution in the amount of $200,000 secured by our accounts receivable
balances. This line of credit is renewable annually and expires on June 30,
2000. Balances borrowed against this line bear interest at the prime rate of
interest plus one percent. At March 31, 2000, we had no amounts outstanding
under this available facility. In February 2000, we obtained an equipment line
of credit from another financial institution in the amount of $500,000 secured
by the leased equipment and cash balances for 50% of the equipment value. This
facility allows for various types of equipment leases and the lease rates are
set at the time the equipment is leased. At March 31, 2000, we had $143,000
outstanding under this facility and the effective rate of interest on these
borrowings is 11.5%.
22
<PAGE>
We have entered into a long-term lease commitment for office space in
March 2000, with annual minimum lease commitments of $1.2 million to
$1.3 million. In addition, we have entered into additional obligations to
purchase approximately $2.0 million dollars of furniture, network and
communications equipment and leasehold improvements. We anticipate that we will
continue to incur significant capital expenditures to provide for the
infrastructure needed to pursue stated business plan objectives. We also
anticipate that we will continue to experience significant growth in operating
expenses and that our operating expenses will be a material use of our cash
resources. We believe that the net proceeds of this offering, together with
existing cash, cash equivalents and available credit facilities, will be
sufficient to meet anticipated cash needs for working capital, selling, general
and administrative expenses and capital expenditures for at least the next
twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
In December, 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financing Statements." SAB No. 101 provides specific
guidance on revenue recognition. We recognize revenues based upon the provisions
of SAB No. 101.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our revenues from inception to date have been made to U.S. customers and, as
a result, we have not had any exposure to factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets. However,
in future periods, we expect to sell in foreign markets. As our revenues are
generated in U.S. dollars, a strengthening of the U.S. dollar could make our
products less competitive in foreign markets. At December 31, 1999, we did not
hold any short or long-term investments and, therefore, did not have any market
risk exposure related to changes in interest rates. Therefore, no quantitative
tabular disclosures are required. At December 31, 1999, our cash and cash
equivalents consisted primarily of money market funds held by large institutions
in the U.S.
23
<PAGE>
BUSINESS
OVERVIEW
We are a management service provider, or MSP, that enables successful
eBusiness strategies by offering an integrated online community management
solution. Online communities are groups of businesses, customers or employees
with common interests that interact via the Internet to share business
practices, provide feedback and build relationships. We receive recurring fees
to develop, manage and host successful online business communities using our
community management expertise and proprietary service delivery platform, the
Community Management System, or CMS. Our full-service approach is designed to
enable eBusinesses to strengthen relationships with their business customers,
build loyalty, reduce business customer acquisition costs and create new revenue
opportunities. We provide our services primarily to Global 1000 and leading
Internet companies. Our clients include Ace Hardware, Ask Jeeves, AT&T
WorldNet-Registered Trademark- Service, Columbia TriStar Interactive, Kodak,
mySAP, NBC Internet, Reuters, SciQuest.com and Staples.com.
We believe we are the only MSP to offer the full range of services needed to
completely manage our clients' online community needs. We use our proprietary
CMS methodology to provide our clients with a completely outsourced,
comprehensive community solution. Our CMS solution is designed to provide our
clients with the expertise, innovation capability, scalable delivery platform
and speed of execution required for successful communities. We have successfully
applied our CMS methodology across business-to-business, business-to-consumer
and employee-to-employee markets.
We expand our market opportunities through our strategic channel
relationships with a number of leading Internet professional services firms and
technology providers, including Breakaway Solutions, Cisco Systems, Diamond
Technology Partners Incorporated and Kana Communications. We believe these
relationships provide us with many benefits, including cross-marketing and sales
opportunities and access to new markets, innovative technology and additional
clients.
INDUSTRY BACKGROUND
THE GROWTH OF THE INTERNET
Businesses today are using the Internet to create revenue opportunities by
enhancing their interactions with new and existing business customers and
consumers. Businesses are also using the Internet to increase efficiency in
their operations through improved communications, both internally and with
suppliers and other business partners. This emerging business use of the
Internet encompasses business-to-business, business-to-consumer and
employee-to-employee communications and transactions. The projected growth of
these markets over the next five years is dramatic, particularly in the
business-to-business market. The Gartner Group, an independent research firm,
projects that the volume of non-financial goods and services sold through
business-to-business eCommerce will grow from $145.0 billion in 1999 to $7.3
trillion worldwide by 2004.
To capitalize fully on the new opportunities presented by the Internet,
businesses demand both eBusiness solution DEVELOPMENT, which includes strategy,
design and implementation, and eBusiness solution MANAGEMENT, which includes
ongoing active supervision, innovation, strategic use of technology and hosting
of applications. International Data Corporation, or IDC, an independent research
firm, defines Internet services as the consulting, design, systems integration,
support, management and outsourcing services associated with the development,
deployment and management of Internet sites. IDC expects the worldwide market
for these services to grow at a five year compounded annual growth rate of 59%
from $7.8 billion in 1998 to $78.5 billion in 2003.
24
<PAGE>
ONGOING CHALLENGES FOR MANAGING EBUSINESSES
Many large Internet professional services organizations, or eIntegrators,
currently provide development solutions to build eBusiness initiatives
worldwide. However, enterprises continue to face significant challenges in the
ongoing management of their Internet solutions. These challenges include:
- the need to efficiently acquire and retain business customers and
consumers in an era of heightened competition;
- the need to develop comprehensive expertise in managing all phases of an
eBusiness to differentiate their Internet solution;
- the need to scale management capabilities and expertise as the business
grows;
- the need to build strong, collaborative relationships with their most
valuable business customers and consumers--those that drive the majority
of volume and profitability;
- the need to continuously identify, assess and quickly implement new and
rapidly changing solutions; and
- the need to maintain significant technological infrastructure to support
eBusiness applications 24 hours a day, seven days a week.
OUR OPPORTUNITY
We believe a solution that uniquely addresses these ongoing challenges is a
professionally managed online community. Online communities promote
member-to-member interaction of the most valuable business customers, which
increases loyalty and retention, drives insight into member preferences, lowers
operating and customer acquisition costs and builds lasting relationships. A
professionally managed online community solution adapts quickly to member needs,
is scalable and quickly migrates to innovative technologies.
eIntegrators provide services to assist businesses in using information
technology. Their service offerings focus primarily on developing eBusiness
solutions, including the strategy, design and implementation of Internet
solutions. These service providers generally operate by deploying large numbers
of personnel to the client's site for a project-based development engagement. We
believe this approach does not address the need for ongoing community management
services.
Application service providers, or ASPs, partially address ongoing eBusiness
challenges by providing technology infrastructure and hosting services. However,
they do not provide ongoing management services. We believe their
technology-centric approach does not fully meet the ongoing challenges of
managing an eBusiness.
We maintain that neither eIntegrators nor ASPs have the requisite focus and
expertise to address the complex issues surrounding online community management.
The consequences for companies that fail to find solutions to these ongoing
management challenges can be severe and include loss of valuable business
customers and a deterioration of their competitive position. As a result of this
unmet market need, we believe a significant opportunity exists for an MSP that
can offer substantial expertise in the ongoing management of online community
solutions.
25
<PAGE>
OUR SOLUTION
We believe we are the only MSP to offer the full range of services needed to
completely manage all of our clients' online community needs. Our solution has
the following key elements:
INTEGRATED FULL-SERVICE APPROACH
We use our proprietary CMS methodology to provide a completely outsourced,
comprehensive community solution for our clients. The CMS includes five key
capabilities:
<TABLE>
<CAPTION>
Key Capability Description
- -------------- -----------
<S> <C>
Strategy Design and develop integrated community initiatives
Management Deliver a comprehensive approach to measure, analyze
and provide feedback on community participation
Research Conduct ongoing analysis of online community
evolution, metrics and best practices in a rapidly
changing technical market
Service Innovation Continually identify, develop and implement new
community service offerings
Application Hosting Rapidly implement a hosted community solution
</TABLE>
SIGNIFICANT COMMUNITY MANAGEMENT EXPERTISE
We strive to continue to provide our clients with the most current online
community management methodologies and technologies through our internal
knowledge-sharing process. Through our ongoing deployment of a significant
number of online community management programs, we have developed extensive
community knowledge that we disseminate across multiple industries and clients.
Our expertise in community services is further strengthened by our significant
investment in researching and defining the latest community management
techniques.
VALUE DRIVEN RESULTS
We create quantifiable business value for our clients through active
community management. For each of our ongoing engagements, we generate and
analyze metrics that assess performance on several dimensions including return
on investment, customer insight and community effectiveness. We provide ongoing
reporting of this data on a weekly, monthly and quarterly basis to our clients.
SPEED OF EXECUTION
Time to market is a critical factor contributing to the success of an
eBusiness initiative. Through our concentrated focus on online community
management, proprietary processes and dedicated resources, we believe that our
approach rapidly delivers comprehensive management solutions to clients. Our
research and innovation capabilities also enable us to continuously improve
community solutions once they have been implemented.
SCALABLE SOLUTIONS
Scalability is important to our clients because they can experience a
significant and rapid increase in community activity as they develop and expand
their community initiatives. Our internal management practices are designed to
develop our service engagements as the scope of our client's community needs
expands. The architecture of our solutions allows us to implement new programs
and capabilities as our clients' communities grow.
26
<PAGE>
OUR STRATEGY
Our objective is to be the leading global MSP of online community management
solutions. We intend to pursue this objective in the following ways:
FURTHER PENETRATE AN UNDERSERVED MARKET
We believe the market for management solutions is underserved and is
expanding rapidly. We believe neither eIntegrators nor ASPs effectively address
this market. We focus on this market as an MSP of community management and
strategy solutions. To grow our new client base, we plan to continue to
aggressively expand both our sales force and our strategic alliance network.
EXPAND RELATIONSHIPS WITH CURRENT CLIENTS
We intend to grow our business by pursuing additional opportunities with our
existing clients. By continuing to focus on providing high quality client
service, we intend to further establish strong long-term relationships. We plan
to enhance our service offering by including additional community building,
customer insight and data analysis applications while cross-selling our service
expertise to additional divisions within our clients' organizations. By
providing additional services to our existing client base, we intend to
capitalize on the rapidly growing demand for community management services.
STRENGTHEN AND EXPAND STRATEGIC RELATIONSHIPS
We currently maintain strategic alliances with companies such as Breakaway
Solutions, Cisco Systems, Diamond Technology Partners Incorporated and Kana
Communications. Benefits from these alliances can include new sales leads,
co-marketing and co-branding opportunities and preferred pricing discounts on
training, product support and technology developed by the companies with which
we have alliances. We intend to expand our relationships with these and other
companies to create increased visibility and sales opportunities. We have
aggressively grown our business development organization to formulate a joint
business plan with each partner, outlining marketing efforts, education and
training programs, as well as lead sharing processes.
ACTIVELY BUILD THE PARTICIPATE.COM BRAND WITHIN OUR TARGET MARKETS
To support our direct selling efforts and reach our target market
effectively, we believe it is important to build awareness of the
Participate.com brand. To build our brand, we intend to expand our targeted
corporate marketing efforts, including direct mail and seminars, with the
specific objective of targeting senior executives of large and growing
enterprises. Our goal is to create international recognition of Participate.com
as the leading MSP of community management solutions. We believe that our
success in expanding awareness of our brand will enhance our already visible
presence in the marketplace with potential strategic alliances and further
improve our recruiting efforts.
CONTINUED DEVELOPMENT OF INTELLECTUAL CAPITAL AND PROPRIETARY METHODOLOGIES
We intend to continue to expand our understanding of community management
dynamics and best practices to provide effective online community management
services tailored to the specific needs of our clients. We are able to derive
valuable knowledge from our client engagements to improve the performance of the
communities we manage. We have implemented proprietary processes to capture best
practices and disseminate them across our organization so that all departments
are continually improving their level of service to our clients. We continue to
publish original research reflecting the depth of our knowledge.
27
<PAGE>
ATTRACT AND RETAIN HIGH QUALITY PROFESSIONALS
As an MSP, we believe that attracting, developing and retaining outstanding
professional talent is essential to our growth. Due to our aggressive recruiting
and development goals, we will continue to devote significant resources toward
providing challenging career paths for all of our employees. Our goal is to
create an environment that nurtures and rewards overwhelming client service,
respect for every individual, innovation and teamwork.
OUR SERVICES AND METHODOLOGY
We use our CMS methodology to deliver our services and leverage our
proprietary processes and technology to enable clients to improve their
eBusiness initiatives. This approach is designed to provide our clients with the
expertise, innovation capability, scalable delivery platform and speed of
execution required to succeed on an ongoing basis. We have successfully applied
our CMS methodology across business-to-business, business-to-consumer and
employee-to-employee market segments. Our CMS methodology uses five distinct
service processes:
[Three concentric circles. The outer circle contains the words "Create,"
"Implement," "Manage," "Analyze," and "Optimize." The middle circle contains the
words "Community Strategy," "Community Management," "Community Research,"
"Community Service Innovation," "Community Hosting." The center circle contains
the words "Client Value."]
COMMUNITY STRATEGY SERVICES
We provide and deliver a detailed, strategic process for building and
maintaining a successful community for our clients. This plan, the Community
Roadmap, includes the following components:
- UNDERSTAND KEY ELEMENTS OF OUR CLIENT'S BUSINESS. The areas of focus
include business strategy and objectives, community member segmentation
and competitive analysis.
- DELIVER A COMPREHENSIVE RECOMMENDATION FOR ALL COMMUNITY TYPES, INCLUDING
BUSINESS-TO-BUSINESS, BUSINESS-TO-CONSUMER AND EMPLOYEE-TO-EMPLOYEE. The
Community Roadmap deliverable combines the analysis of our clients'
business environment with our expertise in order to define the necessary
community elements including: program definitions, technology
requirements, project timeline, metrics and management tasks.
COMMUNITY MANAGEMENT SERVICES
Within our Community Management Center, or CMC, full-time, trained
professionals actively manage our clients' communities using our proprietary
technology and processes. Through our CMC services, we provide rigorous analysis
of community metrics and continually implement innovative programs that maintain
an active community and refine the community strategy in accordance with our
clients' needs. Our CMC services include:
- ACTIVE LISTENING. Our internal processes allow us to aggregate and analyze
the valuable qualitative information generated by community interaction.
- MEASUREMENT AND REPORTING. We capture and analyze the quantitative data
from community interaction to uncover emerging trends and benchmark the
data against proprietary community metrics. We review our findings with
client management and recommend new program initiatives.
- CORE MANAGEMENT. We implement multiple community initiatives including
outreach marketing to new and potential members, event promotion and
execution, management of member-generated content and support of
member-to-member interaction. We use the information we derive from active
listening and data measurement to continually improve the community
solutions.
28
<PAGE>
COMMUNITY RESEARCH
Our Community Research Group, or CRG, conducts original research to
discover, define and introduce new community techniques and processes. The
findings are integrated into our services and business practices to ensure that
we are continually providing value for our clients. The CRG publishes white
papers that advance our understanding of the most effective community management
practices. To date we have published the following research:
- AFTER IMPLEMENTATION: HOW OUTSOURCED MANAGEMENT SERVICES ARE REMAKING
E-BUSINESS
- BUSINESS COMMUNITIES: COMMUNICATIONS, COLLABORATION AND COMMERCE IN THE
NEW ECONOMY
- HYPERAFFILIATION: CUSTOMER LOYALTY IN THE INTERNET AGE
COMMUNITY SERVICE INNOVATION GROUP
We have a team comprised of senior professionals that develops and deploys
intellectual capital throughout the organization and across client engagements.
The Service Innovation Group, or SIG, monitors all of our client projects as
well as industry trends on an ongoing basis to identify best practices and
innovative solutions that address our client needs. This team collects and
refines this knowledge, then disseminates it to our clients in the form of new
service offerings.
29
<PAGE>
COMMUNITY HOSTING SERVICES
We offer application hosting services for the ongoing management of our
clients' eBusiness community solutions. We have established relationships with
leading technology and systems integration companies that enable us to provide a
complete hosted solution quickly and cost effectively. Our hosting services
include monitoring and support 24 hours a day, seven days a week.
CLIENTS
Our diverse client base includes Global 1000 and leading Internet companies.
Our clients include:
accenthealth.com
Ace Hardware Corporation
Ask Jeeves
AT&T WorldNet-Registered Trademark- Service
Career Path
Columbia TriStar Interactive
Consumers Car Club
EXPAT Exchange
Freedom Nation
Kodak
MachineWeb.com
Multex Investor Network
MuniGroup.com
mySAP
NBC Internet
net32.com
NuvoMedia
OurHouse.com
Parlo
Quote.com
RealHome.com
Reuters
Salesguy.com
SalesLogix
SciQuest.com
SideTalk Corporation
Staples.com
TAP Pharmaceuticals
Wrenchead.com
CLIENT CASE STUDY
The following sets forth a case study that we believe reflects the range of
services that we provide:
ACE HARDWARE CORPORATION
BUSINESS OPPORTUNITY: Ace has a network of 300 commercial and
industrial dealers that sell a wide range of building supplies to
municipalities and contractors throughout the United States. Ace
identified a need to create an efficient and effective way to facilitate
communication with and among its commercial and industrial dealers. Ace
expected this interaction to increase revenue by enabling the sharing of
collective professional experiences and sales leads.
PARTICIPATE.COM SOLUTION: Working with the Ace management team, we
created a comprehensive online community solution that included expert
seminars, newsletters, lead-sharing procedures, customizable marketing
materials and message boards. After the community strategy engagement
was completed, Ace outsourced the ongoing management of its online
community to Participate.com. Through the CMC, we continue to provide
active listening, measurement and reporting and core management services
to drive interaction among Ace dealers.
RESULTS: Within six months, Ace reported a greater than 500% return on
investment, driven primarily by revenue growth. Dealers also report
being more responsive to customers as their community inquiries are
answered more quickly and thoroughly. Currently, more than 30% of Ace's
commercial and industrial dealers visit the site weekly; a number that
far exceeded Ace's expectations.
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STRATEGIC RELATIONSHIPS
Our goal is to develop and maintain strategic alliances with a number of
companies that provide complementary marketing or technology services. These
enterprises have significant eBusiness capabilities and are in an advantageous
position to recommend and/or subcontract our community management services. Our
relationships consist of both channel and technology partners.
CHANNEL PARTNERS
Our channel partners bundle our community management services with their
eBusiness solutions. Our relationships with our channel partners typically
include co-branding, co-sales and lead sharing. Our significant channel
alliances include Breakaway Solutions, Cisco Systems, Diamond Technology
Partners Incorporated and Kana Communications.
TECHNOLOGY PARTNERS
We maintain relationships with a number of technology leaders and industry
specialists. Through these alliances, we incorporate their technologies into the
solutions that we provide to our clients. Our relationships with technology
providers enable us to employ leading edge technology solutions. Our technology
partners include BuzzCompany, Cisco Systems, Kana Communications, Prospero, QUIQ
and webfair AG.
SALES AND MARKETING
We sell our services through multiple avenues, including our internal sales
force, channel partners and technology partners. We also generate business by
providing additional services to our existing clients and by expanding our
existing services as our clients' businesses grow. We have recently expanded our
sales team to meet the needs of a rapidly growing national organization. We have
also expanded our sales force geographically throughout the United States and
intend to continue to add regional sales teams domestically and internationally.
We supplement our sales effort with marketing activities designed to build
our brand name and promote lead generation. We employ traditional marketing
programs, including magazine and online advertising, public relations efforts
and targeted mailings. We also participate in trade shows and industry
gatherings. Additionally, white papers and research reports on topics that are
of interest to our potential clients are published on a regular basis.
COMPETITION
Although the market for eBusiness management solutions is relatively new, it
is already intensely competitive and we expect competition to intensify in the
future. Our current and potential competition may come from several sources:
- in-house organizations that perform online community management functions;
- similar services on the Internet for customized communities and many small
companies that provide online market research and event services;
- eIntegrators who may begin to provide ongoing management services;
- ASPs who market community technology and may begin to provide ongoing
management services; and
- similar solutions by non-online methods, such as customer relations firms,
market research firms and similar entities.
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Our industry has low barriers to entry and we expect the number of
competitors to expand in the future. In addition to Internet based competitors,
traditional business have recently made significant acquisitions of, or
investments in, Internet companies. We believe that the principal competitive
factors in our market include:
- the ability to create a scalable delivery platform;
- community management expertise and innovation;
- quality of services and deliverables;
- speed of development and implementation; and
- the ability to attract, train and retain professionals.
OUR PEOPLE AND CULTURE
As of March 31, 2000, we had 126 full-time employees. We believe that our
relationship with our employees is good. None of our employees is currently
represented by a labor union.
Our corporate culture is critically important to attracting and retaining
professionals. We believe we have developed and seek to maintain a culture that
promotes professional growth and retention, rapid learning, creativity,
innovation, and sharing of knowledge. We believe that this culture allows us to
maintain a consistent quality of services and the ability to quickly anticipate
and adapt to emerging technologies and business needs.
INTELLECTUAL PROPERTY RIGHTS
We have developed proprietary methodologies, tools, processes and software
in connection with delivering our services. We rely on a combination of trade
secret, nondisclosure and other contractual agreements, and copyright and
trademark laws, to protect our proprietary rights. Trade secret and copyright
laws afford us only limited protection. We typically enter into confidentiality
and non-disclosure agreements with our employees and generally require that our
clients enter into similar agreements. These agreements are intended to limit
access to and distribution of our proprietary information. In addition, we have
entered into non-competition agreements with certain of our key employees.
We cannot be certain that the steps we have taken in this regard will be
adequate to deter misappropriation of our proprietary information or that we
will be able to detect unauthorized use and take appropriate steps to enforce
our intellectual property rights. In addition, an adverse change in the laws
protecting intellectual property could harm our business. We sometimes enter
into agreements with our clients that provide for sole ownership by our clients
of our developments with no or limited rights retained by us to utilize these
developments in other client engagements.
UNITED STATES AND FOREIGN GOVERNMENT REGULATION
Congress has recently passed legislation that regulates certain aspects of
the Internet, including on-line content, copyright infringement, user privacy,
taxation, access charges, liability for third-party activities, and
jurisdiction. In addition, federal, state, local and foreign governmental
organizations also are considering, and may consider in the future, other
legislative and regulatory proposals that would regulate the Internet. Areas of
potential regulation include taxation, libel, pricing, quality of products and
services, and intellectual property ownership.
The European Union also has recently enacted several directives relating to
the Internet. To safeguard against the spread of certain illegal or socially
disfavored materials on the Internet, the European Commission has drafted the
"Action Plan on Promoting the Safe Use of the Internet." Other
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European Commission directives address the regulation of privacy, eBusiness,
security, commercial piracy, consumer protection and taxation of transactions
completed over the Internet. We do not know how courts will interpret existing
and new laws. New laws or the application of existing laws may affect our
business. In addition, our clients being subject to such legislation may
indirectly affect our business. Increased regulation of the Internet may
decrease the growth in the use of the Internet, decreasing the demand for our
services, increasing our cost of doing business, or otherwise having a material
adverse effect on our business, results of operations, and financial results.
FACILITIES
Our headquarters and principal facilities are located in leased facilities
in Chicago, Illinois consisting of approximately 9,000 square feet. The leases
for these facilities expire on various dates between May 31, 2000 and March 1,
2004. We have entered into a new lease for approximately 40,000 square feet of
space in a building in downtown Chicago, which expires on April 15, 2010. This
new facility will serve as our worldwide headquarters. In addition, we have a
commitment to lease 2,500 square feet of office space in Kansas City, Kansas
through May 31, 2003.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings. We are
involved from time-to-time in routine legal proceedings incidental to the
conduct of our business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of our
executive officers and directors, including their ages as of April 10, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- -------- ------------------------------------------------------------
<S> <C> <C>
Alan K. Warms.................. 33 Chairman of the Board, President and Chief Executive Officer
Stephen J. Hawrysz............. 41 Chief Financial Officer
David A. Greer................. 34 Vice President of Operations
Robert A. Sands................ 41 Vice President of Worldwide Sales
Todd A. Duthie................. 33 Vice President of Consulting
Joseph P. Cothrel.............. 42 Vice President of Research
Kenneth A. Metcalf............. 31 Chief Information Officer
Stephen C. Bowsher............. 31 Director
James J. Collis................ 37 Director
Mark J. DeNino................. 46 Director
Guy Hoffman.................... 37 Director
</TABLE>
ALAN K. WARMS founded our company in November 1997 and serves as our
Chairman of the Board, President and Chief Executive Officer. From February 1997
to October 1997, Mr. Warms served as the Vice President of Strategic Business
Development for eShare Technologies, a provider of community technologies. From
February 1996 to January 1997, Mr. Warms served as Vice President of Business
Development for FreeLoader, an Internet company. From 1992 to January 1996,
Mr. Warms worked for The Boston Consulting Group. Mr. Warms received a B.S.
degree in electrical engineering from the Rensselaer Polytechnic Institute and
an M.M. degree from the J.L. Kellogg School of Management at Northwestern
University.
STEPHEN J. HAWRYSZ has served as our Chief Financial Officer since
November 1999. From August 1990 to May 1999, Mr. Hawrysz was Vice President,
Chief Financial Officer, Secretary and Treasurer for Westell Technologies, a
public global telecommunications holding company. A certified public accountant,
Mr. Hawrysz served in the audit division of Arthur Andersen LLP, a public
accounting firm, from 1980 to 1989. Mr. Hawrysz received a B.A. in business
administration from the University of Illinois, Chicago.
DAVID A. GREER has served as our Vice President of Operations since October
1998. From August 1995 to October 1998, Mr. Greer worked for The Boston
Consulting Group, managing a variety of corporate strategy projects for
Fortune 1000 companies. From 1988 to 1993, Mr. Greer served as a U.S. naval
officer. Mr. Greer received a B.S. in mechanical engineering from the U.S. Naval
Academy and an M.M. from the J.L. Kellogg School of Management at Northwestern
University.
ROBERT A. SANDS has served as our Vice President of Worldwide Sales since
January 2000. From December 1996 to January 2000, Mr. Sands served as Midwest
Sales Director for Cisco Systems. From May 1995 to December 1996, Mr. Sands
served as a sales director for Vanstar, a systems integrator. Mr. Sands received
a B.S. in economics from Villanova University.
TODD A. DUTHIE has served as our Vice President of Consulting since February
1999. From August 1995 to February 1999, Mr. Duthie worked for Deloitte
Consulting where he managed client assignments accross a variety of industries
including retail, insurance and pharmaceuticals. From 1990 to 1993, Mr. Duthie
was a consultant for KPMG Peat Marwick. Mr. Duthie received a B.A. from
Princeton University and an M.M. from the J.L. Kellogg School of Management at
Northwestern University.
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<PAGE>
JOSEPH P. COTHREL has served as our Vice President of Research since August
1999. From May 1996 to August 1999, Mr. Cothrel served as a research director
for Arthur Andersen's Next Generation Research Group. From January 1994 to May
1996, Mr. Cothrel served as a senior researcher in Arthur Andersen's Global Best
Practices Group. Mr. Cothrel received a B.A. from University of Toledo and an
M.A. from the University of Michigan.
KENNETH A. METCALF has served as our Chief Information Officer since March
2000. From April 1997 to December 1999, Mr. Metcalf served as the Chief
Information Officer at TMP Worldwide's executive search and selection divisions.
From December 1994 to April 1997, Mr. Metcalf served as a consultant for Arthur
Andersen. Mr. Metcalf earned a B.S. from Florida State University.
STEPHEN C. BOWSHER has served on our board of directors since September
1999. Since January 1999, Mr. Bowsher has been a venture partner at InterWest
Partners. From August 1997 to January 1999, Mr. Bowsher was a lead product
manager for the E*Trade Group, an Internet securities trading firm. From April
1996 to June 1997, Mr. Bowsher served as Director of Business Development at
Freeloader, an Internet company. From September 1994 to March 1996, Mr. Bowsher
served as Business Development Manager for Catapult Entertainment, an online
game network company. Mr. Bowsher has a B.A. from Harvard University and an
M.B.A. from Stanford University.
JAMES J. COLLIS has served as a director since September 1999. Since April
2000, Mr. Collis has served as an Executive Vice President of Seaport
Capital, LLC, a private equity investment firm. From February 1997 to March
2000, Mr. Collis served as an Executive Vice President of CEA Management, LLC, a
private equity investment firm. From June 1991 to February 1997, Mr. Collis
worked for Chase Manhattan Bank and held the positions of Associate, Vice
President and Principal. Mr. Collis also serves as a director for Acme
Communications and JATO Communications. Mr. Collis earned a B.S. in electrical
engineering from Rensselaer Polytechnic Institute and an M.B.A. from Columbia
Business School.
MARK J. DENINO has served on our board of directors since September 1999.
Mr. DeNino has served as a managing director of TL Ventures, a venture capital
firm since 1994. From 1990 to 1994, Mr. DeNino was President of Crossroads
Capital, an investment firm. From 1986 to 1990, Mr. DeNino held various
positions including Head of Investment Banking at Fidelity Bank and was
President of its Venture Capital Small Business Investment Company Group.
Mr. DeNino also serves as a director of Blaze Software, Vuent, Coastal Security
Systems, Cruise411.com, IPNetwork.com, Pac-West Telecom, and Traffic.com.
Mr. DeNino received a B.A. in finance and accounting from Boston College and an
M.B.A. from Harvard Graduate School of Business Administration.
GUY HOFFMAN has served on our board of directors since September 1999. From
March 2000 to present, Mr. Hoffman has been a venture partner in TL Ventures.
From April 1999 to February 2000, Mr. Hoffman was Chairman and Chief Executive
Officer of iSong.com, an Internet destination for musicians. From January 1999
to April 1999, Mr. Hoffman served as an entrepeneur with Austin Ventures, a
venture capital firm. From September 1997 to December 1998, Mr. Hoffman served
as the President and Chief Executive Officer of Deja News, a
business-to-consumer Internet information provider company. From April 1996 to
September 1997, Mr. Hoffman served as Executive Vice President and Chief
Operating Officer of OpenConnect Systems, a provider of Web-based application
integrating legacy systems. From August 1987 to March 1996, Mr. Hoffman served
as Vice President of Worldwide Marketing for Eicon Technology Corporation, an
enterprise data communications company. Mr. Hoffman earned a B.A. from the
University of Michigan.
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<PAGE>
BOARD COMMITTEES
Our board of directors has established an audit committee and a compensation
committee. The functions of the audit committee are to:
- recommend annually to our board of directors the appointment of our
independent public accountants;
- discuss and review in advance the scope and the fees of our annual audit
and review the results thereof with our independent auditors;
- review and approve non-audit services of our independent auditors;
- review compliance with our existing major accounting and financial
reporting policies;
- review the adequacy of major accounting and financial reporting policies;
and
- review our management's procedures and policies relating to the adequacy
of our internal accounting controls and compliance with applicable laws
relating to accounting practices.
The audit committee is to consist solely of directors who are not employed
by us or otherwise retained to provide services to us and who are not
representatives of our significant stockholders upon completion of this
offering, provided that one non-independent director who is not employed by our
company may be appointed to the audit committee under some circumstances.
Mark J. DeNino and James J. Collis are the current members of our audit
committee.
The functions of the compensation committee are to review and approve annual
salaries, bonuses, and grants of stock options under our 1999 Stock Plan and
2000 Stock Plan, as well as to approve the terms and conditions of all employee
benefit plans and any changes to these plans. The compensation committee is to
consist of at least two directors who are not employed by our company or
otherwise retained to provide services to us upon completion of this offering.
Guy Hoffman and Stephen C. Bowsher are the members of our compensation
committee.
BOARD COMPOSITION
Our board of directors currently consists of five directors, but may be
increased to up to nine members. Our certificate of incorporation and bylaws
that become effective upon the completion of this offering provide that our
board of directors will be divided into three classes, Class I, Class II and
Class III, with each class serving staggered three-year terms. The term of the
Class I director, Alan K. Warms, will expire in 2001. The terms of the Class II
directors, Stephen C. Bowsher and Guy Hoffman, will expire in 2002. The terms of
the Class III directors, Mark J. DeNino and James J. Collis, will expire in
2003. Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors. This staggered
classification of the board of directors may have the effect of delaying or
preventing changes in control or management.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Historically, our board of directors made all compensation decisions,
without the involvement of our compensation committee, which was formed in April
2000. None of the members of our compensation committee was, at any time since
our formation, an officer or employee of our company. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of our
board of directors or compensation committee.
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<PAGE>
DIRECTOR COMPENSATION
We do not currently pay any cash compensation to our directors for their
services as members of the board of directors, although we reimburse them for
certain expenses in connection with attending our board and committee meetings.
Mr. Bowsher received options to purchase an aggregate of 50,000 shares of common
stock at an exercise price per share of $4.00. Seaport Capital, LLC, an entity
with which Mr. Collis is affiliated, received options to purchase an aggregate
of 50,000 shares of common stock at an exercise price of $4.00. Mr. DeNino
received options to purchase an aggregate of 50,000 shares of common stock at an
exercise price per share of $4.00. Mr. Hoffman received options to purchase an
aggregate of 54,500 shares of common stock at a weighted average exercise price
per share of $0.77. These options are subject to a two year vesting schedule. We
do not provide compensation for committee participation or special assignments
of the board of directors.
EXECUTIVE OFFICERS
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed.
Mr. Sands and Mr. Greer are brothers-in-law. Otherwise, there are no family
relationships among any of our directors, officers or key employees.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us during the year
ended December 31, 1999, to our Chief Executive Officer and to our four other
most highly compensated executive officers. This prospectus refers to these
executives as the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY $ BONUS $ OPTIONS COMPENSATION
- --------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Alan K. Warms........................................ $130,000 $ -- -- $ --
President and Chief Executive Officer
David A. Greer....................................... $116,667 -- 30,000 --
Vice President Operations
Todd A. Duthie(1).................................... $86,667 -- 86,200 --
Vice President Consulting
Joseph P. Cothrel(2)................................. $42,628 -- 86,000 --
Vice President Research
Stephen J. Hawrysz(3)................................ $20,718 -- 236,750 --
Chief Financial Officer
</TABLE>
- --------------------------
(1) Mr. Duthie began employment with us on February 18, 1999.
(2) Mr. Cothrel began employment with us on August 30, 1999.
(3) Mr. Hawrysz began employment with us on November 15, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
in 1999 to the Named Executive Officers. The values set forth in the last two
columns of the table represent the gain that the executives would realize
assuming that (1) options granted are exercised at the end of their respective
terms and (2) the value of a share of our common stock increases annually by a
rate of 0%, 5% and
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10% during the term of the option. These assumed growth rates are prescribed by
the rules of the Securities and Exchange Commission. By including these values
in this prospectus, we do not intend to forecast the possible appreciation of
our common stock or to establish a present value of these options. The
executives may not necessarily achieve the gain amounts reflected in the table.
There was no public market for our common stock as of December 31, 1999.
Accordingly, the fair market value per share of our common stock on
December 31, 1999 was determined by our board of directors. The board based its
determination on the prices paid for shares of our preferred stock by
institutional investors, which prices were reached through arms length
negotiations. All such options were awarded under our 1999 Stock Plan and
generally vest over four years from the date of grant.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------
NUMBER OF PERCENT OF FAIR
SECURITIES TOTAL OPTIONS EXERCISE OR MARKET VALUE EXPIRATION
UNDERLYING GRANTED BASE PRICE PER SHARE ON DATE DATE
NAME OPTIONS GRANTED IN 1999(1) (PER SHARE) OF GRANT(2) (MM/YY)
- ---- --------------- ------------- ----------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Alan K. Warms........ -- --% $ -- $ -- --
David A. Greer....... 30,000 2.6 0.25 1.33 11/09
Todd A. Duthie....... 86,200 7.6 0.25 1.33 2/09
Joseph P. Cothrel.... 86,000 7.6 0.25 1.33 8/09
Stephen J. Hawrysz... 236,750 20.8 0.25 1.33 11/09
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE APPRECIATION
FOR OPTION TERM
------------------------------
NAME 0% 5% 10%
- ---- -------- -------- --------
<S> <C> <C> <C>
Alan K. Warms........ $ -- $ -- $ --
David A. Greer....... 32,400 57,493 95,990
Todd A. Duthie....... 93,096 165,196 275,812
Joseph P. Cothrel.... 92,880 164,813 275,172
Stephen J. Hawrysz... 255,690 453,715 757,524
</TABLE>
- --------------------------
(1) Based on an aggregate of 1,136,608 options granted by us in the year ended
December 31, 1999 to our employees, directors and consultants, including the
Named Executive Officers.
(2) Stock options granted during 1999 were granted with an exercise price equal
to the then fair value of the underlying common stock on the grant date as
determined by the board of directors. For financial reporting purposes, the
common stock options were deemed to have an exercise price below the fair
market value based upon accounting guidelines related to equity issued
within a year of an initial public offering.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information for each of the Named Executive
Officers concerning option exercises for the year ended December 31, 1999, and
exercisable and unexercisable options held at December 31, 1999.
The "Value of Unexercised In-the-Money Options at December 31, 1999" is
based on a value of $1.33 per share of our common stock, which is based upon the
offering price of the Series B preferred stock, which was sold on September 17,
1999, less the per share exercise price, multiplied by the number of shares
issuable upon exercise of the option. All options were granted under our 1999
Stock Plan. None of the Named Executive Officers exercised options in 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alan K. Warms....................................... -- -- $ -- $ --
David A. Greer...................................... -- 30,000 -- 32,400
Todd A. Duthie...................................... -- 86,200 -- 93,096
Joseph P. Cothrel................................... -- 86,000 -- 92,880
Stephen J. Hawrysz.................................. -- 236,750 -- 255,690
</TABLE>
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<PAGE>
EMPLOYEE BENEFIT PLANS
2000 STOCK PLAN
Our board of directors adopted our 2000 Stock Plan in April 2000. A total of
2,000,000 shares of common stock were reserved for issuance under the 2000 Stock
Plan, plus any unissued shares under our 1999 Stock Plan as of the effective
date of this offering and any shares returned to the 1999 Stock Plan. The number
of shares available for issuance increases annually on the first day of each new
year beginning with the year 2001. The increase is equal to the lesser of 5% of
the outstanding shares of common stock on the first day of the year, 2,000,000
shares or an amount as the board may determine. Employees, directors and
consultants may be granted nonstatutory stock options and stock purchase rights,
or SPRs.
PLAN. Our board of directors or a committee of the board will administer the
2000 Stock Plan. The stock plan administrator has the power to determine the
terms of the options or SPRs granted, including the exercise price, the number
of shares subject to each option or SPR, the exercisability of the options and
the form of consideration payable upon exercise.
OPTIONS. The exercise price of all incentive stock options granted under
the 2000 Stock Plan must be at least equal to the fair market value of the
common stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date and
the term of such incentive stock option must not exceed five years. The term of
all other options granted under the 2000 Stock Plan may not exceed 10 years.
If the optionee ceases to be an employee, director or consultant of our
company, the optionee generally must exercise an option granted under the 2000
Stock Plan at the time set forth in the optionee's option agreement. If the
option terminates because of death or disability, the optionee must exercise an
option within 12 months of such termination. In no event may an optionee
exercise an option after the expiration of the option's term.
SPRS. The administrator determines the exercise price of SPRs granted under
the 2000 Stock Plan. Unless the administrator determines otherwise, the
restricted stock purchase agreement entered into, in connection with the
exercise of the SPR, shall grant us a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's service with us for any
reason, including death or disability. The purchase price for shares we
repurchase is the original price paid by the purchaser. The price may be paid by
cancellation of any indebtedness of the purchaser to us. The repurchase option
lapses at a rate that the administrator determines.
OUTSIDE DIRECTOR OPTIONS. The 2000 Stock Plan provides for an initial
automatic grant of an option to purchase 30,000 shares of common stock to a
director who first becomes an outside director after our initial public
offering. The plan defines an outside director as a director who is not an
employee. 50% of the shares subject to this option vest twelve months after the
date of grant and 1/24 of the shares subject to the option vest each month
thereafter.
Each outside director is automatically granted an option to purchase up to
10,000 shares following each annual meeting of our stockholders beginning after
the end of our fiscal year 2000, if immediately after such meeting, he or she
shall continue to serve on the board and has served on the board for at least
the preceding six months. 50% of the shares subject to this option vest twelve
months after the date of grant and 1/24 of the shares subject to the option vest
each month thereafter.
The exercise price of options granted to outside directors is 100% of the
fair market value of our common stock on the date of grant.
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<PAGE>
2000 EMPLOYEE STOCK PURCHASE PLAN
Our board of directors adopted our 2000 Employee Stock Purchase Plan, or the
Purchase Plan, in April 2000.
A total of 600,000 shares of common stock has been reserved for issuance
under the Purchase Plan. In addition, the Purchase Plan provides for annual
increases in the number of shares available for issuance under the Purchase Plan
on the first day of each fiscal year, beginning in 2001, equal to the lesser of
2% of the outstanding shares of common stock on the first day of the fiscal
year, 700,000 shares or an amount as the board may determine.
The board of directors or a committee appointed by the board administers the
Purchase Plan. The board or its committee has full and exclusive authority to
interpret the terms of the Purchase Plan and determine eligibility.
Employees are eligible to participate if they are customarily employed by
us, or any participating subsidiary for at least 20 hours per week and more than
five months in any calendar year. However, an employee may not be granted an
option to purchase stock under the Purchase Plan if such an employee:
- immediately after the grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
- whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate which exceeds $25,000 worth of stock for each
calendar year.
The Purchase Plan, which is intended to qualify under Section 423 of the
Internal Revenue Code, contains six month offering periods. The offering periods
generally start on the first trading day on or after September 1 and March 1,
except for the first offering period which will start on the first trading day
on or after the effective date of this offering and will end on the last trading
day on or before August 31, 2002.
The Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 15% of the participant's compensation. Compensation
is defined as the participant's base straight time gross earnings and
commissions but excludes payments for overtime, shift premium payments,
incentive compensation, incentive payments, bonuses and other compensation.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the Purchase Plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period or end of the
offering period. Participants may end their participation at any time during an
offering period, and they will be paid their payroll deductions to date.
Participation ends automatically upon termination of employment with us. The
maximum number of shares a participant may purchase during a single offering
period is 25,000 shares
The Purchase Plan will terminate in 2010. However, the board of directors
has the authority to amend or terminate the Purchase Plan at any time, except
that, subject to certain exceptions described in the Purchase Plan, no such
action may adversely affect any outstanding rights to purchase stock under the
Purchase Plan.
1999 STOCK PLAN
Our 1999 Stock Plan was adopted by our board of directors in November 1999
and subsequently approved by consent of a majority of our stockholders. Our 1999
Stock Plan provides for the grant of incentive stock options, nonstatutory stock
options, or stock purchase rights to employees, directors and consultants. A
total of 2,871,100 shares of common stock have been reserved for issuance under
the 1999 Stock Plan.
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Upon completion of this offering, the 1999 Stock Plan will terminate, no
further option grants will be made under the 1999 Stock Plan, and any shares
reserved but not yet issued under the 1999 Stock Plan will be available for
grant under the 2000 Stock Plan.
In the event we are acquired in a merger or asset purchase, each outstanding
option and stock purchase right granted under the 1999 Stock Plan will be
assumed or substituted for by the successor corporation. In the event that the
successor corporation refuses to assume or issue an equivalent option for each
outstanding option, these options and SPRs shall become fully vested and
exercisable.
EMPLOYMENT AGREEMENTS
We do not have employment agreements with any of our Named Executive
Officers except Mr. Greer.
Mr. Greer's salary is $150,000. He may also receive discretionary bonuses
pursuant to any executive bonus program that we offer. Mr. Greer may also
participate in our benefit plans.
We may terminate Mr. Greer's employment with or without cause by delivering
written notice to him. Mr. Greer may terminate his employment with or without
good reason by delivering written notice to us. If Mr. Greer's employment is
terminated by us or if Mr. Greer terminates his employment, he will receive such
compensation as has actually been earned by him prior to the date of
termination. The agreement with Mr. Greer expires on January 1, 2003.
Mr. Greer received an initial grant of 556,650 shares of our common stock
that is subject to a four year vesting schedule. If Mr. Greer's employment with
us terminates for any reason prior to October 19, 2002, Mr. Greer shall forfeit
a portion of his unvested shares. If Mr. Greer's employment is terminated by us
for cause, all of Mr. Greer's shares shall be forfeited. Upon a sale of all or
substantially all of our company's assets or a merger of our company that
results in a change in ownership of a majority of our voting securities,
Mr. Greer's shares will vest in full. As part of his employment agreement,
Mr. Greer also received stock options to purchase 30,000 shares of our common
stock at $0.25 per share. The options are subject to a four year vesting
schedule and are contingent upon Mr. Greer's continued employment with the
company.
Mr. Greer has agreed not to solicit our clients or employees during the term
of his employment with us and for one year thereafter. Mr. Greer has also agreed
not to reveal our confidential or proprietary information during the term of his
employment or at any time thereafter.
INDEMNIFICATION MATTERS
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our other officers and employees and other 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 have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, indemnify our directors and executive officers
for certain expenses, including attorneys' fees, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any
action by us arising out of such person's services as our director or executive
officer, any of our subsidiaries or any other company or enterprise to which the
person provides services at our request. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.
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CERTAIN TRANSACTIONS
OUR FORMATION
We were initially formed as Extranet Solutions LLC in October 1997. In
July 1999, we changed our name to Participate.com LLC. In September 1999, we
were incorporated as Participate.com, Inc. In connection with this
incorporation, all of the membership units in Participate.com LLC were exchanged
for common stock and Series A preferred stock of Participate.com, Inc.
PREFERRED STOCK FINANCINGS
In February 1999, we issued to various investors an aggregate of 624,000
Series A redeemable preferred units as well as 1,248,000 common units of
Extranet Solutions LLC. In September 1999, the holders of these equity interests
were issued 1,248,000 shares of common stock and a total of 624,000 shares of
Series A preferred stock in exchange for their equity ownership in
Participate.com LLC. In September 1999, we issued to various investors a total
of 8,701,980 shares of Series B preferred stock at a purchase price of $1.475
per share. In March and April 2000, we issued to various investors a total of
3,784,001 shares of Series C preferred stock at a purchase price of $5.40 per
share. Each share of Series B preferred stock and Series C preferred stock will
convert into common stock prior to the closing of this public offering.
In connection with our issuance of Series B preferred stock, we entered into
an Investor Rights Agreement with several holders of our common stock and our
Series A and B preferred stock. The purchasers of our Series C preferred stock
were added to this agreement in conjunction with our Series C preferred stock
financing. Under this Investor Rights Agreement, as long as it or its affiliates
hold any shares of Series B preferred stock, InterWest Partners VII, L.P., TL
Ventures and CEA Capital Partners are each entitled to nominate one member to
the board of directors. As long as it or its affiliates holds any shares of
Series C preferred stock, Diamond Technology Partners Incorporated is entitled
to nominate a director to the board, provided that this nominee must be
acceptable to our Chief Executive Officer. In addition, Mr. Warms is entitled to
nominate three members to the board of directors. If Mr. Warms dies or is
incapacitated, our common stockholders shall assume this right. Each of the
parties to the Investors Rights Agreement are obligated to vote for these
nominees. These rights to nominate directors will terminate upon the closing of
this offering.
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Listed below are the directors, executive officers and stockholders who
beneficially own 5% or more of any class of our preferred securities who
participated in these financings.
<TABLE>
<CAPTION>
PREFERRED STOCK
------------------------------
PREFERRED STOCKHOLDER SERIES A SERIES B SERIES C
- --------------------- -------- -------- --------
<S> <C> <C> <C>
HOLDERS OF MORE THAN 5%:
William K. Luby(1)(2)................................... 20.0% -- --
Jon G. Warms(3)......................................... 10.3% -- --
Frank Ingari............................................ 8.0% -- --
Mark Pincus............................................. 6.4% -- --
InterWest Partners(4)................................... -- 39.0% 18.6%
TL Ventures(5).......................................... -- 27.3% 13.0%
CEA Capital Partners(6)................................. -- 27.3% 13.0%
Diamond Technology Partners Incorporated(7)............. -- 39.2%
DIRECTORS:
Alan K. Warms........................................... 4.0% 0.4% --
James J. Collis(8)...................................... 4.0% -- 0.3%
OFFICERS:
David A. Greer.......................................... 3.2% 0.4% 0.5%
Robert A. Sands......................................... 3.2% 0.4% 1.0%
Joseph P. Cothrel....................................... -- -- 0.2%
Todd A. Duthie.......................................... -- -- 0.5%
Stephen J. Hawrysz(9)................................... -- -- 2.2%
</TABLE>
- ------------------------
(1) William K. Luby is the President of Seaport Capital, LLC, an entity formed
to manage CEA Capital Partners. Mr. Luby disclaims beneficial ownership of
the securities held by CEA Capital Partners except for his proportional
interest in the entity.
(2) Includes 100,000 shares of Series A preferred stock owned by ES Two
River L.L.C. Mr. Luby disclaims beneficial ownership of the securities held
by ES Two River L.L.C., except for his proportional interest in the entity.
(3) Jon G. Warms is the father of Alan K. Warms, the founder of the Company.
(4) Includes 3,242,874 shares of Series B preferred stock and 670,691 shares of
Series C preferred stock owned by InterWest Partners VII, LP and 147,126
shares of Series B preferred stock and 32,118 shares of Series C preferred
stock owned by InterWest Investors VII, LP. Stephen C. Bowsher, a member of
our board of directors, is a venture partner of InterWest Partners, an
entity affiliated with InterWest Investors VII, LP and InterWest Partners
VII, LP. Stephen Bowsher disclaims beneficial ownership of the securities
held by InterWest Partners, except for his proportional interest in the
entity.
(5) Includes 2,311,905 shares of Series B preferred stock and 479,300 shares of
Series C preferred stock owned by TL Ventures IV LP and 61,095 shares of
Series B preferred stock and 12,666 shares of Series C preferred stock owned
by TL Ventures IV InterFund LP. Mark J. DeNino, a member of our board of
directors, is a general partner of TL Ventures an entity affiliated with
TL Ventures IV LP and TL Ventures IV Interfund LP. Mr. DeNino disclaims
beneficial ownership of the securities held by TL Ventures, except for his
proportional interest in the entity.
(6) Includes 1,813,684 shares of Series B preferred stock and 376,010 shares of
Series C preferred stock owned by CEA Capital Partners, USA LP and
559,316 shares of Series B preferred stock and 115,956 shares of Series C
preferred stock owned by CEA Capital Partners USA CI, LP.
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<PAGE>
(7) Includes 740,741 shares of Series C preferred owned by Diamond Technology
Partners Incorporated and 740,741 shares of Series C preferred owned by DTP
Ventures, LLC.
(8) James J. Collis is an Executive Vice President of Seaport Capital, LLC, an
entity formed to manage CEA Capital Partners. Mr. Collis disclaims
beneficial ownership of the securities held by CEA Captial Partners except
for his proportional interest in the entity.
(9) Includes 9,260 shares of Series C preferred stock owned by the Hawrysz
Family 1994 Trust. Mr. Hawrysz disclaims any beneficial ownership of the
securities held by the Hawrysz Family 1994 Trust.
OTHER TRANSACTIONS
In 1998 and 1999, Alan K. Warms and Jon G. Warms funded our activities
through advances bearing interest at 9% per annum. In connection with the
issuance of the Series A redeemable preferred units in February, 1999, $89,000
of stockholder advances were converted to Series A redeemable preferred units,
at fair value.
In 1999, James J. Collis and William K. Luby provided consulting services to
our company in connection with developing our business plan. In exchange for
their services, Mr. Collis was granted 86,200 fully vested options and Mr. Luby
was granted 86,200 fully vested options. These options have an exercise price of
$0.25. Mr. Collis and Mr. Luby were reimbursed for the option exercise price and
the associated taxes.
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<PAGE>
PRINCIPAL STOCKHOLDERS
This table sets forth information regarding the beneficial ownership of our
common stock as of April 12, 2000, by the following individuals or groups:
- each person, or group of affiliated persons, whom we know beneficially
owns more than 5% of our outstanding stock;
- each of our executive officers named in the Summary Compensation Table
above;
- each of our directors; and
- all of our directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder on this table
is c/o Participate.com, Inc., 945 West George Street, Third Floor, Chicago,
Illinois 60657-5007. Except as otherwise noted, and subject to applicable
community property laws, to the best of our knowledge, the persons named in this
table have sole voting and investing power with respect to all of the shares of
common stock held by them.
This table lists applicable percentage ownership based on 20,993,627 shares
of common stock outstanding as of April 12, 2000 as adjusted to reflect the
conversion of all outstanding shares of the Series B preferred stock and the
Series C preferred stock upon the closing of this offering, and also lists
applicable percentage ownership based on shares of common stock
outstanding after completion of this offering. Options and warrants to purchase
shares of our common stock that are exercisable within sixty days of ,
2000 are deemed to be beneficially owned by the persons holding these options or
warrants for the purpose of computing percentage ownership of that person, but
are not treated as outstanding for the purpose of computing any other person's
ownership percentage.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------
PERCENT BEFORE PERCENT AFTER
NUMBER OFFERING OFFERING
--------- -------------- -------------
<S> <C> <C> <C>
InterWest Partners(1).................................... 4,092,809 19.5%
TL Ventures(2)........................................... 2,864,966 13.6%
CEA Capital Partners(3).................................. 2,864,966 13.6%
Diamond Technology Partners Incorporated(4).............. 1,481,482 7.1%
Alan K. Warms(5)......................................... 7,134,798 34.0%
James J. Collis(6)....................................... 146,466 *
David A. Greer(7)........................................ 648,429 3.1%
Joseph P. Cothrel........................................ 9,260 *
Todd A. Duthie........................................... 9,260 *
Stephen J. Hawrysz(8).................................... 83,335 *
All directors and executive officers as a group.......... 6,852,347 32.6%
</TABLE>
- ------------------------
* less than one percent
(1) Includes 3,913,565 shares owned by InterWest Partners VII, LP and 179,244
shares owned by InterWest Investors VII, LP.
(2) Includes 2,791,205 shares owned by TL Ventures IV LP and 73,761 shares owned
by TL Ventures IV Interfund LP.
(3) Includes 2,189,694 shares owned by CEA Capital Partners USA, LP and 675,272
shares owned by CEA Capital Partners USA CI, LP.
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<PAGE>
(4) Includes 740,741 shares owned by Diamond Technology Partners, Incorporated
and 740,741 shares owned by DTP Ventures, LLC.
(5) Includes 556,650 shares owned by David A. Greer and 742,200 shares owned by
Erika Kerekes, an employee of our company, which Mr. Warms has the power
vote pursuant to voting agreements. Mr. Warms disclaims any beneficial
ownership of these securities.
(6) James J. Collis, a director of the Company, is an Executive Vice President
of Seaport Capital, LLC an entity formed to manage CEA Capital Partners.
Mr. Collis disclaims beneficial ownership of the securities held by CEA
Capital Partners except for his proportional interest in the entity.
(7) 556,650 of the shares held by David A. Greer are subject to a four year
vesting schedule. As of April 12, 2000, 31.25% of his shares are vested. If
Mr. Greer is terminated for cause by us, these shares will be forfeited.
(8) Includes 9,260 shares owned by the Hawrysz Family 1994 Trust. Mr. Hawrysz
disclaims beneficial ownership of these securities.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our certificate of incorporation that becomes effective upon the closing of
this offering authorizes the issuance of up to 100,000,000 shares of common
stock, $0.001 par value, and authorizes the issuance of 5,000,000 shares of
undesignated preferred stock, $0.001 par value. From time to time, our board of
directors may establish the rights and preferences of the preferred stock. As of
April 12, 2000, 8,507,646 shares of common stock and 13,109,981 shares of
preferred stock were issued and outstanding and held by 47 stockholders. Upon
the closing of this offering, all outstanding shares of Series B preferred stock
and Series C preferred stock will convert into an aggregate of 12,485,981 shares
of common stock. The following description of our capital stock is, by
necessity, not complete. We encourage you to refer to our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and applicable provisions of
Delaware law for a more complete description.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably
dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, the holders of common stock are entitled
to share in our assets remaining after the payment of liabilities and the
satisfaction of any liquidation preference granted to the holders of any
outstanding shares of preferred stock. 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. The rights,
preferences and privileges of the holders of common stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series
of preferred stock which we may designate in the future.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to issue up to 5,000,000 shares of preferred stock in one or more
series, to establish the number of shares to be included in each series, and to
fix or alter the rights, preferences and privileges of each series, 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. Nonetheless, the effects
might include, among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of Participate.com without
further action by the stockholders.
Upon the closing of this offering, 624,000 shares of Series A preferred
stock will be outstanding, and we have no plans to issue any additional shares
of preferred stock. We intend to redeem all outstanding shares of Series A
preferred stock with the proceeds of this offering.
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<PAGE>
WARRANTS AND OTHER OBLIGATIONS TO ISSUE CAPITAL STOCK
As of March 28, 2000, there were outstanding warrants to purchase an
aggregate of 525,000 shares of our common stock with a weighted average exercise
price equal to the price of shares sold in this offering. These warrants will
only become exercisable if certain performance criteria is met prior to
March 31, 2002.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
After this offering, holders of 12,485,981 shares of common stock or
warrants to purchase common stock or their transferees will have rights to
register those shares under the Securities Act of 1933. These rights are
provided under the terms of an agreement between us and the holders of the
registrable securities. Subject to limitations in the agreement, beginning on
September 17, 2002, the holders of at least 50% of the registrable securities
may require, on two occasions, that we use our best efforts to register the
registrable securities for public resale. We are obligated to register these
shares only if the outstanding registrable securities have an anticipated
aggregate public offering price of at least $5,000,000, after underwriting
discounts and commissions. Also, holders of the registrable securities may
require, no more than once per year, that we register their shares for public
resale on Form S-3 or similar short-form registration if the anticipated
aggregate public offering price of the shares to be registered would exceed
$500,000. Furthermore, in the event we elect to register any of our shares of
common stock for purposes of effecting any public offering, the holders of
registrable securities are entitled to include their shares of common stock in
the registration, but the number of shares proposed to be registered may be
reduced in view of market conditions. We will bear all expenses in connection
with any registration, other than underwriting discounts and commissions. All
registration rights will terminate five years following the consummation of this
offering. These registration rights will also terminate with respect to each
holder of registrable securities, at such time as the holder is entitled to sell
all of its shares in any 90-day period under Rule 144 of the Securities Act,
provided we have completed this offering and we are subject to the reporting
requirements of the Exchange Act and our common stock is traded on a national
exchange or NASDAQ.
DELAWARE ANTI-TAKEOVER LAW AND RESTRICTIVE PROVISIONS OF OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:
- our acquisition by means of a tender offer;
- our acquisition by means of a proxy contest or otherwise; or
- the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain types
of coercive takeover practices and inadequate takeover bids. These provisions
are also designed to encourage persons seeking to acquire control of us to first
negotiate with our board of directors. 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 Participate.com
outweigh the disadvantages of discouraging such proposals because negotiation of
such proposals could result in an improvement of their terms.
DELAWARE ANTI-TAKEOVER LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. Subject to several exemptions, the
statute precludes an interested stockholder, generally a holder of 15% of our
common stock, from engaging in a merger, asset sale, or other
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<PAGE>
business combination with us for a period of three years after the date of the
transaction in which the person became an interested stockholder. An exemption
may be applied if:
- prior to the time the stockholder became an interested stockholder, the
board of directors approved either the business combination or the
transaction which resulted in the person becoming an interested
stockholder;
- the stockholder owned at least 85% of the outstanding voting stock of the
corporation, excluding shares held by directors who were also officers or
held in certain employee stock plans, upon consummation of the transaction
which resulted in a stockholder becoming an interested stockholder; or
- the business combination was approved by the board of directors and by
two-thirds of the outstanding voting stock of the corporation, excluding
shares held by the interested stockholder.
The existence of this provision may have an anti-takeover effect with
respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
ELECTION AND REMOVAL OF DIRECTORS
Our board of directors is divided into three classes. The directors in each
class will serve for a three-year term, with our stockholders electing one class
each year. See "Management--Board Composition." This system of electing and
removing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us, because it generally
makes it more difficult for stockholders to replace a majority of the directors.
STOCKHOLDER MEETINGS
Under our bylaws, only the board of directors, the chairman of the board,
the president and the holders of a majority of the outstanding capital stock may
call special meetings of stockholders.
REQUIREMENTS FOR ADVANCED NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS
Our bylaws establish advance notice procedures for stockholder 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 committee of the
board.
ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT
Our certificate of incorporation eliminates the right of stockholders to act
by written consent without a meeting.
NO CUMULATIVE VOTING
Our certificate of incorporation and bylaws do not provide for cumulative
voting in the election of directors.
UNDESIGNATED PREFERRED STOCK
The authorization of undesignated preferred stock makes it possible for the
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
us. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management of us.
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<PAGE>
AMENDMENT OF CHARTER PROVISIONS
The amendment of many of the provisions described above would require
approval by holders of at least 66 2/3% of the outstanding common stock.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
Our certificate of incorporation provides that our directors shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- payments of dividends or stock purchases or redemptions in violation of
Section 174 of the Delaware General Corporation Law; or
- any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation also provides for indemnification of our
officers and directors to the fullest extent permitted by the Delaware General
Corporation Law, including some instances in which indemnification is otherwise
discretionary under the law. We will also enter into contractual indemnity
arrangements with our directors and executive officers upon the closing of this
offering. We believe that these indemnification and liability provisions are
essential to attracting and retaining qualified persons as directors and
officers.
There is no pending litigation or proceeding involving any of our directors
or officers as to which indemnification is being sought. In addition, we are not
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is LaSalle National
Bank.
NASDAQ NATIONAL MARKET LISTING
We will apply to list our common stock on the Nasdaq Stock Market's National
Market under the symbol "PRTP."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options
and warrants, in the public market following this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through sale of our equity securities. Sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect the prevailing market price and our ability to raise
equity capital in the future.
We will have shares of common stock outstanding after the
completion of this offering (shares if the underwriters' overallotment
is exercised in full.) Of those shares, the shares of common stock
sold in the offering (shares if the underwriters' over-allotment
option is exercised in full) will be freely transferable without restriction,
unless purchased by persons deemed to be our "affiliates" as that term is
defined in Rule 144 under the Securities Act). Any shares purchased by an
affiliate may not be resold except pursuant to an effective registration
statement or an applicable exemption from registration, including an exemption
under Rule 144. The remaining shares of common stock to be outstanding
immediately following the completion of this offering are "restricted" which
means they were originally sold in certain types of offerings that were not
subject to a registration statement filed with the Securities and Exchange
Commission. These restricted shares may only be sold through registration under
the Securities Act or under an available exemption from registration, such as
provided through Rule 144 promulgated under the Securities Act. The holders of
over % of our shares of common stock, options, and warrants have agreed to a
180-day "lock-up" with respect to these securities. This generally means they
cannot sell these shares during the 180 days following the date of this
prospectus without the consent of our underwriters. After the 180-day lock-up
period, these shares may be sold in accordance with Rule 144. See "Underwriting"
for additional details.
After the offering, the holders of shares of our common stock
(including shares issuable upon exercise of outstanding warrants) will
be entitled to registration rights. For more information on these registration
rights, see "Description of Capital Stock--Registration Rights."
RULE 144
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares of our common stock for one year or more, may sell in the open market
within any three-month period a number of shares that does not exceed the
greater of:
- one percent of the then outstanding shares of our common stock
(approximately shares immediately after the offering); or
- the average weekly trading volume in the common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to certain limitations on the manner
of sale, notice requirements, and the availability of our current public
information. A person (or persons whose shares are aggregated) who is deemed not
to have been our affiliate at any time during the 90 days preceding a sale by
him and who has beneficially owned his shares for at least two years, may sell
the shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, notice requirements, or the availability
of current public information we refer to above. Subject to the lock-up
agreements, the shares of our common stock that were outstanding on
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<PAGE>
December 31, 1999 that will become eligible for sale without registration
pusuant to Rule 144 or Rule 701 under the Securities Act are as follows:
- shares will be eligible for sale under Rule 144 or Rule 701
beginning 90 days after the date of this prospectus, subject to volume,
manner of sale, and other limitations under those rules; and
- the remaining shares of common stock will become eligible for sale
from time to time after the date of this prospectus under Rule 144 upon
expiration of their respective holding periods.
After this offering, we intend to file a registration statement on Form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under our stock plans. As of April 12, 2000, options to
purchase a total of 2,062,604 shares were outstanding and 3,232,076 shares were
reserved for future issuance under our stock plans. Common stock issued upon
exercise of outstanding vested options or issued pursuant to our employee stock
purchase plan, other than common stock issued to our affiliates is available for
immediate resale in the open market.
Also beginning on September 17, 2002, holders of 12,485,981 restricted
shares will be entitled to certain rights with respect to registration of such
shares for sale in the public market. See "Description of Capital
Stock--Registration Rights." Registration of such shares under the Securities
Act would result in such shares becoming freely tradable without restriction
under the Securities Act, except for shares purchased by affiliates, immediately
upon the effectiveness of such registration.
STOCK OPTIONS
We have reserved an aggregate of 2,632,076 shares of common stock for
issuance under our 1999 Stock Plan and 2000 Stock Plan and have outstanding
options to purchase 2,062,604 shares. We intend to register the shares subject
to the plans and the options on a Form S-8 Registration Statement following the
offering. Subject to the lock-up agreements, the restrictions imposed under the
plans, and the related option agreements, shares of common stock issued under
the plans after the effective date of any Registration Statement on Form S-8
will be available for sale in the public market without restriction to the
extent that they are held by persons who are not our affiliates under Rule 144.
No public trading market for the common stock existed prior to the offering.
No prediction can be made as to the effect, if any, that future sales of shares
under Rule 144 or otherwise will have on the market price prevailing from time
to time. Sales of substantial amounts of common stock into the public market
following the offering, or the perception that such sales could occur, could
adversely affect the then prevailing market price.
52
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Chase Securities Inc. and William Blair &
Company, L.L.C., have severally agreed with us, subject to the terms and
conditions of the underwriting agreement, to purchase from us the number of
shares of common stock set forth below opposite their respective names. The
underwriters are committed to purchase and pay for all shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
Chase Securities Inc........................................
William Blair & Company, L.L.C..............................
Total...................................................
=======
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less a
concession of not in excess of $ per share, of which $ may be reallowed to
other dealers. After this offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No such reduction
shall change the amount of proceeds to be received by us as set forth on the
cover page of this prospectus. The common stock is offered by the underwriters
as stated herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
OVER-ALLOTMENT OPTION
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to additional
shares of common stock to cover over-allotments, if any, at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus. If the underwriters exercise their over-allotment option to purchase
any of the additional shares of common stock, the underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof as the number of shares to be purchased by each of them
bears to the total number of shares of common stock offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered hereby are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters to the extent the over-allotment option is exercised. The
underwriters may exercise the over-allotment option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters by our company:
<TABLE>
<CAPTION>
TOTAL
-------------------------------------------
WITH WITHOUT
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us........... $ $ $
Underwriting discounts and commissions payable by us........
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $ .
53
<PAGE>
INDEMNITY
The underwriting agreement contains covenants of indemnity among the
underwriters and us against certain civil liabilities, including liabilities
under the Securities Act, and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
LOCK-UP AGREEMENTS
Each of our executive officers and directors and substantially all of our
other shareholders have agreed, subject to specified exceptions, not to offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to any shares of common stock or any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or thereafter acquired directly by those holders or with respect to which they
have the power of disposition, without the prior written consent of FleetBoston
Robertson Stephens Inc. This restriction terminates after the close of trading
of the shares on the 180th day of (and including) the day the shares commenced
trading on the Nasdaq National Market. However, FleetBoston Robertson
Stephens Inc. may, in its sole discretion and at any time or from time to time
before the termination of the 180-day period, without notice, release all or any
portion of the securities subject to lock-up agreements. There are no existing
agreements between the representatives and any of our stockholders who have
executed a lock-up agreement providing consent to the sale of shares prior to
the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the
lock-up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock other than our sale of shares in this offering, the
issuance of our common stock upon the exercise of outstanding options or
warrants, and the issuance of options under existing stock option and incentive
plans provided that those options do not vest prior to the expiration of the
lock-up period. See "Shares Eligible for Future Sale."
LISTING
The common stock has been approved for quotation on the Nasdaq National
Market under the symbol "PRTP."
NO PRIOR PUBLIC MARKET
Prior to this offering, there has been no public market for the common
stock. Consequently, the public offering price for the common stock offered by
this prospectus has been determined through negotiations among the
representatives and us. Among the factors considered in such negotiations were
prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be
comparable to us, estimates of our business potential, the present state of our
development and other factors deemed relevant.
INTERNET DISTRIBUTION
E*TRADE will make the preliminary prospectus available on its website when
it becomes available. E*TRADE will not solicit conditional offers until two
business days before the expected effective date of the offering. If the
effective date of the offering is delayed beyond two business days, E*TRADE
would allow any conditional offer received from a customer to remain valid for
up to seven days from the date it was originally submitted.
54
<PAGE>
E*TRADE will provide customers a period after notice of effectiveness during
which they will continue to have the right to cancel their conditional offers.
This period will be until 8 p.m. EST (but in no event less than two hours after
E*TRADE notifies its customers of effectiveness) in the usual situation where
the offering becomes effective after the close of trading. If the offering
becomes effective prior to or during the trading day, the period will be one
hour after E*TRADE notifies its customers of effectiveness.
If an offering prices outside the expected price range indicated in the
preliminary prospectus or the price range for an offering changes, E*TRADE will
either (i) cancel its existing book of conditional offers and resolicit new
conditional offers or (ii) require customers to reconfirm their existing
conditional offers as a condition to participating in the offering.
STABILIZATION
The representatives have advised us that, pursuant to Regulation M under the
Securities Act of 1933, some persons participating in the offering may engage in
transactions, including stabilizing bids, syndicate covering transactions or the
imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the shares of common stock at a level above that
which might otherwise prevail in the open market. A "stabilizing bid" is a bid
for or the purchase of shares of common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of common stock on behalf of
the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with the offering if the common
stock originally sold by such underwriter or syndicate member was purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
DIRECTED SHARE PROGRAM
At our request, certain of the underwriters have reserved up to 7.5% of the
shares of common stock (the "Directed Shares") for sale at the initial public
offering price to persons who are our directors, officers or employees, or who
are otherwise associated with us and our affiliates, and who have advised us of
their desire to purchase such shares. The number of shares of common stock
available for sale to the general public will be reduced to the extent of sales
of the Directed Shares to any of the persons for whom they have been reserved.
Any shares not so purchased will be offered by the underwriters on the same
basis as all other shares of common stock offered hereby. We have agreed to
indemnify those certain underwriters against certain liabilities and expenses,
including liabilities under the Securities Act, in connection with the sales of
directed shares.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by McDermott, Will & Emery, Chicago, Illinois.
As of the date of this prospectus, Wilson Sonsini Goodrich & Rosati and its
members beneficially owned an aggregate of 15,402 shares of Series B preferred
stock.
55
<PAGE>
EXPERTS
The financial statements included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including exhibits and schedules, under the Securities
Act with respect to the common stock to be sold in this offering. This
prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement or the
exhibits and schedules which are part of the Registration Statement. The rules
and regulations of the Securities and Exchange Commission allow us to omit
certain information included in the Registration Statement from this prospectus.
Accordingly, any statements made in this prospectus as to the contents of any
contract, agreement, or other document are not necessarily complete. With
respect to each such contract, agreement, or other document filed as an exhibit
to the Registration Statement, we refer you to the exhibit for a more complete
description of the matter involved, and each statement in this prospectus shall
be deemed qualified in its entirety by this reference. You may read and copy all
or any portion of the Registration Statement or any reports, statements, or
other information in the files at the following public reference facilities of
the Securities and Exchange Commission:
<TABLE>
<S> <C> <C>
WASHINGTON, D.C. NEW YORK, NEW YORK CHICAGO, ILLINOIS
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
You can request copies of these documents upon payment of a duplicating fee
by writing to the Securities and Exchange Commission. You may call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of its public reference rooms. Our filings, including the
Registration Statement, will also be available to you on the Internet website
maintained by the Securities and Exchange Commission at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing audited
financial statements, and make available to our stockholders quarterly reports
for the first three quarters of each year containing unaudited interim financial
information.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the two month period ended
December 31, 1997, and the years ended December 31, 1998
and 1999.................................................. F-4
Statements of Stockholders' Equity (Deficit) for the two
month period ended December 31, 1997, and the years ended
December 31, 1998 and 1999................................ F-5
Statements of Cash Flows for the two month period ended
December 31, 1997, and the years ended December 31, 1998
and 1999.................................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Participate.com, Inc:
We have audited the accompanying balance sheets of PARTICIPATE.COM, INC. (a
Delaware corporation) as of December 31, 1998 and 1999, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
two month period ended December 31, 1997, and the years ended December 31, 1998
and 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Participate.com, Inc. as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the two month period ended December 31, 1997, and the years ended
December 31, 1998 and 1999, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Chicago, Illinois
January 27, 2000
(except with respect to the matters discussed in
Note 14, as to which the date is April 11, 2000)
F-2
<PAGE>
PARTICIPATE.COM, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4 $10,609
Accounts receivable, less allowance for doubtful accounts
of $0 and $31
in 1998 and 1999, respectively.......................... 133 522
Prepaids and other........................................ 6 237
------- -------
Total current assets.................................... 143 11,368
------- -------
PROPERTY AND EQUIPMENT, NET................................. 24 471
OTHER ASSETS................................................ 5 57
------- -------
Total assets............................................ $ 172 $11,896
======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.......................................... $ 34 $ 379
Accrued expenses.......................................... 136 556
Note payable--stockholder................................. 72 8
Dividend payable.......................................... -- 52
Capital lease obligations--current........................ 8 90
Deferred revenue.......................................... -- 34
------- -------
Total current liabilities............................... 250 1,119
------- -------
CAPITAL LEASE OBLIGATIONS--long term........................ 13 91
------- -------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Series A, 10% cumulative dividend, $.001 par value;
624,000 shares authorized, issued and outstanding at
December 31, 1999, and none authorized in 1998.......... -- 588
Series B, convertible preferred stock, 8.14% noncumulative
dividend, $.001 par value; 8,701,980 shares authorized;
8,701,980 shares issued and outstanding at December 31,
1999, and none authorized in 1998....................... -- 12,626
------- -------
Total redeemable preferred stock........................ -- 13,214
------- -------
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value; 24,000,000 shares
authorized; 8,331,226 shares issued and outstanding at
December 31, 1999, and none authorized in 1998.......... -- 8
Additional paid in capital................................ -- 244
Deferred compensation expense related to stock options.... -- (956)
Accumulated deficit....................................... -- (1,824)
Members' capital.......................................... (91) --
------- -------
Total stockholders' deficit............................. (91) (2,528)
------- -------
Total liabilities and stockholders' deficit............. $ 172 $11,896
======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
F-3
<PAGE>
PARTICIPATE.COM, INC.
STATEMENTS OF OPERATIONS
FOR THE TWO MONTH PERIOD ENDED DECEMBER 31, 1997, AND
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES................................................. $ 6 $ 507 $ 1,885
COST OF SERVICES......................................... 5 323 1,286
---------- ---------- ----------
Gross profit......................................... 1 184 599
OPERATING EXPENSES:
Selling, general and administrative.................... 5 277 3,104
Noncash compensation expense........................... -- -- 287
---------- ---------- ----------
Operating loss....................................... (4) (93) (2,792)
OTHER INCOME (EXPENSE), NET:
Other income, net...................................... -- -- 144
Interest expense....................................... -- (5) (14)
---------- ---------- ----------
NET LOSS................................................. (4) (98) (2,662)
DIVIDENDS AND ACCRETION TO REDEMPTION VALUE OF PREFERRED
STOCK.................................................. -- -- (71)
---------- ---------- ----------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS............. $ (4) $ (98) $ (2,733)
========== ========== ==========
PER SHARE DATA:
Basic and diluted net loss per share attributable to
common stockholders.................................. $ 0.00 $ (0.02) $ (0.33)
========== ========== ==========
Basic and diluted weighted average shares
outstanding.......................................... 5,572,050 6,368,178 8,200,621
========== ========== ==========
PRO FORMA (UNAUDITED):
Pro forma basic and diluted net loss per share
attributable to
common stockholders.................................. $ (0.26)
==========
Pro forma basic and diluted weighted average shares
outstanding.......................................... 10,703,930
==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-4
<PAGE>
PARTICIPATE.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWO MONTH PERIOD ENDED DECEMBER 31, 1997, AND FOR THE YEARS ENDED
DECEMBER 31, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK,
$.001 PAR VALUE; DEFERRED
COMMON UNITS 24,000,000 SHARES COMPENSATION
IN LLC AUTHORIZED ADDITIONAL EXPENSE RELATED
--------------------- --------------------- PAID-IN TO STOCK RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL OPTIONS DEFICIT TOTAL
---------- -------- --------- --------- ---------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, at inception........ -- $ -- -- $ -- $ -- $ -- $ -- $ --
Sale of common units....... 5,752,050 10 -- -- -- -- -- 10
Net loss................... -- (4) -- -- -- -- -- (4)
---------- ----- --------- --------- ------ ------- ------- -------
BALANCE, December 31, 1997... 5,752,050 6 -- -- -- -- -- 6
---------- ----- --------- --------- ------ ------- ------- -------
Units granted.............. 742,200 1 -- -- -- -- -- 1
Net loss................... -- (98) -- -- -- -- -- (98)
---------- ----- --------- --------- ------ ------- ------- -------
BALANCE, December 31, 1998... 6,494,250 (91) -- -- -- -- -- (91)
---------- ----- --------- --------- ------ ------- ------- -------
Issuance of common units in
connection with the sale
of preferred units....... 1,248,000 6 -- -- -- -- -- 6
Units granted.............. 556,650 2 -- -- -- -- -- 2
Sale of common units....... 32,326 1 -- -- -- -- -- 1
Net loss attributable to
LLC common units......... -- (258) -- -- -- -- -- (258)
Accretion of preferred
units.................... -- (580) -- -- -- -- -- (580)
C Corporation conversion... (8,331,226) 920 8,331,226 8 (928) -- -- --
Preferred stock
dividends................ -- -- -- -- (52) -- -- (52)
Preferred stock
accretion................ -- -- -- -- (19) -- -- (19)
Deferred compensation
expense related to the
issuance of stock
options.................. -- -- -- -- 1,243 (1,243) -- --
Compensation expense
related to the issuance
of stock options......... -- -- -- -- -- 287 -- 287
Net loss attributable to C
Corporation.............. -- -- -- -- -- -- (1,824) (1,824)
---------- ----- --------- --------- ------ ------- ------- -------
BALANCE, December 31, 1999... -- $ -- 8,331,226 $ 8 $ 244 $ (956) $(1,824) $(2,528)
========== ===== ========= ========= ====== ======= ======= =======
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
PARTICIPATE.COM, INC.
STATEMENTS OF CASH FLOWS
FOR THE TWO MONTH PERIOD ENDED DECEMBER 31, 1997, AND
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (4) $ (98) $(2,662)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization........................... 1 1 81
Stock grant............................................. -- 1 2
Noncash compensation expense related to the issuance of
stock options.......................................... -- -- 287
Changes in operating assets and liabilities--
Accounts receivable................................... -- (133) (389)
Prepaids and other.................................... -- (6) (231)
Other assets.......................................... (2) (3) (52)
Accounts payable...................................... -- 34 345
Accrued expenses...................................... -- 136 420
Deferred revenue...................................... -- -- 34
------- ------- -------
Net cash used in operating activities............... (5) (68) (2,165)
------- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment........................ (3) (2) (330)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligations..................... -- -- (38)
Proceeds from issuance of common units.................... 10 -- 7
Proceeds from issuance of preferred units/stock, net of
issuance costs.......................................... -- -- 13,195
Related-party borrowings (payments), net.................. 3 69 (64)
------- ------- -------
Net cash provided by financing activities........... 13 69 13,100
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 5 (1) 10,605
CASH AND CASH EQUIVALENTS, beginning of period.............. -- 5 4
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period.................... $ 5 $ 4 $10,609
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for--
Interest................................................ $ -- $ 5 $ 14
======= ======= =======
NONCASH TRANSACTIONS:
Dividend accrued on preferred stock....................... $ -- $ -- $ 52
Accretion to redemption value of preferred stock.......... -- -- 19
Capital lease financing................................... -- 21 198
======= ======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-6
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
1. ORGANIZATION AND OPERATIONS
Participate.com, Inc. (the "Company") is a management service provider that
enables successful eBusiness strategies by offering an integrated management
solution for online communities. The Company's service delivery platform, the
Community Management System, is a full-service approach that includes
developing, managing and hosting online business communities.
Prior to September 17, 1999, the Company operated as a limited liability
corporation ("LLC"). On September 17, 1999, the LLC converted to a
C Corporation incorporated in Delaware under the name Participate.com, Inc. On
this date, all LLC common units were converted, at a one-to-one ratio, into
shares of common stock and all preferred units in the LLC were converted, at a
one-to-one ratio, into Series A preferred stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes revenue as services are provided.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight line
basis over their estimated useful lives. Expenditures for major additions are
capitalized, and the cost of repairs and maintenance is expensed as incurred.
The cost basis and useful lives of equipment at December 31, 1998 and 1999, are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1999 LIFE
-------- -------- --------
<S> <C> <C> <C> <C>
Computer equipment.................................. $ -- $393 3 years
Computer software................................... 26 101 3 years
Office equipment.................................... -- 42 5 years
Leasehold improvements.............................. -- 18 5 years
---- ---- =======
26 554
Less--accumulated depreciation...................... 2 83
---- ----
$ 24 $471
==== ====
</TABLE>
F-7
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
At December 31, 1998 and 1999, the cost basis of the capitalized leases was
$21,000 and $219,000, respectively. The related accumulated depreciation of
equipment under capitalized leases was $0 and $38,000, respectively.
STOCK-BASED COMPENSATION
The Company accounts for stock options issued to employees in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees." The Company has adopted the disclosure-only provision of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," for options and warrants issued to employees and
directors. Expense associated with stock options and warrants issued to
nonemployees/nondirectors is recorded in accordance with SFAS No. 123.
ACCRETION TO REDEMPTION VALUE OF PREFERRED STOCK
Accretion to redemption value of redeemable preferred stock represents the
change in the redemption value of outstanding preferred stock in each period.
Preferred stock is being accreted to its redemption value over the earliest
period redemption can occur using the effective interest method. The redemption
values are based on the face value of the stock.
NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss for the period
by the weighted average number of common shares outstanding during the period.
Diluted net loss per share is computed by dividing the net loss for the period
by the weighted average number of common and common equivalent shares
outstanding during the period, if dilutive. Common equivalent shares at
December 31, 1998 and 1999, were 0 and 2,603,059, which include 0 and 2,503,309
shares, respectively, issuable upon the conversion of Series B preferred stock,
weighted for the periods outstanding, as if such conversion occurred on the date
of issuance. These shares have been excluded from diluted loss per share, as
their impact would be antidilutive.
UNAUDITED PRO FORMA LOSS PER SHARE ATTIBUTABLE TO COMMON STOCKHOLDERS
Unaudited pro forma loss per share attibutable to common stockholders is
based on the weighted average number of shares of common stock outstanding
assuming that the Series B preferred stock was converted into common stock on
the date of issuance. Common equivalent shares have been excluded from pro forma
diluted loss per share, as their impact would be anti-dilutive.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December, 1999, the SEC issued Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides
specific guidance on revenue recognition. The Company recognizes revenue based
upon the provisions of SAB No. 101.
3. STOCKHOLDERS' EQUITY
In January, 2000, the Board of Directors of the Company authorized a
two-for-one stock split for common stock and Series B preferred stock. The
effect of the stock split has been retroactively reflected for all periods
presented in the accompanying financial statements.
F-8
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
MEMBERS UNITS
Prior to the Company converting to a C corporation, members' equity
consisted of redeemable preferred units and common units in a limited liability
corporation. Based upon the members' agreement, net losses for any fiscal year
shall be first allocated to the members who have a positive capital account
balance, until such balances have been reduced to zero. Secondly, remaining
losses are then allocated to the holder of common units. Net losses have been
allocated as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Common units......................................... $ (4) $ (98) $ (258)
Preferred units...................................... -- -- (580)
----- ----- -------
Total net loss attributable to the LLC........... (4) (98) (838)
Net loss attributable to the C Corporation........... -- -- (1,824)
----- ----- -------
Net loss......................................... $ (4) $ (98) $(2,662)
===== ===== =======
</TABLE>
COMMON STOCK
During 1998 and 1999, the Company granted 742,200 and 556,650 common units
in the LLC (subsequently, common stock of the C Corporation) to two individuals
upon employment with the Company. The stock grants vest over a two- and
four-year period, respectively. The value of the grants was based upon estimated
fair market value at the time of grant using arm's length transactions to
determine such value. The grant value is being amortized over the related
vesting periods as compensation expense. The compensation expense for these
grants recognized in December 31, 1998 and 1999, was $1,000 and $2,000,
respectively.
In July, 1999, the Company sold to an investor 32,326 shares of common units
at $0.025 per share.
RIGHTS, PREFERENCES AND PRIVILEGES
The rights, preferences and privileges of the common stock are listed below.
DIVIDENDS
No dividend may be paid with respect to the holders of common stock until
equivalent dividends have been declared and paid on all outstanding shares of
Series A and B preferred stock.
VOTING RIGHTS
The holders of common stock are entitled to one vote per share.
4. REDEEMABLE PREFERRED STOCK
SERIES A
In a private placement transaction in February, 1999, the Company issued
624,000 redeemable preferred units in the LLC (subsequently, redeemable
preferred stock of the C Corporation). For purchasing 1,000 preferred units for
$1,000, each investor was also given 2,000 common units. The net proceeds of
$586,000 were allocated between Series A preferred units and common units based
upon
F-9
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
their relative fair values. The rights, preferences and privileges of the
Series A preferred stock, which was issued in exchange for the LLC units, are
listed below.
DIVIDENDS
The holders of the Series A preferred stock are entitled to receive a
cumulative dividend of 10% per annum. If the stock is not redeemed by September,
2004, the stockholder will be entitled to a cumulative dividend of 20%. No
dividend shall be paid on Series B preferred stock and common stock prior to
payment on any accumulation of Series A preferred stock dividends. To date, the
Company has accrued, but not paid, any dividends.
REDEMPTION
The Series A preferred stock is redeemable by the Company on or before
September, 2004, at an amount of $1.00 per share, adjusted for any
recapitalizations, plus accrued but unpaid dividends. In the event that the
Company is unable to redeem all Series A preferred shares by September, 2004,
the Company must use all legally available funds to redeem as many shares as
possible and as additional funds become available, such funds must be used to
redeem the remaining shares.
LIQUIDATION PREFERENCE
Series A preferred stockholders will be entitled to receive, prior to and in
preference to, any distribution of any of the assets or surplus funds of the
Company to the holders of the common stock and PARI PASSU with Series B
preferred stockholders upon liquidation. Series A preferred stockholders will be
entitled to receive $1.00 per share adjusted for any recapitalizations, and any
accrued but unpaid dividends.
SERIES B
In a private placement transaction in September, 1999, the Company issued
8,701,980 shares of Series B preferred stock at $1.475 per share resulting in
net proceeds to the Company of approximately $12.6 million. The rights,
preferences and privileges of the Series B preferred stock are listed below.
DIVIDENDS
The holders of the Series B preferred stock are entitled to receive
noncumulative dividends of 8.14% per annum, when and if declared by the Board of
Directors. Such dividend shall not be paid until the cumulative dividend for
Series A preferred stock has been paid.
LIQUIDATION PREFERENCE
Series B preferred stockholders will be entitled to receive, prior to and in
preference to, any distribution of any of the assets or surplus funds of the
Company to the holders of the common stock and PARI PASSU with Series A
preferred stockholders upon liquidation. Series B preferred stockholders will be
entitled to receive $1.48 per share, adjusted for any recapitalizations, and any
unpaid declared dividends.
F-10
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
REDEMPTION
At any time after September, 2004, upon receipt by the Company of a written
request from a majority of the outstanding Series B preferred stockholders, the
shares will be redeemed. Series B preferred stock will be redeemed at $1.48 per
share, as adjusted for any recapitalizations, payable in three annual
installments.
VOTING RIGHTS
The holders of Series B preferred stock have voting rights equal to the
number of shares of common stock into which the shares of Series B preferred
stock could be converted at the record date.
CONVERSION
Each share of Series B preferred stock is convertible, at the option of the
holder, at any time after the date of issuance of such share into one share of
common stock, subject to certain adjustments as defined. In the event of
redemption, the shareholder will not have the ability to convert to common
shares for the five-day period prior to the redemption date. In addition, all
shares of Series B preferred stock shall automatically be converted into shares
of common stock upon the closing of an underwritten public offering in which the
price per share to the public is no less than $7.375 per share and with
aggregate gross proceeds to the Company of not less than $15 million.
5. STOCK OPTIONS
During 1999, the Company adopted the 1999 Stock Plan (the "Plan"), as
amended. The Plan provides for the issuance of incentive and nonstatutory common
stock options to employees, directors and consultants of the Company. The Board
of Directors reserved 1,871,100 shares of common stock to be issued in
conjunction with the Plan. The term of the options shall be no more than
10 years from the date of grant. Options granted under the Plan during 1999
generally vest in periods between two and four years, as determined by the Board
of Directors, although certain grants have vested immediately upon issuance.
All incentive stock options granted during 1999 were granted with an
exercise price equal to the then fair value of the underlying common stock on
the grant date as determined by the board of directors. For financial reporting
purposes, the common stock options were deemed to have an exercise price below
market value based upon accounting guidelines related to equity instruments
issued within a year of an initial public offering. In accordance with APB
No. 25, the Company has recorded the difference between the exercise price and
the deemed fair value of the common stock on the date of grant as deferred
compensation and is amortizing such deferred compensation over the vesting
periods of the options. Noncash compensation expense related to these options
and other options issued for consulting services recognized during the year
ended December 31, 1999 totaled $287,000.
F-11
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
The Company's stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
OPTIONS PRICE
----------- --------
<S> <C> <C>
Outstanding at December 31, 1998........................ -- $ --
Granted............................................... 1,136,608 0.25
Forfeited............................................. (22,290) 0.25
--------- -----
Outstanding at December 31, 1999........................ 1,114,318 $0.25
========= =====
</TABLE>
The following table summarizes information about all stock options
outstanding for the Company as of December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED
- ------------------------------------------------ ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- -------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.25 1,114,318 9.88 years $0.25 176,710 $0.25
===== ========= ========== ===== ======= =====
</TABLE>
Under SFAS No. 123, the fair value of each option is estimated on the date
of grant based on the Black-Scholes option pricing model assuming, among other
things, a risk-free interest rate of 5.98%, no dividend yield, expected
volatility of 0% (as the Company was privately held at the date of grant) and an
expected life of five years. The weighted average fair value of the options
granted during the year ended December 31, 1999, was $1.142 per share.
Had the Company accounted for its stock options in accordance with SFAS
No. 123, pro forma net loss and pro forma net loss per share for the years ended
December 31, 1997, 1998 and 1999, would have been as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Pro forma net loss attributable to common stockholders...... $ -- $ -- $(2,737)
Pro forma net loss per share attributable to common
stockholders.............................................. -- -- (0.33)
===== ===== =======
</TABLE>
The pro forma disclosure is not likely to be indicative of pro forma results
which may be expected in future years because of the fact that options vest over
several years; pro forma compensation expense is recognized as the options vest
and additional awards may also be granted.
6. CAPITAL LEASE OBLIGATIONS
Capital lease obligations of the Company at December 31, 1998 and 1999,
consist of various leases maturing over a three-year period, at a weighted
average interest rate of 9.5%.
F-12
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
Future maturities of capital lease obligations at December 31, 1999, are as
follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $95
2001........................................................ 82
2002........................................................ 19
---
Total................................................... 196
Less--Amount representing interest.......................... 15
---
Total................................................... 181
Less--Current portion....................................... 90
---
$91
===
</TABLE>
7. REVOLVING PROMISSORY NOTE
As of December 31, 1999, the Company had secured a revolving promissory note
with a bank which enables the Company to borrow up to $200,000. The note is due
on demand, expires in June, 2000, and bears interest at the bank's prime rate
plus 1% (9.5% at December 31, 1999). The Company had no borrowings outstanding
under the revolving promissory note as of December 31, 1999.
8. INCOME TAXES
During the period in which the Company was an LLC, federal and state taxes
were the responsibility of the unitholders rather than the Company. Effective
September 17, 1999, the Company became a C corporation for income tax purposes.
Pursuant to this election, such taxes will be the responsibility of the Company
rather than stockholders. The Company provides for deferred income taxes under
the asset and liability method of accounting which requires the recognition of
deferred income taxes based upon the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon generation of future taxable income during the periods in which
those temporary differences become deductible. A determination as to this
limitation will be made at a future date as the net operating losses are
utilized. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax-planning strategies in
making this assessment. Based upon the level of historical losses and changes in
capitalization which may limit utilization of net operating loss carryforwards
in future periods, management is unable to predict whether these net deferred
tax assets will be utilized prior to expiration. As such, the Company has
recorded a full valuation allowance.
F-13
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
At December 31, 1999, deferred income taxes consisted of the following (in
thousands):
<TABLE>
<S> <C>
Net operating loss carryforward............................. $ 568
Change in tax accounting method (cash to accrual)........... 93
Stock-based compensation.................................... 81
Accrued expenses............................................ 15
Reserves.................................................... 12
-----
Total................................................... 769
Less--Valuation allowance................................... (769)
-----
Net deferred tax assets................................. $ --
=====
</TABLE>
A reconciliation between the statutory federal income tax rate (34.0%) and
the effective rate of income tax expense for the year ended December 31, 1999,
is as follows:
<TABLE>
<S> <C>
Statutory federal income tax rate........................... (34.0)%
State taxes................................................. (7.0)
Stock-based compensation.................................... 1.5
Other....................................................... (0.1)
Valuation allowance......................................... 39.4
-----
Effective income tax rate............................... 0.0 %
=====
</TABLE>
Since September 17, 1999, the Company has generated approximately
$1.5 million of tax net operating loss carryforwards, which expire in 2014.
9. COMMITMENTS AND CONTINGENCIES
The Company has entered into various long-term lease agreements for its
office facility, certain operating equipment and an auto lease under
noncancelable lease terms which expire at various dates through May, 2004.
Rental expense for the two-month period ended December 31, 1997, and for the
years ended December 31, 1998 and 1999, for the office facility totaled $0,
$16,000 and $115,000, respectively.
Minimum future lease payments under these operating leases as of
December 31, 1999, are as follows (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 276
2001........................................................ 369
2002........................................................ 431
2003........................................................ 287
2004........................................................ 11
------
Total future minimum lease payments..................... $1,374
======
</TABLE>
F-14
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
10. CONCENTRATION OF CREDIT RISK
For the years ended December 31, 1998 and 1999, five customers accounted for
approximately 69% of revenues and two customers accounted for approximately 28%
of revenues, respectively.
11. RELATED-PARTY TRANSACTIONS
During 1998 and 1999, the Company's founder and an additional investor
funded the Company's activities through advances bearing interest at 9% per
annum. In conjunction with the issuance of the Series A preferred units in
February, 1999, $89,000 of stockholder advances were converted to Series A
preferred units, at fair value. The remaining balance is reflected on the
accompanying balance sheets as note payable--stockholder.
During 1999, two Series A preferred stockholders provided consulting
services to the Company in connection with developing the Company's business
plan. In exchange for their services, these stockholders were granted 172,400
fully vested options with a strike price of $0.25 per share. In addition, the
stockholders were reimbursed for the option exercise price and the associated
taxes. The Company has recorded noncash compensation expense totaling $197,000
during 1999, based upon the fair value of these options at the date of grant.
During 1999, the Company issued 86,200 options, vesting over a two-year
period, with an exercise price of $0.25 per share, to a Series A preferred
stockholder that acted as an advisor to the Company. The Company has recorded
noncash compensation expense totaling $6,000 during 1999, based upon the fair
value of the options at the date of grant.
12. BARTER TRANSACTIONS
During 1999, the Company has recognized $30,000 of barter transaction
revenue related to community consulting services provided and $30,000 of barter
transaction expense related to Company advertising services received. These
transactions were valued based upon the value of the services provided and the
value of the services received.
13. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
Accrued expenses at December 31, 1998 and 1999, are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Salaries and taxes.......................................... $123 $ 76
Advertising and promotions.................................. -- 289
Other....................................................... 13 191
---- ----
$136 $556
==== ====
</TABLE>
F-15
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
Valuation and qualifying account activity for the year ended December 31,
1999, is as follows (in thousands):
<TABLE>
<CAPTION>
NET CHANGES TO
BALANCE AT OPERATING BALANCE AT
BEGINNING OF PERIOD EXPENSES DEDUCTION END OF PERIOD
------------------- -------------- --------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts activity for
the year ended
December 31, 1999..... $ -- $31 $ -- $31
</TABLE>
14. SUBSEQUENT EVENTS
1999 STOCK PLAN
In January, 2000, the Company increased the number of shares available for
issuance under the 1999 Stock Plan from 1,871,100 to 2,871,100.
OFFICE LEASE
In February, 2000, the Company entered into a long-term commitment to lease
41,334 square feet of office space from a third party for a 10-year period,
resulting in an annual future minimum lease commitment ranging from
$1.2 million to $1.3 million. The terms of the agreement allow the Company, to
lease an additional 20,667 square feet under the same terms through July 1,
2000.
Relating to the building lease, the Company also entered into a letter of
credit in the amount of approximately $2.1 million secured by the cash deposits
of the Company. This letter of credit reduces to zero over the term of the
lease.
In connection with the newly leased space, the Company entered into
additional obligations to purchase approximately $2 million of furniture,
network equipment, communications and leasehold improvements.
LINE OF CREDIT
In February 2000, the Company obtained an equipment line of credit from a
financial institution in the amount of $500,000 secured by the leased equipment
and cash balances of 50% of the equipment value. This facility allows for
various types of equipment leases and the lease rates are set at the time the
equipment is leased based upon the financial institution's cost of funds.
SERIES C PREFERRED STOCK
On March 28, 2000, the Company entered into an investment agreement with
several investors in which the Company issued 3,784,001 shares of Series C
preferred stock, with a par value of $0.001 per share, and warrants to acquire
525,000 shares of common stock, subject to adjustment and at a price to be
determined in the future, for total net proceeds of $20.2 million. Series C
preferred stock has similar rights, preferences and privileges to Series B
preferred stock.
F-16
<PAGE>
PARTICIPATE.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1998 AND 1999
2000 STOCK PLAN
On April 11, 2000, the Board of Directors adopted the 2000 Stock Plan
(subject to stockholder approval), which provides for the issuance of stock
options for employees, directors and consultants. A total of 2,000,000 shares
were reserved for issuance under the 2000 Stock Plan, plus all unissued shares
under the 1999 Stock Plan. The number of shares available for issuance increases
annually on January 1.
2000 EMPLOYEE STOCK PURCHASE PLAN
On April 11, 2000, the Board of Directors adopted the 2000 Employee Stock
Purchase Plan, which permits eligible employees to purchase common stock through
payroll deductions at 85% of the fair value of the stock, as defined. 600,000
shares of common stock have been reserved for issuance under this plan as of
April 11, 2000. Effectiveness of this Plan will be subject to completion of an
initial public offering.
COMPANY CAPITALIZATION
On April 11, 2000, the Board of Directors approved an amendment to the
Certificate of Incorporation to increase the authorized common shares to
100 million and to authorize five million shares of preferred stock. The
increases in authorized common and preferred stock are subject to completion of
an initial public offering.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses payable by
Participate.com in connection with the registration of the common stock
hereunder. All of the amounts shown are estimates except for the SEC
registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
------------
<S> <C>
SEC Registration Fee........................................ $ 15,180
NASD Filing Fee............................................. $ 6,250
Nasdaq National Market Listing Fee.......................... *
Printing and Engraving Expenses............................. *
Legal Fees and Expenses..................................... *
Accounting Fees and Expenses................................ *
Transfer Agent and Registrar Fees and Expenses.............. *
Miscellaneous Expenses...................................... *
---------
Total..................................................... $ *
</TABLE>
- ------------------------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. We have also entered into agreements with our directors and executive
officers that require Participate.com among other things to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors and executive officers to the fullest extent permitted by Delaware
law. We have also purchased directors and officers liability insurance, which
provides coverage against certain liabilities including liabilities under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since October 1997, we have issued and sold the following unregistered
securities:
(1) In September 1999, we issued 8,331,226 shares of common stock to 29
investors in exchange for all of the equity of Participate.com LLC.
(2) In September 1999, we issued 624,000 shares of Series A preferred stock
to 26 investors in exchange for all of their equity ownership in Participate.com
LLC.
(3) In September 1999, we issued and sold 8,701,980 shares of Series B
preferred stock to 26 investors for aggregate consideration of $12,835,421.
(4) In March and April 2000, we issued and sold 3,784,001 shares of
Series C preferred stock to investors for aggregate consideration of
$20,433,605.
(5) In March 2000, we issued a warrant to purchase 525,000 shares of
Series C preferred stock at a purchase price per share equal to the per share
price in this offering.
II-1
<PAGE>
(6) From October 1997 through April 10, 2000, we have granted options and
stock purchase rights to purchase 2,336,398 shares of common stock to employees,
directors and consultants under our 1999 Stock Plan at exercise prices ranging
from $0.25 to $4.00 per share. Of the 2,336,398 shares granted, 2,061,604 remain
outstanding, 176,420 shares of common stock have been purchased pursuant to
exercises of stock options and 98,374 shares have been canceled and returned to
the 1999 Stock Plan.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder, or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each 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 relationship with Participate.com,
to information about us.
(b) There were no underwritten offerings employed in connection with any of the
transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of registrant.
3.2 Form of Amended and Restated Certificate of Incorporation of
registrant to be filed upon the closing of the offering made
under the registration statement.
3.3 Bylaws of the registrant.
4.1 Form of registrant's common stock certificate.
4.2 Amended and Restated Investors Rights Agreement, dated
March 28, 2000, between the registrant and the parties named
therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement entered into by registrant
with each of its directors and executive officers.
10.2 1999 Stock Plan and forms of agreements thereunder.
10.3 2000 Stock Plan and forms of agreements thereunder.
10.4 2000 Employee Stock Purchase Plan.
10.5 Amended and Restated Employment Agreement dated November
1999 between Participate.com, Inc. and David A. Greer.
10.6 Founder's Stock Vesting Agreement dated September 17, 1999
between Participate.com, Inc. and Alan K. Warms.
10.7 Agreement and Understanding dated September 16, 1999 between
Participate.com, Inc. and Alan K. Warms.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<S> <C>
10.8 Agreement and Understanding dated September 16, 1999 between
Participate.com, Inc. and Erika Kerekes.
10.9 Agreement and Understanding dated September 17, 1999 between
Participate.com, Inc. and David A. Greer.
10.10 Series B Preferred Stock Purchase Agreement dated September
17, 1999 between Participate.com, Inc. and the purchasers
listed therein.
10.11 Series C Preferred Stock Purchase Agreement dated March 28,
2000 between Participate.com, Inc. and the purchasers listed
therein.
10.12 [Intentionally omitted. Included in 4.2]
10.13 Warrant dated March 28, 2000 issued by Participate.com, Inc.
in favor of Diamond Technology Incorporated.
10.14 Sheffield Square Professional Center Office Lease dated
November 3, 1998 between Sheffield Square L.L.C. and
ExtraNet Solutions.
10.15 Union Tower Investors II L.L.C. Office Lease dated February
9, 2000 between Union Towers Investors II, L.L.C. and
Participate.com, Inc.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in exhibit 5.1).
23.2 Consent of Arthur Andersen LLP, independent public
accountants.
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission, the information for which
is included in the financial statements or are not required under the related
instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
Insofar as indemnification by Participate.com for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of Participate.com, we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by Participate.com of expenses incurred or paid by a director,
officer or controlling person of Participate.com in the successful defense of
any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by Participate.com is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
We hereby undertake that:
(a) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of a registration
statement in reliance upon Rule 430A and contained in the form of prospectus
filed by Participate.com pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Participate.com has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Chicago, State of Illinois, on the 9th day of May, 2000.
<TABLE>
<S> <C> <C>
PARTICIPATE.COM, INC.
By: /s/ ALAN K. WARMS
----------------------------------------
Alan K. Warms
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alan K. Warms and Stephen J. Hawrysz and each of
them, his attorneys-in-fact, each with the power of substitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same Offering covered by this
Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto in all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ALAN K. WARMS
------------------------------- Chief Executive Officer, President and May 9, 2000
Alan K. Warms Director (Principal Executive Officer)
/s/ STEPHEN J. HAWRYSZ
------------------------------- Vice President of Finance and Operations May 9, 2000
Stephen J. Hawrysz (Principal Financial and Accounting Officer)
*
------------------------------- Director May 9, 2000
Stephen C. Bowsher
*
------------------------------- Director May 9, 2000
James J. Collis
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
*
------------------------------- Director May 9, 2000
Mark J. DeNino
*
------------------------------- Director May 9, 2000
Guy Hoffman
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ ALAN K. WARMS
--------------------------------------
Alan K. Warms
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation of registrant.
3.2 Form of Amended and Restated Certificate of Incorporation of
registrant to be filed upon the closing of the offering made
under the registration statement.
3.3 Bylaws of the registrant.
4.1 Form of registrant's common stock certificate.
4.2 Amended and Restated Investors Rights Agreement, dated
March 28, 2000, between the registrant and the parties named
therein.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement entered into by registrant
with each of its directors and executive officers.
10.2 1999 Stock Plan and forms of agreements thereunder.
10.3 2000 Stock Plan and forms of agreements thereunder.
10.4 2000 Employee Stock Purchase Plan.
10.5 Amended and Restated Employment Agreement dated November
1999 between Participate.com, Inc. and David A. Greer.
10.6 Founder's Stock Vesting Agreement dated September 17, 1999
between Participate.com, Inc. and Alan K. Warms.
10.7 Agreement and Understanding dated September 16, 1999 between
Participate.com, Inc. and Alan K. Warms.
10.8 Agreement and Understanding dated September 16, 1999 between
Participate.com, Inc. and Erika Kerekes.
10.9 Agreement and Understanding dated September 17, 1999 between
Participate.com, Inc. and David A. Greer.
10.10 Series B Preferred Stock Purchase Agreement dated September
17, 1999 between Participate.com, Inc. and the purchasers
listed therein.
10.11 Series C Preferred Stock Purchase Agreement dated March 28,
2000 between Participate.com, Inc. and the purchasers listed
therein.
10.12 [Intentionally omitted. Included in 4.2]
10.13 Warrant dated March 28, 2000 issued by Participate.com, Inc.
in favor of Diamond Technology Incorporated.
10.14 Sheffield Square Professional Center Office Lease dated
November 3, 1998 between Sheffield Square L.L.C. and
ExtraNet Solutions.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<S> <C>
10.15 Union Tower Investors II L.L.C. Office Lease dated February
9, 2000 between Union Towers Investors II, L.L.C. and
Participate.com, Inc.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in exhibit 5.1).
23.2 Consent of Arthur Andersen LLP, independent public
accountants.
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
II-8
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PARTICIPATE.COM, INC.
Alan K. Warms hereby certifies that:
ONE: He is the duly elected President and Chief Executive Officer
of PARTICIPATE.COM, INC., a Delaware corporation.
TWO: The date of filing of the original Certificate of
Incorporation of this corporation with the Secretary of State of Delaware was
September 13, 1999 and the original name of this corporation was
PARTICIPATE.COM, INC.
THREE: Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware, this Certificate restates, integrates and amends the
provisions of the Certificate of Incorporation of PARTICIPATE.COM, INC.
FOUR: This Amended and Restated Certificate of Incorporation was
approved by written consent of the stockholders of PARTICIPATE.COM, INC.
pursuant to Section 228 of the General Corporation Law of the State of Delaware.
FIVE: The Certificate of Incorporation of this corporation, is
hereby amended and restated to read in its entirety as follows:
* * * *
ARTICLE ONE
The name of the Corporation is Participate.com, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, 19081.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE THREE
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 Delaware General Corporation Law.
<PAGE>
ARTICLE FOUR
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "COMMON STOCK" and "PREFERRED STOCK." The total number
of shares of Common Stock the Corporation shall have authority to issue is
24,000,000, par value $0.001 per share. The total number of shares of Preferred
Stock the Corporation shall have authority to issue is 13,169,604, par value
$0.001 per share, of which 624,000 shares shall be designated Series A Preferred
Stock (the "SERIES A PREFERRED"), 8,701,980 shares shall be designated Series B
Preferred Stock (the "SERIES B PREFERRED") and 3,843,624 shares shall be
designated Series C Preferred Stock (the "SERIES C PREFERRED").
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 of the Preferred
Stock.
The relative rights, preferences, privileges and restrictions granted
to or imposed on the respective classes of the shares of capital stock or the
holders thereof are as follows:
1. DIVIDENDS. The holders of shares of Series A Preferred, Series B
Preferred and Series C Preferred shall be entitled to receive dividends, when
and if declared by the Board of Directors, out of funds legally available
therefor, payable in preference and priority to any payment of any dividend on
the Common Stock of the Corporation, at the rate of $0.10, $0.12 and $0.44 per
share (adjusted for any recapitalization, stock combinations, stock dividends,
stock splits and the like (collectively, "RECAPITALIZATIONS") with respect to
such shares) per annum, respectively; PROVIDED HOWEVER, that the dividend rate
of the Series A Preferred shall be $0.20 per share if the outstanding shares of
Series A Preferred are not redeemed by September 14, 2004 pursuant to Section
3(a). Such dividends shall accrue on each share of Series A Preferred from
September 14, and shall accrue from day to day, whether or not earned or
declared. The right to such dividends on the Series A Preferred shall be
cumulative on an annual basis so that, except as provided below, if such
dividends in respect of any previous or current annual dividend period, at the
annual rate specified above, shall not have been paid, the deficiency shall
first be fully paid before any dividend or other distribution shall be paid on
or declared and set apart for the Common Stock or Series B Preferred or Series C
Preferred. Any accumulation of dividends on the Series A Preferred shall not
bear interest. The right to such dividends on the Series B Preferred and Series
C Preferred shall not be cumulative. No dividend shall be paid on the Common
Stock in any year, other than dividends payable solely in Common Stock, until
all dividends for such year have been declared and paid on the Series B
Preferred and Series C Preferred, and then such dividends on the Common Stock
shall not be in excess of the dividends paid on the Series B Preferred or Series
C Preferred unless the amount of such excess is also paid on the Series B
Preferred and Series C Preferred on an as-converted per share basis.
2. LIQUIDATION PREFERENCE. Upon a Liquidating Event (as defined in
Section 2(c) below), distributions to the stockholders of the Corporation shall
be made in the following manner:
- 2 -
<PAGE>
(a) The holders of Series A Preferred, Series B Preferred and
Series C Preferred shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership of such stock, an
amount per share equal to $1.00 for each share of Series A Preferred, $1.48 for
each share of Series B Preferred and $5.40 for each share of Series C Preferred
then held by them, adjusted for any Recapitalizations with respect to such
shares, respectively, and, in addition, an amount equal to all accrued but
unpaid dividends on the Series A Preferred and all declared but unpaid dividends
on the Series B Preferred and Series C Preferred held by them. If the assets and
funds thus distributed among the holders of the Series A Preferred, Series B
Preferred and Series C Preferred shall be insufficient to permit the payment to
such holders of the full aforesaid preferential amount, then the entire assets
and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred, Series B
Preferred and Series C Preferred in proportion to the aggregate preferential
amount of shares of the Series A Preferred, Series B Preferred and Series C
Preferred outstanding as of the date of the distribution upon the occurrence of
such event.
(b) After payment has been made to the holders of the Series A
Preferred, Series B Preferred and Series C Preferred of the full amounts to
which they shall be entitled as aforesaid, the holders of the Common Stock, the
Series B Preferred and the Series C Preferred shall be entitled to receive the
remaining assets of the Corporation pro rata based upon the number of shares of
Common Stock and Common Stock into which such shares of Series B Preferred and
Series C Preferred could be converted at the time of distribution, until the
holders of the Series B Preferred and Series C Preferred shall have received an
aggregate of $4.43 and $16.20 per share, respectively, including amounts paid
pursuant to Section 2(a), (adjusted for any Recapitalizations with respect to
such shares), plus all declared but unpaid dividends on the Series B Preferred
or Series C Preferred held by them. Thereafter, if assets remain in the
Corporation, the holders of the Common Stock shall receive all of the remaining
assets of the Corporation pro rata based on the number of shares of Common Stock
held by such holders.
(c) For purposes of this Section 2, a "LIQUIDATING EVENT"
means (i) any liquidation, dissolution or winding up of the Corporation, either
voluntary or involuntary, and (ii) a merger or consolidation of the Corporation
with or into any other corporation or corporations, or the merger of any other
corporation or corporations into the Corporation, the sale of all or
substantially all of the assets of the Corporation, any transaction or series of
transactions to which the Corporation is a party in which in excess of fifty
percent (50%) of the Corporation's voting power is transferred, or any other
corporate reorganization, in which consolidation, merger, sale of assets,
transaction or reorganization, provided that in each such case referred to in
this clause (ii), (A) the stockholders of the Corporation receive distributions
in cash or securities of another corporation or corporations as a result of such
consolidation, merger, sale of assets, transaction or reorganization, and (B)
the stockholders of this Corporation hold fifty percent (50%) or less of the
voting equity securities of the successor or surviving corporation immediately
following such consolidation, merger, sale of assets, transaction or
reorganization, in which case such consolidation, merger, sale of assets or
reorganization shall not be treated as a Liquidating Event.
- 3 -
<PAGE>
(i) Upon a Liquidating Event, if the consideration
received by the Corporation is other than cash, its value will be deemed its
fair market value as determined in good faith by the Corporation's Board of
Directors (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 (B) 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 in good faith by
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 in good faith by the Board
of Directors.
3. REDEMPTION.
(a) The Corporation will endeavor to redeem, from any source
of funds legally available therefor, all outstanding shares of Series A
Preferred in one or more installments on or before September 14, 2004 (each, a
"SERIES A REDEMPTION DATE"). The Corporation shall effect such redemption(s) on
the applicable Series A Redemption Date by paying in cash in exchange for the
shares of Series A Preferred to be redeemed a sum equal to $1.00 per share of
Series A Preferred (as adjusted for any Recapitalizations with respect to such
shares) plus all accrued but unpaid dividends on such shares (the "SERIES A
REDEMPTION PRICE").
(b) At any time after September 14, 2004, in the event that
the Company shall receive at any time a written request by the holders of at
least two-thirds of the then outstanding shares of Series B Preferred and Series
C Preferred, taken together as one class for this purpose (the "ELECTION"), for
the redemption of all Series B Preferred and Series C Preferred under this
subsection 3(b), the Company shall redeem on the day that is thirty (30) days
after the date of such notice and on the first and second anniversary date
thereof, (each of such three dates a "SERIES B AND C REDEMPTION DATE"), a number
of shares of Series B Preferred and Series C Preferred Stock equal to one-third,
one-half and all, respectively, of the remaining outstanding shares of each of
the Series B Preferred and Series C Preferred that are outstanding on each of
those respective Series B and C
- 4 -
<PAGE>
Redemption Dates. Such shares are to be redeemed from any source of funds
legally available therefor at the redemption price therefor described in this
subsection. The redemption price for each share of Series B Preferred Stock
shall be the sum of $1.48 per share (as adjusted for Recapitalizations with
respect to such shares) plus all declared but unpaid dividends thereon, if
any, through the respective Series B and C Redemption Date. The redemption
price for each share of Series C Preferred Stock shall be the sum of $5.40
per share (as adjusted for Recapitalizations with respect to such shares)
plus all declared but unpaid dividends thereon, if any, through the
respective Series B and C Redemption Date. If upon any Series B and C
Redemption Date scheduled under this subsection for the redemption of Series
B Preferred and Series C Preferred, the funds and assets of the Company
legally available to redeem such stock shall be insufficient to redeem all
shares of Series B Preferred and Series C Preferred then scheduled to be
redeemed, then the Company shall redeem such unredeemed shares as soon
thereafter as practicable to the full extent of legally available funds of
the Company at such time, and any such unredeemed shares shall continue to be
so carried forward until redeemed. Notwithstanding the foregoing, in no event
shall the Company be obligated to redeem more than one-third of the number of
shares of each of the Series B Preferred and Series C Preferred outstanding
immediately prior to the first Series B and C Redemption Date (plus declared
but unpaid dividends thereon) in any twelve month period. Shares of Series B
Preferred and Series C Preferred which are subject to redemption but which
have not been redeemed due to insufficient legally available funds and assets
of the Company shall continue to be outstanding and entitled to all dividend,
liquidation, conversion and other rights, preferences, privileges and
restrictions of such series of Preferred Stock until such shares have been
converted or redeemed.
(c) As used herein and in subsections (d) and (e) below, the
term "REDEMPTION DATE" shall refer to each of "SERIES A REDEMPTION DATE" and
"SERIES B AND C REDEMPTION DATE" and the term "REDEMPTION PRICE" shall refer to
each of "SERIES A REDEMPTION PRICE," "SERIES B REDEMPTION PRICE," and the
"SERIES C REDEMPTION PRICE." Subject to the rights of series of Preferred Stock
which may from time to time come into existence, at least fifteen (15) but no
more than (30) days prior to each Redemption Date, written notice shall be
mailed, first class postage prepaid, to each holder of record (at the close of
business on the business day next preceding the day on which notice is given) of
the Series A Preferred or Series B Preferred to be redeemed, at the address last
shown on the records of the Corporation for such holder, notifying such holder
of the redemption to be effected, specifying the number of shares to be redeemed
from such holder, the Redemption Date, the Redemption Price, the place at which
payment may be obtained and calling upon such holder to surrender to the
Corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing the shares to be redeemed (the
"REDEMPTION NOTICE"). Except as provided in Section 3(d), on or after the
Redemption Date, each holder of Series A Preferred, Series B Preferred or Series
C Preferred to be redeemed shall surrender to the Corporation the certificate or
certificates representing such share, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
- 5 -
<PAGE>
(d) On or prior to the Redemption Date, the Corporation shall
deposit the Redemption Price of all shares to be redeemed with a bank or trust
company having aggregate capital and surplus in excess of $100,000,000, as a
trust fund, with irrevocable instructions and authority to the bank or trust
company to pay, on and after such Redemption Date, the Redemption Price of the
shares to their respective holders upon the surrender of their share
certificates. Any moneys deposited by the Corporation pursuant to this Section
3(d) for the redemption of shares thereafter converted into shares of Common
Stock pursuant to Section 5 hereof no later than the fifth (5th) day preceding
the Redemption Date shall be returned to the Corporation forthwith upon such
conversion. The balance of any funds deposited by the Corporation pursuant to
this Section 3(d) remaining unclaimed at the expiration of one (1) year
following such Redemption Date shall be returned to the Corporation promptly
upon its written request.
(e) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of shares of Series A Preferred, Series B Preferred or Series C
Preferred designated for redemption in the Redemption Notice as holders of
Series A Preferred, Series B Preferred or Series C Preferred (except the right
to receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. Subject to the rights of
series of Preferred Stock which may from time to time come into existence, if
the funds of the Corporation legally available for redemption of shares of
Series A Preferred, Series B Preferred or Series C Preferred on any Redemption
Date are insufficient to redeem the total number of shares of Series A
Preferred, Series B Preferred or Series C Preferred to be redeemed on such date,
those funds which are legally available will be used to redeem the maximum
possible number of such shares ratably among the holders of Series A Preferred,
Series B Preferred or Series C Preferred. The shares of Series A Preferred,
Series B Preferred or Series C Preferred not redeemed shall remain outstanding
and entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of shares of Series A Preferred, Series B Preferred or Series C
Preferred such funds will immediately be used to redeem the balance of the
shares which the Corporation has become obliged to redeem on any Redemption
Date, but which has not been redeemed.
4. VOTING RIGHTS.
(a) GENERAL. Except as otherwise required by law or by this
Certificate of Incorporation and subject to Section 7, the holder of each share
of Common Stock issued and outstanding shall have one vote and the holder of
each share of Series B Preferred or Series C Preferred shall be entitled to the
number of votes equal to the number of shares of Common Stock into which such
share of Series B Preferred or Series C Preferred could be converted at the
record date for determination of the stockholders entitled to vote on such
matters, or, if no such record date is established, at the date such vote is
taken or any written consent of stockholders is solicited, such votes to be
counted together with all other shares of stock of the Corporation having
general voting power and not separately as a class. The holders of Series A
Preferred shall have no voting rights with respect to shares of Series A
Preferred. Holders of Common Stock, and Series A Preferred,
- 6 -
<PAGE>
Series B Preferred and Series C Preferred shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes by the holders of Series B Preferred or Series C Preferred
shall not, however, be permitted and any fractional voting rights shall
(after aggregating all shares into which shares of Series B Preferred and
Series C Preferred held by each holder could be converted) be rounded to the
nearest whole number.
(b) ELECTION OF BOARD OF DIRECTORS. The holders of Common
Stock and Series B Preferred and Series C Preferred shall vote for the
Corporation's Board of Directors as follows: (i) three (3) nominees appointed by
the holders of a majority of the Series B Preferred; (ii) one (1) nominee
appointed by the holders of a majority of the Series C Preferred and approved by
the Chief Executive Officer of the Corporation; and (iii) three (3) nominees
appointed by Alan Warms or, in the event that Mr. Warms is deceased or
incapacitated, then by the holders of a majority of the then outstanding Common
Stock. This Section 4(b) shall be terminated upon an IPO (as defined in Section
5(b) below).
5. CONVERSION. The shares of Series A Preferred shall not be
convertible into Common Stock. The holders of Series B Preferred and Series C
Preferred have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT. Each share of Series B Preferred or Series C
Preferred shall be convertible, at the option of the holder thereof, at any time
after the date of issuance of such share and on or prior to the fifth day prior
to the Redemption Date, if any, as may have been fixed in any Redemption Notice
with respect to such share of Series B Preferred or Series C Preferred, at the
office of the Corporation or any transfer agent for the Series B Preferred or
Series C Preferred. Each share of Series B Preferred or Series C Preferred shall
be convertible into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing $1.48 by the Series B Conversion Price, or
$5.40 by the Series C Conversion Price, as applicable, each determined as
provided below, in effect at the time of conversion. The conversion price for
the Series B Preferred Stock shall initially be $1.48 with respect to each share
of Series B Preferred (the "SERIES B CONVERSION PRICE") and the conversion price
for the Series C Preferred Stock shall initially be $5.40 with respect to each
share of Series C Preferred Stock (the "SERIES C CONVERSION PRICE," and together
with the Series B Conversion Price, the "CONVERSION PRICE").
(b) AUTOMATIC CONVERSION. Each share of Series B Preferred and
Series C Preferred shall automatically be converted into shares of Common Stock
at the then effective Conversion Price for such series upon the earlier of (i)
the closing of a firm commitment underwritten public offering pursuant to an
effective registration statement on Form S-1 or any successor form under the
Securities Act of 1933, as amended, covering the offer and sale of the Common
Stock for the account of the Corporation to the public at a price per share
(prior to underwriter commissions and offering expenses) of not less than $7.38
per share for the Series B Preferred and not less than $10.00 for the Series C
Preferred (in each case, appropriately adjusted for any Recapitalizations with
respect to such shares) with an aggregate offering price to the public of not
less than $15,000,000 (an "IPO") or (ii) in the case of the Series B Preferred,
the election of holders of at least a majority of the outstanding shares of
Series B Preferred and in the case of the
- 7 -
<PAGE>
Series C Preferred, the election of holders of at least a majority of the
outstanding shares of Series C Preferred. In the event of the automatic
conversion of the Series B Preferred or Series C Preferred upon an IPO, the
person(s) entitled to receive the Common Stock issuable upon such conversion
of Series B Preferred or Series C Preferred shall not be deemed to have
converted such Series B Preferred or Series C Preferred until immediately
prior to the closing of such sale of securities.
(c) MECHANICS OF CONVERSION. No fractional shares of Common Stock
shall be issued upon conversion of Series B Preferred or Series C Preferred. In
lieu of any fractional shares to which the holder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Series B Preferred or Series C
Preferred shall be entitled to convert the same into full shares of Common Stock
and to receive certificates therefor, the holder shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation or of
any transfer agent for the Series B Preferred or Series C Preferred, as the case
may be, and shall give written notice to the Corporation at such office that the
holder elects to convert the same; provided, however, that in the event of an
automatic conversion pursuant to Section 5(b), the outstanding shares of Series
B Preferred and Series C 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 Corporation or its transfer
agent and provided further, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless the certificates evidencing such shares of Series B Preferred
or Series C Preferred are either delivered to the Corporation or its transfer
agent as provided above, or the holder notifies the Corporation or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall,
as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Series B Preferred or Series C Preferred, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid and a check payable to the holder in the amount
of any cash amounts payable as the result of a conversion into fractional shares
of Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series B Preferred or Series C Preferred to be converted, or in the case of
automatic conversion then on the date of closing of the offering, and the person
or persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(d) (i) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price shall
be subject to adjustment from time to time as follows:
(A) ADJUSTMENTS FOR SUBDIVISIONS, COMBINATIONS OR
CONSOLIDATION OF COMMON STOCK. In the event the outstanding shares of Common
Stock shall be subdivided by stock split, stock dividends or otherwise, into a
greater number of shares of Common Stock, the Conversion Price then in effect
shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined
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or consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(B) ADJUSTMENTS FOR STOCK DIVIDENDS AND OTHER DISTRIBUTIONS.
In the event the Corporation at any time or from time to time makes, or fixes a
record date for the determination of holders of Common Stock entitled to receive
any distribution (excluding any repurchases of securities by the Corporation not
made on a pro rata basis from all holders of any class of the Corporation's
securities) payable in property or in securities of the Corporation other than
shares of Common Stock, and other than as otherwise adjusted in this Section 5
or as provided in Section 1, then and in each such event the holders of Series B
Preferred or Series C Preferred shall receive at the time of such distribution,
the amount of property or the number of securities of the Corporation that they
would have received had their Series B Preferred or Series C Preferred been
converted into Common Stock on the date of such event.
(C) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. Except as provided in Section 2, upon any Liquidating Event, if
the Common Stock issuable upon conversion of the Series B Preferred or Series C
Preferred shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for above), each share of Series B Preferred or Series C Preferred
shall thereafter be convertible into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Corporation deliverable upon conversion of such share of Series B
Preferred or Series C Preferred shall have been entitled upon such
reorganization or reclassification. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 5 with
respect to the rights of the holders of Series B Preferred or Series C Preferred
after such reorganization or reclassification to the end that the provisions of
this Section 5 (including adjustment of the Conversion Price then in effect and
the number of shares issuable upon conversion of the Series B Preferred or
Series C Preferred) shall be applicable after that event and be as nearly
equivalent as practicable.
(ii) ADJUSTMENTS OF CONVERSION PRICE FOR DILUTING ISSUES. In
addition to the adjustment of the Conversion Price provided in Section 5(d)(i)
above, the Series B Conversion Price shall be subject to further adjustment from
time to time as follows:
(A) SPECIAL DEFINITIONS. For purposes of this Section
5(d)(ii), the following definitions shall apply:
(1) "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "ORIGINAL ISSUE DATE" shall mean the date on which
the first share of Series B Preferred was first issued.
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(3) "CONVERTIBLE SECURITIES" shall mean securities
convertible into or exchangeable for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Section 5(d)(ii)(C), deemed to be
issued) by the Corporation after the Original Issue Date other than shares of
Common Stock issued (or, pursuant to Section 5(d)(ii)(C), deemed to be issued):
(I) upon conversion of shares of the Series B
Preferred or Series C Preferred;
(II) to officers, directors and employees of, and
consultants to, the Corporation pursuant to plans and arrangements approved by
the Board of Directors;
(III) as a dividend or other distribution on the
Series A Preferred, Series B Preferred or Series C Preferred or pursuant to
clauses (A), (B) or (C) of Section 5(d)(i);
(IV) upon the exercise of options issued prior to
the Original Issue Date;
(V) in connection with equipment financing, or
issued for consideration other than cash sponsored research, collaboration,
technology licensing, development agreements or any other strategic partnerships
or mergers or acquisitions approved by the Board of Directors;
(VI) by way of dividend or other distributions on
securities referred to in clauses (I) through (V) above.
(B) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
Conversion Price for any series of Preferred Stock shall be made in respect of
the issuance of Additional Shares of Common Stock unless the consideration per
share for an Additional Share of Common Stock issued or deemed to be issued by
the Corporation is less than the Conversion Price in effect on the date of, and
immediately prior to such issue.
(C) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
(1) OPTIONS AND CONVERTIBLE SECURITIES. Except as
otherwise provided in Section 5(d)(ii)(A)(4)(I) - (V) and 5(d)(ii)(B), in the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of any holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number) of
Common Stock issuable upon the exercise of such
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Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that in any such case in which additional shares
of Common Stock are deemed to be issued:
(I) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(II) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(III) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if:
a) in the case of Convertible Securities or
Options for Common Stock, the only additional shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
b) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(IV) no readjustment pursuant to clause (II) or
(III) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower
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of (i) the Conversion Price on the original adjustment date, or (ii) the
Conversion Price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date and such
readjustment date; and
(V) in the case of any Options which expire by their
terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price shall be made until the expiration or
exercise of all such Options.
(D) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 5(d)(ii)(C)) without consideration or
for a consideration per share less than the Series B Conversion Price and/or the
Series C Conversion Price, in effect on the date of, and immediately prior to
such issue, then and in such event, such Series B Conversion Price and/or the
Series C Conversion Price (as applicable), shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by
multiplying such Series B Conversion Price or the Series C Conversion Price (as
applicable) by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so issued
would purchase at such Series B Conversion Price or the Series C Conversion
Price (as applicable); and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common Stock so issued; and provided further
that, for the purposes of this Section 5(d)(ii)(D), 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, and (B) the number of
shares of Common Stock into which the then outstanding shares of Preferred Stock
could be converted if fully converted on the day immediately preceding the given
date, and (C) the total number of shares of Common Stock issuable upon exercise
of stock options outstanding as of the Original Issue Date.
(E) DETERMINATION OF CONSIDERATION. For purposes of this
Section 5(d)(ii), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation prior to amounts paid
or payable for accrued interest or accrued dividends and prior to any
commissions or expenses paid by the Corporation;
(II) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
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(III) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 5(d)(ii)(C)(1),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Option or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(e) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred and Series C Preferred against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series B Preferred or Series C Preferred a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred or Series C Preferred
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the Conversion Price, at the time
in effect, and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of Series B Preferred or Series C Preferred.
(g) NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time:
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(A) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(B) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(C) to effect any reclassification or capitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(D) to merge or consolidate with or into any other
Corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of Series A Preferred, Series B Preferred and Series C Preferred:
(1) at least ten (10) days' prior written notice of
the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (i) and (ii) above; and
(2) in the case of the matters referred to in (iii)
and (iv) above, at least ten (10) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by
first class mail, postage prepaid, addressed to the holders of the Series A
Preferred, Series B Preferred and Series C Preferred at the address for each
such holder as shown on the books of the Corporation. Notwithstanding the above,
the ten days' notice requirement may be waived by a written waiver signed by the
holders of a majority of the outstanding Preferred Stock.
6. STATUS OF CONVERTED OR REDEEMED STOCK. In case any shares of Series
A Preferred shall be redeemed pursuant to Section 3, the shares shall be
cancelled and shall not be issued by the Corporation and this Certificate of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized Series A Preferred. In case any shares
of Series B Preferred or Series C Preferred shall be converted pursuant to
Section 5 or redeemed pursuant to Section 3, the shares shall be cancelled and
shall not be issued by the Corporation and this Certificate of Incorporation
shall be appropriately amended to effect the corresponding reduction in the
Corporation's authorized Series B Preferred or Series C Preferred.
7. COVENANTS.
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<PAGE>
(a) In addition to any other rights provided by law, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the then outstanding
shares of the Series B Preferred and Series C Preferred voting as a class:
(i) amend or repeal any provision of the Corporation's
Certificate of Incorporation if such action would alter or change the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, the Series B Preferred or Series C Preferred; or
(ii) authorize shares of any new class or series of
stock having any preference or priority as to dividends, redemption, liquidation
rights or assets superior to or on parity with any such preference or priority
of the Series B Preferred or Series C Preferred;
(iii) redeem any shares of Common Stock (other than
pursuant to equity incentive agreements with service providers giving the
Corporation the right to repurchase shares upon the termination of services);
(iv) declare or pay any dividend or other distribution
on the Common Stock or Preferred Stock (except for dividends or distributions
expressly provided for in this Certificate of Incorporation);
(v) effect a Liquidating Event;
(vi) increase or decrease the authorized size of the
Corporation's Board of Directors; or
(vii) increase or decrease the authorized number of
shares of Common Stock or Preferred Stock.
(b) In addition to any other rights provided by law, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the then outstanding
shares of the Series A Preferred, Series B Preferred and Series C Preferred,
voting together as a single class, amend or repeal any provision of the
Corporation's Certificate of Incorporation if such action would alter or change
the preferences, rights, privileges or powers of, or the restrictions provided
for the benefit of, the Series A Preferred.
ARTICLE FIVE
The Corporation is to have perpetual existence.
ARTICLE SIX
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 the
stockholders herein are granted subject to this right.
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<PAGE>
ARTICLE SEVEN
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 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 EIGHT
The number of directors which constitute the entire Board of Directors
of the Corporation shall be as specified in the Bylaws of the Corporation
(subject to Article Four, Section 4(b) above). At each annual meeting of
stockholders, directors of the Corporation shall be elected to hold office until
the expiration for the term for which they are elected and until their
successors have been duly elected and qualified; except that if any such
election shall not be so held, such election shall take place at a stockholders'
meeting called and held in accordance with the General Corporation Law of
Delaware.
ARTICLE NINE
To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or 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, except to the
extent such exception from liability or limitation thereof is not permitted
under the Delaware Corporation Law as the same exists or may hereafter be
amended.
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 such person, such person's 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 or employee at the request
of the Corporation or any predecessor of the Corporation.
Neither any amendment nor repeal of this Article, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
matter occurring, or any cause of action, suit or claim that, but for this
Article, would accrue or arise, prior to such amendment, repeal or adoption of
an inconsistent provision.
ARTICLE TEN
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.
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<PAGE>
ARTICLE ELEVEN
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>
The undersigned incorporator hereby acknowledges that the above
Certificate of Incorporation of Participate.com, Inc. is his act and deed and
that the facts stated therein are true.
Dated: March 27, 2000
----------------------------------
Alan K. Warms
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<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PARTICIPATE.COM, INC.
ARTICLE ONE
The name of the Corporation is Participate.com, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
19081. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE THREE
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 Delaware General Corporation Law.
ARTICLE FOUR
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "COMMON STOCK" and "PREFERRED STOCK." The total
number of shares of Common Stock the Corporation shall have authority to
issue is 24,000,000, par value $0.001 per share. The total number of shares
of Preferred Stock the Corporation shall have authority to issue is
13,169,604, par value $0.001 per share, of which 624,000 shares shall be
designated Series A Preferred Stock (the "SERIES A PREFERRED"), 8,701,980
shares shall be designated Series B Preferred Stock (the "SERIES B
PREFERRED") and 3,843,624 shares shall be designated Series C Preferred Stock
(the "SERIES C PREFERRED").
Upon the automatic conversion of all outstanding shares of Series B
Preferred and Series C Preferred in accordance with the provisions of Article
IV, Section 4(a)(2) of this Certificate of Incorporation (the "AUTOMATIC
CONVERSION EVENT"), the Company shall immediately thereafter be authorized to
issue two classes of stock to be designated, respectively, Common Stock, par
value $0.0001 per share, and Preferred Stock, par value $0.0001 per share, of
which 624,000 shares shall be designated Series A Preferred Stock. After the
Automatic Conversion Event, the total number of shares of Common Stock the
Corporation shall have authority to issue shall be 100,000,000, and the total
number of shares of Preferred Stock the Company shall have the authority to
issue shall be 5,000,000. After the Automatic Conversion Event, the Preferred
Stock 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
of
<PAGE>
Directors). With respect to such series, the Board of Directors is authorized
(i) to determine the number of shares of any such series and the designation
thereof, (ii) to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and (iii) 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, to increase (but not above the
total number of authorized shares of the class) or decrease (but not below
the number of shares of such series then outstanding) the number of shares of
any such series subsequent to the issue of shares of that series.
Immediately following any Automatic Conversion Event, the Board of
Directors is authorized, without the further consent or approval of the
stockholders of the Company, to amend and restate this Certificate of
Incorporation to show the authorized classes of capital stock as set forth in
the preceding paragraph and to eliminate all references in this Certificate
of Incorporation to the rights, preferences, privileges and restrictions of
the series of Preferred Stock converted to Common Stock (and, in connection
with any such amendment and restatement, to renumber the remaining provisions
of the Certificate of Incorporation).
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 of the
Preferred Stock.
The relative rights, preferences, privileges and restrictions
granted to or imposed on the respective classes of the shares of capital
stock or the holders thereof are as follows:
1. DIVIDENDS. The holders of shares of Series A Preferred, Series
B Preferred and Series C Preferred shall be entitled to receive dividends,
when and if declared by the Board of Directors, out of funds legally
available therefor, payable in preference and priority to any payment of any
dividend on the Common Stock of the Corporation, at the rate of $0.10, $0.12
and $0.44 per share (adjusted for any recapitalization, stock combinations,
stock dividends, stock splits and the like (collectively,
"RECAPITALIZATIONS") with respect to such shares) per annum, respectively;
PROVIDED HOWEVER, that the dividend rate of the Series A Preferred shall be
$0.20 per share if the outstanding shares of Series A Preferred are not
redeemed by September 14, 2004 pursuant to Section 3(a). Such dividends shall
accrue on each share of Series A Preferred from September 14, and shall
accrue from day to day, whether or not earned or declared. The right to such
dividends on the Series A Preferred shall be cumulative on an annual basis so
that, except as provided below, if such dividends in respect of any previous
or current annual dividend period, at the annual rate specified above, shall
not have been paid, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid on or declared and set apart for
the Common Stock or Series B Preferred or Series C Preferred. Any
accumulation of dividends on the Series A Preferred shall not bear interest.
The right to such dividends on the Series B Preferred and Series C Preferred
shall not be cumulative. No dividend shall be paid on the Common Stock in any
year, other than dividends payable solely in Common Stock, until all
dividends for such year have been declared and paid on the Series B Preferred
and Series C Preferred, and then such dividends on the Common Stock shall not
be in excess of the
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dividends paid on the Series B Preferred or Series C Preferred unless the
amount of such excess is also paid on the Series B Preferred and Series C
Preferred on an as-converted per share basis.
2. LIQUIDATION PREFERENCE. Upon a Liquidating Event (as defined in
Section 2(c) below), distributions to the stockholders of the Corporation
shall be made in the following manner:
(a) The holders of Series A Preferred, Series B Preferred and
Series C Preferred shall be entitled to receive, prior and in preference to
any distribution of any of the assets or surplus funds of the Corporation to
the holders of the Common Stock by reason of their ownership of such stock,
an amount per share equal to $1.00 for each share of Series A Preferred,
$1.48 for each share of Series B Preferred and $5.40 for each share of Series
C Preferred then held by them, adjusted for any Recapitalizations with
respect to such shares, respectively, and, in addition, an amount equal to
all accrued but unpaid dividends on the Series A Preferred and all declared
but unpaid dividends on the Series B Preferred and Series C Preferred held by
them. If the assets and funds thus distributed among the holders of the
Series A Preferred, Series B Preferred and Series C Preferred shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred, Series B Preferred and Series C Preferred
in proportion to the aggregate preferential amount of shares of the Series A
Preferred, Series B Preferred and Series C Preferred outstanding as of the
date of the distribution upon the occurrence of such event.
(b) After payment has been made to the holders of the Series A
Preferred, Series B Preferred and Series C Preferred of the full amounts to
which they shall be entitled as aforesaid, the holders of the Common Stock,
the Series B Preferred and the Series C Preferred shall be entitled to
receive the remaining assets of the Corporation pro rata based upon the
number of shares of Common Stock and Common Stock into which such shares of
Series B Preferred and Series C Preferred could be converted at the time of
distribution, until the holders of the Series B Preferred and Series C
Preferred shall have received an aggregate of $4.43 and $16.20 per share,
respectively, including amounts paid pursuant to Section 2(a), (adjusted for
any Recapitalizations with respect to such shares), plus all declared but
unpaid dividends on the Series B Preferred or Series C Preferred held by
them. Thereafter, if assets remain in the Corporation, the holders of the
Common Stock shall receive all of the remaining assets of the Corporation pro
rata based on the number of shares of Common Stock held by such holders.
(c) For purposes of this Section 2, a "LIQUIDATING EVENT"
means (i) any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary, and (ii) a merger or consolidation of the
Corporation with or into any other corporation or corporations, or the merger
of any other corporation or corporations into the Corporation, the sale of
all or substantially all of the assets of the Corporation, any transaction or
series of transactions to which the Corporation is a party in which in excess
of fifty percent (50%) of the Corporation's voting power is transferred, or
any other corporate reorganization, in which consolidation, merger, sale of
assets, transaction or reorganization, provided that in each such case
referred to in this clause (ii), (A) the stockholders of the Corporation
receive distributions in cash or securities of another corporation or
corporations as a
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result of such consolidation, merger, sale of assets, transaction or
reorganization, and (B) the stockholders of this Corporation hold fifty
percent (50%) or less of the voting equity securities of the successor or
surviving corporation immediately following such consolidation, merger, sale
of assets, transaction or reorganization, in which case such consolidation,
merger, sale of assets or reorganization shall not be treated as a
Liquidating Event.
(i) Upon a Liquidating Event, if the consideration
received by the Corporation is other than cash, its value will be deemed its
fair market value as determined in good faith by the Corporation's Board of
Directors (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 (B) 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 in good faith by
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 in good faith by the
Board of Directors.
3. REDEMPTION.
(a) The Corporation will endeavor to redeem, from any source
of funds legally available therefor, all outstanding shares of Series A
Preferred in one or more installments on or before September 14, 2004 (each,
a "SERIES A REDEMPTION DATE"). The Corporation shall effect such
redemption(s) on the applicable Series A Redemption Date by paying in cash in
exchange for the shares of Series A Preferred to be redeemed a sum equal to
$1.00 per share of Series A Preferred (as adjusted for any Recapitalizations
with respect to such shares) plus all accrued but unpaid dividends on such
shares (the "SERIES A REDEMPTION PRICE").
(b) At any time after September 14, 2004, in the event that
the Company shall receive at any time a written request by the holders of at
least two-thirds of the then outstanding shares of Series B Preferred and
Series C Preferred, taken together as one class for this purpose (the
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"ELECTION"), for the redemption of all Series B Preferred and Series C
Preferred under this subsection 3(b), the Company shall redeem on the day
that is thirty (30) days after the date of such notice and on the first and
second anniversary date thereof, (each of such three dates a "SERIES B AND C
REDEMPTION DATE"), a number of shares of Series B Preferred and Series C
Preferred Stock equal to one-third, one-half and all, respectively, of the
remaining outstanding shares of each of the Series B Preferred and Series C
Preferred that are outstanding on each of those respective Series B and C
Redemption Dates. Such shares are to be redeemed from any source of funds
legally available therefor at the redemption price therefor described in this
subsection. The redemption price for each share of Series B Preferred Stock
shall be the sum of $1.48 per share (as adjusted for Recapitalizations with
respect to such shares) plus all declared but unpaid dividends thereon, if
any, through the respective Series B and C Redemption Date. The redemption
price for each share of Series C Preferred Stock shall be the sum of $5.40
per share (as adjusted for Recapitalizations with respect to such shares)
plus all declared but unpaid dividends thereon, if any, through the
respective Series B and C Redemption Date. If upon any Series B and C
Redemption Date scheduled under this subsection for the redemption of Series
B Preferred and Series C Preferred, the funds and assets of the Company
legally available to redeem such stock shall be insufficient to redeem all
shares of Series B Preferred and Series C Preferred then scheduled to be
redeemed, then the Company shall redeem such unredeemed shares as soon
thereafter as practicable to the full extent of legally available funds of
the Company at such time, and any such unredeemed shares shall continue to be
so carried forward until redeemed. Notwithstanding the foregoing, in no event
shall the Company be obligated to redeem more than one-third of the number of
shares of each of the Series B Preferred and Series C Preferred outstanding
immediately prior to the first Series B and C Redemption Date (plus declared
but unpaid dividends thereon) in any twelve month period. Shares of Series B
Preferred and Series C Preferred which are subject to redemption but which
have not been redeemed due to insufficient legally available funds and assets
of the Company shall continue to be outstanding and entitled to all dividend,
liquidation, conversion and other rights, preferences, privileges and
restrictions of such series of Preferred Stock until such shares have been
converted or redeemed.
(c) As used herein and in subsections (d) and (e) below, the
term "REDEMPTION DATE" shall refer to each of "SERIES A REDEMPTION DATE" and
"SERIES B AND C REDEMPTION DATE" and the term "REDEMPTION PRICE" shall refer
to each of "SERIES A REDEMPTION PRICE," "SERIES B REDEMPTION PRICE," and the
"SERIES C REDEMPTION PRICE." Subject to the rights of series of Preferred
Stock which may from time to time come into existence, at least fifteen (15)
but no more than (30) days prior to each Redemption Date, written notice
shall be mailed, first class postage prepaid, to each holder of record (at
the close of business on the business day next preceding the day on which
notice is given) of the Series A Preferred or Series B Preferred to be
redeemed, at the address last shown on the records of the Corporation for
such holder, notifying such holder of the redemption to be effected,
specifying the number of shares to be redeemed from such holder, the
Redemption Date, the Redemption Price, the place at which payment may be
obtained and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his, her or its certificate or
certificates representing the shares to be redeemed (the "REDEMPTION
NOTICE"). Except as provided in Section 3(d), on or after the Redemption
Date, each holder of Series A Preferred, Series B Preferred or Series C
Preferred to be redeemed shall surrender to the Corporation
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the certificate or certificates representing such share, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate
shall be issued representing the unredeemed shares.
(d) On or prior to the Redemption Date, the Corporation shall
deposit the Redemption Price of all shares to be redeemed with a bank or
trust company having aggregate capital and surplus in excess of $100,000,000,
as a trust fund, with irrevocable instructions and authority to the bank or
trust company to pay, on and after such Redemption Date, the Redemption Price
of the shares to their respective holders upon the surrender of their share
certificates. Any moneys deposited by the Corporation pursuant to this
Section 3(d) for the redemption of shares thereafter converted into shares of
Common Stock pursuant to Section 5 hereof no later than the fifth (5th) day
preceding the Redemption Date shall be returned to the Corporation forthwith
upon such conversion. The balance of any funds deposited by the Corporation
pursuant to this Section 3(d) remaining unclaimed at the expiration of one
(1) year following such Redemption Date shall be returned to the Corporation
promptly upon its written request.
(e) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of shares of Series A Preferred, Series B Preferred or Series C
Preferred designated for redemption in the Redemption Notice as holders of
Series A Preferred, Series B Preferred or Series C Preferred (except the
right to receive the Redemption Price without interest upon surrender of
their certificate or certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
Subject to the rights of series of Preferred Stock which may from time to
time come into existence, if the funds of the Corporation legally available
for redemption of shares of Series A Preferred, Series B Preferred or Series
C Preferred on any Redemption Date are insufficient to redeem the total
number of shares of Series A Preferred, Series B Preferred or Series C
Preferred to be redeemed on such date, those funds which are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders of Series A Preferred, Series B Preferred or Series
C Preferred. The shares of Series A Preferred, Series B Preferred or Series C
Preferred not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption
of shares of Series A Preferred, Series B Preferred or Series C Preferred
such funds will immediately be used to redeem the balance of the shares which
the Corporation has become obliged to redeem on any Redemption Date, but
which has not been redeemed.
4. VOTING RIGHTS.
(a) GENERAL. Except as otherwise required by law or by this
Certificate of Incorporation and subject to Section 7, the holder of each
share of Common Stock issued and outstanding shall have one vote and the
holder of each share of Series B Preferred or Series C Preferred shall be
entitled to the number of votes equal to the number of shares of Common Stock
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into which such share of Series B Preferred or Series C Preferred could be
converted at the record date for determination of the stockholders entitled
to vote on such matters, or, if no such record date is established, at the
date such vote is taken or any written consent of stockholders is solicited,
such votes to be counted together with all other shares of stock of the
Corporation having general voting power and not separately as a class. The
holders of Series A Preferred shall have no voting rights with respect to
shares of Series A Preferred. Holders of Common Stock, and Series A
Preferred, Series B Preferred and Series C Preferred shall be entitled to
notice of any stockholders' meeting in accordance with the Bylaws of the
Corporation. Fractional votes by the holders of Series B Preferred or Series
C Preferred shall not, however, be permitted and any fractional voting rights
shall (after aggregating all shares into which shares of Series B Preferred
and Series C Preferred held by each holder could be converted) be rounded to
the nearest whole number.
(b) ELECTION OF BOARD OF DIRECTORS. The holders of Common
Stock and Series B Preferred and Series C Preferred shall vote for the
Corporation's Board of Directors as follows: (i) three (3) nominees appointed
by the holders of a majority of the Series B Preferred; (ii) one (1) nominee
appointed by the holders of a majority of the Series C Preferred and approved
by the Chief Executive Officer of the Corporation; and (iii) three (3)
nominees appointed by Alan Warms or, in the event that Mr. Warms is deceased
or incapacitated, then by the holders of a majority of the then outstanding
Common Stock. This Section 4(b) shall be terminated upon an IPO (as defined
in Section 5(b) below).
5. CONVERSION. The shares of Series A Preferred shall not be
convertible into Common Stock. The holders of Series B Preferred and Series C
Preferred have conversion rights as follows (the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT. Each share of Series B Preferred or
Series C Preferred shall be convertible, at the option of the holder thereof,
at any time after the date of issuance of such share and on or prior to the
fifth day prior to the Redemption Date, if any, as may have been fixed in any
Redemption Notice with respect to such share of Series B Preferred or Series
C Preferred, at the office of the Corporation or any transfer agent for the
Series B Preferred or Series C Preferred. Each share of Series B Preferred or
Series C Preferred shall be convertible into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $1.48 by
the Series B Conversion Price, or $5.40 by the Series C Conversion Price, as
applicable, each determined as provided below, in effect at the time of
conversion. The conversion price for the Series B Preferred Stock shall
initially be $1.48 with respect to each share of Series B Preferred (the
"SERIES B CONVERSION PRICE") and the conversion price for the Series C
Preferred Stock shall initially be $5.40 with respect to each share of Series
C Preferred Stock (the "SERIES C CONVERSION PRICE," and together with the
Series B Conversion Price, the "CONVERSION PRICE").
(b) AUTOMATIC CONVERSION. Each share of Series B Preferred and
Series C Preferred shall automatically be converted into shares of Common
Stock at the then effective Conversion Price for such series upon the earlier
of (i) the closing of a firm commitment underwritten public offering pursuant
to an effective registration statement on Form S-1 or any successor form
under the Securities Act of 1933, as amended, covering the offer and sale of
the
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Common Stock for the account of the Corporation to the public at a price per
share (prior to underwriter commissions and offering expenses) of not less
than $7.38 per share for the Series B Preferred and not less than $10.00 for
the Series C Preferred (in each case, appropriately adjusted for any
Recapitalizations with respect to such shares) with an aggregate offering
price to the public of not less than $15,000,000 (an "IPO") or (ii) in the
case of the Series B Preferred, the election of holders of at least a
majority of the outstanding shares of Series B Preferred and in the case of
the Series C Preferred, the election of holders of at least a majority of the
outstanding shares of Series C Preferred. In the event of the automatic
conversion of the Series B Preferred or Series C Preferred upon an IPO, the
person(s) entitled to receive the Common Stock issuable upon such conversion
of Series B Preferred or Series C Preferred shall not be deemed to have
converted such Series B Preferred or Series C Preferred until immediately
prior to the closing of such sale of securities.
(c) MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon conversion of Series B Preferred or Series C
Preferred. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the then effective Conversion Price. Before any holder of
Series B Preferred or Series C Preferred shall be entitled to convert the
same into full shares of Common Stock and to receive certificates therefor,
the holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series B Preferred or Series C Preferred, as the case may be, and shall give
written notice to the Corporation at such office that the holder elects to
convert the same; provided, however, that in the event of an automatic
conversion pursuant to Section 5(b), the outstanding shares of Series B
Preferred and Series C 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 Corporation or
its transfer agent and provided further, that the Corporation shall not be
obligated to issue certificates evidencing the shares of Common Stock
issuable upon such automatic conversion unless the certificates evidencing
such shares of Series B Preferred or Series C Preferred are either delivered
to the Corporation or its transfer agent as provided above, or the holder
notifies the Corporation or its transfer agent that such certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. The Corporation shall, as soon as
practicable after such delivery, or such agreement and indemnification in the
case of a lost certificate, issue and deliver at such office to such holder
of Series B Preferred or Series C Preferred, a certificate or certificates
for the number of shares of Common Stock to which such holder shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series B Preferred or Series C Preferred to be converted, or in the case of
automatic conversion then on the date of closing of the offering, and the
person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on such date.
(d) (i) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
shall be subject to adjustment from time to time as follows:
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(A) ADJUSTMENTS FOR SUBDIVISIONS, COMBINATIONS OR
CONSOLIDATION OF COMMON STOCK. In the event the outstanding shares of Common
Stock shall be subdivided by stock split, stock dividends or otherwise, into
a greater number of shares of Common Stock, the Conversion Price then in
effect shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification or otherwise,
into a lesser number of shares of Common Stock, the Conversion Price then in
effect shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
(B) ADJUSTMENTS FOR STOCK DIVIDENDS AND OTHER
DISTRIBUTIONS. In the event the Corporation at any time or from time to time
makes, or fixes a record date for the determination of holders of Common
Stock entitled to receive any distribution (excluding any repurchases of
securities by the Corporation not made on a pro rata basis from all holders
of any class of the Corporation's securities) payable in property or in
securities of the Corporation other than shares of Common Stock, and other
than as otherwise adjusted in this Section 5 or as provided in Section 1,
then and in each such event the holders of Series B Preferred or Series C
Preferred shall receive at the time of such distribution, the amount of
property or the number of securities of the Corporation that they would have
received had their Series B Preferred or Series C Preferred been converted
into Common Stock on the date of such event.
(C) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. Except as provided in Section 2, upon any Liquidating Event, if
the Common Stock issuable upon conversion of the Series B Preferred or Series
C Preferred shall be changed into the same or a different number of shares of
any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of
shares provided for above), each share of Series B Preferred or Series C
Preferred shall thereafter be convertible into the number of shares of stock
or other securities or property to which a holder of the number of shares of
Common Stock of the Corporation deliverable upon conversion of such share of
Series B Preferred or Series C Preferred shall have been entitled upon such
reorganization or reclassification. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 5 with
respect to the rights of the holders of Series B Preferred or Series C
Preferred after such reorganization or reclassification to the end that the
provisions of this Section 5 (including adjustment of the Conversion Price
then in effect and the number of shares issuable upon conversion of the
Series B Preferred or Series C Preferred) shall be applicable after that
event and be as nearly equivalent as practicable.
(ii) ADJUSTMENTS OF CONVERSION PRICE FOR DILUTING ISSUES.
In addition to the adjustment of the Conversion Price provided in Section
5(d)(i) above, the Series B Conversion Price shall be subject to further
adjustment from time to time as follows:
(A) SPECIAL DEFINITIONS. For purposes of this
Section 5(d)(ii), the following definitions shall apply:
(1) "OPTIONS" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock
or Convertible Securities.
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(2) "ORIGINAL ISSUE DATE" shall mean the date
on which the first share of Series B Preferred was first issued.
(3) "CONVERTIBLE SECURITIES" shall mean
securities convertible into or exchangeable for Common Stock.
(4) "ADDITIONAL SHARES OF COMMON STOCK" shall
mean all shares of Common Stock issued (or, pursuant to Section 5(d)(ii)(C),
deemed to be issued) by the Corporation after the Original Issue Date other
than shares of Common Stock issued (or, pursuant to Section 5(d)(ii)(C),
deemed to be issued):
(I) upon conversion of shares of the
Series B Preferred or Series C Preferred;
(II) to officers, directors and employees
of, and consultants to, the Corporation pursuant to plans and arrangements
approved by the Board of Directors;
(III) as a dividend or other distribution on
the Series A Preferred, Series B Preferred or Series C Preferred or pursuant
to clauses (A), (B) or (C) of Section 5(d)(i);
(IV) upon the exercise of options issued
prior to the Original Issue Date;
(V) in connection with equipment
financing, or issued for consideration other than cash sponsored research,
collaboration, technology licensing, development agreements or any other
strategic partnerships or mergers or acquisitions approved by the Board of
Directors;
(VI) by way of dividend or other
distributions on securities referred to in clauses (I) through (V) above.
(B) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment
in the Conversion Price for any series of Preferred Stock shall be made in
respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or
deemed to be issued by the Corporation is less than the Conversion Price in
effect on the date of, and immediately prior to such issue.
(C) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK.
(1) OPTIONS AND CONVERTIBLE SECURITIES. Except
as otherwise provided in Section 5(d)(ii)(A)(4)(I) - (V) and 5(d)(ii)(B), in
the event the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of any holders of any class of securities
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entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that in any such case in which additional shares
of Common Stock are deemed to be issued:
(I) no further adjustment in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(II) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
increase or decrease in the number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(III) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Conversion Price computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
a) in the case of Convertible
Securities or Options for Common Stock, the only additional shares of Common
Stock issued were shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration actually received by the
Corporation upon such exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
b) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration deemed to have been received
by the Corporation upon the issue of the Convertible Securities with respect
to which such Options were actually exercised;
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(IV) no readjustment pursuant to clause
(II) or (III) above shall have the effect of increasing the Conversion Price
to an amount which exceeds the lower of (i) the Conversion Price on the
original adjustment date, or (ii) the Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date; and
(V) in the case of any Options which
expire by their terms not more than thirty (30) days after the date of issue
thereof, no adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options.
(D) ADJUSTMENT OF CONVERSION PRICE UPON
ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 5(d)(ii)(C)) without
consideration or for a consideration per share less than the Series B
Conversion Price and/or the Series C Conversion Price, in effect on the date
of, and immediately prior to such issue, then and in such event, such Series
B Conversion Price and/or the Series C Conversion Price (as applicable),
shall be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying such Series B Conversion Price or the
Series C Conversion Price (as applicable) by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Series B
Conversion Price or the Series C Conversion Price (as applicable); and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; and provided further that, for
the purposes of this Section 5(d)(ii)(D), 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, and (B) the number of
shares of Common Stock into which the then outstanding shares of Preferred
Stock could be converted if fully converted on the day immediately preceding
the given date, and (C) the total number of shares of Common Stock issuable
upon exercise of stock options outstanding as of the Original Issue Date.
(E) DETERMINATION OF CONSIDERATION. For
purposes of this Section 5(d)(ii), the consideration received by the
Corporation for the issue of any Additional Shares of Common Stock shall be
computed as follows:
(1) CASH AND PROPERTY: Such consideration
shall:
(I) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation prior
to amounts paid or payable for accrued interest or accrued dividends and
prior to any commissions or expenses paid by the Corporation;
(II) insofar as it consists of
property other than cash, be computed at the fair value thereof at the time
of such issue, as determined in good faith by the Board of Directors; and
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(III) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(I) and (II) above, as determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES.
The consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued pursuant to Section
5(d)(ii)(C)(1), relating to Options and Convertible Securities, shall be
determined by dividing
(x) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment
of such consideration) payable to the Corporation upon the exercise of such
Option or the conversion or exchange of such Convertible Securities, or in
the case of Options for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange of such Convertible
Securities by
(y) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
(e) NO IMPAIRMENT. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series B Preferred and Series C Preferred against
impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section
5, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder
of Series B Preferred or Series C Preferred a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred or Series C Preferred
furnish or cause to be furnished to such holder a like certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Price, at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon
the conversion of Series B Preferred or Series C Preferred.
(g) NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time:
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(A) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether
or not a regular cash dividend and whether or not out of earnings or earned
surplus;
(B) to offer for subscription pro rata to the
holders of any class or series of its stock any additional shares of stock of
any class or series or other rights;
(C) to effect any reclassification or capitalization
of its Common Stock outstanding involving a change in the Common Stock; or
(D) to merge or consolidate with or into any other
Corporation, or sell, lease or convey all or substantially all its property
or business, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of Series A Preferred, Series B Preferred and Series C Preferred:
(1) at least ten (10) days' prior written
notice of the date on which a record shall be taken for such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto) or for determining rights
to vote in respect of the matters referred to in (i) and (ii) above; and
(2) in the case of the matters referred to in
(iii) and (iv) above, at least ten (10) days' prior written notice of the
date when the same shall take place (and specifying the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by
first class mail, postage prepaid, addressed to the holders of the Series A
Preferred, Series B Preferred and Series C Preferred at the address for each
such holder as shown on the books of the Corporation. Notwithstanding the
above, the ten days' notice requirement may be waived by a written waiver
signed by the holders of a majority of the outstanding Preferred Stock.
6. STATUS OF CONVERTED OR REDEEMED STOCK. In case any shares of
Series A Preferred shall be redeemed pursuant to Section 3, the shares shall
be cancelled and shall not be issued by the Corporation and this Certificate
of Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized Series A Preferred. In case any
shares of Series B Preferred or Series C Preferred shall be converted
pursuant to Section 5 or redeemed pursuant to Section 3, the shares shall be
cancelled and shall not be issued by the Corporation and this Certificate of
Incorporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized Series B Preferred or Series C
Preferred.
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<PAGE>
7. COVENANTS.
(a) In addition to any other rights provided by law, the
Corporation shall not, without first obtaining the affirmative vote or
written consent of the holders of not less than a majority of the then
outstanding shares of the Series B Preferred and Series C Preferred voting as
a class:
(i) amend or repeal any provision of the Corporation's
Certificate of Incorporation if such action would alter or change the
preferences, rights, privileges or powers of, or the restrictions provided
for the benefit of, the Series B Preferred or Series C Preferred; or
(ii) authorize shares of any new class or series of stock
having any preference or priority as to dividends, redemption, liquidation
rights or assets superior to or on parity with any such preference or
priority of the Series B Preferred or Series C Preferred;
(iii) redeem any shares of Common Stock (other than pursuant
to equity incentive agreements with service providers giving the Corporation
the right to repurchase shares upon the termination of services);
(iv) declare or pay any dividend or other distribution on
the Common Stock or Preferred Stock (except for dividends or distributions
expressly provided for in this Certificate of Incorporation);
(v) effect a Liquidating Event;
(vi) increase or decrease the authorized size of the
Corporation's Board of Directors; or
(vii) increase or decrease the authorized number of shares
of Common Stock or Preferred Stock.
(b) In addition to any other rights provided by law, the
Corporation shall not, without first obtaining the affirmative vote or
written consent of the holders of not less than a majority of the then
outstanding shares of the Series A Preferred, Series B Preferred and Series C
Preferred, voting together as a single class, amend or repeal any provision
of the Corporation's Certificate of Incorporation if such action would alter
or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred.
ARTICLE FIVE
The Corporation is to have perpetual existence.
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<PAGE>
ARTICLE SIX
Effective upon the closing of a firm commitment underwritten public
offering of Common Stock of the Corporation, no action that is required or
permitted to be taken by the stockholders of the Corporation at any annual or
special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders.
ARTICLE SEVEN
Effective upon the closing of a firm commitment underwritten public
offering of Common Stock of the Corporation, no stockholder will be permitted
to cumulate votes at any election of directors.
ARTICLE EIGHT
Notwithstanding the foregoing, effective upon the closing of a firm
commitment underwritten public offering of Common Stock of the Corporation,
the Board of Directors shall be divided into three classes, the members of
each class to serve for a term of three years; provided that the directors
shall be elected as follows: at the first annual meeting of the stockholders
held following the closing of a firm commitment underwritten public offering
of Common Stock of the Corporation, the directors in the first class shall be
elected for a term of three years, at the second annual meeting following
such date, the directors in the second class shall be elected for a term of
three years, and at the third annual meeting following such date, the
directors in the third class shall be elected for a term of three years. The
Board of Directors by resolution shall nominate the directors to be elected
for each class. At subsequent annual meetings of stockholders, a number of
directors shall be elected equal to the number of directors with terms
expiring at that annual meeting. Directors elected at each such subsequent
annual meeting shall be elected for a term expiring with the annual meeting
of stockholders three years thereafter.
ARTICLE NINE
The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the Bylaws of the Corporation, but the stockholders
may make additional by-laws and may alter or repeal any by-law whether
adopted by them or otherwise.
Notwithstanding any other provision of this Certificate of
Incorporation, the Bylaws of the Corporation or any provision of law which
might otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of stock of
the Corporation required by law, this Certificate of Incorporation or any
Preferred Stock designation, the affirmative vote of sixty-six and two-thirds
percent (66-2/3%) of the voting power of the then outstanding shares of the
voting stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required for the
modification, amendment or repeal of Section 2.2 (Annual Meeting), Section
2.3 (Special Meeting), Section 2.5 (Advance Notice of Stockholder Nominees
and Stockholder Business), Section 3.3 (Election and Term of Office of
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<PAGE>
Directors) and Section 3.4 (Resignation and Vacancies) of the Bylaws of the
Corporation or of Article VIII or this Article IX of this Certificate of
Incorporation.
ARTICLE TEN
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 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 ELEVEN
The number of directors which constitute the whole Board of
Directors of the Corporation shall be designated in the Bylaws of the
Corporation.
ARTICLE TWELVE
To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or 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,
except to the extent such exception from liability or limitation thereof is
not permitted under the Delaware Corporation Law as the same exists or may
hereafter be amended.
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 such person, such person's 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 or
employee at the request of the Corporation or any predecessor of the
Corporation.
Neither any amendment nor repeal of this Article, nor the adoption
of any provision of this Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of
any matter occurring, or any cause of action, suit or claim that, but for
this Article, would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
ARTICLE THIRTEEN
Advance notice of new business at stockholders' meetings and
stockholder proposals 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.
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ARTICLE FOURTEEN
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.
ARTICLE FIFTEEN
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.
The undersigned hereby acknowledges that the above Certificate of
Incorporation of Participate.com, Inc. is his act and deed and that the facts
stated therein are true.
Dated: ______, 2000
----------------------------------------
Alan K. Warms
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<PAGE>
EXHIBIT 3.3
BYLAWS
OF
PARTICIPATE.COM, INC.
(a Delaware corporation)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I CORPORATE OFFICES...........................................................................................1
1.1 REGISTERED OFFICE...................................................................................1
1.2 OTHER OFFICES.......................................................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS...................................................................................1
2.1 PLACE OF MEETINGS...................................................................................1
2.2 ANNUAL MEETING......................................................................................1
2.3 SPECIAL MEETING.....................................................................................1
2.4 NOTICE OF STOCKHOLDERS' MEETINGS....................................................................2
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND
STOCKHOLDER BUSINESS................................................................................2
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE........................................................4
2.7 QUORUM..............................................................................................4
2.8 ADJOURNED MEETING; NOTICE...........................................................................5
2.9 VOTING..............................................................................................5
2.10 WAIVER OF NOTICE....................................................................................6
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A
MEETING.............................................................................................6
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING..........................................................6
2.13 PROXIES.............................................................................................7
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE...............................................................7
ARTICLE III DIRECTORS.................................................................................................8
3.1 POWERS..............................................................................................8
3.2 NUMBER OF DIRECTORS.................................................................................8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS............................................................8
3.4 RESIGNATION AND VACANCIES...........................................................................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..................................................11
3.13 FEES AND COMPENSATION OF DIRECTORS.................................................................11
3.14 APPROVAL OF LOANS TO OFFICERS......................................................................11
ARTICLE IV COMMITTEES................................................................................................11
4.1 COMMITTEES OF DIRECTORS............................................................................11
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TABLE OF CONTENTS
PAGE
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4.2 MEETINGS AND ACTION OF COMMITTEES..................................................................12
4.3 COMMITTEE MINUTES..................................................................................12
ARTICLE V OFFICERS...................................................................................................13
5.1 OFFICERS...........................................................................................13
5.2 ELECTION OF OFFICERS...............................................................................13
5.3 SUBORDINATE OFFICERS...............................................................................13
5.4 REMOVAL AND RESIGNATION OF OFFICERS................................................................13
5.5 VACANCIES IN OFFICES...............................................................................13
5.6 CHAIRMAN OF THE BOARD..............................................................................14
5.7 PRESIDENT..........................................................................................14
5.8 VICE PRESIDENTS....................................................................................14
5.9 SECRETARY..........................................................................................14
5.10 CHIEF FINANCIAL OFFICER............................................................................15
ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS................................................................................................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS..........................................................15
6.2 INDEMNIFICATION OF OTHERS..........................................................................16
6.3 INSURANCE..........................................................................................16
ARTICLE VII RECORDS AND REPORTS......................................................................................16
7.1 MAINTENANCE AND INSPECTION OF RECORDS..............................................................16
7.2 INSPECTION BY DIRECTORS............................................................................17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...................................................................17
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.....................................................17
7.5 CERTIFICATION AND INSPECTION OF BYLAWS.............................................................17
ARTICLE VIII GENERAL MATTERS.........................................................................................17
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING..............................................17
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS..........................................................18
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED..................................................18
8.4 STOCK CERTIFICATES; TRANSFER; PARTLY PAID SHARES...................................................18
8.5 SPECIAL DESIGNATION ON CERTIFICATES................................................................19
8.6 LOST CERTIFICATES..................................................................................19
8.7 CONSTRUCTION; DEFINITIONS..........................................................................20
ARTICLE IX AMENDMENTS................................................................................................20
9.1 AMENDMENTS BY STOCKHOLDERS AND DIRECTORS...........................................................20
</TABLE>
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<PAGE>
BYLAWS
OF
PARTICIPATE.COM, INC.
(a Delaware corporation)
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
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 by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board of Directors. At the meeting, directors
shall be elected and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
Board of Directors, the chairman of the board, the chief executive officer or
the president of the Company or the holders of shares entitled to cast not less
than 10% of the votes at the meeting; provided that after such time
<PAGE>
as the Company shall have outstanding securities designated as qualified for
trading as a national market security on the National Association of
Securities Dealers Automatic Quotation System (or any successor national
market system), a special meeting of the stockholders may only be called by
the Board of Directors, the chairman of the board, the chief executive
officer or the president of the Company.
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 purpose or purposes for which the meeting is called (no business
other than that specified in the notice may be transacted) or (ii) in the case
of the annual meeting, those matters which the Board of Directors, at the time
of giving the notice, intends to present for action by the 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 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER
BUSINESS
Nominations of persons for election to the Board of Directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors, by any nominating committee or person appointed by the
Board of Directors or by any stockholder of the corporation entitled to vote in
the election of directors at the meeting who complies with the notice procedures
set forth in this Section and who was a stockholder of record at the time of the
giving of such notice. Such nominations, other than those made by or at the
direction of the Board of Directors or by any nominating committee or person
appointed by the Board of Directors, shall be made pursuant to timely notice in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the corporation not less than sixty (60) days nor more than one
hundred twenty (120) days prior to the scheduled meeting regardless of any
postponements, deferrals or adjournments of that meeting to a later date;
provided, however, that in the event less than seventy (70) days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
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 was made. For purposes
of this Section 2.5 "public disclosure" shall mean disclosure in a press release
reported by the Dow Jones News Service, Associated Press or a comparable
national news service or in a document publicly filed by the corporation with
the Securities and Exchange Commission. Such stockholder's notice shall set
forth (a) as to each person, if any, whom the stockholder proposes to nominate
for election or re-election as a director: (i) the name, age, business address
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of the
corporation which are beneficially owned by such person, (iv) any other
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<PAGE>
information relating to such person that is required by law to be disclosed in
solicitations of proxies for election of directors pursuant to applicable rules
and regulations of the Securities and Exchange Commission promulgated under the
Securities Exchange Act of 1934, as amended, and (v) such person's written
consent to being named as a nominee and to serving as a director if elected; and
(b) as to the stockholder giving the notice: (i) the name and address, as they
appear on the corporation's books, of such stockholder, (ii) the class and
number of shares of the corporation which are beneficially owned by such
stockholder on the date of such stockholder notice, and (iii) a description of
all arrangements or understandings between such stockholder and each nominee and
any other person or persons (naming such person or persons) relating to the
nomination. At the request of the Board of Directors any person nominated by the
Board of Directors for election as a director shall furnish to the Secretary of
the corporation that information required to be set forth in the stockholder's
notice of nomination which pertains to the nominee or required by the
corporation to determine the eligibility of such proposed nominee to serve as
director of the corporation. 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. The chairman of the meeting shall, if the facts
warrant, determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these bylaws, and if the chairman
should so determine, the chairman shall so declare at the meeting and the
defective nomination shall be disregarded.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be: (a) as 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 that was a stockholder of record at the time
of the giving of the relevant notice as provided below. Business to be brought
before an annual meeting by a stockholder shall not be considered properly
brought if the stockholder has not given timely notice thereof in writing to the
Secretary of the corporation or if such business is not a proper matter for
stockholder action under the General Corporation Law of the State of Delaware.
To be timely, a stockholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not less than sixty (60)
nor more than one hundred twenty (120) days prior to the scheduled meeting
regardless of any postponements, deferrals or adjournments of that meeting to a
later date; provided, however, that in the event that less than seventy (70)
days notice or prior public disclosure of the date of the meeting is given or
made to stockholders, 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 annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting: (i)
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, (ii)
the name and address, as they appear on the corporation's books, of the
stockholder proposing such business and any other stockholders known by such
stockholder to be supporting such proposal, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder and by any
other
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<PAGE>
stockholders known by such stockholder to be supporting such proposal on the
date of such stockholder notice, (iv) any material interest of the
stockholder in such business, and (v) any other information that is required
by law to be provided by the stockholder in his capacity as a proponent of a
stockholder proposal. Notwithstanding the foregoing, in order to include
information with respect to a stockholder proposal in the proxy statement and
form of proxy for a stockholders' meeting, stockholders must provide notice
as required by the regulations promulgated under the Securities Exchange Act
of 1934, as amended. Notwithstanding anything in these bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section. The chairman of the
annual meeting shall, if the facts warrant, determine and declare at the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section, and, if the chairman should
so determine, the chairman shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered 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 stockholder 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.
An affidavit of the mailing or other means of giving any notice 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.
2.7 QUORUM
The holders of a majority in voting power of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting in accordance
with Section 2.7 of these bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the certificate of incorporation or these bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of the question.
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<PAGE>
If a quorum be initially present, the stockholders may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 ADJOURNED MEETING; NOTICE
When a meeting is adjourned to another time and place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
2.9 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 the State 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
or these bylaws, each stockholder shall be entitled to one vote for each share
of capital stock held by such stockholder.
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 stockholders' 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 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, effective upon the closing of a firm
commitment underwritten public offering of Common Stock of the corporation, no
stockholder will be permitted to cumulate votes at any election of directors.
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<PAGE>
2.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of the State of Delaware or of the certificate of
incorporation or these bylaws, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice unless so required by the certificate of incorporation or these
bylaws.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that may be taken at any annual or
special meeting of such stockholders, may be taken without a meeting, without
prior notice, and without a vote if a consent in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing and, who, if the action had been taken at a
meeting, would have been entitled to notice of the meeting if the record date
for such meeting had been the date that written consents signed by a sufficient
number of holders to take the action were delivered to the corporation as
provided in Section 228(c) of the General Corporation Law of the State of
Delaware. 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 the
State of Delaware if such action had been voted on by stockholders at a meeting
thereof, then the certificate filed under such section shall state, in lieu of
any statement required by such section concerning any vote of stockholders, that
written notice and written consent have been given as provided in Section 228 of
the General Corporation Law of the State of Delaware.
Notwithstanding the foregoing, effective upon the closing of a firm
commitment underwritten public offering of Common Stock of the corporation, no
action that is required or permitted to be taken by the stockholders at any
annual or special meeting of stockholders may be effected by written consent of
stockholders in lieu of a meeting of stockholders.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the Board of Directors may fix, in advance, a record
date, which shall not precede the date
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upon which the resolution fixing the record date is adopted by the Board of
Directors and which shall not be more than sixty (60) days nor less than ten
(10) days before the date of any such meeting, and in such event only
stockholders of record on the date so fixed are entitled to notice and to
vote, 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, 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.
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
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section
8.1 of these bylaws.
2.13 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, telefacsimile 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
the State of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
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ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of the State
of Delaware and any limitations in the certificate of incorporation and 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 OF DIRECTORS
The Board of Directors shall be between five to nine until changed by
amendment of this Section 3.2 duly approved by a majority of the directors then
in office. No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected or appointed to fill
a vacancy or a newly created directorship, shall hold office until the
expiration of the term of the class of directors for which elected and until a
successor has been elected and qualified.
Notwithstanding the foregoing, effective upon the closing of a firm
commitment underwritten public offering of Common Stock of the corporation, the
Board of Directors shall be divided into three classes, the members of each
class to serve for a term of three years; provided that the directors shall be
elected as follows: at the first annual meeting of the stockholders held
following the closing of a firm commitment underwritten public offering of
Common Stock of the corporation, the directors in the first class shall be
elected for a term of three years, at the second annual meeting following such
date, the directors in the second class shall be elected for a term of three
years, and at the third annual meeting following such date, the directors in the
third class shall be elected for a term of three years. The Board of Directors
by resolution shall nominate the directors to be elected for each class. At
subsequent annual meetings of stockholders, a number of directors shall be
elected equal to the number of directors with terms expiring at that annual
meeting. Directors elected at each such subsequent annual meeting shall be
elected for a term expiring with the annual meeting of stockholders three years
thereafter.
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3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the Board of Directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
Board of Directors may elect a successor to take office when the resignation
becomes effective.
All vacancies and newly created directorships 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; provided, that whenever the holders of
any class or classes of stock or series thereof are entitled to elect one or
more directors by the provisions of the certificate of incorporation, vacancies
and newly created directorships of such class or classes or series may be filled
by a majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected.
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 of Directors. 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 of Directors 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, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation, or by facsimile or electronic
mail. 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
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telegram or by facsimile or electronic mail, it shall be delivered personally
or by telephone or to the telegraph company or by facsimile or electronic
mail at least forty-eight (48) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it
to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of
the corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the Board of Directors, subject to the provisions of 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.
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3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, provided that all members of the Board of
Directors 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 of
Directors.
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 any of its
subsidiaries, including any officer or employee who is a director of the
corporation or any of its subsidiaries, 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.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of one (1) or more directors of the corporation. The Board of
Directors may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. The appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of directors. In the
absence or disqualification of a member of the committee, 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 place of any such
absent or disqualified
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member. Any committee, to the extent provided in the resolution of the Board
of Directors, or in these bylaws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it, but no such committee shall
have the power or authority to:
(a) approve or adopt, or recommend to the stockholders, any
action or matter expressly required by the General Corporation Law of the State
of Delaware to be submitted to stockholders for approval; or
(b) adopt, amend or repeal any bylaw of the corporation.
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.
4.3 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, a secretary and a
chief financial officer. The corporation may also have, at the discretion of the
Board of Directors, a chairman of the board, one or more vice presidents, one or
more assistant secretaries, one or more assistant treasurers and such other
officers as may be appointed in accordance with the provisions of Section 5.3 of
these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
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 of Directors
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.
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5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and exercise and perform
such other powers and duties as may from time to time be assigned to the
chairman of the board by the Board of Directors or as may be prescribed by these
bylaws. If there is no president, then the chairman of the board shall also be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and the officers of the corporation. The
president shall preside at all meetings of the stockholders and, in the absence
or nonexistence of a chairman of the board, at all meetings of the Board of
Directors. The president shall have the general powers and duties of management
usually vested in the office of president of a corporation, and shall have such
other powers and duties as may be prescribed by the Board of Directors or these
bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a vice president designated by the Board of Directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number
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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 stockholders and of the Board of Directors required to be given by law or
by these bylaws. The secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the Board of Directors. The chief financial officer 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 such person's transactions as chief financial officer
and of the financial condition of the corporation, and shall have such other
powers and perform such other duties as may be prescribed by the Board of
Directors or these bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of the State of Delaware as the same
now exists or may hereafter be amended, indemnify any person against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit or proceeding in which such person was or is a party or
is threatened to be made a party by reason of the fact that such person is or
was a director or officer of the corporation. For purposes of this Section 6.1,
a "director" or "officer" of the corporation shall mean any person (i) who is or
was a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
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6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of the State of Delaware as the
same now exists or may hereafter be amended, to indemnify any person (other than
directors and officers) against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit or proceeding,
in which such person was or is a party or is threatened to be made a party by
reason of the fact that such person is or was an employee or agent of the
corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
corporation (other than a director or officer) shall mean any person (i) who is
or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against 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 to indemnify such
person against such liability under the provisions of the General Corporation
Law of the State of Delaware.
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 of its business and properties.
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
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to so act on behalf of the stockholder. The demand under oath shall be
directed to the corporation at its registered office in the State of Delaware
or at its principal place of business.
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.
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, if any, the president, any vice president,
the chief financial officer, the secretary or any assistant secretary of this
corporation, or any other person authorized by the Board of Directors or the
president or a vice president, is authorized to vote, represent and exercise on
behalf of this corporation all rights incident to any and all shares of the
stock 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.
7.5 CERTIFICATION AND INSPECTION OF BYLAWS
The original or a copy of these bylaws, as amended or otherwise altered
to date, certified by the secretary, shall be kept at the corporation's
principal executive office and shall be open to inspection by the stockholders
of the corporation, at all reasonable times during office hours.
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, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted and 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
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any shares on the books of the corporation after the record date so fixed,
except as otherwise provided in the General Corporation Law of the State of
Delaware. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the
day on which the Board of Directors adopts the resolution relating thereto.
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 of Directors adopts the
applicable resolution.
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; TRANSFER; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the Board of Directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of stock represented by certificates and, upon request,
every holder of uncertificated shares, shall be entitled to have a certificate
signed by, or in the name of the corporation by, the chairperson or
vice-chairperson of the Board of Directors, or the president or vice-president,
and by the treasurer or an assistant treasurer, or the 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 such person were
such officer, transfer agent or registrar at the date of issue.
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Upon surrender to the secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.5 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
the State of Delaware, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate that the corporation shall issue to
represent such class or series of stock a statement that the corporation will
furnish without charge to each stockholder who so requests the powers, the
designations, the preferences and the relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
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 cancelled 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 or uncertificated shares 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 or uncertificated shares.
-19-
<PAGE>
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the General Corporation Law of the State 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
9.1 AMENDMENTS BY STOCKHOLDERS AND DIRECTORS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote or by the Board of Directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in
the book of bylaws with the original bylaws, in the appropriate place. If any
bylaw is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or the filing of the operative written consent(s) shall be
stated in said book.
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<PAGE>
EXHIBIT 4.1
Incorporated under the laws of
the State of Delaware
September 13, 1999
Number Shares
*< < CMN_CERT_NO > >* **< < COMMON_STOCK > >**
-------------------------------------------------------------------------
PARTICIPATE.COM, INC.
-------------------------------------------------------------------------
AUTHORIZED PREFERRED STOCK AUTHORIZED COMMON STOCK
- -------------------------- -----------------------
624,000 Series A Shares 24,000,000 Shares
4,532,174 Series B Shares
This Certifies that **< < NAME > >** is the registered holder of
**< < CMN_WRITTEN > > (< < COMMON_STOCK > >)** shares of Common Stock of
PARTICIPATE.COM, INC., hereinafter designated "the Company," transferable on
the share register of the Company upon surrender of this certificate properly
endorsed or assigned.
This certificate and the shares represented thereby shall be held
subject to all of the provisions of the Articles of Incorporation and the Bylaws
of the Company, a copy of each of which is on file at the office of the Company,
and made a part hereof as fully as though the provision of said Articles of
Incorporation and Bylaws are imprinted in full on this certificate, to all of
which the holder of this certificate, by acceptance hereof, asserts and agrees
to be bound.
Any shareholder may obtain from the principal office of the Company,
upon request and without charge a statement of the number of shares constituting
each class or series of stock and the designation thereof; and a copy of the
rights, preferences, privileges and restrictions granted to or imposed upon the
respective classes or series of stock and upon the holders thereof by said
Articles of Incorporation and the Bylaws.
WITNESS THE SEAL OF THE COMPANY AND THE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
DATED: < < ISSUE_DATE > >
- ---------------------------------- -----------------------------------
Alan K. Warms, President Alan K. Warms, Secretary
<PAGE>
EXHIBIT 4.2
===============================================================================
PARTICIPATE.COM, INC.
945 WEST GEORGE STREET, THIRD FLOOR
CHICAGO, ILLINOIS 60657-5007
AMENDED AND RESTATED STOCKHOLDER RIGHTS AGREEMENT
MARCH 28, 2000
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
SECTION 1. Registration Rights...............................................................2
1.1 Certain Definitions........................................................2
1.2 Restrictive Legend.........................................................3
1.3 Restrictions on Transfer; Notice of Proposed Transfers.....................4
1.4 Request for Registration...................................................4
1.5 Company Registration.......................................................6
1.6 Registration on Form S-3...................................................7
1.7 Limitations on Subsequent Registration Rights..............................9
1.8 Expenses of Registration...................................................9
1.9 Registration Procedures....................................................9
1.10 Indemnification...........................................................10
1.11 Information by Holder.....................................................12
1.12 Rule 144 Reporting........................................................12
1.13 Assignment of Registration Rights.........................................13
1.14 Standoff Agreement........................................................13
1.15 Termination of Registration Rights........................................13
SECTION 2. Covenants........................................................................13
2.1 Financial Information.....................................................13
2.2 Inspection Rights.........................................................14
2.3 Confidential Information and Assignment of Inventions Agreement...........15
2.4 Key Employee Insurance....................................................15
2.5 Stock Vesting.............................................................15
2.6 Directed Shares Upon the Company's IPO....................................15
2.7 Investor Indemnification..................................................15
2.8 Approval of Expansion of Option Pool......................................17
2.9 Expenses of Directors.....................................................17
2.10 Termination of Covenants..................................................17
SECTION 3. Confidential Information.........................................................17
3.1 Confidential Business Information.........................................18
SECTION 4. Right of First Refusal...........................................................18
4.1 Right of First Refusal on New Issuances...................................18
4.2 Company Right of First Refusal............................................20
SECTION 5. Right of First Refusal Regarding Founder Stock...................................22
5.1 Grant of Right of First Refusal...........................................22
5.2 Notice of Intended Disposition............................................22
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
5.3 Exercise of Right by Company..............................................22
5.4 Non-Exercise of Company's Right...........................................23
5.5 Exercise of Right by the Purchasers.......................................23
5.6 Non-Exercise of Right.....................................................23
5.7 Termination of Right of First Refusal.....................................23
SECTION 6. Co-Sale Rights in Sales by the Founder...........................................23
6.1 Grant of Co-Sale Rights...................................................23
6.2 Payment of Proceeds.......................................................24
6.3 Non-Exercise..............................................................24
6.4 Prohibited Transfers......................................................24
6.5 Termination of Co-Sale Right..............................................25
SECTION 7. Exempt Transfers.................................................................25
7.1 Permitted Transactions....................................................25
SECTION 8. Board Representation.............................................................26
8.1 Voting of Shares..........................................................26
8.2 Termination of Board Representation.......................................26
SECTION 9. Legend Requirement...............................................................26
9.1 Legend....................................................................26
9.2 Removal...................................................................27
SECTION 10. Miscellaneous...................................................................27
10.1 Governing Law.............................................................27
10.2 Termination...............................................................27
10.3 Survival..................................................................27
10.4 Successors and Assigns....................................................27
10.5 Entire Agreement; Amendment...............................................27
10.6 Notices, etc..............................................................28
10.7 Delays or Omissions.......................................................28
10.8 Counterparts..............................................................28
10.9 Severability..............................................................28
10.10 Aggregation...............................................................28
10.11 Titles and Subtitles......................................................28
</TABLE>
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<PAGE>
PARTICIPATE.COM, INC.
AMENDED AND RESTATED STOCKHOLDER RIGHTS AGREEMENT
This Amended and Restated Stockholder Rights Agreement (the
"AGREEMENT") is made as of March 28, 2000 between Participate.com, Inc., a
Delaware corporation (the "COMPANY"), the Purchasers of the Company's Series C
Preferred Stock (the "SERIES C PREFERRED") listed on the attached Schedule A
(each of which is referred to as a "SERIES C PURCHASER"), the purchasers of the
Company's Series B Preferred Stock (the "SERIES B PREFERRED") listed on the
attached Schedule B (each of which is referred to as a "SERIES B PURCHASER"),
certain holders of Common Stock which were also purchasers of the Company's
Series A Preferred Stock listed on the attached Schedule C (each of which is
referred to as a "SERIES A PURCHASER") Erika Kereks and David Greer, who are
employees of the Company (each of whom is referred to as an "EMPLOYEE
STOCKHOLDER") and Alan K. Warms (the "FOUNDER").
The Series C Purchasers, the Series B Purchasers and the Series A
Purchasers are collectively referred to as the "PURCHASERS". The Purchasers and
the Employee Stockholders are collectively referred to as the "STOCKHOLDERS".
The Purchasers agree to be bound by all of the terms and conditions of
this Agreement. The Founder is a party to this Agreement for purposes of
Sections 1.1, 1.5, 1.8 through 1.15, 4, 5, 6, 7, and 8 only. The Employee
Stockholders are parties to this Agreement for purposes of Sections 4.2, 6, 7,
and 10 only (provided that Mr. Greer is also a party to the other provisions of
this Agreement as a Purchaser).
BACKGROUND
----------
In order to induce the Company to enter into the Purchase Agreement and
to induce the Purchasers to invest funds in the Company pursuant to the Purchase
Agreement, the Purchasers, the Company and the Founder agree that this Agreement
shall govern the rights of the Purchasers to cause the Company to register
shares of Common Stock issuable to Purchasers and certain other matters as set
forth in this Agreement. Further, to induce the Employees to enter into the
Amended Employment Agreements, the Employee Stockholders, Purchasers, the
Company and the Founder desire to amend and restate in full the Stockholder
Rights Agreement, dated September 17, 1999, which governs certain rights of the
Stockholders.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
SECTION 1.
REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"CONVERSION STOCK" means (i) the Common Stock issued or issuable
pursuant to conversion of the Series B Preferred, (ii) Common Stock issued or
issuable pursuant to conversion of the Series C Preferred, (iii) Common Stock
held by the Series A Purchasers and (iv) for purposes of Sections 1.5 and 1.8
through 1.15 only, Common Stock held by the Founder.
"HOLDER" shall mean (i) any Purchaser holding Registrable Securities
(including Series B Preferred and Series C Preferred), (ii) any person holding
Registrable Securities to whom the rights under this Section 1 have been
transferred in accordance with Section 1.13 and (iii) with respect to Sections
1.5 and 1.8 through 1.15 only, "Holder" shall also be deemed to mean any
Founder.
"INITIATING HOLDERS" shall mean Holders in the aggregate of greater
than fifty percent (50%) of the Registrable Securities.
"PREFERRED STOCK" shall mean the Series B Preferred and the Series C
Preferred.
"REGISTRABLE SECURITIES" means (i) the Conversion Stock and any Common
Stock of the Company issued or issuable in respect of the Conversion Stock upon
any stock split, stock combination, stock dividend, recapitalization, or similar
event (each, a "RECAPITALIZATION"), or any Common Stock otherwise issuable with
respect to the Conversion Stock and (ii) with respect to Sections 1.5 and 1.8
through 1.15 only, the Common Stock held by the Founder and his permitted
transferees under Section 1.13; PROVIDED, HOWEVER, that shares of Common Stock
or other securities shall only be treated as Registrable Securities under
clauses (i) and (ii) above if and so long as they have not been (A) sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, or (B) sold or are, in the opinion of counsel to the
Company, available for sale in a single transaction exempt from the registration
and prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto are removed upon the consummation of such sale.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 1.4, 1.5 and
1.6 hereof, including, without limitation,
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<PAGE>
all registration, qualification and filing fees, printing expenses, escrow
fees, fees and disbursements of counsel for the Company and one special
counsel for the Holders (not to exceed $25,000), blue sky fees and expenses,
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company).
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legend set forth in Section 1.2 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
"SERIES B CLOSING DATE" shall mean the date of the first purchase and
sale of Series B Preferred pursuant to the Series B Preferred Stock Purchase
Agreement.
1.2 RESTRICTIVE LEGEND. Each certificate representing (i) the Series A
Preferred, (ii) the Series B Preferred, (iii) the Series C Preferred, (iv) the
Conversion Stock and (v) any other securities issued in respect of the Series A
Preferred, Series B Preferred, Series C Preferred or the Conversion Stock upon
any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section
1.3 below) be stamped or otherwise imprinted with a legend in the following form
(in addition to any legend required under applicable state securities laws):
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO DISTRIBUTION AND HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND UNTIL THEY HAVE FIRST BEEN
REGISTERED OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAW,
UNLESS AN OPINION OF COUNSEL ACCEPTABLE TO PARTICIPATE.COM, INC. THAT
SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED HAS BEEN OBTAINED.
Each Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Series A Preferred,
Series B Preferred, Series C Preferred or the Common Stock in order to implement
the restrictions on transfer established in this Section 1.
-3-
<PAGE>
1.3 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder
of each certificate representing Restricted Securities by acceptance thereof
agrees to comply in all respects with the provisions of this Section 1.3.
Prior to any proposed sale, assignment, transfer or pledge of any Restricted
Securities (other than (i) a transfer not involving a change in beneficial
ownership, (ii) in transactions involving the distribution without
consideration of Restricted Securities by the Holder to any of its partners,
members or retired partners or members, or to the estate of any of its
partners, members or retired partners or members, or family member or trust
for the benefit of such holder, (iii) any transfer by any Holder to (A) any
individual or entity controlled by, controlling, or under common control
with, such Holder or (B) any individual or entity with respect to which such
Holder (or any person controlled by, controlling, or under common control
with, such Holder) has the power to direct investment decisions, or (iv) in
transactions in compliance with Rule 144), and unless there is in effect a
registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, at such holder's expense by either (i) if reasonably requested
by the Company, a written opinion of legal counsel who shall be, and whose
legal opinion shall be, reasonably satisfactory to the Company addressed to
the Company, to the effect that the proposed transfer of the Restricted
Securities may be effected without registration under the Securities Act, or
(ii) a "no action" letter from the Commission to the effect that the transfer
of such securities without registration will not result in a recommendation
by the staff of the Commission that action be taken with respect thereto,
whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the
notice delivered by the holder to the Company. The Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in
unusual circumstances. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
1.2 above, except that such certificate shall not bear such restrictive
legend if in the opinion of counsel for such holder and the Company such
legend is not required in order to establish compliance with any provision of
the Securities Act. The Purchasers will cause any proposed purchaser,
assignee, transferee or pledgee of any shares held by the Purchasers to agree
to take and hold such securities subject to the provisions and upon the
conditions specified in this Section 1.
1.4 REQUEST FOR REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall receive
from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to not less than that
number of shares of Registrable Securities which would result in an anticipated
aggregate offering price, net of underwriting discounts and commissions, of at
least Five Million Dollars ($5,000,000), the Company will:
(1) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
-4-
<PAGE>
(2) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company;
(b) EXCEPTIONS TO REQUEST FOR REGISTRATION. The Company shall
not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 1.4:
(1) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(2) Prior to three (3) years after the Series B Closing
Date;
(3) During the period starting with the date thirty (30)
days prior to the Company's estimated date of filing of, and ending on the date
six (6) months immediately following the effective date of, a registration
statement pertaining to the Company's initial public offering; PROVIDED THAT (i)
the Company delivers a notice to the Initiating Holders within ten (10) days of
any written request from such Initiating Holders of its intent to file a
registration statement within thirty (30) days and (ii) the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective and that the Company's estimate of the date of
filing of such registration statement is made in good faith;
(4) After the Company has effected two (2) such
registrations pursuant to this Section 1.4(a), and such registrations have been
declared or ordered effective;
(5) If the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.4 shall be deferred for a period not to
exceed ninety (90) days from the date of receipt of written request from the
Initiating Holders; PROVIDED THAT the Company may not exercise this deferral
right more than once per twelve (12) month period.
-5-
<PAGE>
Subject to the foregoing clauses (1) through (5), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable, after receipt of the
request or requests of the Initiating Holders.
(c) UNDERWRITING. In the event that a registration pursuant to
this Section 1.4 is for a registered public offering involving an underwriting,
the Company shall so advise the Holders as part of the notice given pursuant to
Section 1.4(a)(1). In such event, the right of any Holder to registration
pursuant to this Section 1.4 shall be conditioned upon such Holder's
participation in the underwriting arrangements required by this Section 1.4, and
the inclusion of such Holder's Registrable Securities in the underwriting to the
extent requested shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority in interest of the Initiating Holders, but
subject to the Company's reasonable approval. Notwithstanding any other
provision of this Section 1.4, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders at the time of
filing the registration statement; PROVIDED HOWEVER, that the number of shares
of Registrable Securities to be included in such underwriting and registration
shall not be reduced unless all other securities of the Company are first
entirely excluded from such underwriting and registration. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares.
If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration.
1.5 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. If at any time or from time to
time the Company shall determine to register any of its securities, either for
its own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(1) promptly give to each Holder written notice thereof;
and
-6-
<PAGE>
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within twenty (20) days after receipt of such written notice
from the Company, by any Holder.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.5(a)(1). In such event the right of any Holder to
registration pursuant to this Section 1.5 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of Registrable
Securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 1.5, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter and the
Company may reduce the Registrable Securities to be included in such
registration to the extent the underwriters deem necessary but in no event shall
the amount of securities of the Holders included in the offering be reduced
below twenty-five percent (25%) of the total amount of securities included in
such offering unless the offering is the Company's first bona fide, firmly
underwritten pubic offering of its common stock registered under the Securities
Act (an "IPO"). If the number of Registrable Securities to be included in such
registration is reduced according to this Section 1.5(b), then no holder of the
Company's securities may sell securities in such registration except for the
Holders, if any, who exercise their right to request registration pursuant to
Section 1.4. The Company shall so advise all Holders and other holders
distributing their securities through such underwriting and the number of shares
of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all the Holders in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities held by such
Holder at the time of filing the Registration Statement. To facilitate the
allocation of shares in accordance with the above provisions, the Company may
round the number of shares allocated to any Holder or holder to the nearest 100
shares. If any Holder or holder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 1.5 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
1.6 REGISTRATION ON FORM S-3.
(a) REGISTRATION ON FORM S-3. If any Holder or Holders of
Registrable Securities request that the Company file a registration statement on
Form S-3 (or any successor form to Form S-3) for a public offering of shares of
the Registrable Securities the reasonably anticipated
-7-
<PAGE>
aggregate price to the public of which, net of underwriting discounts and
commissions, would exceed $500,000, and the Company is a registrant entitled
to use Form S-3 to register the Registrable Securities for such an offering,
the Company shall use its best efforts to cause such Registrable Securities
to be registered for the offering on such form and to cause such Registrable
Securities to be qualified in such jurisdictions as such Holder or Holders
may reasonably request. The Company shall inform other Holders of the
proposed registration and offer them the opportunity to participate. The
substantive provisions of Section 1.4(c) shall be applicable to each
registration initiated under this Section 1.6.
(b) EXCEPTIONS TO REGISTRATION ON FORM S-3. The Company shall not
be obligated to take any action pursuant to this Section 1.6:
(1) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting
such registration, qualification or compliance unless the Company is already
subject to service in such jurisdiction and except as may be required by the
Securities Act;
(2) If the Company has already effected one (1) registration
pursuant to this Section 1.6 in the prior twelve (12) month period;
(3) If the Company, within ten (10) days of the receipt of
the request of the Initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the
Commission within sixty (60) days of receipt of such request (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not
appropriate for the registration of Registrable Securities), provided that
the Company's estimate of the date of filing of such registration statement
is made in good faith;
(4) During the period starting with the date thirty (30) days
prior to the Company's estimated date of filing of, and ending on the date
three (3) months immediately following, the effective date of any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), PROVIDED THAT the Company is actively employing in
good faith all reasonable efforts to cause such registration statement to
become effective; or
(5) If the Company shall furnish to such Holder a certificate
signed by the President of the Company stating that in the good faith
judgment of the Board of Directors it would be seriously detrimental to the
Company or its shareholders for registration statements to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed one
hundred and twenty (120) days from the receipt of the request to file such
registration by such Holder; PROVIDED THAT the Company may not exercise this
deferral right more than once per twelve (12) month period.
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1.7 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
Series B Closing Date, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder registration
rights on a parity with or senior to those granted to the Holders hereunder.
1.8 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with all registrations pursuant to Sections 1.4, 1.5 and 1.6 shall
be borne by the Company. Unless otherwise stated, all Selling Expenses
relating to securities registered on behalf of the Holders shall be borne by
the Holders of such securities pro rata on the basis of the number of shares
so registered.
1.9 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section
1, the Company will keep each Holder advised in writing as to the initiation
of each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for at least one
hundred eighty (180) days or until the distribution described in the
Registration Statement has been completed.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement for the period set
forth in paragraph (a) above.
(c) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus, in conformity with the Securities Act, and such other documents
as such Holders and underwriters may reasonably request in order to
facilitate the public offering of such securities.
(d) Use its reasonable best efforts to register and qualify
the securities covered by such registration statement under such state
securities or other securities laws of such jurisdictions as shall be
reasonably requested by the Holders; PROVIDED THAT the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
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(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Use its reasonable best efforts to furnish, on the date
that such Registrable Securities are delivered to the underwriters for sale,
if such securities are being sold through underwriters, (i) an opinion, dated
as of such date, of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the
underwriters, if any, and (ii) a letter dated as of such date, from the
independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering addressed to the
underwriters.
1.10 INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers, directors, members and partners, and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification or compliance has been effected pursuant
to this Section 1, and each underwriter, if any, and each person who controls
any underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of
any litigation, commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation by
the Company of the Securities Act, the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), state securities law or any rule or regulation
promulgated under such laws applicable to the Company in connection with any
such registration, qualification or compliance, and within a reasonable
period the Company will pay as incurred to each such Holder, each of its
officers and directors, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
PROVIDED THAT the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration to the
Company by an instrument duly executed by such Holder, controlling person or
underwriter and stated to be specifically for use therein.
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(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers and
directors and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and within a reasonable period will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder and stated to be specifically for use therein. Notwithstanding the
foregoing, the liability of each Holder under this subsection (b) shall be
limited in an amount equal to the net proceeds such Holder received for the
shares sold by such Holder, unless such liability arises out of or is based
on willful misconduct by such Holder.
(c) Each party entitled to indemnification under this Section
1.10 (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 1 unless the
failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action and provided further, that the
Indemnifying Party shall not assume the defense for matters as to which there
is a conflict of interest or separate and different defenses (in which case,
fees and expenses for counsel for Indemnified Party shall be paid by the
Indemnifying Party). No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.10
is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any losses, claims,
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damages or liabilities referred to herein, the Indemnifying Party, in lieu of
indemnifying such Indemnified Party thereunder, shall to the extent permitted
by applicable law contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party, on the one hand, and of the Indemnified Party, on the
other, in connection with the acts or omissions that resulted in such loss,
claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission; PROVIDED, that in no event
shall any contribution by a Holder hereunder exceed the net proceeds from the
offering received by such Holder.
1.11 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held
by them and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Section 1.
1.12 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration,
after such time as a public market exists for the Common Stock of the
Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) Use its reasonable best efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements); and
(c) So long as a Holder owns any Restricted Securities, to
furnish to such Holder, forthwith upon request, a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at
any time after ninety (90) days after the effective date of the Company's
IPO), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the
Holder to sell any such securities without registration.
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1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
by a Holder to a transferee or assignee of Registrable Securities which (a)
is a general partner, limited partner, retired partner, member or retired
member of a Holder, (b) is a Holder's family member or trust for the benefit
of an individual Holder, (c) any transfer by any Holder to (A) any individual
or entity controlled by, controlling, or under common control with, such
Holder or (B) any individual or entity with respect to which such Holder (or
any person controlled by, controlling, or under common control with, such
Holder) has the power to direct investment decisions, or (d) acquires at
least 100,000 shares of Registrable Securities (as adjusted for any
Recapitalizations with respect to such shares); PROVIDED, HOWEVER, (i) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (ii) such transferee shall agree to be subject to all
restrictions set forth in this Agreement.
1.14 STANDOFF AGREEMENT. In connection with the Company's IPO, the
Holder agrees, upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities, not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days) from the effective date of such registration as
may be requested by the underwriters PROVIDED THAT all officers, directors
and holders of at least one percent (1%) of the outstanding capital stock of
the Company agree to be similarly bound.
1.15 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted
pursuant to this Section 1 shall terminate as to each Holder upon the earlier
of (i) the fifth anniversary of the closing of the Company's IPO or (ii) at
such time all Registrable Securities held by such Holder may, in the opinion
of counsel to the Company (which opinion shall be addressed and rendered to
Holder), be sold within a given three (3) month period pursuant to Rule 144,
provided the Company has completed its IPO, is subject to the reporting
requirements of the Exchange Act and its common stock is traded on a national
exchange or Nasdaq.
SECTION 2.
COVENANTS
2.1 FINANCIAL INFORMATION.
(a) Within ninety (90) days after the end of each fiscal year,
the Company shall deliver to each Purchaser who continues to hold any shares
of Series B or C Preferred or Conversion Stock audited consolidated balance
sheets of the Company and its subsidiaries, if any, as of the end of such
fiscal year, and audited consolidated statements of income and consolidated
statements of changes in financial position of the Company and its
subsidiaries, if any, for such year, prepared in
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accordance with generally accepted accounting principles, all in reasonable
detail. Within forty-five (45) days after the end of each fiscal quarter, the
Company shall deliver to each Purchaser who continues to hold any shares of
Series B or C Preferred or Conversion Stock, unaudited quarterly financial
statements of the Company and its subsidiaries, if any, as of the end of such
fiscal quarter prepared in accordance with GAAP. The audited financial
statements shall be accompanied by a report and opinion thereon by
independent public accountants of national standing selected by the Company's
Board of Directors.
(b) The Company shall deliver to each Purchaser who continues
to hold at least 200,000 shares of (i) Series B Preferred, (ii) Series C
Preferred and/or (iii) Common Stock issued or issuable pursuant to conversion
of the Series B Preferred or Series C Preferred (each appropriately adjusted
for any Recapitalizations with respect to such shares) (each, a "MAJOR
INVESTOR") the following:
(1) within thirty (30) days of the end of each month,
an unaudited monthly report including a balance sheet, a profit or loss
statement and a statement of cash flows for and as of the end of such month,
in reasonable detail, prepared in accordance with generally accepted
accounting principles, with the exception that no notes need be attached to
such statements and year-end audit adjustments may not have been made; and
(2) within thirty (30) days prior to the end of each
fiscal year, a budget for the next fiscal year.
(c) The rights granted pursuant to this Section 2.1 may not be
assigned or otherwise conveyed by the Purchasers or by any subsequent
transferee of any such rights without the prior written consent of the
Company except as authorized in this Section 2.1(c). After giving notice to
the Company, the Purchasers, without the Company's consent, may assign the
rights granted pursuant to this Section 2.1 to any transferee, other than a
competitor of the Company, who acquires Series B and/or Series C Preferred
convertible into at least an aggregate of 200,000 shares of the Company's
Common Stock (appropriately adjusted for any Recapitalizations with respect
to such shares).
2.2 INSPECTION RIGHTS. Each Major Investor shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the
Company or any of its subsidiaries with its officers, and to review such
information as is reasonably requested all at such reasonable times and as
often as may be reasonably requested; PROVIDED, HOWEVER, that the Company
shall not be obligated under this Section 2.2 with respect to a competitor of
the Company or with respect to information which the Board of Directors
determines in good faith is confidential and should not, therefore, be
disclosed.
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2.3 CONFIDENTIAL INFORMATION AND ASSIGNMENT OF INVENTIONS AGREEMENT.
(a) The Company shall require each future employee of the
Company, as a condition of employment of such employee, to execute and
deliver a confidential information and assignment of inventions agreement in
such form as shall be approved by the Board of Directors.
(b) The Company shall require each future consultant of the
Company, as a condition to the engagement of such consultant, to execute and
deliver a confidential information and assignment of inventions agreement in
such form as shall be approved by the Board of Directors.
2.4 KEY EMPLOYEE INSURANCE. The Company has as of the date hereof or
shall within ninety (90) days of the date hereof, use its best efforts to
obtain from financially sound and reputable insurers term life insurance on
the life of Alan K. Warms in the amount of $1,000,000, except as otherwise
decided in accordance with policies adopted by the Board of Directors. The
Company will cause to be maintained the term life insurance required by this
Section 2.4, except as otherwise decided in accordance with policies adopted
by the Board of Directors. Such policies shall name the Company as loss payee
and shall not be cancelable by the Company without prior approval of the
Board of Directors.
2.5 STOCK VESTING. Unless otherwise approved by the Board of Directors,
all stock options and other stock equivalents issued after the date of this
Agreement to employees, directors, consultants and other service providers
shall be subject to vesting as follows: (i) twenty five percent (25%) of such
stock shall vest at the end of the first year following the earlier of the
date of issuance or such person's services commencement date with the
Company, and (ii) seventy five percent (75%) of such stock shall vest monthly
over the remaining three (3) years. With respect to any shares of stock
purchased by any such person, the Company's repurchase option shall provide
that upon such person's termination of employment or service with the
Company, with or without cause, the Company or its assignee (to the extent
permissible under applicable securities laws and other laws) shall have the
option to purchase at cost any unvested shares of stock held by such person.
2.6 DIRECTED SHARES UPON THE COMPANY'S IPO. In connection with the
Company's IPO, the Company will use commercially reasonable efforts to direct
(i) 3.75% of the shares sold in such offering to the designees of InterWest
Partners, TL Ventures and CEA Capital (to be split equally among them) and
(ii) 1.25% of the shares sold in such offering to Diamond Technology
Partners, Incorporated and DTP Investments, LLC (to be split equally between
them)(the "DIRECTED SHARE PARTICIPANTS"), provided that, with respect to both
clauses (i) and (ii), such entities continue to hold at least 400,000 shares
of Preferred Stock or Conversion Stock (appropriately adjusted for any
Recapitalizations with respect to such shares).
2.7 INVESTOR INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless each
Purchaser (each, a "PURCHASER INDEMNITEE") from and against all actions,
suits, claims, proceedings, costs, damages,
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judgments, amounts paid in settlement and expenses (including, without
limitation, attorneys' fees and disbursements) relating to or arising out of
any claim, demand or cause of action asserted by any third party as a result
of any of the transactions contemplated by this Agreement, the Series B
Preferred Stock Purchase Agreement and the Series C Preferred Stock Purchase
Agreement by and among the Company and any of the Purchasers (the "PURCHASE
AGREEMENT") (including, without limitation, acts or omissions since the
commencement of the negotiations leading to such transactions); PROVIDED,
HOWEVER, that the indemnification provided hereby shall not extend to costs,
damages, judgment, amounts paid in settlement and expenses directly and
primarily attributable to activities of a Purchaser Indemnitee which do not
involve any wrongful act or omission of the Company or any of its directors,
officers, employees, agents or representatives.
(b) The Company shall reimburse the Purchaser Indemnitee for
all out-of-pocket expenses (including attorneys' fees and disbursements) as
they are incurred in connection with investigating, preparing to defend or
defending any such action, suit, claim or proceeding (including any inquiry
or investigation) whether or not a Purchaser Indemnitee is a party thereto.
If a Purchaser Indemnitee makes a claim hereunder for payment or
reimbursement of expenses, such expenses shall be paid or reimbursed promptly
upon receipt of appropriate documentation relating thereto even if the
Company reserves the right to dispute whether this Agreement requires the
payment or reimbursement of such expenses.
(c) A Purchaser Indemnitee seeking indemnification hereunder
shall give written notice to the Company of any claim with response to which
it seeks indemnification promptly after the discovery by such party of any
matters giving rise to a claim for indemnification; PROVIDED THAT the failure
of any Purchaser Indemnitee to give notice as provided herein shall not
relieve the Company of its obligations under this Section 2.7 unless the
Company shall have been materially prejudiced by the failure of Purchaser
Indemnitee to make such notification. In case any such action, suit, claim or
proceedings is brought against Purchaser Indemnitee, the Company shall be
entitled to participate in the defense thereof and, to the extent that it may
wish, to assume the defense thereof, with counsel reasonably satisfactory to
Purchaser Indemnitee, and after notice from the Company of its election so to
assume the defense thereof, the Company will not be liable to such Purchaser
Indemnitee under this Section 2.7 for any legal or other expense subsequently
incurred by such Purchaser Indemnitee in connection with the defense thereof;
PROVIDED THAT (i) if the Company shall elect not to assume the defense of
such claim or action or (ii) if Purchaser Indemnitee reasonably determines
that there may be a conflict between the positions of the Company and of
Purchaser Indemnitee in defending such claim or action, then separate counsel
shall be entitled to participate in and conduct the defense, and the Company
shall be liable for any legal or other expenses incurred by Purchaser
Indemnitee in connection with the defense; PROVIDED THAT in no event shall
the Company be required to pay the fees or expenses of more than one counsel.
The Company shall not be liable for any settlement of any action, suit, claim
or proceeding effected without its written consent; PROVIDED, HOWEVER, that
the Company shall not unreasonably withhold, delay or condition its consent.
The Company further agrees that it will not, without Purchaser Indemnitee's
prior written consent, settle or compromise any claim or consent to entry of
any judgment in respect thereof in any
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pending or threatened action, suit, claim or proceeding in respect of which
indemnification may be sought hereunder (whether or not any Purchaser
Indemnitee is an actual or potential party to such action, suit, claim or
proceeding) unless such settlement or compromise includes an unconditional
release of Purchasers and each other Purchaser Indemnitee from all liability
arising out of such action, suit, claim or proceeding.
(d) If the indemnification provided for in this Section 2.7 is
held by a court of competent jurisdiction to be unavailable to a Purchaser
Indemnitee with respect to any loss, liability, claim, damage or expense
referred to therein, then the Company, in lieu of indemnifying such Purchaser
Indemnitee hereunder, shall contribute to the amount paid or payable by such
Purchaser Indemnitee as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and of Purchaser Indemnitee on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Company and of Purchaser Indemnitee
shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Company or by Purchaser
Indemnitee and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
(e) The rights of each Purchaser under this Section 2.7 shall
be in addition to any liability that the Company might otherwise have to the
Purchaser, under this Agreement, at common law or otherwise.
2.8 APPROVAL OF EXPANSION OF OPTION POOL. Except with the written
approval of the holders of a majority of the then outstanding shares of
Series B Preferred and Series C Preferred held by the Purchasers (voting as a
class), the Company shall not increase the number of shares of Common Stock
available for issuance to employees, directors and consultants beyond the
2,871,100 shares (appropriately adjusted for any Recapitalizations with
respect to such shares) currently reserved under the 1999 Stock Option Plan.
2.9 EXPENSES OF DIRECTORS. After the date hereof, the Company shall
promptly reimburse in full each director of the Company who is not an officer
or employee of the Company for all of his or her reasonable out-of-pocket
expenses incurred in attending each meeting of the Board of Directors or any
committee thereof.
2.10 TERMINATION OF COVENANTS. The obligations of the Company set forth
in this Section 2 shall terminate and be of no further force or effect as
provided in Section 10.2 below.
SECTION 3.
CONFIDENTIAL INFORMATION
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3.1 CONFIDENTIAL BUSINESS INFORMATION. Each of the Purchasers covenants
and agrees that it shall maintain the confidentiality of all non-public
information related to the business of the Company made available to it
and/or any of its representatives by the Company ("CONFIDENTIAL BUSINESS
INFORMATION"). Each of the Purchasers further covenants and agrees that it
shall not disclose any Confidential Business Information to any person or
entity, other than its partners, officers, directors, employees, attorneys,
accountants and other agents with a legitimate need for such information
(which individuals and entities will in turn agree in writing to be bound by
this Section 3.1), except as required by law, without the prior written
consent of the Company. Each of the Purchasers agrees that violation of this
Section 3.1 would cause immediate and irreparable damage to the business of
the Company, and consent to the entry of immediate and permanent injunctive
relief for any violation hereof.
SECTION 4.
RIGHT OF FIRST REFUSAL
4.1 RIGHT OF FIRST REFUSAL ON NEW ISSUANCES.
(a) RIGHT OF FIRST REFUSAL ON NEW ISSUANCES. Subject to the
terms and conditions specified in this Section 4, the Company hereby grants
to each of the Major Investors and each of the Series A Purchasers a right of
first refusal with respect to future sales by the Company after the date of
this Agreement of any shares of, or securities convertible into or
exercisable for any shares of, any class of its capital stock (the "NEW
SECURITIES").
Notwithstanding the foregoing, the term "New Securities" does
not include (i) securities offered to the public generally pursuant to a
registration statement under the Securities Act, (ii) securities issued for
consideration in connection with a bona fide business acquisition of or by
the Company approved by the Board of Directors, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, (iii)
shares of the Company's Common Stock or related options exercisable for such
Common Stock issued to employees, officers and directors of, and consultants
to, the Company, pursuant to any arrangement approved by the Board of
Directors of the Company, (iv) the issuance of securities (other than those
described in (iii)) pursuant to the conversion or exercise of convertible or
exercisable securities either (A) outstanding on the date of this Agreement
or (B) issued after the date of this Agreement (provided, in the case of
clause (B), the original convertible or exercisable securities were subject
to or exempt from the right of first refusal), (v) securities issued in
connection with a Recapitalization of the Company, (vi) shares of currently
authorized Series B Preferred and Series C Preferred pursuant to the terms of
the Series B Preferred Stock Purchase Agreement and the Series C Preferred
Stock Purchase Agreement, respectively, or (vii) securities issued in
connection with equipment financing, or for consideration other than cash in
connection with sponsored research, collaboration, technology licensing,
development agreements or any other strategic partnerships or mergers or
acquisitions approved by the Board of Directors.
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(b) NOTICE OF INTENDED DISPOSITION. The Company shall deliver
a notice (a "NOTICE") to the Major Investors stating, (i) its bona fide
intention to offer such New Securities, (ii) the number of such New
Securities to be offered, and (iii) the price and terms, if any, upon which
it proposes to offer such New Securities.
(c) EXERCISE OF RIGHT. Within twenty (20) days after giving
the Notice, each Major Investor may elect by written notice to purchase or
obtain, at the price and on the terms specified in the Notice, the number of
shares equal to the product of the New Securities and a fraction, the
numerator of which is the number of shares of Common Stock issued and held,
or issuable upon conversion of the Series B Preferred and Series C Preferred
then held, by such Major Investor, and the denominator of which is the total
number of shares of Common Stock of the Company then outstanding, assuming
the conversion of convertible securities (including outstanding shares of
Preferred Stock, options and warrants).
(d) NON-EXERCISE OF RIGHT. If the Major Investors do not elect
to purchase all of such New Securities, the Company may, during the ninety
(90) day period following the expiration of the period provided in Section
4.1(c) hereof, offer the remaining unsubscribed portion of such New
Securities to any person or persons at a price not less than, and upon terms
no more favorable to the offeree than those specified in the Notice. If the
Company does not enter into an agreement for the sale of the New Securities
within such period, or if such agreement is not consummated within sixty (60)
days of the execution thereof, the right provided hereunder shall be deemed
to be revived and such New Securities shall not be offered unless first
reoffered to the Major Investors in accordance herewith.
(e) RESTRICTIONS ON TRANSFERABILITY OF RIGHT OF FIRST REFUSAL.
The right of first refusal set forth in this Section 4 may not be assigned or
transferred, except that such right is assignable by each Major Investor (i)
to a transferee or assignee that acquires all of a Major Investor's
Registrable Securities, (ii) to a transferee or assignee that acquires at
least 200,000 shares of Registrable Securities from a Major Investor
(appropriately adjusted for any Recapitalizations with respect to such
shares), or (iii) to its subsidiaries, parents, general partners, limited
partners, retired partners, members, retired members and affiliates (defined
as controlling, controlled by or under common control with), as well as
spouses and ancestors, lineal descendants and siblings of such partners or
spouses, PROVIDED THAT (a) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to
which such registration rights are being transferred or assigned; and (b)
such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement, including without limitation the
provisions of Section 1.14.
(f) TERMINATION OF RIGHT OF FIRST REFUSAL. The obligations of
the Company set forth in this Section 4.1 shall terminate and be of no
further force or effect as provided in Section 10.2 below.
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<PAGE>
4.2 COMPANY RIGHT OF FIRST REFUSAL. Unless otherwise agreed in writing by
the Company, no Series A Purchaser or Employee Stockholder shall sell, transfer,
pledge, hypothecate or otherwise dispose of any of such Series A Purchaser's or
Employee Stockholder's Registrable Securities (which shall include, for purposes
of this Section 4.2 only, the Series A Preferred) (a "TRANSFER") and any such
Transfer shall be subject to the following:
(a) COMPANY RIGHT OF FIRST REFUSAL. Before any Registrable
Securities registered in the name of a Series A Purchaser or an Employee
Stockholder may be sold or transferred, such Registrable Securities shall first
be offered to the Company. Such Series A Purchaser or Employee Stockholder shall
deliver a written notice (the "NOTICE") to the Company stating (A) such Series A
Purchaser's or Employee Stockholder's bona fide intention to sell or transfer
such Registrable Securities (the "PROPOSED TRANSFER"), (B) the number of shares
of such Registrable Securities to be sold or transferred (C) the price for which
such Series A Purchaser proposes to sell or transfer such Registrable Securities
and (D) the name of the proposed purchaser or transferee.
(b) EXERCISE PERIOD. Within (5) business days after receipt of
the Notice, the Company or its assignees (as set forth in clause (c) below)
shall have the right to elect to purchase all (but not less than all) of the
shares of Registrable Securities to which the Notice refers, at the price per
share specified in the Notice.
(c) ASSIGNMENT OF RIGHT. The Company may not assign its rights
hereunder to any person or entity without first offering to assign its rights
hereunder to each of the holders of the Registrable Securities then outstanding
(excluding any Series A Purchaser then proposing to sell or transfer Registrable
Securities, as applicable (the "TRANSFERRING HOLDER")) and Employee
Stockholders, and any shares of Registrable Securities held by the Transferring
Holder and Common Stock held by Mr. Greer that were subject to a vesting
agreement shall not be counted in determining the pro rata amount of the other
holders of Registrable Securities (the "NONTRANSFERRING HOLDERS")). In the event
the Company desires to assign its rights hereunder, it shall deliver a written
notice (the "TRANSFER NOTICE") to the Nontransferring Holders stating (A) its
intention to assign its rights hereunder, (B) the number of shares of
Registrable Securities to be sold or transferred by the Transferring Holder, and
(C) the price for which the Transferring Holder proposes to sell or transfer
such Registrable Securities. Within seven (7) days after receipt of the Transfer
Notice, each Nontransferring Holder shall have the right to elect to purchase up
to its pro rata share of the Registrable Securities proposed to be sold or
transferred by the Transferring Holder. If any Nontransferring Holder does not
exercise such right in whole, the Company shall advise the other Nontransferring
Holders by providing them with written notice within three (3) days after the
expiration of the seven (7) day period specified above. Each such
Nontransferring Holder shall thereupon be entitled, for a period of three (3)
days from the date of such notice, to purchase some or all of the shares of
Registrable Securities not otherwise purchased pursuant to this subsection (c);
provided, however, that to the extent that more than one such Nontransferring
Holder desires to purchase shares of Registrable Securities exceeding that
proportion as such Nontransferring Holder's aggregate holding of Registrable
Securities then bears to the aggregate holding of Registrable Securities then
held by all Nontransferring Holders who exercised their rights under this
subsection
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<PAGE>
(c) ("EXCESS REGISTRABLE SECURITIES"), the amount of such Excess Registrable
Securities which each such Nontransferring Holder shall be entitled to purchase
shall be reduced pro rata in accordance with that proportion as the number of
shares of Registrable Securities of which such Nontransferring Holder is then
the holder bears to the total number of shares of Registrable Securities then
held by all such Nontransferring Holders desiring to purchase Excess Registrable
Securities pursuant to this subsection (c). The right to purchase any remaining
shares not so elected to be purchased may be assigned thereafter by the Company
to any person or entity.
(d) EXERCISE OF RIGHT. In the event the Company and/or its
assignee(s) (as set forth in clause (c) above) elect to acquire the Registrable
Securities of a Transferring Holder as specified in the Notice, the Secretary of
the Company shall so notify the Transferring Holder and settlement thereof shall
be made in cash within five (5) business days after the Company receives the
Notice; provided that if the terms of payment set forth in the Notice were other
than cash against delivery, the Company and/or its assignee(s) (as set forth in
clause (c) above) shall pay the fair market value of such Registrable Securities
as determined by the Board, which determination shall be subject to approval by
the Company and a majority of the holders of the Registrable Securities, and if
such determination cannot be agreed upon, then the parties shall submit the
matter to final, binding arbitration.
(e) NON-EXERCISE OF RIGHT. If all of the Registrable
Securities to which the Notice refers are not elected to be purchased as
provided in Section 4.2(b), then the Transferring Holder may sell the
Registrable Securities to any person named in the Notice (or any other person)
at the price specified in the Notice or at a higher price, provided that such
sale or transfer is consummated within ninety (90) days after the date of the
Notice to the Company, and provided further, that any such sale is in accordance
with all terms and conditions hereof. All Registrable Securities so sold shall
continue to be subject to the provisions of this Section 4.2 in the same manner
as before the transfer, and any transferee of such Registrable Securities shall
execute such written agreement evidencing the same as the Company shall
reasonably request.
(f) LIMITATION OF RIGHT. The provisions of Section 4.2 shall
not apply to (i) a transfer not involving a change in beneficial ownership, (ii)
transactions involving the distribution without consideration of Restricted
Securities by the Holder to any of its partners, members or retired partners or
members, or to the estate of any of its partners, members or retired partners or
members, or family member or trust for the benefit of such holder, (iii) any
transfer by any Holder to (A) any individual or entity controlled by,
controlling, or under common control with, such Holder or (B) any individual or
entity with respect to which such Holder (or any person controlled by,
controlling, or under common control with, such Holder) has the power to direct
investment decisions.
(g) WAIVER. The provisions of this Section 4.2 may be waived
by the Company with respect to any transfer, upon duly authorized action of its
Board.
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<PAGE>
(h) TERMINATION OF RIGHT OF FIRST REFUSAL. The obligations of
the Company set forth in this Section 4.2 shall terminate and be of no further
force or effect as provided in Section 10.2 below.
SECTION 5.
RIGHT OF FIRST REFUSAL REGARDING FOUNDER STOCK
5.1 GRANT OF RIGHT OF FIRST REFUSAL. Subject to Section 7 below, the
Company and, to the extent such right is waived by the Company, the Purchasers
are hereby each granted a right of first refusal with respect to any proposed
disposition of Stock (as such term is defined below) by a Founder (or any
permitted transferee of the Stock under Section 7 hereof, hereafter collectively
included in all references to "Founder"). The Company shall have the first right
to purchase any Stock proposed to be transferred to a third party by a Founder.
To the extent the Company elects not to exercise its first refusal rights with
respect to all or any portion of such proposed transfer, such rights shall pass
to the Purchasers as described below. The term "Stock" as used in this Agreement
with respect to the Purchasers or Founder shall mean shares of capital stock of
the Company now owned or hereafter acquired by such Purchasers or Founder
together with any additional shares of capital stock or securities convertible
or exchangeable for such shares (but excluding Series A Preferred).
5.2 NOTICE OF INTENDED DISPOSITION. In the event a Founder desires to
accept a bona fide third-party offer for the transfer of any or all of the Stock
(such Founder to be hereafter called the "Selling Founder" and the shares
subject to such offer to be hereafter called the "Target Shares"), such Selling
Founder shall promptly deliver to the Company and the Purchasers written notice
of the intended disposition (a "Disposition Notice") and the basic terms and
conditions thereof, including the identity of the proposed purchaser.
5.3 EXERCISE OF RIGHT BY COMPANY. The Company shall, for a period of
fifteen (15) business days following receipt of a Disposition Notice, have the
right to repurchase the Target Shares upon the same terms and conditions
specified in the Disposition Notice, subject to the following conditions. Such
right shall be exercisable by written notice (the "Exercise Notice") delivered
to the Selling Founder and the Purchasers prior to the expiration of the fifteen
(15) business day exercise period setting forth the number of Target Shares the
Company elects to repurchase. If such right is exercised, then the Company shall
effect the repurchase of the number of Target Shares selected for repurchase,
including payment of the purchase price, in cash or marketable securities only,
not more than ten (10) business days after the delivery of the Exercise Notice.
At such time, the Selling Founder shall deliver to the Company the certificates
representing the Target Shares to be repurchased, each certificate to be
properly endorsed for transfer. If the Company elects to repurchase less than
all of the Target Shares specified in the Disposition Notice, the right to
repurchase shall pass to the Purchasers but shall be contingent upon the
Purchasers' election to repurchase the remaining balance of the Target Shares,
as described in Section 5.5 below.
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<PAGE>
5.4 NON-EXERCISE OF COMPANY'S RIGHT. In the event the Company does not
deliver an Exercise Notice to the Selling Founder within fifteen (15) business
days following the date of the Company's receipt of the Disposition Notice, the
Company shall be deemed to have waived its right of first refusal pursuant to
Section 5.1.
5.5 EXERCISE OF RIGHT BY THE PURCHASERS. Subject to the rights of the
Company, the Purchasers shall, for a period of thirty (30) business days from
receipt of the Disposition Notice, have the right to purchase the remaining
balance of the Target Shares after the Company's repurchase upon the terms and
conditions specified in the Disposition Notice. The Purchasers shall exercise
this right of first refusal by delivery of an Exercise Notice in the same manner
and subject to the same rights and conditions as the Company, as more
specifically set forth in Section 5.3 above. To the extent that the Target
Shares need to be allocated among the Purchasers, they shall be allocated in
proportion to the holdings of Common Stock (assuming the conversion of all
outstanding shares of Series B Preferred) of each Purchaser that desires to
exercise the right of first refusal.
5.6 NON-EXERCISE OF RIGHT. Subject to the Purchasers' co-sale rights
described in Section 6 below, in an event an Exercise Notice with respect to any
portion of the Target Shares is not given to the Selling Founder within thirty
(30) business days following the date of the Company's and the Purchasers'
receipt of the Disposition Notice, the Selling Founder shall have a period of
ninety (90) business days thereafter in which to sell the Target Shares to the
third-party transferee upon terms and conditions (including the purchase price)
no more favorable than those specified in the Disposition Notice. The
third-party transferee shall acquire the Target Shares free and clear of
subsequent rights of first refusal under this Section 5. In the event the
Selling Founder does not notify the Company or the Purchasers pursuant to
Section 5.2 or consummate the sale or disposition of the Target Shares within
the ninety (90) business day period, then the Selling Founder may not transfer
the Target Shares without again complying with all of the provisions of this
Section 5.
5.7 TERMINATION OF RIGHT OF FIRST REFUSAL. The obligations of the Founder
set forth in this Section 5 shall terminate and be of no further force or effect
as provided in Section 10.2 below.
SECTION 6.
CO-SALE RIGHTS IN SALES BY THE FOUNDER
6.1 GRANT OF CO-SALE RIGHTS. Subject to Section 7 below, if a Founder
proposes to enter into a transaction regarding the disposition of Stock held by
such Founder, and the right of first refusal described in Section 5 has lapsed,
the Purchasers shall have the right, exercisable upon written notice to the
Founder within fifteen (15) business days after receipt of such Founder's
Disposition Notice, to participate in such sale of the shares subject to such
offer on the same terms and conditions as those set forth in the Disposition
Notice. The right of participation of the Purchasers shall be subject to the
terms and conditions set forth in this section.
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<PAGE>
(a) Each Purchaser may sell in the proposed sale described in
the Founder's Disposition Notice a number of shares of Stock (as defined in
Section 5.1) equal to the product obtained by multiplying (i) the aggregate
number of shares of Stock described in the Disposition Notice by (ii) a
fraction, the numerator of which is the number of shares of Stock at the time
owned by such Purchaser and the denominator of which is the combined number of
shares of Stock of the Company at the time owned by the Selling Founder and the
Purchasers. To the extent the Purchasers exercise such right of participation,
the number of shares subject to such offer that the Founder may sell in the
transaction shall be correspondingly reduced.
(b) Each Purchaser may effect its participation in the sale by
delivering to the Founder a written notice described in this Section 6.1
specifying the number of shares of Stock that it elects to and is entitled to
sell pursuant to this Section 6.1 (the "CO-SALE SHARES") along with one or more
certificates, properly endorsed for transfer, which represent the Co-Sale Shares
or that number of shares of Series B Preferred or Series C Preferred that is at
such time convertible into the Co-Sale Shares; PROVIDED, HOWEVER, that if the
offeror described in the Disposition Notice objects to the delivery of Series B
Preferred or Series C Preferred in lieu of Common Stock, such Purchaser may
convert the Series B Preferred or Series C Preferred and deliver Common Stock.
To the extent that any prospective purchaser or purchasers prohibits such
assignment or otherwise refuses to purchase shares or other securities from a
Purchaser exercising its rights of co-sale hereunder, such Founder shall not
sell to such prospective purchaser or purchasers any Stock unless and until,
simultaneously with such sale, such Founder shall purchase such shares or other
securities from such Purchaser on the same terms and conditions specified in the
Disposition Notice.
6.2 PAYMENT OF PROCEEDS. The stock certificates that the Purchasers deliver
to the Founder pursuant to Section 6.1 shall be transferred by the Selling
Founder to the offeror described in the Disposition Notice in consummation of
the sale of the Stock pursuant to the terms and conditions specified in the
Disposition Notice, and the Selling Founder shall promptly thereafter remit to
the Purchasers that portion of the sale proceeds to which the Purchasers are
entitled by reason of their participation in such sale.
6.3 NON-EXERCISE. The exercise or non-exercise of the rights of the
Purchasers hereunder to participate in one or more sales of Stock made by a
Selling Founder shall not adversely affect their right to participate in
subsequent Stock sales by such Selling Founder or any other Founder.
6.4 PROHIBITED TRANSFERS.
(a) In the event that a Founder should transfer any Stock in
contravention of the co-sale right of the Purchasers under this Agreement (a
"PROHIBITED TRANSFER"), each Purchaser, in addition to such other remedies as
may be available at law, in equity or hereunder, shall have the put option
provided below, and such Founder shall be bound by the applicable provisions of
such option.
(b) In the event of a Prohibited Transfer, each Purchaser
shall have the right to sell to such Founder the type and number of shares of
Stock equal to the number of shares of Stock each
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<PAGE>
Purchaser would have been entitled to transfer to the purchaser under Section
6.1 hereof had the Prohibited Transfer been effected pursuant to and in
compliance with the terms hereof. Such sale shall be made on the following term
and conditions:
(1) The price per share at which the Stock is to
be sold to the Founder shall be equal to the price per share paid by the
purchaser to such Founder in such Prohibited Transfer. The Founder shall also
reimburse each Purchaser for any and all fees and expenses, including legal fees
and expenses, incurred pursuant to the exercise or the attempted exercise of
the Purchaser's rights under this Section 6.
(2) Within ninety (90) days after the date on
which a Purchaser received notice of the Prohibited Transfer or otherwise
become aware of the Prohibited Transfer, such Purchaser shall, if exercising
the option created hereby, deliver to the Founder the certificate or
certificates representing Stock to be sold, each certificate to be properly
endorsed for transfer.
(3) Such Founder shall, upon receipt of the
certificate or certificates for the Stock to be sold by an Purchaser, pursuant
to this Section 6.4(b), pay the aggregate purchase price therefor and the
amount of reimbursable fees and expenses, as specified in Section 6.4(b)(1),
in cash or by any other means acceptable to the Purchaser.
(4) Notwithstanding the foregoing, any attempt by
a Founder to transfer Stock in violation of this Section 6 hereof shall be
voidable at the option of a majority in interest of the Purchasers if a
majority in interest of the Purchasers do not elect to exercise the put option
set forth in this Section 6.4(b), and the Company agrees it will not effect such
a transfer nor will it treat any alleged transferee as the holder of such Stock
without the written consent of a majority in interest of the Purchasers.
6.5 TERMINATION OF CO-SALE RIGHT. The obligations of the Founder set forth
in this Section 6 shall terminate and be of no further force or effect as
provided in Section 10.2 below.
SECTION 7.
EXEMPT TRANSFERS
7.1 PERMITTED TRANSACTIONS. Notwithstanding the foregoing, the first
refusal rights of the Company and the Purchasers provided by Section 5, and the
co-sale right of the Purchasers provided by Section 6 shall not apply to any
transfer (i) from a Founder to the Founder's spouse or lineal descendants, (ii)
to any trust for estate planning purposes, (iii) effected pursuant to a
Founder's will or the laws of intestate succession following such Founder's
death, or (iv) to the extent the transfer occurs on or prior to September 1,
2000 and involves no more 870,000 shares of Stock, from a Founder to the Series
B and Series C Major Investors, provided such Shares are offered to each Series
B and Series C Major Investor on a pro rata basis (based on the shares held by
all Series B and Series C Major Investors) or a Founder's "immediate family" as
that term is defined in IM-2110-1
- 25 -
<PAGE>
under the NASD conduct rules; provided that the transferee shall furnish the
Purchasers and the Company with a written agreement to be bound by and comply
with all provisions of this Agreement. Such transferred Stock shall remain
"Stock" hereunder, and such transferee shall be treated as a "Founder" for the
purposes of this Agreement.
SECTION 8.
BOARD REPRESENTATION
8.1 VOTING OF SHARES. At each election of directors, the Purchasers and the
Founder (and their permitted transferees) shall vote all of their respective
capital stock so as to elect: (a) three representatives of the Series B
Purchasers, who shall be appointed as follows: (i) one representative of
InterWest Partners VII, L.P. so long as it (together with its affiliates) holds
any shares of Series B Preferred Stock, which individual shall initially be
Steve Bowsher; (ii) one representative of TL Ventures, so long as it (together
with its affiliates) holds any shares of Series B Preferred, which individual
shall initially be Mark DeNino; and (iii) one representative of CEA Capital so
long as it (together with its affiliates) holds any shares of Series B
Preferred, which individual shall initially be Jim Collis; (b) one
representative of the Series C Purchasers, who shall be appointed by Diamond
Technology Partners Inc. so long as it (together with its affiliates) holds any
shares of Series C Preferred, and which individual shall be acceptable to the
Chief Executive Officer of the Company (the "SERIES C NOMINEE") and such
individual shall initially be Melvyn E. Bergstein; and (c) three representatives
to be appointed by Alan K. Warms (or in the event of death or incapacitation,
the holders of a majority of the outstanding Common Stock). Any vote taken to
remove any director elected pursuant to this Section 8.1(a), or to fill any
vacancy created by the resignation or death of a director elected pursuant to
this Section 8.1(a), shall also be subject to the provisions of this Section
8.1(a). The Purchasers and the Founder will take best efforts to elect the
Series C Nominee within forty-five (45) days of the date hereof.
8.2 TERMINATION OF BOARD REPRESENTATION. The obligations of the
Purchasers and Founder set forth in this Section 8 shall terminate and be of no
further force or effect as provided in Section 10.2 below.
SECTION 9.
LEGEND REQUIREMENT
9.1 LEGEND. Each certificate representing the Stock owned by the
Purchasers and Founder shall be endorsed with the following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AMENDED AND
RESTATED STOCKHOLDER RIGHTS AGREEMENT, DATED MARCH 28, 2000, BY AND
AMONG THE COMPANY, THE PURCHASERS OF THE
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<PAGE>
PREFERRED STOCK OF THE COMPANY AND CERTAIN HOLDERS OF THE COMPANY'S
COMMON STOCK. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE COMPANY."
9.2 REMOVAL. The Section 9.1 legend shall be removed upon termination of
this Agreement in accordance with the provisions of Section 10.2.
SECTION 10.
MISCELLANEOUS
10.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of Delaware.
10.2 TERMINATION. The rights of the Company and the Stockholders under
Sections 2, 3, 4, 5 and 6 of this Agreement and the correlative obligations of
the Stockholders with respect to the Company and the Founder with respect to the
Company and the Stockholders shall terminate upon the earlier of (i) such time
as the Stockholders no longer own any shares of capital stock of the Company,
(ii) the closing of the Company's IPO, (iii) the effective date of a
reorganization, merger or consolidation which results in the Company's
stockholders immediately prior to such transaction not holding at least 50% of
the voting power of the surviving or continuing entity or its immediate parent,
or (iv) a sale, transfer or disposition of all or substantially all of the
assets of the Company.
10.3 SURVIVAL. The covenants and agreements made herein shall survive
any investigation made by the Purchasers and the closing of the transactions
contemplated hereby.
10.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
10.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement, Series B Preferred
Stock Purchase Agreement, the Series C Preferred Stock Purchase Agreement, the
Amended Employment Agreement and the agreements referenced therein, including
the exhibits thereto, constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof and supersede
any prior agreements or understandings, written or oral, regarding the subject
matter hereof and thereof. Any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the Registrable
Securities. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
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<PAGE>
10.6 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (i) if to a Stockholder, at such Stockholder's address, as shown on
the stock records of the Company, or at such other address as such Stockholder
shall have furnished to the Company in writing, (ii) if to any other holder of
Series B or C Preferred, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Series B or C
Preferred who has so furnished an address to the Company, or (iii) if to the
Company, one copy should be sent to its address set forth on the cover page of
this Agreement and addressed to the attention of the President, or at such other
address as the Company shall have furnished to the Stockholders. Each such
notice or other communication shall for all purposes of this Agreement be
treated as effective or having been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or 72 hours after
the same has been deposited in a regularly maintained receptacle for the deposit
of the United States mail, addressed and mailed as aforesaid.
10.7 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such nondefaulting party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement, shall be cumulative and not
alternative.
10.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
10.9 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; PROVIDED THAT no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
10.10 AGGREGATION. All shares of Registrable Securities or Series B
Preferred or Series C Preferred Stock, as the case may be, held or acquired by
affiliated entities or persons shall be aggregated together for purpose of
determining the availability of any rights under this Agreement.
10.11 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
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<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"COMPANY"
PARTICIPATE.COM, INC.
a Delaware Corporation
---------------------------------------
Alan K. Warms, President
"PURCHASERS"
DIAMOND TECHNOLOGY PARTNERS
INCORPORATED
By:
------------------------------------
Print Name: BARRY UPHOFF
--------------------------
Title: VICE PRESIDENT/OFFICER
-------------------------------
DTP INVESTMENTS, LLC
By:
------------------------------------
Print Name: BARRY UPHOFF
--------------------------
Title: VICE PRESIDENT, SECRETARY &
TREASURER
-------------------------------
(SIGNATURE PAGE TO STOCKHOLDER RIGHTS AGREEMENT)
<PAGE>
CONTINUATION SIGNATURE PAGE RIGHTS
AGREEMENT
"FOUNDER"
---------------------------------------
Alan K. Warms
(SIGNATURE PAGE TO STOCKHOLDER RIGHTS AGREEMENT)
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"PURCHASERS"
BREAKAWAY CAPITAL LLC
By:
------------------------------------
Print Name: BABAK FARZAMI
--------------------------
Title: VICE PRESIDENT
-------------------------------
BREAKAWAY CAPITAL FRIENDS LLC
By:
------------------------------------
Print Name: BABAK FARZAMI
--------------------------
Title: VICE PRESIDENT
-------------------------------
(SIGNATURE PAGE TO STOCKHOLDER RIGHTS AGREEMENT)
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"PURCHASERS"
INTERWEST PARTNERS VII, LP
By:
------------------------------------
Print Name: STEPHEN BOWSHER
--------------------------
Title: VENTURE PARTNERS
-------------------------------
INTERWEST INVESTORS VII, LP
By:
------------------------------------
Print Name: STEPHEN BOWSHER
--------------------------
Title: VENTURE PARTNERS
-------------------------------
(SIGNATURE PAGE TO STOCKHOLDER RIGHTS AGREEMENT)
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
"PURCHASERS"
TL VENTURES IV LP
By:
------------------------------------
Print Name: MARK J. DENIRO
--------------------------
Title: MANAGING DIRECTOR
-------------------------------
TL VENTURES IV INTERFUND LP
By:
------------------------------------
Print Name: MARK J. DENIRO
--------------------------
Title: MANAGING DIRECTOR
-------------------------------
(SIGNATURE PAGE TO STOCKHOLDER RIGHTS AGREEMENT)
<PAGE>
EXHIBIT 10.1
PARTICIPATE.COM, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of ____________
by and between Participate.com, Inc., a Delaware 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 coverage of liability
insurance has been 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, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of NOLO CONTENDERE or its
equi-
<PAGE>
valent, shall not, of itself, create a presumption that (i) Indemnitee did
not act in good faith, (ii) Indemnitee did not act in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, or (iii) with respect to any criminal action or proceeding, Indemnitee
had no 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 suit 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 stockholders, except that no indemnification shall be made
in respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company in the performance of Indemnitee's duty to
the Company and its stockholders unless and only to the extent that the court in
which such action or suit 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 such expenses and then only to the extent
that the court shall determine.
2. AGREEMENT TO SERVE.
In consideration of the protection afforded by this Agreement, if
Indemnitee is a director of the Company, he agrees to serve at least for the
balance of the current term as a director and not to resign voluntarily during
such period without the written consent of a majority of the Board of Directors.
If Indemnitee is an officer of the Company not serving under an employment
contract, he agrees to serve in such capacity at least for the balance of the
current fiscal year of the Company and not to resign voluntarily during such
period without the written consent of a majority of the Board of Directors.
Following the applicable period set forth above, Indemnitee agrees to continue
to serve in such capacity at the will of the Company (or under separate
agreement, if such agreement exists) so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing. Nothing contained in this Agreement is intended to or
shall create in Indemnitee any right to continued employment.
3. 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
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<PAGE>
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 expenses 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 will or could 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 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 provided for in Section 1
shall be made no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, under any statute, or
under any provision of the Company's Certificate of Incorporation or Bylaws
providing for indemnification, is not paid in full by the Company within
forty-five (45) days after a written request for payment thereof has first been
received by the Company, Indemnitee may, but need not, at any time thereafter
submit his claim to arbitration as described in Section 14 to recover the unpaid
amount of the claim and, subject to Section 15 of this Agreement, Indemnitee
shall also be entitled to be paid for the expenses (including attorneys' fees)
of bringing such claim. It shall be a defense to any such action (other than a
claim brought 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 3(a) unless and until such
defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists or an arbitration panel as described in Section
14. 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 or arbitration panel 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 stockholders) 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 stockholders) that Indemnitee has
not met such applicable standard
-3-
<PAGE>
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 3(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 unreasonably withheld, upon the delivery to Indemnitee of written
notice of its election so to do. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same proceeding,
provided that (i) Indemnitee shall have the right to employ his own 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.
4. 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
Certificate of Incorporation or the Company's Bylaws, as amended, or by statute.
In the event of any change, after the date of this Agreement, in any applicable
law, statute or rule which expands the right of a Delaware corporation to
indemnify a member of its Board of Directors or an officer, such changes shall
be, IPSO FACTO, within the purview 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 Delaware corporation to
indemnify a member of its Board of Directors or an officer, 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 Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested
-4-
<PAGE>
directors, the General Corporation Law of the State of Delaware, 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 or other covered proceeding.
5. 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, penalties or amounts paid in settlement 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.
6. MUTUAL ACKNOWLEDGEMENT.
Both the Company and Indemnitee acknowledge that in certain instances,
Federal law or applicable public policy may prohibit the Company from
indemnifying its directors 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 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.
7. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE.
The Company shall, from time to time, make a 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 directors' and officers' 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.
-5-
<PAGE>
8. 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.
9. EXCEPTIONS.
Notwithstanding any other provision herein to the contrary, 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 indemnified under the
Delaware 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 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors has approved the initiation or bringing of such claim;
(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 or the arbitration panel determines that each of the material
assertions made by the Indemnitee in such proceeding was not made in good faith
or was frivolous;
(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) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company; or
(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.
-6-
<PAGE>
10. EFFECTIVENESS OF AGREEMENT.
To the extent that the indemnification permitted under the terms of
certain provisions of this Agreement exceeds the scope of the indemnification
provided for in the Delaware General Corporation Law, such provisions shall not
be effective unless and until the Company's Certificate of Incorporation
authorizes such additional rights of indemnification. In all other respects, the
balance of this Agreement shall be effective as of the date set forth on the
first page and may apply to acts or omissions of Indemnitee which occurred prior
to such date if Indemnitee was an officer, director, employee or other agent of
the Company, 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, at the time such act or omission occurred.
11. 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, 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.
12. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall constitute an original.
13. 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.
14. ARBITRATION.
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<PAGE>
It is understood and agreed that the Company and Indemnitee shall carry
out this Agreement in the spirit of mutual cooperation and good faith and that
any differences, disputes or controversies shall be resolved and settled
amicably among the parties hereto. In the event that the dispute, controversy or
difference is not so settled in the above manner within forty-five (45) days,
then the matter shall be exclusively submitted to arbitration in New York
County, New York before three independent technically qualified arbitrators in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and under the laws of Delaware, without reference to conflict of
laws principles. Subject to Sections 1(b) and 6, arbitration shall be the
exclusive forum and the decision and award by the arbitrator(s) shall be final
and binding upon the parties concerned and may be entered in any state court of
New York having jurisdiction.
15. ATTORNEYS' FEES.
In the event that any action is instituted or claim is submitted to
arbitration by Indemnitee under this Agreement to enforce or interpret any of
the terms hereof, Indemnitee shall be entitled to be paid all court costs and
expenses, including reasonable attorneys' fees, incurred by Indemnitee with
respect to such action or arbitration, unless as a part of such action, a court
of competent jurisdiction or the arbitrator(s) determines that each of the
material assertions made by Indemnitee as a basis for such claim were not made
in good faith or were frivolous. In the event of an action instituted or a claim
submitted to arbitration 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 court costs and expenses, including attorneys' fees,
incurred by Indemnitee in defense of such action or claim (including with
respect to Indemnitee's counterclaims and cross-claims made in such action or
arbitration), unless as a part of such action the court or the arbitrator(s)
determines that each of Indemnitee's material defenses to such action or claim
were made in bad faith or were frivolous.
16. 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.
17. CONSENT TO JURISDICTION.
The Company and Indemnitee each hereby irrevocably consent to the
jurisdiction of the courts of the State of Illinois for all purposes in
connection with any 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 Illinois in Cook County and that any
arbitration proceeding which arises out of or relates to this Agreement shall be
held in Cook County, Illinois.
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<PAGE>
18. CHOICE OF LAW.
This Agreement shall be governed by and its provisions construed in
accordance with the laws of the State of Delaware as applied to contracts
between Delaware residents entered into and performed entirely within Delaware.
19. SUBROGATION.
In the event of payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all documents required and shall do all acts that
may be necessary to secure such rights and to enable the corporation effectively
to bring suit to enforce such rights.
20. 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.
21. AMENDMENT AND TERMINATION.
Subject to Section 20, no amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
22. INTEGRATION AND ENTIRE AGREEMENT.
This Agreement (a) sets forth the entire understanding between the
parties, (b) supersedes all previous written or oral negotiations, commitments,
understandings and agreements relating to the subject matter hereof and (c)
merges all prior and contemporaneous discussions between the parties.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
PARTICIPATE.COM, INC.
By: _________________________________
Title:_______________________________
Address: 945 West George St. #300
Chicago, IL 60657
AGREED TO AND ACCEPTED:
INDEMNITEE:
______________________________
SIGNATURE
______________________________
PRINT NAME
______________________________
______________________________
ADDRESS
-10-
<PAGE>
EXHIBIT 10.2
PARTICIPATE.COM, INC.
1999 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
as shall be administering the Plan in accordance with Section 4 hereof.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as
amended.
(e) "COMMITTEE" means a committee of Directors appointed by
the Board in accordance with Section 4 hereof.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Participate.com, Inc., a Delaware
corporation.
(h) "CONSULTANT" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services to
such entity.
(i) "DIRECTOR" means a member of the Board.
(j) "EMPLOYEE" means any person, including officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment
<PAGE>
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held by
the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination;
or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option.
(o) "OPTION" means a stock option granted pursuant to the
Plan.
(p) "OPTION AGREEMENT" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(q) "OPTION EXCHANGE PROGRAM" means a program whereby
outstanding Options are exchanged for Options with a lower exercise price.
(r) "OPTIONED STOCK" means the Common Stock subject to an
Option or a Stock Purchase Right.
(s) "OPTIONEE" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
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(t) "PARENT" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(u) "PLAN" means this 1999 Stock Plan.
(v) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 10 below.
(w) "SERVICE PROVIDER" means an Employee, Director or
Consultant.
(x) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(y) "STOCK PURCHASE RIGHT" means a right to purchase Common
Stock pursuant to Section 10 below.
(z) "SUBSIDIARY" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares that may be subject to
option and sold under the Plan is 935,550 Shares. The Shares may be authorized
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board or a Committee
appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
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(iii) to determine the number of Shares to be covered
by each such award granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, of any
Option or Stock Purchase Right granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right of the Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(e) instead of
Common Stock;
(vii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
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(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause.
6. TERM OF PLAN. Subject to Section 18 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless sooner terminated under Section 14 of the Plan.
7. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued
upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time
of grant of such Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the
per Share exercise price shall be determined by the Administrator.
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(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant to
a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable according to the terms hereof at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares thereafter available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of at
least thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set
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forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for three (3) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a
Service Provider as a result of the Optionee's total and permanent disability,
as defined in Section 22(e)(3) of the Code, the Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the
extent the Option is vested on the date of termination (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
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(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
11. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless
determined otherwise by the Administrator, Options and Stock Purchase Rights may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option or Stock Purchase Right.
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(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until fifteen (15) days prior to
such transaction as to all of the Optioned Stock covered thereby, including
Shares as to which the Option would not otherwise be exercisable. In addition,
the Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully exercisable for a period of
fifteen (15) days from the date of such notice, and the Option or Stock Purchase
Right shall terminate upon the expiration of such period. For the purposes of
this paragraph, the Option or Stock Purchase Right shall be considered assumed
if, following the merger or sale of assets, the option or right confers the
right to purchase or receive, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right immediately prior to the merger or sale of
assets, the consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for each
Share held on the effective date of the transaction (and if holders were offered
a choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
13. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Service Provider to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
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14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise
of an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
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PARTICIPATE.COM, INC.
1999 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 1999 Stock
Plan shall have the same defined meanings in this Stock Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
[OPTIONEE'S NAME AND ADDRESS]
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
Grant Number
--------------------------------
Date of Grant
--------------------------------
Vesting Commencement Date
--------------------------------
Exercise Price per Share $
--------------------------------
Total Number of Shares Granted
--------------------------------
Total Exercise Price $
--------------------------------
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date:
--------------------------------
VESTING SCHEDULE:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
[VESTING SCHEDULE TO BE DETERMINED BY ADMINISTRATION]
<PAGE>
TERMINATION PERIOD:
This Option shall be exercisable for [THREE MONTHS] after Optionee
ceases to be a Service Provider. Upon Optionee's death or Disability, this
Option may be exercised for [ONE YEAR] after Optionee ceases to be a Service
Provider. In no event may Optionee exercise this Option after the
Term/Expiration Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. The Plan Administrator of the Company
hereby grants to the Optionee named in the Notice of Grant (the "Optionee"), an
option (the "Option") to purchase the number of Shares set forth in the Notice
of Grant, at the exercise price per Share set forth in the Notice of Grant (the
"Exercise Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be
exercisable during its term in accordance with the Vesting Schedule set out in
the Notice of Grant and with the applicable provisions of the Plan and this
Option Agreement.
(b) METHOD OF EXERCISE. This Option shall be
exercisable by delivery of an exercise notice in the form attached as EXHIBIT A
(the "Exercise Notice") which shall state the election to exercise the Option,
the number of Shares with respect to which the Option is being exercised, and
such other representations and agreements as may be required by the Company. The
Exercise Notice shall be accompanied by payment of the aggregate Exercise Price
as to all Exercised Shares. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by the
aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares have
not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, the Optionee shall, if required by the Company,
concurrently with the exercise of all or any portion of this Option,
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deliver to the Company his or her Investment Representation Statement in the
form attached hereto as EXHIBIT B.
4. LOCK-UP PERIOD. Optionee hereby agrees that, if so
requested by the Company or any representative of the underwriters (the
"Managing Underwriter") in connection with any registration of the offering of
any securities of the Company under the Securities Act, Optionee shall not sell
or otherwise transfer any Shares or other securities of the Company during the
180-day period (or such other period as may be requested in writing by the
Managing Underwriter and agreed to in writing by the Company) (the "Market
Standoff Period") following the effective date of a registration statement of
the Company filed under the Securities Act. Such restriction shall apply only to
the first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
5. METHOD OF PAYMENT. Payment of the aggregate Exercise Price
shall be by any of the following, or a combination thereof, at the election of
the Optionee:
(a) cash or check;
(b) consideration received by the Company under a
formal cashless exercise program adopted by the Company in connection with the
Plan; or
(c) surrender of other Shares which, (i) in the case
of Shares acquired upon exercise of an option, have been owned by the Optionee
for more than six (6) months on the date of surrender, and (ii) have a Fair
Market Value on the date of surrender equal to the aggregate Exercise Price of
the Exercised Shares.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised
until such time as the Plan has been approved by the shareholders of the
Company, or if the issuance of such Shares upon such exercise or the method of
payment of consideration for such shares would constitute a violation of any
Applicable Law.
7. NON-TRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of the Plan and this Option Agreement shall be binding upon
the executors, administrators, heirs, successors and assigns of the Optionee.
8. TERM OF OPTION. This Option may be exercised only within
the term set out in the Notice of Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of
the date of this Option of some of the federal tax consequences of exercise of
this Option and disposition of the
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Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS
ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF NSO. There may be a regular federal
income tax liability upon the exercise of an NSO. The Optionee will be treated
as having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price. If Optionee is an Employee or a former
Employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
in cash equal to a percentage of this compensation income at the time of
exercise, and may refuse to honor the exercise and refuse to deliver Shares if
such withholding amounts are not delivered at the time of exercise.
(b) EXERCISE OF ISO. If this Option qualifies as an
ISO, there will be no regular federal income tax liability upon the exercise of
the Option, although the excess, if any, of the Fair Market Value of the Shares
on the date of exercise over the Exercise Price will be treated as an adjustment
to the alternative minimum tax for federal tax purposes and may subject the
Optionee to the alternative minimum tax in the year of exercise.
(c) DISPOSITION OF SHARES. In the case of an NSO, if
Shares are held for at least one year, any gain realized on disposition of the
Shares will be treated as long-term capital gain for federal income tax
purposes. In the case of an ISO, if Shares transferred pursuant to the Option
are held for at least one year after exercise and for at least two years after
the Date of Grant, any gain realized on disposition of the Shares will also be
treated as long-term capital gain for federal income tax purposes. If Shares
purchased under an ISO are disposed of within one year after exercise or two
years after the Date of Grant, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (1) the Fair
Market Value of the Shares on the date of exercise, or (2) the sale price of the
Shares. Any additional gain will be taxed as capital gain, short-term or
long-term depending on the period that the ISO Shares were held.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF ISO
SHARES. If the Option granted to Optionee herein is an ISO, and if Optionee
sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on
or before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after the date of exercise, the Optionee shall immediately
notify the Company in writing of such disposition. Optionee agrees that Optionee
may be subject to income tax withholding by the Company on the compensation
income recognized by the Optionee.
10. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated
herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee's interest except by means of a writing signed by the
Company
-4-
<PAGE>
and Optionee. This agreement is governed by the internal substantive laws but
not the choice of law rules of Delaware.
11. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES
AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS
EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE PARTICIPATE.COM, INC.
- ----------------------------------- -----------------------------------
Signature By
- ----------------------------------- -----------------------------------
Print Name Title
- -----------------------------------
- -----------------------------------
Residence Address
-5-
<PAGE>
EXHIBIT A
1999 STOCK PLAN
EXERCISE NOTICE
Participate.com, Inc.
945 West George St., #300
Chicago, IL 60657
Attention: [Title]
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Participate.com, Inc.
(the "Company") under and pursuant to the 1999 Stock Plan (the "Plan") and the
Stock Option Agreement dated ________, 19 (the "Option Agreement").
2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. RIGHTS AS SHAREHOLDER. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares shall be issued to
the Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. COMPANY'S RIGHT OF FIRST REFUSAL. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares
shall deliver to the Company a written notice (the "Notice") stating: (i) the
Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the
name of each proposed purchaser or other transferee ("Proposed Transferee");
(iii) the number of Shares to be transferred to each Proposed Transferee;
<PAGE>
and (iv) the bona fide cash price or other consideration for which the Holder
proposes to transfer the Shares (the "Offered Price"), and the Holder shall
offer the Shares at the Offered Price to the Company or its assignee(s).
(b) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within
thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less
than all, of the Shares proposed to be transferred to any one or more of the
Proposed Transferees, at the purchase price determined in accordance with
subsection (c) below.
(c) PURCHASE PRICE. The purchase price ("Purchase Price") for
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(d) PAYMENT. Payment of the Purchase Price shall be made, at
the option of the Company or its assignee(s), in cash (by check), by
cancellation of all or a portion of any outstanding indebtedness of the Holder
to the Company (or, in the case of repurchase by an assignee, to the assignee),
or by any combination thereof within thirty (30) days after receipt of the
Notice or in the manner and at the times set forth in the Notice.
(e) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in this Section, then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 120 days after the date of the Notice, that any
such sale or other transfer is effected in accordance with any applicable
securities laws and that the Proposed Transferee agrees in writing that the
provisions of this Section shall continue to apply to the Shares in the hands of
such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
(f) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the benefit of
the Optionee's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to
the provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
-2-
<PAGE>
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
6. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares
together with any other legends that may be required by the Company or by state
or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN
THE OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL
HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE
EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
-3-
<PAGE>
(c) REFUSAL TO TRANSFER. The Company shall not be required (i)
to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Exercise Notice or (ii) to treat
as owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this Exercise
Notice shall inure to the benefit of the successors and assigns of the Company.
Subject to the restrictions on transfer herein set forth, this Exercise Notice
shall be binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
9. INTERPRETATION. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by Optionee or by the Company forthwith to
the Administrator which shall review such dispute at its next regular meeting.
The resolution of such a dispute by the Administrator shall be final and binding
on all parties.
10. GOVERNING LAW; SEVERABILITY. This Exercise Notice is governed by
the internal substantive laws but not the choice of law rules, of Delaware.
11. ENTIRE AGREEMENT. The Plan and Option Agreement are incorporated
herein by reference. This Exercise Notice, the Plan, the Option Agreement and
the Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE PARTICIPATE.COM, INC.
- ----------------------------------- -----------------------------------
Signature By
- ----------------------------------- -----------------------------------
Print Name Title
ADDRESS: ADDRESS:
945 West George St., #300
- ----------------------------------- Chicago, IL 60657
- -----------------------------------
-----------------------------------
Date Received
-4-
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE:
COMPANY: PARTICIPATE.COM, INC.
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities"
<PAGE>
acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of the grant of the
Option to the Optionee, the exercise will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
Signature of Optionee:
-----------------------------------------
Date: , 19
------------------------- ------
-2-
<PAGE>
EXHIBIT 10.3
PARTICIPATE.COM, INC.
2000 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this 2000 Stock Plan are:
- to attract and retain the best available personnel for
positions of substantial responsibility,
- to provide additional incentive to Employees, Directors
and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options
or Nonstatutory Stock Options, as determined by the Administrator at the time
of grant. Stock Purchase Rights may also be granted under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall
apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
as shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws
of any foreign country or jurisdiction where Options or Stock Purchase Rights
are, or will be, granted under the Plan.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CAUSE" means (i) any act of personal dishonesty
taken by the Optionee in connection with his responsibilities as an Employee
which is intended to result in personal enrichment of the Optionee, (ii) the
Optionee's conviction of a felony, (iii) any act by the Optionee that
constitutes misconduct, and (iv) continued violations by the Optionee of the
Optionee's obligations to the Company.
(e) "CHANGE OF CONTROL" means the occurrence of any of
the following events:
(i) Any "person" (as such term is used in Sections 13(d)
and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in
Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities; or
<PAGE>
(ii) The consummation of the sale or disposition by the
Company of all or substantially all of the Company's assets; or
(iii) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or its parent) at least seventy percent (70%) of the total voting
power represented by the voting securities of the Company or such surviving
entity or its parent outstanding immediately after such merger or
consolidation.
(f) "CODE" means the Internal Revenue Code of 1986, as
amended.
(g) "COMMITTEE" means a committee of Directors appointed by
the Board in accordance with Section 4 of the Plan.
(h) "COMMON STOCK" means the common stock of the Company.
(i) "COMPANY" means Participate.com, Inc., a Delaware
corporation.
(j) "CONSULTANT" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(k) "DIRECTOR" means a member of the Board.
(l) "DISABILITY" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(m) "EMPLOYEE" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the
Company. A Service Provider shall not cease to be an Employee in the case of
(i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary,
or any successor. For purposes of Incentive Stock Options, no such leave may
exceed ninety days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract. If reemployment upon expiration of a leave
of absence approved by the Company is not so guaranteed, on the 181st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as
a Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment"
by the Company.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of
Common Stock determined as follows:
-2-
<PAGE>
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination, as
reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high
bid and low asked prices for the Common Stock on the last market trading day
prior to the day of determination, as reported in THE WALL STREET JOURNAL or
such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(p) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.
(q) "INSIDE DIRECTOR" means a Director who is an Employee.
(r) "IPO EFFECTIVE DATE" means the date upon which the
Securities and Exchange Commission declares the initial public offering of
the Company's Common Stock as effective.
(s) "NONSTATUTORY STOCK OPTION" means an Option not intended
to qualify as an Incentive Stock Option.
(t) "NOTICE OF GRANT" means a written or electronic notice
evidencing certain times and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(u) "OFFICER" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(v) "OPTION" means a stock option granted pursuant to the
Plan.
(w) "OPTION AGREEMENT" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(x) "OPTION EXCHANGE PROGRAM" means a program whereby
outstanding Options are surrendered in exchange for Options with a lower
exercise price.
(y) "OPTIONED STOCK" means the Common Stock subject to an
Option or Stock Purchase Right.
-3-
<PAGE>
(z) "OPTIONEE" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(aa) "OUTSIDE DIRECTOR" means a Director who is not an
Employee.
(bb) "PLAN" means this 2000 Stock Option Plan, as amended and
restated.
(cc) "RESTRICTED STOCK" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(dd) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.
(ee) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(ff) "SECTION 16(b) " means Section 16(b) of the Exchange Act.
(gg) "SERVICE PROVIDER" means an Employee, Director or
Consultant.
(hh) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 14 of the Plan.
(ii) "STOCK PURCHASE RIGHT" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(jj) "SUBSIDIARY" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Section 14 of the Plan, the maximum aggregate number of Shares which may be
optioned and sold under the Plan is 2,000,000 Shares, plus the Shares
available for future issuance under the Participate.com, Inc. 1999 Stock Plan
(the "1999 Stock Plan") on the date the Securities and Exchange Commission
declares the Company's registration statement effective and any Shares
returned to the 1999 Stock Plan. The number of Shares reserved for issuance
under the Plan shall increase annually on the first day of the Company's
fiscal year beginning in 2001 by an amount of Shares equal to the lesser of
(i) 2,000,000 Shares, (ii) 5% of the outstanding Shares on such date or (iii)
an amount determined by the Board. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered
pursuant to an Option Exchange Program, the unpurchased Shares which were
subject thereto shall become available for future grant or sale under the
Plan (unless the Plan has terminated); provided, however, that Shares that
have actually been issued under the Plan, whether upon exercise of an Option
or Right, shall not be returned to the Plan
-4-
<PAGE>
and shall not become available for future distribution under the Plan, except
that if Shares of Restricted Stock are repurchased by the Company at their
original purchase price, such Shares shall become available for future grant
under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE.
(i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be
administered by different Committees with respect to different groups of
Service Providers.
(ii) SECTION 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted
hereunder as "performance-based compensation" within the meaning of Section
162(m) of the Code, the Plan shall be administered by a Committee of two or
more "outside directors" within the meaning of Section 162(m) of the Code.
(iii) RULE 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.
(iv) OTHER ADMINISTRATION. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee,
which committee shall be constituted to satisfy Applicable Laws.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions
of the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options
and Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock
to be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase
Right granted hereunder. Such terms and conditions include, but are not
limited to, the exercise price, the time or times when Options or Stock
Purchase Rights may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Stock Purchase Right or
the shares of Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;
-5-
<PAGE>
(vi) to reduce the exercise price of any Option or
Stock Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase Right
shall have declined since the date the Option or Stock Purchase Right was
granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax
treatment under foreign tax laws;
(x) to modify or amend each Option or Stock Purchase
Right (subject to Section 16(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options
longer than is otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of
Shares having a Fair Market Value equal to the amount required to be
withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined. All elections by an Optionee to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of
the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary
or advisable for administering the Plan.
(c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's
decisions, determinations and interpretations shall be final and binding on
all Optionees and any other holders of Options or Stock Purchase Rights.
5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase
Rights may be granted to Service Providers. Incentive Stock Options may be
granted only to Employees.
6. LIMITATIONS.
(a) Each Option shall be designated in the Option Agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which
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Incentive Stock Options are exercisable for the first time by the Optionee
during any calendar year (under all plans of the Company and any Parent or
Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory
Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall
be taken into account in the order in which they were granted. The Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall
they interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without Cause.
(c) The following limitations shall apply to grants of
Options:
(i) No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 300,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
500,000 Shares, which shall not count against the limit, set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization
as described in Section 14.
(iv) If an Option is cancelled in the same fiscal year
of the Company in which it was granted (other than in connection with a
transaction described in Section 14), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will
be treated as a cancellation of the Option and the grant of a new Option.
7. TERM OF PLAN. Subject to Section 20 of the Plan, the Plan
shall become effective upon its adoption by the Board. It shall continue in
effect for a term of ten (10) years unless terminated earlier under Section
16 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided
in the Option Agreement. Moreover, in the case of an Incentive Stock Option
granted to an Optionee who, at the time the Incentive Stock Option is
granted, owns stock representing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant or such shorter term as may be provided in the Option
Agreement.
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9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by
the Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option, the
per Share exercise price shall be determined by the Administrator. In the
case of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share
on the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option
is granted, the Administrator shall fix the period within which the Option
may be exercised and shall determine any conditions that must be satisfied
before the Option may be exercised.
(c) FORM OF CONSIDERATION. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;
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(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability
to the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of
payment; or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any
Option granted hereunder shall be exercisable according to the terms of the
Plan and at such times and under such conditions as determined by the
Administrator and set forth in the Option Agreement. Unless the Administrator
provides otherwise, vesting of Options granted hereunder shall be tolled
during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with
the Option Agreement) from the person entitled to exercise the Option, and
(ii) full payment for the Shares with respect to which the Option is
exercised. Full payment may consist of any consideration and method of
payment authorized by the Administrator and permitted by the Option Agreement
and the Plan. Shares issued upon exercise of an Option shall be issued in the
name of the Optionee or, if requested by the Optionee, in the name of the
Optionee and his or her spouse. Until the Shares are issued (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company), no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such Shares promptly after the Option is exercised. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Shares are issued, except as provided in
Section 14 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER.
Subject to Section 14, if an Optionee ceases to be a Service Provider (but
not in the event of an Optionee's change of status from Employee to
Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the ninety-first
(91st) day following such change of status) or from Consultant to Employee),
such Optionee may, but only within such period of time as is specified in the
Option Agreement (but in no event later than the expiration date of the term
of such Option as set forth in the Option Agreement), exercise his or her
Option to the extent
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that Optionee was entitled to exercise it at the date of such termination. In
the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his
or her Option within the time specified by the Administrator, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.
(c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may,
but only within twelve (12) months from the date of such termination (and in
no event later than the expiration date of the term of such Option as set
forth in the Option Agreement), exercise his or her Option to the extent that
the Option is vested on the date of termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the
Plan. If, after termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. If an Optionee dies while a Service
Provider, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the expiration of the
term of such Option as set forth in the Notice of Grant), by the Optionee's
estate or by a person who acquires the right to exercise the Option by
bequest or inheritance, but only to the extent that the Option is vested on
the date of death. If, at the time of death, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall immediately revert to the Plan. The Option may be exercised by
the executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or the
laws of descent or distribution. If the Option is not so exercised within the
time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) BUYOUT PROVISIONS. The Administrator may at any time
offer to buy out for a payment in cash or Shares an Option previously granted
based on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under
the Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of
Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to
purchase, the price to be paid, and the time within which the offeree must
accept such offer. The offer shall be accepted by execution of a Restricted
Stock Purchase Agreement in the form determined by the Administrator.
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(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination
of the purchaser's service with the Company for any reason (including death
or Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate
determined by the Administrator.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent
with the Plan as may be determined by the Administrator in its sole
discretion.
(d) RIGHTS AS A SHAREHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record
date is prior to the date the Stock Purchase Right is exercised, except as
provided in Section 14 of the Plan.
12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS.
Unless determined otherwise by the Administrator, an Option or Stock Purchase
Right may not be sold, pledged, assigned, hypothecated, transferred, or
disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised, during the lifetime of the Optionee, only
by the Optionee. If the Administrator makes an Option or Stock Purchase Right
transferable, such Option or Stock Purchase Right shall contain such
additional terms and conditions as the Administrator deems appropriate.
13. FORMULA OPTION GRANTS TO OUTSIDE DIRECTORS. Outside Directors
shall be granted Options in accordance with the following provisions:
(a) All Options granted pursuant to this Section shall be
Nonstatutory Stock Options and, except as otherwise provided herein, shall be
subject to the other terms and conditions of the Plan.
(b) Except as provided in subsection (d) below, each person
who first becomes an Outside Director on or after the IPO Effective Date,
whether through election by the stockholders of the Company or appointment by
the Board to fill a vacancy shall be automatically granted an Option to
purchase up to 30,000 Shares (the "First Option") on the date he or she first
becomes an Outside Director; provided, however, that an Inside Director who
ceases to be an Inside Director but who remains a Director shall not receive
a First Option.
(c) Except as provided in subsection (d) below, each Outside
Director shall be automatically granted an Option to purchase up to 10,000
Shares (a "Subsequent Option") following each annual meeting of the
stockholders of the Company occurring after the end of the Company's fiscal
year 2000, if immediately after such meeting, he or she shall continue to
serve on the Board and shall have served on the Board for at least the
preceding six (6) months.
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(d) Notwithstanding the provisions of subsections (b) and (c)
hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 20 hereof shall
be conditioned upon obtaining such stockholder approval of the Plan in
accordance with Section 20 hereof.
(e) The terms of each First Option granted pursuant to this
Section shall be as follows:
(i) the term of the Option shall be ten (10) years.
(ii) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Option.
(iii) 50% of the Shares subject to the Option shall vest
twelve months after the date of grant and 1/24 of the Shares subject to the
Option shall vest each month thereafter. provided that the Outside Director
shall continue to serve on the Board on such dates.
(f) The terms of each Subsequent Option granted pursuant to
this Section shall be as follows:
(i) the term of the Option shall be ten (10) years.
(ii) the exercise price per Share shall be 100% of the
Fair Market Value per Share on the date of grant of the Option.
(iii) 50% of the Shares subject to the Option shall vest
twelve months after the date of grant and 1/24 of the Shares subject to the
Option shall vest each month thereafter. provided that the Outside Director
shall continue to serve on the Board on such dates.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR ASSET
SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock
covered by each outstanding Option or Stock Purchase Right, and the number of
shares of Common Stock which have been authorized for issuance under the Plan
but as to which no Options or Stock Purchase Rights have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option or Stock Purchase Right, as well as the price per share of Common
Stock covered by each such outstanding Option or Stock Purchase Right, shall
be proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of issued shares of Common
Stock effected without receipt of consideration by the Company. The
conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment
shall be made by the Board, whose determination in that respect shall be
final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
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convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify
each Optionee as soon as practicable prior to the effective date of such
proposed transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option or Stock Purchase
Right until fifteen (15) days prior to such transaction as to all of the
Optioned Stock covered thereby, including Shares as to which the Option or
Stock Purchase Right would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to
any Shares purchased upon exercise of an Option or Stock Purchase Right shall
lapse as to all such Shares, provided the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has
not been previously exercised, an Option or Stock Purchase Right will
terminate immediately prior to the consummation of such proposed action.
(c) MERGER OR ASSET SALE. Subject to Section 15 below, 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 (a "Merger"), each
outstanding Option and Stock Purchase Right shall be assumed or an equivalent
option or right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation (the "Successor Corporation"). In the
event that the Successor Corporation refuses to assume or substitute for the
Option or Stock Purchase Right, the Optionee shall fully vest in and have the
right to exercise the Option or Stock Purchase Right as to all of the
Optioned Stock, including Shares as to which it would not otherwise be vested
or exercisable. If an Option or Stock Purchase Right becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a Merger,
the Administrator shall notify the Optionee in writing or electronically that
the Option or Stock Purchase Right shall be fully vested and exercisable for
a period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For
the purposes of this Section 14(c), the Option or Stock Purchase Right shall
be considered assumed if, following the Merger, the option or right confers
the right to purchase or receive, for each Share of Optioned Stock subject to
the Option or Stock Purchase Right immediately prior to the Merger, the
consideration (whether stock, cash, or other securities or property) received
in the Merger by holders of Common Stock for each Share held on the effective
date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares); provided, however, that if such consideration
received in the Merger is not solely common stock of the Successor
Corporation or its Parent, the Administrator may, with the consent of the
Successor Corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned
Stock subject to the Option or Stock Purchase Right, to be solely common
stock of the Successor Corporation or its Parent equal in fair market value
to the per share consideration received by holders of Common Stock in the
Merger.
15. CHANGE OF CONTROL. In the event of a Change of Control, each
outstanding Option held by an Outside Director shall vest and become
exercisable in full as to all of the Optioned Stock,
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including Shares as to which the Outside Director would not otherwise be
vested or exercisable. If an Option becomes fully vested and exercisable as
provided in this paragraph, the Administrator shall notify the Optionee in
writing or electronically that the Option shall be fully vested and
exercisable for a period of fifteen (15) days from the date of such notice,
and the Option shall terminate upon the expiration of such period.
16. DATE OF GRANT. The date of grant of an Option or Stock
Purchase Right shall be, for all purposes, the date on which the
Administrator makes the determination granting such Option or Stock Purchase
Right, or such other later date as is determined by the Administrator. Notice
of the determination shall be provided to each Optionee within a reasonable
time after the date of such grant.
17. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain
shareholder approval of any Plan amendment to the extent necessary and
desirable to comply with Applicable Laws.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of
any Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee
and the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to
Options granted under the Plan prior to the date of such termination.
18. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to
the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the
exercise of an Option or Stock Purchase Right, the Company may require the
person exercising such Option or Stock Purchase Right to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute
such Shares if, in the opinion of counsel for the Company, such a
representation is required.
19. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
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20. 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.
21. 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 manner
and to the degree required under Applicable Laws.
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EXHIBIT 10.4
PARTICIPATE.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock
Purchase Plan of Participate.com, Inc.
1. PURPOSE. The purpose of the Plan is to provide employees of
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
(a) "BOARD" shall mean the Board of Directors of the Company
or any committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "CODE" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "COMMON STOCK" shall mean the common stock of the
Company.
(d) "COMPANY" shall mean Participate.com, Inc. and any
Designated Subsidiary of the Company.
(e) "COMPENSATION" shall mean all base straight time gross
earnings, bonuses, commissions, and overtime payments, but exclusive of
incentive compensation, incentive payments, and other compensation.
(f) "DESIGNATED SUBSIDIARY" shall mean any Subsidiary that
has been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "EMPLOYEE" shall mean any individual who is an Employee
of the Company for tax purposes whose customary employment with the Company are
at least twenty (20) hours per week and more than five (5) months in any
calendar year. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the 91st day of such leave.
(h) "ENROLLMENT DATE" shall mean the first Trading Day of
each Offering Period.
(i) "EXERCISE DATE" shall mean the last Trading Day of each
Purchase Period.
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(j) "FAIR MARKET VALUE" shall mean, as of any date, the
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the date of
determination, as reported in THE WALL STREET JOURNAL or such other source as
the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock prior to the date of determination, as reported in THE WALL STREET
JOURNAL or such other source as the Board deems reliable;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board; or
(iv) For purposes of the Enrollment Date of the
first Offering Period under the Plan, the Fair Market Value shall be the initial
price to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "OFFERING PERIODS" shall mean the periods of
approximately twenty-four (24) months during which an option granted pursuant to
the Plan may be exercised, commencing on the first Trading Day on or after
September 1 and March 1 of each year and terminating on the last Trading Day in
the periods ending twenty-four months later; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day
on or before August 31, 2002. The duration and timing of Offering Periods may be
changed pursuant to Section 4 of this Plan.
(l) "PLAN" shall mean this 2000 Employee Stock Purchase
Plan.
(m) "PURCHASE PERIOD" shall mean the approximately six month
period commencing after one Exercise Date and ending with the next Exercise
Date, except that the first Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.
(n) "PURCHASE PRICE" shall mean 85% of the Fair Market Value
of a share of Common Stock on the Enrollment Date or on the Exercise Date,
whichever is lower; provided however, that the Purchase Price may be adjusted by
the Board pursuant to Section 20.
(o) "RESERVES" shall mean the number of shares of Common
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
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(p) "SUBSIDIARY" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(q) "TRADING DAY" shall mean a day on which national stock
exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall be employed by the Company on a
given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds twenty-five thousand dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by
consecutive, overlapping Offering Periods with a new Offering Period commencing
on the first Trading Day on or after March 1 and September 1 of each year, or
on such other date as the Board shall determine, and continuing thereafter until
terminated in accordance with Section 20 hereof; provided, however, that the
first Offering Period under the Plan shall commence with the first Trading Day
on or after the date on which the Securities and Exchange Commission declares
the Company's Registration Statement effective and ending on the last Trading
Day on or before August 31, 2002. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company's payroll
office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on
the first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
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6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding fifteen percent 15 % of
the Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation
in the Plan as provided in Section 10 hereof, or may increase or decrease the
rate of his or her payroll deductions during the Offering Period by completing
or filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during a Purchase Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Purchase Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued under the
Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on each Exercise Date during such Offering
Period (at the applicable Purchase Price) up to a number of shares of the
Company's Common Stock determined by dividing such Employee's payroll
deductions accumulated prior to such Exercise Date and retained in the
Participant's account as of the Exercise Date by the applicable Purchase
Price; provided that in no event shall an Employee be permitted to purchase
during each Purchase Period more than 25,000 shares of the Company's Common
Stock (subject to any adjustment pursuant to Section 19), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 12 hereof. The Board may, for future Offering Periods,
increase or decrease, in its absolute discretion, the maximum number of
shares of
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<PAGE>
the Company's Common Stock an Employee may purchase during each Purchase Period
of such Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. EXERCISE OF OPTION.
(a) Unless a participant withdraws from the Plan as provided
in Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date,
the number of shares with respect to which options are to be exercised may
exceed (i) the number of shares of Common Stock that were available for sale
under the Plan on the Enrollment Date of the applicable Offering Period, or (ii)
the number of shares available for sale under the Plan on such Exercise Date,
the Board may in its sole discretion (x) provide that the Company shall make a
pro rata allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. DELIVERY. As promptly as practicable after each Exercise Date,
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to exercise
his or her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the participant's payroll
deductions credited to his or her account shall be paid to such participant
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<PAGE>
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. TERMINATION OF EMPLOYMENT.
Upon a participant's ceasing to be an Employee, for any
reason, he or she shall be deemed to have elected to withdraw from the Plan and
the payroll deductions credited to such participant's account during the
Offering Period but not yet used to exercise the option shall be returned to
such participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant's option shall be
automatically terminated. The preceding sentence notwithstanding, a participant
who receives payment in lieu of notice of termination of employment shall be
treated as continuing to be an Employee for the participant's customary number
of hours per week of employment during the period in which the participant is
subject to such payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions
of a participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Section 19 hereof, the maximum number of shares of
the Company's Common Stock which shall be made available for sale under the Plan
shall be 600,000 shares plus an annual increase to be added on the first day of
the Company's fiscal year beginning in Year, equal to the lesser of (i) 700,000
shares, (ii) 2% of the outstanding shares on such date or (iii) a lesser amount
determined by the Board.
(b) The participant shall have no interest or voting right
in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board
or a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
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<PAGE>
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the shareholders of the Company, the Reserves, the maximum number
of shares each participant may purchase each Purchase Period (pursuant to
Section 7), as well as the price per share and the number of shares of Common
Stock covered by each option under the Plan which has not yet been exercised
shall be proportionately adjusted for any increase or decrease in the number
of issued shares of Common Stock resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of
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<PAGE>
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the option, any
Purchase Periods then in progress shall be shortened by setting a new Exercise
Date (the "New Exercise Date") and any Offering Periods then in progress shall
end on the New Exercise Date. The New Exercise Date shall be before the date of
the Company's proposed sale or merger. The Board shall notify each participant
in writing, at least ten (10) business days prior to the New Exercise Date, that
the Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised automatically
on the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time
and for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Offering Period or the
Plan is in the best interests of the Company and its shareholders. Except as
provided in Section 19 and this Section 20 hereof, no amendment may make any
change in any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of the Code
(or any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without shareholder consent and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the Offering
Periods, limit the frequency and/or number of changes in the amount
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<PAGE>
withheld during an Offering Period, establish the exchange ratio applicable
to amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly
completed withholding elections, establish reasonable waiting and adjustment
periods and/or accounting and crediting procedures to ensure that amounts
applied toward the purchase of Common Stock for each participant properly
correspond with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are consistent
with the Plan.
(c) In the event the Board determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:
(i) altering the Purchase Price for any Offering
Period including an Offering Period underway at the time of
the change in Purchase Price;
(ii) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at
the time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and warrant at the time
of any such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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<PAGE>
24. AUTOMATIC TRANSFER TO LOW PRICE OFFERING PERIOD. To the extent
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
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EXHIBIT A
PARTICIPATE.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
________ Original Application Enrollment Date:_________
________ Change in Payroll Deduction Rate
________ Change of Beneficiary(ies)
1. ____________________ hereby elects to participate in the
Participate.com, Inc. Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's
Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (from 0 to 15%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is
in all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is
subject to shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after
the Exercise Date, I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at
the time such shares were purchased by me over the price which I paid
for the shares. I HEREBY AGREE TO NOTIFY THE COMPANY IN WRITING WITHIN
30 DAYS AFTER THE DATE OF ANY DISPOSITION OF MY SHARES AND I WILL MAKE
ADEQUATE PROVISION FOR FEDERAL, STATE OR OTHER TAX WITHHOLDING
OBLIGATIONS, IF ANY, WHICH ARISE UPON THE
<PAGE>
DISPOSITION OF THE COMMON STOCK. The Company may, but will not be
obligated to, withhold from my compensation the amount necessary to
meet any applicable withholding obligation including any withholding
necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the
2-year and 1-year holding periods, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(1) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (2) 15% of the fair market value of the shares on the first day of
the Offering Period. The remainder of the gain, if any, recognized on
such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)__________________________________________________
(First) (Middle) (Last)
________________________ ________________________________________
Relationship
________________________________________
(Address)
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<PAGE>
Employee's Social
Security Number: ________________________________________
Employee's Address: ________________________________________
________________________________________
________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:________________________ _________________________________________
Signature of Employee
_________________________________________
Spouse's Signature (If beneficiary other
than spouse)
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<PAGE>
EXHIBIT B
PARTICIPATE.COM, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the
Participate.com, Inc. Employee Stock Purchase Plan which began on ____________,
______ (the "Enrollment Date") hereby notifies the Company that he or she hereby
withdraws from the Offering Period. He or she hereby directs the Company to pay
to the undersigned as promptly as practicable all the payroll deductions
credited to his or her account with respect to such Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period will be automatically terminated. The undersigned understands further
that no further payroll deductions will be made for the purchase of shares in
the current Offering Period and the undersigned shall be eligible to participate
in succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
_______________________________________
_______________________________________
_______________________________________
Signature:
_______________________________________
Date:__________________________________
<PAGE>
EXHIBIT 10.5
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "AGREEMENT") is
made as of the ___ day of November, 1999 by and between Participate.com, Inc., a
Delaware corporation (the "COMPANY"), and David A. Greer ("EMPLOYEE").
BACKGROUND
A. The Company's predecessor, a limited liability company, and Employee
are parties to that certain Employment Agreement dated January 1, 1999 (the
"EMPLOYMENT AGREEMENT"), the Admission Agreement dated January 1, 1999 including
the schedules thereto, as amended, that certain letter agreement dated February
1, 1999 (collectively, the "PRIOR AGREEMENTS") and certain other agreements.
B. Pursuant to that certain Agreement and Understanding dated September
16, 1999 between the Company and the Employee, the parties agree to amend and
restate the Employment Agreement to (i) reflect the changing of legal form from
that of a Delaware limited liability company to a Delaware corporation and other
matters as set forth herein and (ii) terminate all Prior Agreements (as set
forth in Section 5.5 of this Agreement).
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and
Employee hereby agree as follows:
ARTICLE I
EMPLOYMENT SERVICES
1.1 AGREEMENT. The Company and Employee shall continue their
employment relationship pursuant to the terms and conditions set forth herein.
1.2 TERM. The term of this Agreement shall be for a period of
four (4) years commencing as of January 1, 1999 (the "EMPLOYMENT TERM").
Notwithstanding the foregoing, this Agreement may be terminated prior to the
expiration of the Employment Term in accordance with the provisions of
ARTICLE II hereof.
1.3 ACTIVITIES AND DUTIES.
(a) During the Employment Term, Employee agrees to (i) serve
as Vice President of Operations for the Company, (ii) develop strategies,
programs and practices to implement and manage electronic communities, and (iii)
perform such other duties and responsibilities as the Company's President and
Chief Executive Officer, Alan K. Warms ("WARMS"), shall from time to time assign
him.
<PAGE>
(b) Employee represents and warrants to the Company that he is
free to enter into this Agreement with the Company, and that he does not have,
and will not have during the Employment Term, any prior or other commitments or
obligations of any kind to anyone else which would hinder or interfere with his
performance of his obligations hereunder, or the exercise of his best efforts on
behalf of the Company.
(c) Employee hereby agrees that he shall not subcontract any
services assigned to him by the Company, or engage or permit any person or
entity other than Employee to perform any such services, without the prior
written consent of Warms.
(d) Employee hereby agrees that during the Employment Term, he
shall not, without the prior written consent of the Company, have an interest
in, be employed by, or perform any services on behalf of any person or entity
other than the Company; provided, however, that (i) nothing contained herein
shall prohibit Employee from having an ownership interest of five percent (5%)
or less in a company that has publicly traded securities which are listed on a
nationally-recognized securities exchange, and (ii) Employee may perform
services for persons or entities other than the Company if Employee obtains the
prior written consent of Warms with respect to provision of such services.
ARTICLE II
TERMINATION/ATTORNEY FEES
2.1 TERMINATION OF EMPLOYMENT TERM. Notwithstanding SECTION 1.2
hereof, the Employment Term shall terminate upon the occurrence of any of the
following events: (a) upon the mutual written agreement of the Company and
Employee; (b) death of Employee; (c) Legal Disability of Employee, as defined
in SECTION 2.5; (d) at any time by the Company for Cause, as defined in
SECTION 2.2; (e) at any time by the Company, without Cause, upon provision of
thirty (30) days written notice to Employee; or (f) at any time by Employee,
without Cause, upon provision of sixty (60) days written notice to the
Company. In the event of termination of this Agreement, the Company shall
only be obligated to pay Employee such compensation as has been earned by him
prior to the date of termination. Further, in such event, the provisions of
ARTICLE IV shall remain in full force and effect in accordance with their
terms.
2.2 CAUSE. The term "CAUSE" as used herein shall mean any of
the following acts or omissions:
(a) Employee's theft, embezzlement or other acts of
dishonesty;
(b) A material default by Employee in the performance or
observance of any promise or undertaking of Employment under this Agreement,
which default shall continue for a period of ten (10) days after written notice
thereof from the Company to Employee;
(c) The commission of an act by Employee in the performance of
his duties hereunder amounting to gross negligence or willful or wanton
misconduct;
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(d) The commission by Employee of an act or acts involving a
Class A-type felony.
2.3 DISPUTE AS TO CAUSE. In the event that there is any dispute
between the parties as to whether Cause exists, such determination shall be
made pursuant to binding arbitration, as follows: such claim shall be
submitted for arbitration to the Chicago, Illinois office of the American
Arbitration Association on demand of either party. Any such arbitration
proceeding will be conducted in Chicago, Illinois and except as otherwise
provided in this Agreement, will be conducted in accordance with the
then-current Commercial Arbitration Rules of the American Arbitration
Association. The arbitrator(s) shall determine which party, if either,
prevailed and shall award the prevailing party its costs and attorneys' fees.
The award and decision of the arbitrator will be conclusive and binding on
all parties to this Agreement and judgment on the award may be entered in any
court of competent jurisdiction. The parties acknowledge and agree that any
arbitration award may be enforced against either or both of them in a court
of competent jurisdiction and each waives any right to contest the validity
or enforceability of such award. The parties further agree to be bound by the
provisions of any statute of limitations which would be applicable in a court
of law to the controversy or claim which is the subject of any arbitration
proceeding initiated under this Agreement. The parties further agree that
they are entitled in any arbitration proceeding to the entry of an order, by
a court of competent jurisdiction pursuant to an opinion of the arbitrator,
for specific performance of any of the requirements of this Agreement.
2.4 ATTORNEYS' FEES. In the event of a breach of any provision
of this Agreement, the breaching party shall pay to the non-breaching party,
in addition to any other damages or remedies which may be available at law or
in equity, all of its attorneys' fees and costs reasonably incurred as a
result of such breach.
2.5 DEATH AND DISABILITY. Notwithstanding anything to the
contrary contained herein, this Agreement shall automatically terminate upon
the death or Legal Disability of Employee and thereafter, the Company shall
have no obligation to pay any future amounts (other than those accrued prior
to the date of Employee's death or disability) otherwise due to Employee
pursuant to this Agreement. For the purposes of this Agreement, the term
"LEGAL DISABILITY" shall mean the inability of Employee, due to illness,
accident or other physical or mental incapacity, to perform substantially all
of his regular duties hereunder for a period (whether continuous or periodic)
of six (6) months during any twelve month period of the Employment Term, or a
physical or mental incapacity in which there is no hope of recovery within
eight (8) months. In the event that there is any dispute as to Employee's
Legal Disability, a determination shall be made at the written request of
either the Company or Employee sent to the other (and within thirty (30) days
after such request) by a majority of three physicians, one of whom shall be
selected by Employee, one by the Company and the third by the two physicians
so selected.
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ARTICLE III
COMPENSATION
3.1 BASE SALARY. In consideration for performance of his
services hereunder, during the Employment Term, Employee shall receive a base
salary in the amount of $150,000 per year. Such amount shall be payable no
less frequently than monthly.
3.2 STOCK OWNERSHIP. In addition to the amounts payable
pursuant to SECTION 3.1, in consideration for performance of his services
hereunder, Employee owns stock of the Company subject to vesting as set forth
in that certain David A. Greer Stock Vesting Agreement dated as of September
13, 1999.
3.3 BENEFITS. During the Employment Term, Employee shall be
entitled to participate in the Company's group health care plan, subject to
all applicable eligibility rules thereof. In addition, Employee shall be
entitled to fifteen (15) paid vacation days per year.
3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse
Employee for all reasonable and necessary expenses incurred by Employee while
performing his duties under this Agreement, subject to provision by Employee
of documentation satisfactory to the Company.
3.5 WITHHOLDINGS AND DEDUCTIONS. All amounts payable to
Employee pursuant to this Agreement shall be subject to such withholdings and
deductions by the Company as are required by law.
ARTICLE IV
PROPRIETARY INFORMATION; NON-SOLICITATION;
OWNERSHIP OF CONCEPTIONS
4.1 PROPRIETARY INFORMATION. Employee acknowledges that this
Agreement creates a relationship of confidence and trust with respect to all
information of a confidential, proprietary or trade secret nature disclosed
by or on behalf of the Company to Employee that relates to the business of
the Company, its affiliates, customers, suppliers and vendors (collectively,
"PROPRIETARY INFORMATION"). Such Proprietary Information includes any
material, data or information disclosed by the Company to Employee that is
not generally known or disclosed to the public or to third parties, including
without limitation:
(a) technical information, including without limitation,
computer software, algorithms, processing systems, techniques, new ideas,
discoveries, inventions, developments, know-how and trade secrets (whether
developed by the Company, an affiliate, employee or representative thereof, or
by Employee in the scope of employment hereunder);
(b) business information, including without limitation,
information relating to costs, pricing, profit margins, markets and suppliers,
business plans and projections, financial, accounting, legal and regulatory
data, names, addresses and telephone numbers of current or
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prospective customers and their respective service or product requirements,
credit histories and trade names, sales, marketing and advertising plans,
prospective or actual strategies, licenses or similar agreements, and other
commercial information;
(c) technical and/or business information furnished by third
parties to the Company, including prospects, customers, suppliers, licensers,
franchisers and vendors; and
(d) any other information which the Company reasonably
designates should be confidential.
Employee shall keep all Proprietary Information in confidence and Employee shall
not at any time, during the Employment Term or at any time thereafter, directly
or indirectly disclose, copy, distribute, republish or allow access to, any
Proprietary Information to anyone, or directly or indirectly use any Proprietary
Information for Employee's own benefit or for the benefit of any person or
entity other than the Company. Upon any termination of this Agreement, or upon
the request of the Company, Employee shall promptly deliver to the Company all
Proprietary Information, as well as all documents and materials of any nature
pertaining to the services performed by Employee hereunder and all copies
thereof in whatever form, and Employee shall not retain any documents or
materials or copies thereof containing any Proprietary Information. Employee
shall, upon learning of the unauthorized disclosure or use of the Company's
Proprietary Information or any requirement that it disclose the Company's
Proprietary Information by operation of law, regulation or other legal process,
notify the Company immediately and in writing, and cooperate fully with the
Company to protect the Company's Proprietary Information. Notwithstanding the
foregoing, Employee acknowledges and agrees that he has entered into that
certain proprietary rights agreement in the form attached to this Agreement as
EXHIBIT A, and that the terms of such agreement are in addition to the terms set
forth in this Section 4.1.
4.2 NON-COMPETITION. Employee hereby agrees that: (i) the
covenant set forth in this SECTION 4.2 is reasonable in scope and essential
to the preservation of the Company's business; and (ii) the enforcement of
such covenant will not preclude Employee from being gainfully employed in
such manner and to the extent necessary to provide a standard of living for
himself, the members of his family and others dependent upon him. In
addition, Employee acknowledges and agrees that due to the global nature of
the Internet, the market in which the Company operates will be worldwide, and
that the Company shall give good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, to conduct its business free of
competition, direct or indirect, from Employee as described below. Employee
hereby agrees that he shall not, during the Employment Term and for a period
of one (1) year thereafter, directly or indirectly, provide any services
associated with the internet, intranets or extranets anywhere in the world to
any person, firm or entity that (i) is a client of the Company at any time
during the Employment Term, or (ii) is a "Prospective Client" (as defined
below) of the Company on the date of termination hereof. For purposes hereof,
the term "PROSPECTIVE CLIENT" shall mean any person, firm or entity that has
been solicited by the Company (or any employee, independent contractor,
member or agent thereof) for business during the six (6) month period prior
to the date of termination of the Employment Term.
4.3 NON-SOLICITATION. At all times during the term of this
Agreement, and for a period of one (1) year following any termination or
expiration hereof, Employee agrees that Employee shall
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not, directly or indirectly, for Employee or on behalf of any person or entity,
solicit or contact any employees, customers or clients of the Company for the
purpose of inducing them to terminate their Employment or contractual agreements
with the Company or to become employees, independent contractors, customers or
clients of Employee or such other person or entity.
4.4 CONCEPTIONS.
(a) Employee acknowledges that the Company is engaged in a
continuous program of research, development and marketing in connection with its
business and that, in the performance of his services hereunder, Employee may
participate in and support such activities. To the extent that Employee
participates in or supports such activities on behalf of the Company, Employee
hereby agrees to promptly disclose exclusively to the Company all improvements,
original works of authorship, processes, computer programs, ideas, discoveries,
techniques, data bases, trade secrets, documentation, program materials, flow
charts, notes, outlines, formulas, processes, ideas, inventions, know-how or
techniques and any other information generated by Employee (collectively,
"CONCEPTIONS"), whether or not patentable or copyrightable, that are generated,
conceived, first reduced to practice or created by Employee, either alone or
jointly with others, during the course of and in relation to Employee's
performance under this Agreement. Employee further agrees that all Conceptions
that: (a) are developed using equipment, supplies, facilities or trade secrets
of the Company; or (b) result from or are any way connected with the services
performed by Employee hereunder; or (c) relate to the business of the actual or
anticipated research or development of the Company, and the copyright, patent,
trademark, trade secret and all other proprietary rights therein and derivative
works created therefrom, including any "moral" rights under any copyright or
other similar law, shall be the sole and exclusive property of the Company, and
shall be considered "works-made-for-hire" under applicable law. Such ownership
shall inure to the benefit of the Company from the date of the conception,
creation or fixation of the Conceptions in a tangible medium of expression, as
applicable. If and to the extent the Conceptions or any part thereof are found
by a court of competent jurisdiction not to be a "work-made-for-hire" within the
meaning of the Copyright Act of 1976, as amended, or other applicable statute,
or not to be the sole and exclusive property of the Company, Employee expressly
assigns to the Company all exclusive right, title and interest in and to the
Conceptions, without further consideration, free from any claim, lien for
balance due or rights of retention thereto by Employee. Employee agrees to
assist the Company in obtaining and enforcing all rights and other legal
protections for the Proprietary Information and the Conceptions and to execute
any and all documents that the Company may reasonably request in connection
therewith, including, without limitation, any patent and/or copyright assignment
document(s); provided, however, that the Company agrees to pay Employee
reasonable consideration for time actually spent and sufficiently documented by
Employee for such assistance. Concurrently with his execution of this Agreement,
Employee shall execute the Notice that is attached hereto as EXHIBIT B thereby
acknowledging his receipt of such Notice, in accordance with the Illinois
Employee Patent Act.
(b) The provisions of SECTION 4.4(a) shall not apply to any
Conceptions developed by Employee in the performance of Employment services for
persons or entities other than the Company if the provision of such services has
been approved in writing by Warms.
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4.5 REMEDIES. Employee hereby acknowledges and agrees that the
services to be rendered by him to the Company hereunder are of a special and
unique nature and that it would be very difficult or impossible to measure
the damages resulting from a breach of this Agreement. Employee hereby
further acknowledges and agrees that the restrictions herein are reasonable
and necessary for the protection of the goodwill and the business of the
Company and that a violation by Employee of any such covenant will cause
irreparable damage to the Company. Employee therefore agrees that any breach
or threatened breach by him of any of the covenants or provisions of this
ARTICLE IV shall entitle the Company, in addition to any other legal remedy
available to it, to apply to any court of competent jurisdiction for a
temporary and permanent injunction or any other applicable decree of specific
performance, in order to enjoin such breach or threatened breach. The parties
understand and intend that each covenant, provision and restriction agreed to
in this ARTICLE IV shall be construed as separate and divisible from every
other provision and restriction and that the unenforceability of any one
provision or restriction shall not limit the enforceability, in whole or in
part, of any other provision or restriction and that one or more of all of
such provisions or restrictions may be enforced, in whole or in part, as the
circumstances warrant.
ARTICLE V
MISCELLANEOUS
5.1 INDEMNITY. Employee hereby agrees to defend, indemnify and
hold harmless the Company and its affiliates, members, managers, officers,
agents, employees, representatives, successors and assigns from and against
any and all claims, demands, causes of action, losses, damages, costs and
expenses (including, without limitation, litigation costs, reasonable
attorneys' fees and any appellate bonds) (collectively, "CLAIMS") arising out
of or relating to: (a) Employee's willful misconduct in performing his
obligations hereunder, (b) services performed by Employee at any time for any
person or entity other than the Company; or (c) the violation by Employee of
any non-competition, non-solicitation or non-disclosure agreement.
5.2 NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be addressed as follows:
If to Employee:
David A. Greer
1115 W. Barry
Chicago, IL 60657
PH: (773) 549-6434
E-MAIL: [email protected]
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If to the Company:
Participate.com, Inc.
945 West George Street, Third Floor
Chicago, IL 60657
Attn: Alan K. Warms, President
PH: (773) 665-0020
FAX: (773) 665-0025
E-MAIL: [email protected]
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attn: Page Mailliard, Esq.
PH: (650) 493-9300
FAX: (650) 496-4088
or to such other address or addresses as may hereafter be specified by notice
given by any of the above to the others. Notices mailed in accordance with this
SECTION 5.2 shall be deemed given (i) the third day after they are mailed, (ii)
the next day after they are sent by reputable overnight courier service, (iii)
when sent, if sent by telecopy or e-mail between 9:00 A.M. and 5:00 P.M. central
standard time, or (iv) the next business day thereafter if sent by telecopy or
e-mail after 5:00 P.M. central standard time. Any written notice hereunder may
be provided via e-mail, return receipt requested.
5.3 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors and
permitted assigns. In the case of the Company, the successors and permitted
assigns hereunder shall include without limitation any affiliate of the
Company as well as the successors in interest to such affiliate (whether by
merger, liquidation (including successive mergers or liquidations) or
otherwise). This Agreement or any right or interest hereunder is one of
personal service and may not be assigned by Employee. Nothing in this
Agreement, expressed or implied, is intended or shall be construed to confer
upon any person other than the parties and successors and assigns permitted
by this SECTION 5.3 any right, remedy or claim under or by reason of this
Agreement.
5.4 AMENDMENTS. This Agreement shall not be amended, modified
or supplemented except by a written instrument signed by an authorized
representative of each of the parties hereto.
5.5 TERMINATION OF PRIOR AGREEMENTS; CONFIRMATION OF EXISTING
AGREEMENTS; RELEASE. Concurrently with the execution and delivery of this
Agreement, all Prior Agreements, understandings, and letters of intent
between parties hereto are hereby terminated and of no further force or
effect, except for (i) this Agreement (including the Proprietary Information
Agreement), (ii) the Agreement and Understanding dated September 16, 1999
between the parties hereto, a copy of which is attached as EXHIBIT C, (iii)
the David A. Greer Stock Vesting Agreement, dated
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September 13, 1999, between the parties hereto, a copy of which is attached
as EXHIBIT D, (iv) the voting agreement, dated September 17, 1999, executed
by Mr. Greer, a copy of which attached as EXHIBIT E, and (v) the Amended and
Restated Stockholders Rights Agreement, a copy of which is attached as
EXHIBIT F. The agreements referred to in the preceding clauses (i) through
(v) are referred to as the "Existing Agreements." This Agreement and the
other Existing Agreements contain the entire understanding of the parties
hereto with regard to the subject matter contained herein and therein, and
supersede all prior agreements, understandings or letters of intent between
or among any of the parties hereto.
Employee, on behalf of himself, and his agents and representatives,
and each of them (each including Employee and "Greer Party", and collectively
the "Greer Parties"), hereby releases the Company and its past, present and
future employees, agents, representatives, officers, directors, and each of
them from any and all claims, rights, demands, causes of action, obligations,
damages, debts and liabilities, whether or not now known, fixed, contingent,
suspected or claimed ("Claims"), which any of the Greer Parties ever had, now
has, or claims to have had, against any of the Company's parties up to and
including the date of this Agreement, including without limitation any Claim
that any Greer Party has or is entitled to any right, title or interest in
any equity or debt securities of the Company (or antidilution rights or
preemptive rights regarding the same), whether asserted prior to or after the
execution of this Agreement, other than the covenants and obligations of the
Company and Employee set forth in the Existing Agreements. Employee agrees
that the release set forth above shall be and remain in effect in all
respects as a complete general release as to all matters released. This
release does not extend to any obligations incurred under this Agreement and
the other Existing Agreements.
If Employee acknowledges that he is familiar with the provisions of
Section 1542 of the Civil Code of the State of California, which Section
states as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him must have
materially effected his settlement with the debtor."
Employee acknowledges that he may have sustained damages, losses, costs
or expenses which are presently unknown and unsuspected, and which may give rise
to additional damages, lawsuits, costs or expenses in the future. Nevertheless,
Employee acknowledges that the releases contained in this Section 5.5 have been
negotiated and agreed upon, in light of this situation, and that Employee
expressly waives any rights he may have under the above referenced Code section,
as well as under any statute or common law principles of similar effect.
5.6 INTERPRETATION. Article titles and section headings
contained herein are inserted for convenience of reference only and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
5.7 EXPENSES. Each party hereto will pay all costs and expenses
incident to its negotiation and preparation of this Agreement and to its
performance and compliance with all
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agreements and conditions contained herein on its part to be performed or
complied with, including the fees, expenses and disbursements of its counsel and
accountants.
5.8 WAIVERS. Any term or provision of this Agreement may be
waived, or the time for its performance may be extended, by the party or
parties entitled to the benefit thereof. Any such waiver will be validly and
sufficiently authorized for the purposes of this Agreement if, as to any
party, it is authorized in writing by an authorized representative of such
party. The failure of any party hereto to enforce at any time any provision
of this Agreement shall not be construed to be a waiver of such provision,
nor in any way to affect the validity of this Agreement or any part hereof or
the right of any party thereafter to enforce each and every such provision.
No waiver of any breach of this Agreement shall be held to constitute a
waiver of any other or subsequent breach.
5.9 PARTIAL INVALIDITY. Wherever possible, each provision
hereof shall be interpreted in such manner as to be effective and valid under
applicable law, but in case any one or more of the provisions contained
herein shall, for any reason, be held to be invalid, illegal or unenforceable
in any respect, such provision shall be ineffective to the extent, but only
to the extent, of such invalidity, illegality or unenforceability without
invalidating the remainder of such invalid, illegal or unenforceable
provision or provisions or any other provisions hereof, unless such a
construction would be unreasonable.
5.10 INCORPORATION OF RECITALS. The recitals set forth on page 1
hereof are hereby incorporated into and made a part of this Agreement by this
reference.
5.11 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in one or more counterparts, each of which shall be considered an original
instrument, but all of which shall be considered one and the same agreement,
and shall become binding when one or more counterparts have been signed by
each of the parties hereto and delivered to each of Employee and the Company.
5.12 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (as opposed to the conflicts
of law provisions) of the State of Illinois.
5.13 WRITTEN APPROVAL. Any written approval required pursuant to
this Agreement may be provided by E-mail.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PARTICIPATE.COM, INC.
By:
-----------------------------------------
Alan K. Warms
Managing Member
--------------------------------------------
DAVID A. GREER
<PAGE>
EXHIBIT A
PARTICIPATE.COM, INC.
CONFIDENTIAL INFORMATION AND
INVENTION ASSIGNMENT AGREEMENT
As a condition of my employment with Participate.com, Inc., its
subsidiaries, affiliates, successors or assigns (together the "Company"), and in
consideration of my employment with the Company and my receipt of the
compensation now and hereafter paid to me by Company,
__________________________________ agrees to the following:
(Employee Name)
1. AT-WILL EMPLOYMENT. I understand and acknowledge that my
employment with the Company is for an unspecified duration and constitutes
"at-will" employment. I acknowledge that this employment relationship may be
terminated at any time, with or without good cause or for any or no cause, at
the option either of the Company or myself, with or without notice.
2. CONFIDENTIAL INFORMATION.
(a) COMPANY INFORMATION. I agree at all times during the term
of my employment and thereafter, to hold in strictest confidence, and not to
use, except for the benefit of the Company to fulfill my employment obligations,
or to disclose to any person, firm or corporation without written authorization
of the Board of Directors of the Company, any Confidential Information of the
Company. I understand that "Confidential Information" means any Company
proprietary information, technical data, trade secrets or know-how, including,
but not limited to, research, product plans, products, services, customer lists
and customers (including, but not limited to, customers of the Company on whom I
called or with whom I became acquainted during the term of my employment),
markets, software, developments, inventions, processes, formulas, technology,
designs, drawings, engineering, hardware configuration information, marketing,
finances or other business information disclosed to me by the Company either
directly or indirectly in writing, orally or by drawings or observation of parts
or equipment. I further understand that Confidential Information does not
include any of the foregoing items which has become publicly known and made
generally available through no wrongful act of mine or of others who were under
confidentiality obligations as to the item or items involved.
(b) FORMER EMPLOYER INFORMATION. I agree that I will not,
during my employment with the Company, improperly use or disclose any
proprietary information or trade secrets of any former or concurrent employer or
other person or entity and that I will not bring onto the premises of the
Company any unpublished document or proprietary information belonging to any
such employer, person or entity unless consented to in writing by such employer,
person or entity.
(c) THIRD PARTY INFORMATION. I recognize that the Company has
received and in the future will receive from third parties their confidential or
proprietary information subject to a duty on the Company's part to maintain the
confidentiality of such information and to use it only for certain limited
purposes. I agree to hold all such confidential or proprietary information in
the strictest confidence and not to disclose it to any person, firm or
corporation or to use it except as necessary in carrying out my work for the
Company consistent with the Company's agreement with such third party.
<PAGE>
3. INVENTIONS.
(a) INVENTIONS RETAINED AND LICENSED. I have attached hereto
as EXHIBIT A a list describing all inventions, original works of authorship,
developments, improvements, and trade secrets which were made by me prior to my
employment with the Company (collectively referred to as "Prior Inventions"),
which belong to me, which relate to the Company's proposed business, products or
research and development, and which are not assigned to the Company hereunder;
or, if no such list is attached, I represent that there are no such Prior
Inventions. If in the course of my employment with the Company, I incorporate
into a Company product, process or machine a Prior Invention owned by me or in
which I have an interest, the Company is hereby granted and shall have a
nonexclusive, royalty-free, irrevocable, perpetual, worldwide license to make,
have made, modify, use and sell such Prior Invention as part of or in connection
with such product, process or machine.
(b) ASSIGNMENT OF INVENTIONS. I agree that I will promptly
make full written disclosure to the Company, will hold in trust for the sole
right and benefit of the Company, and hereby assign and shall assign to the
Company, or its designee, all my right, title, and interest in and to any and
all inventions, original works of authorship, developments, concepts,
improvements or trade secrets, whether or not patentable or registrable under
copyright or similar laws, which I may solely or jointly conceive or develop or
reduce to practice, or cause to be conceived or developed or reduced to
practice, during the period of time I am in the employ of the Company
(collectively referred to as "Inventions"). I further acknowledge that all
original works of authorship which are made by me (solely or jointly with
others) within the scope of and during the period of my employment with the
Company and which are protected by copyright are "works made for hire," as that
term is defined in the United States Copyright Act. I shall not incorporate any
invention, original work of authorship, development, concept, improvement, or
trade secret owned, in whole or in part, by any third party, into any Invention
without the Company's prior written permission.
(c) INVENTIONS ASSIGNED TO THE UNITED STATES. I agree to
assign to the United States government all my right, title, and interest in and
to any and all Inventions whenever such full title is required to be in the
United States by a contract between the Company and the United States or any of
its agencies.
(d) MAINTENANCE OF RECORDS. I agree to keep and maintain
adequate and current written records of all Inventions made by me (solely or
jointly with others) during the term of my employment with the Company. The
records will be in the form of notes, sketches, drawings, and any other format
that may be specified by the Company. The records will be available to and
remain the sole property of the Company at all times.
(e) PATENT AND COPYRIGHT REGISTRATIONS. I agree to assist the
Company, or its designee, at the Company's expense, in every proper way to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries, including the disclosure to the Company of all pertinent
information and data with respect thereto, the execution of all applications,
specifications, oaths, assignments and all other instruments which the Company
shall deem necessary in order to apply for and obtain such rights and in order
to assign and convey to the Company, its successors, assigns, and nominees the
sole and exclusive rights, title and interest in and to such Inventions, and any
copyrights, patents, mask work rights or other intellectual property rights
relating thereto. I further agree that my obligation to execute or cause to be
executed, when it is in my power to do so, any such instrument or papers shall
continue after the termination of this Agreement. If the Company is unable
because of my mental or physical incapacity or for any other reason to secure my
signature to apply for or to pursue any application for any United States or
foreign patents or copyright registrations covering Inventions or original works
of authorship assigned to the Company as above, then I hereby
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irrevocably designate and appoint the Company and its duly authorized officers
and agents as my agent and attorney in fact, to act for and in my behalf and
stead to execute and file any such applications and to do all other lawfully
permitted acts to further the prosecution and issuance of letters patent or
copyright registrations thereon with the same legal force and effect as if
executed by me.
4. CONFLICTING EMPLOYMENT. I agree that, during the term of my
employment with the Company, I will not engage in any other employment,
occupation, consulting or other business activity directly related to the
business in which the Company is now involved or becomes involved during the
term of my employment, nor will I engage in any other activities that
conflict with my obligations to the Company.
5. RETURNING COMPANY DOCUMENTS. I agree that, at the time of
leaving the employ of the Company, I will deliver to the Company (and will
not keep in my possession, recreate or deliver to anyone else) any and all
devices, records, data, notes, reports, proposals, lists, correspondence,
specifications, drawings blueprints, sketches, materials, equipment, source
code or software, other documents or property, or reproductions of any
aforementioned items developed by me pursuant to my employment with the
Company or otherwise belonging to the Company, its successors or assigns. In
the event of the termination of my employment, I agree to sign and deliver
the "Termination Certification" attached hereto as EXHIBIT B.
6. NOTIFICATION OF NEW EMPLOYER. In the event that I leave the
employ of the Company, I hereby grant consent to notification by the Company
to my new employer about my rights and obligations under this Agreement.
7. SOLICITATION OF EMPLOYEES. I agree that for a period of
twelve (12) months immediately following the termination of my relationship
with the Company for any reason, whether with or without cause, I shall not
either directly or indirectly solicit, induce, recruit or encourage any of
the Company's employees to leave their employment, or take away such
employees, or attempt to solicit, induce, recruit, encourage or take away
employees of the Company, either for myself or for any other person or entity.
8. CONFLICT OF INTEREST GUIDELINES. I agree to diligently
adhere to the Conflict of Interest Guidelines attached hereto as EXHIBIT C.
9. REPRESENTATIONS. I agree to execute any proper oath or
verify any proper document required to carry out the terms of this Agreement.
I represent that my performance of all the terms of this Agreement will not
breach any agreement to keep in confidence proprietary information acquired
by me in confidence or in trust prior to my employment by the Company. I have
not entered into, and I agree I will not enter into, any oral or written
agreement in conflict herewith.
10. ARBITRATION.
(a) Except as provided in Section 10(c) below, the Company
and I agree that any dispute or controversy arising out of, relating to, or
in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be settled
by binding arbitration unless otherwise required by law, to be held in Cook
County, Illinois in accordance with the National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association
(the "Rules"). The arbitrator may grant injunctions or other relief in such
dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
-3-
<PAGE>
(b) The arbitrator shall apply Illinois law to the merits
of any dispute or claim, without reference to rules of conflicts of law. I
hereby consent to the personal jurisdiction of the state and federal courts
located in Illinois for any action or proceeding arising from or relating to
this Agreement or relating to any arbitration in which the parties are
participants.
(c) The parties may apply to any court of competent
jurisdiction for a temporary restraining order, preliminary injunction, or
other interim or conservatory relief, as necessary, without breach of this
arbitration agreement and without abridgement of the powers of the arbitrator.
(d) I understand that nothing in Section 10 modifies my
at-will status. Either the Company or I can terminate the employment
relationship at any time, with or without cause.
(e) I HAVE READ AND UNDERSTAND THIS SECTION 10, WHICH
DISCUSSES ARBITRATION. I UNDERSTAND THAT BY SIGNING THIS AGREEMENT, I AGREE,
EXCEPT AS PROVIDED IN SECTION 10(c), TO SUBMIT ANY CLAIMS ARISING OUT OF,
RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION,
VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING
ARBITRATION, UNLESS OTHERWISE REQUIRED BY LAW, AND THAT THIS ARBITRATION
CLAUSE CONSTITUTES A WAIVER OF MY RIGHT TO A JURY TRIAL AND RELATES TO THE
RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF MY RELATIONSHIP WITH
THE COMPANY.
11. GENERAL PROVISIONS.
(a) GOVERNING LAW. This Agreement will be governed by the
internal substantive laws, but not the choice of law rules, of the State of
Delaware.
(b) ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding between the Company and me relating to the subject
matter herein and merges all prior discussions between us. No modification of or
amendment to this Agreement, nor any waiver of any rights under this agreement,
will be effective unless in writing signed by the party to be charged.
(c) SEVERABILITY. If one or more of the provisions in this
Agreement are deemed void by law, then the remaining provisions will continue in
full force and effect.
(d) SUCCESSORS AND ASSIGNS. This Agreement will be binding
upon my heirs, executors, administrators and other legal representatives and
will be for the benefit of the Company, its successors, and its assigns.
PARTICIPATE.COM, INC.
By:
------------------------------------
Title:
---------------------------------
EMPLOYEE:
---------------------------------------
Name
-4-
<PAGE>
EXHIBIT A
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
<TABLE>
<CAPTION>
<S><C>
IDENTIFYING NUMBER
TITLE DATE OR BRIEF DESCRIPTION
- ------------------------------------------------------- -------------------------- ----------------------------------------
____ No inventions or improvements
____ Additional Sheets Attached
</TABLE>
Signature of Employee:
----------------------------------
Print Name of Employee:
---------------------------------
Date:
------------------------
<PAGE>
EXHIBIT B
TERMINATION CERTIFICATION
This is to certify that I do not have in my possession, nor have I
failed to return, any devices, records, data, notes, reports, proposals, lists,
correspondence, specifications, drawings, blueprints, sketches, materials,
equipment, other documents or property, or reproductions of any aforementioned
items belonging to the Company.
I further certify that I have complied with all the terms of the
Company's Confidential Information and Invention Assignment Agreement signed by
me, including the reporting of any inventions and original works of authorship
(as defined therein), conceived or made by me (solely or jointly with others)
covered by that agreement.
I further agree that, in compliance with the Confidential Information
and Invention Assignment Agreement, I will preserve as confidential all trade
secrets, confidential knowledge, data or other proprietary information relating
to products, processes, know-how, designs, formulas, developmental or
experimental work, computer programs, data bases, other original works of
authorship, customer lists, business plans, financial information or other
subject matter pertaining to any business of the Company or any of its
employees, clients, consultants or licensees.
I further agree that for twelve (12) months from this date, I will not
hire any employees of the Company and I will not solicit, induce, recruit or
encourage any of the Company's employees to leave their employment.
Date: __________________________
---------------------------------------
(Employee's Signature)
---------------------------------------
(Type/Print Employee's Name)
<PAGE>
EXHIBIT C
CONFLICT OF INTEREST GUIDELINES
It is the policy of the Company to conduct its affairs in strict
compliance with the letter and spirit of the law and to adhere to the highest
principles of business ethics. Accordingly, all officers, employees and
independent contractors must avoid activities which are in conflict, or give the
appearance of being in conflict, with these principles and with the interests of
the Company. The following are potentially compromising situations which must be
avoided. Any exceptions must be reported to the President and written approval
for continuation must be obtained.
1. Revealing confidential information to outsiders or misusing
confidential information. Unauthorized divulging of information is a
violation of this policy whether or not for personal gain and whether or not
harm to the Company is intended. (The Employment, Confidential Information
and Invention Assignment Agreement elaborates on this principle and is a
binding agreement.)
2. Accepting or offering substantial gifts, excessive
entertainment, favors or payments which may be deemed to constitute undue
influence or otherwise be improper or embarrassing to the Company.
3. Participating in civic or professional organizations that might
involve divulging confidential information of the Company.
4. Initiating or approving personnel actions affecting reward or
punishment of employees or applicants where there is a family relationship or
is or appears to be a personal or social involvement.
5. Initiating or approving any form of personal or social
harassment of employees.
6. Investing or holding outside directorship in suppliers,
customers, or competing companies, including financial speculations, where
such investment or directorship might influence in any manner a decision or
course of action of the Company.
7. Borrowing from or lending to employees, customers or suppliers.
8. Acquiring real estate of interest to the Company.
9. Improperly using or disclosing to the Company any proprietary
information or trade secrets of any former or concurrent employer or other
person or entity with whom obligations of confidentiality exist.
10. Unlawfully discussing prices, costs, customers, sales or markets
with competing companies or their employees.
<PAGE>
11. Making any unlawful agreement with distributors with respect to
prices.
12. Improperly using or authorizing the use of any inventions which are
the subject of patent claims of any other person or entity.
13. Engaging in any conduct which is not in the best interest of the
Company.
Each officer, employee and independent contractor must take every
necessary action to ensure compliance with these guidelines and to bring problem
areas to the attention of higher management for review. Violations of this
conflict of interest policy may result in discharge without warning.
<PAGE>
EXHIBIT B
NOTICE
Pursuant to the Illinois Employee Patent Act, Section 4.4 of the
Employment Agreement dated of even date herewith between Participate.com, Inc.
(the "COMPANY") and David Greer ("EMPLOYEE") does not apply to an invention for
which no equipment, supplies, facility or trade secret information of the
Company was used and which was developed entirely on the Employee's own time,
unless (a) the invention relates (i) to the business of the Company, or (ii) to
the Company's actual or demonstrably anticipated research or development, or (b)
the invention results from any work performed by the Employee for the Company.
DATED: As of _________, 1999 RECEIPT OF THE FOREGOING NOTICE
ACKNOWLEDGED:
-------------------------------
David A. Greer
<PAGE>
Exhibit C
PARTICIPATE.COM, INC. AND DAVID A. GREER
AGREEMENT AND UNDERSTANDING
This Agreement and Understanding (this "AU") is made and entered into
as of September 17, 1999 (the "Effective Date"), by and between Participate.com,
Inc., a Delaware corporation (the "Company"), and David A. Greer, an individual
("Greer"). For purposes of this AU, unless otherwise specified, the term
"Company" shall include Participate.com, L.L.C. and Extranet Solutions, L.L.C.,
as predecessors in interest to Participate.com, Inc.
RECITALS
WHEREAS, the Company and Greer are parties to an employment agreement
and other related agreements made as of January 1, 1999, including that certain
letter agreement dated February 1, 1999 (the "Prior Agreements");
WHEREAS, pursuant to the Prior Agreements, Greer acquired an equity
interest in the Company, subject to the terms and conditions of the Prior
Agreements (the "Equity Interest");
WHEREAS, the Company is currently in the process of changing the legal
form of its business from that of a Delaware limited liability company to a
Delaware corporation (the "Conversion") and issuing shares of its Series B
Preferred Stock to certain investors after the consummation of the Conversion
(the "Series B Financing"); and
WHEREAS, the Company and Greer wish to clarify and confirm their
agreement and understanding with respect to certain matters relating to the
Equity Interest and employment with the Company.
NOW, THEREFORE, the parties agree and acknowledge the following:
1. As of the Effective Date, the Company shall pay Greer as
compensation for his services a base salary at the annualized rate of one
hundred and fifty thousand dollars ($150,000). Such salary shall be paid
periodically in accordance with normal Company payroll practices and shall be
subject to the usual, required withholding.
2. At the first Board meeting following the Effective Date,
Greer shall be granted a stock option to purchase fifteen thousand (15,000)
shares of the Company's Common Stock at an exercise price equal to the then
current fair market value as determined by the Board at such meeting (the
"Option"). The Option shall vest as to 25% of the shares subject to the
Option one year after the date of grant and as to 1/36th of the remaining
shares subject to the Option monthly thereafter, so as to be fully vested and
exercisable four (4) years from the date of grant, subject to Greer's
continued service with the Company. In all other respects, the Option shall
be subject to the terms, definitions and provisions of the Company's 1999
Stock Plan.
<PAGE>
3. Concurrent with the execution of this AU, the Company and
Greer shall execute the Greer Stock Vesting Agreement (the "Stock Vesting
Agreement"), which is attached hereto as Exhibit A and incorporated by
reference herein. The Stock Vesting Agreement sets forth Greer's Equity
Interest immediately following the Conversion. In addition, the Vesting Stock
Agreement describes the vesting conditions relating to such equity interest.
The parties agree and acknowledge that the Vesting Stock Agreement accurately
reflects such equity interest and vesting therein. Greer further agrees and
acknowledges that neither the Vesting Stock Agreement nor any other agreement
to which Greer is a party provides any anti-dilution rights in connection
with Greer's equity interest in the Company.
4. PRIOR AGREEMENTS. The parties agree that promptly following
the Series B Financing, they shall amend and restate the Prior Agreements as
necessary and appropriate to reflect the foregoing and the change in the
legal form of the Company's business from that of a Delaware limited
liability company to a Delaware corporation.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the day and year first above set forth.
PARTICIPATE.COM, INC.
By:
------------------------------------------------
Alan K. Warms
Chief Executive Officer
NAME
---------------------------------------------------
David A. Greer
-2-
<PAGE>
Exhibit D
PARTICIPATE.COM, INC.
DAVID A. GREER STOCK VESTING AGREEMENT
THIS DAVID A. GREER STOCK VESTING AGREEMENT (this "AGREEMENT") is made
and entered into as of September 17, 1999 by and between Participate.com, Inc.,
a Delaware corporation (the "COMPANY"), and David A. Greer, an individual
("Greer").
In consideration of the mutual covenants and representations set forth
in this Agreement, the Company and Greer agree as follows:
1. ISSUANCE OF STOCK. Pursuant to that certain Contribution
Agreement dated September 17, 1999, the Company has agreed to issue Greer an
aggregate of 278,325 shares of the Company's Common Stock (the "GREER
STOCK"), subject to the terms of that certain Agreement and Understanding as
of the above date and with respect to which this Agreement is a part (the
"AU").
2. RESTRICTIONS. The Greer Stock shall be subject to the
following restrictions:
(a) FORFEITURE OF GREER STOCK. In the event that Greer's
employment with the Company terminates for any reason prior to October 19, 2002,
Greer shall forfeit a portion of the Greer Stock (the "Unvested Shares"). The
Unvested Shares shall vest in accordance with subsection 2(b) below, based upon
Greer's continued employment with the Company; provided, however, that in the
event Greer is terminated by the Company for "Cause" (as defined below), all of
the Greer Stock shall be treated as Unvested Shares. Any such forfeiture shall
be effected upon written notice by the Company to Greer or Greer's executor
(with a copy to the Escrow Holder). Upon delivery of such notice, the Company
shall become the legal and beneficial owner of the forfeited Greer Stock and all
rights and interests therein or relating thereto, and the Company shall have the
right to retain and transfer to its own name such forfeited Greer Stock. For
purposes of this Section 2, "Cause" shall be as defined in the employment
agreement between Greer and Extranet Solutions, L.L.C., as predecessor in
interest to the Company, made as of January 1, 1999 (the "Employment
Agreement"). Notwithstanding the foregoing, the Unvested Shares shall vest in
full and shall no longer be subject to forfeiture pursuant to this subsection
2(a) upon a sale of all or substantially all of the Company's assets or a merger
of the Company that results in a change in ownership of a majority of the voting
securities of the Company.
(b) FORFEITURE PERCENTAGE. The Greer Stock shall be subject to
forfeiture pursuant to Section 2(a) in accordance with the following schedule:
<TABLE>
<CAPTION>
Unvested Shares
On the following dates: (as a percentage of Greer Stock)
----------------------- --------------------------------
<S> <C>
October 19, 1999 75.00%
January 19, 2000 68.75%
April 19, 2000 62.50%
<PAGE>
July 19, 2000 56.25%
October 19, 2000 50.00%
January 19, 2001 43.75%
October 19, 2001 25.00%
January 19, 2002 18.75%
April 19, 2002 12.50%
July 19, 2002 6.25%
October 19, 2002 0
</TABLE>
(c) OTHER RESTRICTIONS. The Greer Stock shall be subject to
the terms and conditions of the Prior Agreements (as defined in the AU), as
modified by the AU and herein; provided, however, that the Company's "Purchase
Rights" (as defined in the Prior Agreements which are defined in the AU) shall
no longer apply to vested shares of the Greer Stock.
3. GREER REPRESENTATIONS. Greer represents to the Company the
following:
(a) Greer is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities. Greer is
acquiring these securities for investment for Greer's own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Greer understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of
Greer's investment intent as expressed herein. In this connection, Greer
understands that, in view of the Securities and Exchange Commission, the
statutory basis for such exemption may not be present if Greer's representations
meant that Greer's present intention was to hold these securities for a minimum
capital gains period under the tax statutes, for a deferred sale, for a market
rise, for a sale if the market does not rise, or for a year or any other fixed
period in the future.
(c) Greer further acknowledges and understands that the
securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Greer further acknowledges and understands that the Company is under no
obligation to register the securities. Greer understands that the certificate
evidencing the securities will be imprinted with a legend which prohibits the
transfer of the securities unless they are registered or such registration is
not required in the opinion of counsel satisfactory to the Company.
-2-
<PAGE>
4. STOCK CERTIFICATE LEGENDS. The stock certificates
evidencing the Greer Stock issued hereunder shall be endorsed with the
following legends:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(c) Any legend required by any applicable state securities
laws.
5. MARKET STAND-OFF AGREEMENT. Greer hereby agrees, if so
requested by the managing underwriters in such offering, that, without the
prior written consent of such managing underwriters, Greer will not offer,
sell, contract to sell, grant any option to purchase, make any short sale or
otherwise dispose of or make a distribution of any capital stock of the
Company held by or on behalf of Greer or beneficially owned by Greer in
accordance with the rules and regulations of the Securities and Exchange
Commission for a period of up to 180 days after the date of the final
prospectus relating to the Company's initial public offering.
6. ESCROW OF SHARES.
(a) To ensure the availability for delivery of the Greer Stock
upon forfeiture or repurchase thereof pursuant to Section 2, Greer shall, upon
execution of this Agreement, deliver and deposit with an escrow holder
designated by the Company (the "Escrow Holder") the share certificate
representing the Greer Stock, together with the Assignment Separate from
Certificate (the "Stock Assignment") duly endorsed in blank, attached hereto as
EXHIBIT A-1. The Greer Stock and Stock Assignment shall be held by the Escrow
Holder, pursuant to the Joint Escrow Instructions of the Company and Greer
attached as EXHIBIT A-2 hereto.
(b) The Escrow Holder shall not be liable for any act it may
do or omit to do with respect to holding the Unreleased Shares in escrow and
while acting in good faith and in the exercise of its judgment.
(c) Subject to the terms hereof, Greer shall have all the
rights of a shareholder with respect to the Greer Stock while they are held in
escrow, including without limitation, the right to vote the Greer Stock and
receive any cash dividends declared thereon. If, from time to time during the
term of this Agreement, there is (i) any stock dividend, stock split or other
change in the Greer Stock, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which Greer is entitled by reason of
Greer's ownership of the Greer Stock shall be immediately subject to this
escrow,
-3-
<PAGE>
deposited with the Escrow Holder and included thereafter as "Greer Stock" for
purposes of this Agreement.
7. TAX CONSEQUENCES. Greer has reviewed with Greer's own tax
advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. Greer is
relying solely on such advisors and not on any statements or representations
of the Company or any of its agents. Greer understands that Greer (and not
the Company) shall be responsible for Greer's own tax liability that may
arise as a result of this investment or the transactions contemplated by this
Agreement. Greer understands that in connection with the shares Greer
receives pursuant to the Contribution Agreement, Greer may recognize ordinary
income under Section 83 of the Internal Revenue Code of 1986, as amended (the
"Code"), on the difference between the fair market value of the Greer Stock
issued to Greer as of the date any restrictions on the Greer Stock lapses,
and the value of Greer's "Equity Interest" (within the meaning of the
Contribution Agreement) as of the date of this Agreement. Greer understands
that if and to the extent Section 83 applies to such Greer Stock, Greer may
elect to be taxed at the time the Greer Stock is issued rather than when and
as the forfeiture provisions expire by filing an election under Section 83(b)
of the Code with the I.R.S. within 30 days from the date of issuance.
GREER ACKNOWLEDGES THAT IT IS GREER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF GREER
REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS BEHALF.
8. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the laws of the State
of Delaware as they apply to contracts entered into and wholly to be performed
in such state. This Agreement represents the entire agreement between the
parties with respect to the issuance of the Greer Stock and may only be modified
or amended in writing signed by the parties.
(b) With respect to any disputes arising out of or related to
this Agreement, the parties consent to the exclusive personal jurisdiction of,
and venue in, the state courts of Delaware.
(c) Any notice, demand or request required or permitted to be
given by either the Company or Greer pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing.
(d) Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights granted
both parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
-4-
<PAGE>
(e) Greer agrees upon request to execute any further documents
or instruments necessary or desirable to carry out the purposes or intent of
this Agreement.
(f) Greer has reviewed this Agreement in its entirety, has had
an opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understands all provisions of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first set forth above.
PARTICIPATE.COM, INC.
a Delaware corporation
-----------------------------------------
Alan K. Warms, President
GREER
-----------------------------------------
David A. Greer
-5-
<PAGE>
EXHIBIT A-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell,
assign and transfer unto _______________________________ (__________) shares
of Common Stock of Participate.com, Inc. standing in my name of the books of
said corporation represented by Certificate No. _____ herewith and do hereby
irrevocably constitute and appoint Wilson, Sonsini, Goodrich & Rosati,
attorney, to transfer the said stock on the books of the within named
corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Stock
Purchase Agreement between Participate.com, Inc. and the undersigned dated
______________, _____.
Dated: ____________________, _______
-------------------------------------
(to be signed exactly as name is to
appear on stock certificate)
<PAGE>
EXHIBIT A-2
JOINT ESCROW INSTRUCTIONS
_____________, 199___
John V. Roos
Escrow Agent
c/o Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Dear Escrow Agent:
As Escrow Agent for both Participate.com, Inc., a Delaware corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of the Stock Purchase Agreement (the
"Agreement") between the Company and the undersigned, in accordance with the
following instructions:
1. In the event of a forfeiture or repurchase of Purchaser's
stock pursuant to the terms of the Agreement, the Company shall give to
Purchaser and you a written notice thereof. Purchaser and the Company hereby
irrevocably authorize and direct you to close the transaction contemplated by
such notice in accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number
of shares being transferred, and (c) to deliver same, together with the
certificate evidencing the shares of stock to be transferred, to the Company
or its assignee.
3. Purchaser irrevocably authorizes the Company to deposit
with you any certificates evidencing shares of stock to be held by you
hereunder and any additions and substitutions to said shares as defined in
the Agreement. Purchaser does hereby irrevocably constitute and appoint you
as Purchaser's attorney-in-fact and agent for the term of this escrow to
execute with respect to such securities all documents necessary or
appropriate to make such securities negotiable and to complete any
transaction herein contemplated, including but not limited to the filing with
any applicable state blue sky authority of any required applications for
consent to, or notice of transfer of, the securities. Subject to the
provisions of this paragraph 3, Purchaser shall exercise all rights and
privileges of a shareholder of the Company while the stock is held by you.
4. If at the time of termination of this escrow you should
have in your possession any documents, securities or other property belonging
to Purchaser, you shall deliver all of the same to Purchaser and shall be
discharged of all further obligations hereunder.
<PAGE>
5. Your duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties hereto.
6. You shall be obligated only for the performance of such
duties as are specifically set forth herein and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by you to be genuine and to have been signed or presented by the
proper party or parties. You shall not be personally liable for any act you
may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for
Purchaser while acting in good faith, and any act done or omitted by you
pursuant to the advice of your own attorneys shall be conclusive evidence of
such good faith.
7. You are hereby expressly authorized to disregard any and
all warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case you obey or comply with any such order, judgment or
decree, you shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance, notwithstanding any
such order, judgment or decree being subsequently reversed, modified,
annulled, set aside, vacated or found to have been entered without
jurisdiction.
8. You shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
9. You shall not be liable for the outlawing of any rights
under the Statute of Limitations with respect to these Joint Escrow
Instructions or any documents deposited with you.
10. You shall be entitled to employ such legal counsel and
other experts as you may deem necessary properly to advise you in connection
with your obligations hereunder, may rely upon the advice of such counsel,
and may pay such counsel reasonable compensation therefor.
11. Your responsibilities as Escrow Agent hereunder shall
terminate if you shall cease to be an officer or agent of the Company or if
you shall resign by written notice to each party. In the event of any such
termination, the Company shall appoint a successor Escrow Agent.
12. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such
instruments.
13. It is understood and agreed that should any dispute arise
with respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain
in your possession without liability to anyone all or any part of said
securities until such disputes shall have been settled either by mutual
written agreement of the parties concerned or by a final order, decree or
judgment of a court of competent jurisdiction after the time for appeal has
expired and no appeal has been perfected, but you shall be under no duty
whatsoever to institute or defend any such proceedings.
-2-
<PAGE>
14. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or
upon deposit in the United States Post Office, by registered or certified
mail with postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses or at such other addresses as a
party may designate by ten days' advance written notice to each of the other
parties hereto.
COMPANY: Participate.com, Inc.
945 West George Street, Third Floor
Chicago, IL 60657-5007
PURCHASER: -----------------------------------
-----------------------------------
-----------------------------------
ESCROW AGENT: Escrow Agent
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
15. By signing these Joint Escrow Instructions, you become a
party hereto only for the purpose of said Joint Escrow Instructions; you do
not become a party to the Agreement.
16. This instrument shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and permitted
assigns.
-3-
<PAGE>
17. These Joint Escrow Instructions shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
Very truly yours,
PARTICIPATE.COM, INC.
By:
--------------------------------------------------
Title:
-----------------------------------------------
Purchaser
-----------------------------------------------------
(Signature)
David A. Greer
-----------------------------------------------------
(Print or type name)
ESCROW AGENT:
---------------------------------------
John V. Roos
-4-
<PAGE>
EXHIBIT E
The undersigned, David Greer, hereby agrees to vote all shares of capital stock
of Participate.com beneficially owned by him as of September 17, 1999 (as the
same may be changed by stock split, recapitalization and the like)(the "Shares")
as Alan Warms shall direct. Mr. Greer further agrees not to transfer his Shares
without the transferee agreeing in writing to the same voting agreement. Mr.
Greer agrees to take any actions and execute any documents Alan Warms deems
necessary or advisable to effect the foregoing, including without limitation the
execution of any proxy that may be required under law.
Dated: September 17, 1999 /s/ David Greer
--------------------------
David Greer
<PAGE>
EXHIBIT 10.6
PARTICIPATE.COM, INC.
FOUNDER'S STOCK VESTING AGREEMENT
THIS FOUNDER'S STOCK VESTING AGREEMENT (this "AGREEMENT") is made and
entered into as of September 17, 1999 by and between Participate.com, Inc., a
Delaware corporation (the "COMPANY"), and Alan K. Warms, an individual (the
"FOUNDER").
In consideration of the mutual covenants and representations set forth
in this Agreement, the Company and the Founder agree as follows:
1. ISSUANCE OF STOCK. Pursuant to that certain Contribution Agreement
dated September 13, 1999, the Company has agreed to issue the Founder an
aggregate of 2,901,025 shares of the Company's Common Stock ("FOUNDER'S STOCK"),
subject to the terms of this Agreement.
2. RESTRICTIONS. The Founder's Stock shall be subject to the following
restrictions:
(a) FORFEITURE OF FOUNDER'S STOCK. In the event that the
Founder (i) voluntarily terminates his employment and services to the Company
(other than by reason of his death or disability) or (ii) is terminated by the
Company for "cause" (defined below), before all of the Founder's Stock is
vested, the Founder shall forfeit a portion of his Founder's Stock based on the
Forfeiture Ratio (as defined in subsection (b)). Such forfeiture shall be
effected upon written notice by the Company to the Founder or the Founder's
executor (with a copy to the Escrow Holder). Upon delivery of such notice, the
Company shall become the legal and beneficial owner of the forfeited Founder's
Stock and all rights and interests therein or relating thereto, and the Company
shall have the right to retain and transfer to its own name the Founder's Stock
that is forfeited to the Company. For the purposes of this Section 2, "Cause" is
defined as (i) conviction of a crime that has a material effect on the business
of the Company or (ii) commitment of an act of gross or willful negligence (in
which case the Founder will have a period of thirty (30) days to cure such
negligence, and the three quarters of the Board of Directors of the Company must
vote in concurrence that such act has occurred and has not been timely cured).
In the event Founder's employment by and/or services with the Company terminates
for any other reason, the Founder's Stock shall be vested in full and shall no
longer be subject to forfeiture pursuant to this Agreement.
(b) FORFEITURE RATIO. For purposes of Section 2, the
Forfeiture Ratio is a fraction, the numerator of which is 36-X, where X equals
the number of months that have elapsed since the date of this Agreement, and the
denominator of which is 48.
(c) TRANSFER OF THE FOUNDER'S STOCK. Neither the unvested
portion of the Founder's Stock nor any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any manner until the
Founder's Stock is fully vested in accordance with the provisions of this
Agreement.
<PAGE>
3. FOUNDER REPRESENTATIONS. The Founder represents to the Company the
following:
(a) The Founder is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the securities. The
Founder is acquiring these securities for investment for the Founder's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) The Founder understands that the securities have not been
registered under the Securities Act by reason of a specific exemption therefrom,
which exemption depends upon, among other things, the bona fide nature of the
Founder's investment intent as expressed herein. In this connection, the Founder
understands that, in view of the Securities and Exchange Commission, the
statutory basis for such exemption may not be present if the Founder's
representations meant that the Founder's present intention was to hold these
securities for a minimum capital gains period under the tax statutes, for a
deferred sale, for a market rise, for a sale if the market does not rise, or for
a year or any other fixed period in the future.
(c) The Founder further acknowledges and understands that the
securities must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
The Founder further acknowledges and understands that the Company is under no
obligation to register the securities. The Founder understands that the
certificate evidencing the securities will be imprinted with a legend which
prohibits the transfer of the securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company.
4. STOCK CERTIFICATE LEGENDS. The stock certificates evidencing the
Founder's Stock issued hereunder shall be endorsed with the following legends:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
(c) Any legend required by any applicable state securities
laws.
-2-
<PAGE>
5. MARKET STAND-OFF AGREEMENT. The Founder hereby agrees, if so
requested by the managing underwriters in such offering, that, without the prior
written consent of such managing underwriters, the Founder will not offer, sell,
contract to sell, grant any option to purchase, make any short sale or otherwise
dispose of or make a distribution of any capital stock of the Company held by or
on behalf of the Founder or beneficially owned by the Founder in accordance with
the rules and regulations of the Securities and Exchange Commission for a period
of up to 180 days after the date of the final prospectus relating to the
Company's initial public offering.
6. ESCROW OF SHARES.
(a) To ensure the availability for delivery of the Founder's
Stock upon forfeiture to the Company, the Founder shall, upon execution of this
Agreement, deliver and deposit with an escrow holder designated by the Company
(the "Escrow Holder") the share certificates representing the unvested portion
of the Founder's stock, together with the Assignment Separate from Certificate
(the "Stock Assignment") duly endorsed in blank, attached hereto as EXHIBIT A.
The unvested portion of the Founder's Stock and Stock Assignment shall be held
by the Escrow Holder, pursuant to the Joint Escrow Instructions of the Company
and Purchaser attached as EXHIBIT B hereto, until such time as such shares are
no longer subject to forfeiture pursuant to subsection 2(a) above.
(b) The Escrow Holder shall not be liable for any act it may
do or omit to do with respect to holding the Unreleased Shares in escrow and
while acting in good faith and in the exercise of its judgment.
(c) When and as the Founder's Stock is no longer subject to
forfeiture, upon Founder's request the Escrow Holder shall promptly cause a new
certificate to be issued for such released Shares and shall deliver such
certificate to the Company or the Founder, as the case may be.
(i) Subject to the terms hereof, the Founder
shall have all the rights of a shareholder with respect to such Shares while
they are held in escrow, including without limitation, the right to vote the
Shares and receive any cash dividends declared thereon. If, from time to time
during the term of this Agreement, there is (i) any stock dividend, stock split
or other change in the Shares, or (ii) any merger or sale of all or
substantially all of the assets or other acquisition of the Company, any and all
new, substituted or additional securities to which the Founder is entitled by
reason of the Founder's ownership of the Shares shall be immediately subject to
this escrow, deposited with the Escrow Holder and included thereafter as
"Shares" for purposes of this Agreement.
7. TAX CONSEQUENCES. The Founder has reviewed with the Founder's own
tax advisors the federal, state, local and foreign tax consequences of this
investment and the transactions contemplated by this Agreement. The Founder is
relying solely on such advisors and not on any statements or representations of
the Company or any of its agents. The Founder understands that the Founder (and
not the Company) shall be responsible for the Founder's own tax liability that
may arise as a result of this investment or the transactions contemplated by
this Agreement. The Founder
-3-
<PAGE>
understands that in connection with the shares the Founder receives pursuant
to the Contribution Agreement, the Founder may recognize ordinary income
under Section 83 of the Internal Revenue Code of 1986, as amended (the
"Code"), on the difference between the fair market value of the Founder's
Stock issued to the Founder as of the date any restrictions on the Founder's
Stock lapses, and the value of the Founder's "Equity Interest" (within the
meaning of the Contribution Agreement) as of the date of this Agreement. The
Founder understands that if and to the extent Section 83 applies to such
Founder's stock, the Founder may elect to be taxed at the time the Founder's
Stock is issued rather than when and as the forfeiture provisions expire by
filing an election under Section 83(b) of the Code with the I.R.S. within 30
days from the date of issuance.
THE FOUNDER ACKNOWLEDGES THAT IT IS THE FOUNDER'S SOLE
RESPONSIBILITY AND NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION
83(b), EVEN IF THE FOUNDER REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE
THIS FILING ON HIS BEHALF.
8. GENERAL PROVISIONS.
(a) This Agreement shall be governed by the laws of the State
of Delaware as they apply to contracts entered into and wholly to be performed
in such state. This Agreement represents the entire agreement between the
parties with respect to the issuance of the Founder's Stock and may only be
modified or amended in writing signed by the parties.
(b) With respect to any disputes arising out of or related to
this Agreement, the parties consent to the exclusive personal jurisdiction of,
and venue in, the state courts of Delaware.
(c) Any notice, demand or request required or permitted to be
given by either the Company or the Founder pursuant to the terms of this
Agreement shall be in writing and shall be deemed given when delivered
personally or deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses of the parties set forth at the end of
this Agreement or such other address as a party may request by notifying the
other in writing.
(d) Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, nor prevent that party thereafter from
enforcing each and every other provision of this Agreement. The rights granted
both parties herein are cumulative and shall not constitute a waiver of either
party's right to assert all other legal remedies available to it under the
circumstances.
(e) The Founder agrees upon request to execute any further
documents or instruments necessary or desirable to carry out the purposes or
intent of this Agreement.
(f) The Founder has reviewed this Agreement in its entirety,
has had an opportunity to obtain the advice of counsel prior to executing this
Agreement and fully understands all provisions of this Agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first set forth above.
PARTICIPATE.COM, INC.
a Delaware corporation
------------------------
Alan K. Warms, President
FOUNDER
------------------------
Alan K. Warms
-5-
<PAGE>
EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell,
assign and transfer unto _________________________________________________
(__________) shares of Common Stock of Participate.com, Inc. standing in my
name of the books of said corporation represented by Certificate No. _____
herewith and do hereby irrevocably constitute and appoint Wilson, Sonsini,
Goodrich & Rosati, attorney, to transfer the said stock on the books of the
within named corporation with full power of substitution in the premises.
This Stock Assignment may be used only in accordance with the Stock
Purchase Agreement between Participate.com, Inc. and the undersigned dated
______________, _____.
Dated: ____________________, _______
___________________________________
(to be signed exactly as name is to
appear on stock certificate)
<PAGE>
EXHIBIT B
JOINT ESCROW INSTRUCTIONS
_____________, 199___
John V. Roos
Escrow Agent
C/O Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 93404
Dear Escrow Agent:
As Escrow Agent for both Participate.com, Inc., a Delaware corporation
(the "Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of the Stock Purchase Agreement (the
"Agreement") between the Company and the undersigned, in accordance with the
following instructions:
1. In the event of a forfeiture of a portion of Purchaser's stock
pursuant to the terms of the Agreement, the Company shall give to Purchaser and
you a written notice thereof. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to forfeiture
<PAGE>
pursuant to the Agreement. Within 90 days after cessation of Purchaser's
employment by or services with the Company, you will deliver to Purchaser a
certificate or certificates representing the aggregate number of shares held
or issued pursuant to the Agreement and not forfeited to the Company or its
assignees pursuant to the Agreement.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as
are specifically set forth herein and may rely and shall be protected in relying
or refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all
warnings given by any of the parties hereto or by any other person or
corporation, excepting only orders or process of courts of law and are hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case you obey or comply with any such order, judgment or decree, you
shall not be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other
experts as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail with
postage and fees prepaid, addressed to each of the other parties thereunto
entitled at the following addresses or at such other addresses as a party may
designate by ten days' advance written notice to each of the other parties
hereto.
COMPANY: Participate.com, Inc.
945 West George Street, Third Floor
Chicago, IL 60657-5007
PURCHASER: ---------------------------
---------------------------
---------------------------
ESCROW AGENT: Escrow Agent
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
-3-
<PAGE>
Very truly yours,
PARTICIPATE.COM, INC.
By:
---------------------------
Title:
------------------------
PURCHASER
------------------------------
(Signature)
------------------------------
(Print or type name)
ESCROW AGENT:
---------------------------------------
John V. Roos
-4-
<PAGE>
EXHIBIT 10.7
PARTICIPATE.COM, INC. AND ALAN K. WARMS
AGREEMENT AND UNDERSTANDING
This Agreement and Understanding (this "AU") is made and entered
into as of September 16, 1999 (the "Effective Date"), by and between
Participate.com, Inc., a Delaware corporation (the "Company"), and Alan K.
Warms, an individual ("Founder"). For purposes of this AU, unless otherwise
specified, the term "Company" shall include Participate.com, L.L.C. and
Extranet Solutions, L.L.C., as predecessors in interest to Participate.com,
Inc.
RECITALS
WHEREAS, the Company is currently in the process of changing the
legal form of its business from that of a Delaware limited liability company
to a Delaware corporation (the "Conversion") and issuing shares of its Series
B Preferred Stock to certain investors after the consummation of the
Conversion (the "Series B Financing"); and
WHEREAS, the Company and Founder wish to clarify and confirm their
agreement and understanding with respect to certain matters relating to
Founder's employment with the Company.
NOW, THEREFORE, the parties agree and acknowledge the following:
1. As of the Effective Date, the Company shall pay Founder as
compensation for his services a base salary at the annualized rate of one
hundred and fifty thousand dollars ($150,000). Such salary shall be paid
periodically in accordance with normal Company payroll practices and shall be
subject to the usual, required withholding. Founder's compensation shall be
set by the Company's Board of Directors.
2. Founder agrees that, in the event Founder's service to the
Company terminates for any reason, Founder will not
(a) directly or indirectly engage in (whether as an employee,
consultant, agent, proprietor, principal, partner, stockholder, corporate
officer, director, or otherwise), nor have any ownership interest in or
participation in the financing, operation, management or control of, any
person, firm, corporation or business that competes with the Company or is a
customer of the Company during the twelve (12) month period following such
termination and
(b) either directly or indirectly solicit, induce, recruit or
encourage any of the Company's employees to leave their employment, or take
away such employees, or attempt to solicit, induce, recruit, encourage or
take away employees of the Company, either for himself or for any other
person or entity during the twelve (12) month period following such
termination.
Notwithstanding the foregoing, in the event Founder's service
to the Company is terminated by the Company without "Cause" (as defined
below), then the Company agrees to pay Founder his then current base salary,
less applicable withholding, for twelve (12) months from the date of such
termination, in accordance with the Company's payroll practices.
<PAGE>
For the purposes of this Section 2, "Cause" is defined as (i)
conviction of a crime that has a material effect on the business of the
Company or (ii) commitment of an act of gross or willful negligence (in which
case Founder will have a period of thirty (30) days to cure such negligence,
and at least three quarters of the Board of Directors of the Company must
vote in concurrence that such act has occurred and has not been timely cured)
IN WITNESS WHEREOF, the parties have entered into this Agreement as
of the day and year first above set forth.
PARTICIPATE.COM, INC.
By:
--------------------------------------
[NAME]
[TITLE]
NAME
-----------------------------------------
Alan K. Warms
-2-
<PAGE>
EXHIBIT 10.8
PARTICIPATE.COM, INC. AND ERIKA KEREKES
AGREEMENT AND UNDERSTANDING
This Agreement and Understanding (this "AU") is made and entered
into as of September 17, 1999, by and between Participate.com, Inc., a
Delaware corporation (the "Company"), and Erika Kerekes, an individual
("Kerekes"). For purposes of this AU, unless otherwise specified, the term
"Company" shall include Participate.com, L.L.C. and Extranet Solutions,
L.L.C., as predecessors in interest to Participate.com, Inc.
RECITALS
WHEREAS, the Company and Kerekes are parties to an employment
agreement and other related agreements made as of March 3, 1998, including
that certain letter agreement dated February 1, 1999 (the "Prior Agreements");
WHEREAS, pursuant to the Prior Agreements, Kerekes acquired an
equity interest in the Company, subject to the terms and conditions of the
Prior Agreements (the "Equity Interest");
WHEREAS, the Company is currently in the process of changing the
legal form of its business from that of a Delaware limited liability company
to a Delaware corporation (the "Conversion") and issuing shares of its Series
B Preferred Stock to certain investors after the consummation of the
Conversion (the "Series B Financing"); and
WHEREAS, the Company and Kerekes wish to clarify and confirm their
agreement and understanding with respect to certain matters relating to the
Equity Interest and employment with the Company.
NOW, THEREFORE, the parties agree and acknowledge the following:
1. Concurrent with the execution of this AU, the Company and
Kerekes shall execute the Kerekes Stock Vesting Agreement (the "Stock Vesting
Agreement"), which is attached hereto as Exhibit A and incorporated by
reference herein. The Stock Vesting Agreement sets forth Kerekes's Equity
Interest immediately following the Conversion. In addition, the Vesting Stock
Agreement describes the vesting conditions relating to such equity interest.
The parties agree and acknowledge that the Vesting Stock Agreement accurately
reflects such equity interest and vesting therein. Kerekes further agrees and
acknowledges that neither the Vesting Stock Agreement nor any other agreement
to which Kerekes is a party provides any anti-dilution rights in connection
with Kerekes's equity interest in the Company.
2. PRIOR AGREEMENTS. The parties agree that promptly following
the Series B Financing, they shall amend and restate the Prior Agreements as
necessary and appropriate to reflect the foregoing and the change in the
legal form of the Company's business from that of a Delaware limited
liability company to a Delaware corporation.
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as
of the day and year first above set forth.
PARTICIPATE.COM, INC.
By:
--------------------------------------
Alan K. Warms
Chief Executive Officer
NAME
-----------------------------------------
Erika Kerekes
-2-
<PAGE>
EXHIBIT 10.9
PARTICIPATE.COM, INC. AND DAVID A. GREER
AGREEMENT AND UNDERSTANDING
This Agreement and Understanding (this "AU") is made and entered into
as of September 17, 1999 (the "Effective Date"), by and between Participate.com,
Inc., a Delaware corporation (the "Company"), and David A. Greer, an individual
("Greer"). For purposes of this AU, unless otherwise specified, the term
"Company" shall include Participate.com, L.L.C. and Extranet Solutions, L.L.C.,
as predecessors in interest to Participate.com, Inc.
RECITALS
WHEREAS, the Company and Greer are parties to an employment agreement
and other related agreements made as of January 1, 1999, including that certain
letter agreement dated February 1, 1999 (the "Prior Agreements");
WHEREAS, pursuant to the Prior Agreements, Greer acquired an equity
interest in the Company, subject to the terms and conditions of the Prior
Agreements (the "Equity Interest");
WHEREAS, the Company is currently in the process of changing the legal
form of its business from that of a Delaware limited liability company to a
Delaware corporation (the "Conversion") and issuing shares of its Series B
Preferred Stock to certain investors after the consummation of the Conversion
(the "Series B Financing"); and
WHEREAS, the Company and Greer wish to clarify and confirm their
agreement and understanding with respect to certain matters relating to the
Equity Interest and employment with the Company.
NOW, THEREFORE, the parties agree and acknowledge the following:
1. As of the Effective Date, the Company shall pay Greer as
compensation for his services a base salary at the annualized rate of one
hundred and fifty thousand dollars ($150,000). Such salary shall be paid
periodically in accordance with normal Company payroll practices and shall be
subject to the usual, required withholding.
2. At the first Board meeting following the Effective Date, Greer
shall be granted a stock option to purchase fifteen thousand (15,000) shares of
the Company's Common Stock at an exercise price equal to the then current fair
market value as determined by the Board at such meeting (the "Option"). The
Option shall vest as to 25% of the shares subject to the Option one year after
the date of grant and as to 1/36th of the remaining shares subject to the Option
monthly thereafter, so as to be fully vested and exercisable four (4) years from
the date of grant, subject to Greer's continued service with the Company. In all
other respects, the Option shall be subject to the terms, definitions and
provisions of the Company's 1999 Stock Plan.
3. Concurrent with the execution of this AU, the Company and Greer
shall execute the Greer Stock Vesting Agreement (the "Stock Vesting Agreement"),
which is attached hereto as
<PAGE>
Exhibit A and incorporated by reference herein. The Stock Vesting Agreement sets
forth Greer's Equity Interest immediately following the Conversion. In addition,
the Vesting Stock Agreement describes the vesting conditions relating to such
equity interest. The parties agree and acknowledge that the Vesting Stock
Agreement accurately reflects such equity interest and vesting therein. Greer
further agrees and acknowledges that neither the Vesting Stock Agreement nor any
other agreement to which Greer is a party provides any anti-dilution rights in
connection with Greer's equity interest in the Company.
4. PRIOR AGREEMENTS. The parties agree that promptly following the
Series B Financing, they shall amend and restate the Prior Agreements as
necessary and appropriate to reflect the foregoing and the change in the legal
form of the Company's business from that of a Delaware limited liability company
to a Delaware corporation.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the day and year first above set forth.
PARTICIPATE.COM, INC.
By:
------------------------------------
Alan K. Warms
Chief Executive Officer
NAME
---------------------------------------
David A. Greer
- 2 -
<PAGE>
EXHIBIT 10.10
================================================================================
PARTICIPATE.COM, INC.
945 WEST GEORGE STREET, THIRD FLOOR
CHICAGO, ILLINOIS 60657-5007
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
SEPTEMBER 17, 1999
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TABLE OF CONTENTS
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Section 1 Authorization and Sale of Preferred Stock...................................................................1
1.1 Authorization.......................................................................................1
1.2 Sale of Shares......................................................................................1
Section 2 Closing Dates; Delivery.....................................................................................1
2.1 Closing.............................................................................................1
2.2 Delivery............................................................................................2
Section 3 Representations and Warranties of the Company...............................................................2
3.1 Organization and Standing; Certificate and Bylaws...................................................2
3.2 Corporate Power.....................................................................................2
3.3 Subsidiaries........................................................................................2
3.4 Capitalization......................................................................................2
3.5 Authorization.......................................................................................3
3.6 Financial Statements................................................................................3
3.7 Material Obligations................................................................................4
3.8 Changes.............................................................................................4
3.9 Material Contracts and Commitments..................................................................5
3.10 Intellectual Property, Trademarks, etc..............................................................6
3.11 Title to Properties and Assets; Liens, etc..........................................................6
3.12 Compliance with Other Instruments, None Burdensome, etc.............................................6
3.13 Litigation, etc.....................................................................................7
3.14 Registration Rights.................................................................................7
3.15 Governmental Consent, etc...........................................................................7
3.16 Offering............................................................................................7
3.17 Brokers or Finders..................................................................................7
3.18 Employees...........................................................................................7
3.19 Proprietary Information and Inventions Agreement....................................................8
3.20 Compliance with Laws; Permits.......................................................................8
3.21 Environmental and Safety Laws.......................................................................8
3.22 Obligations to Related Parties......................................................................8
3.23 Tax Returns and Payments............................................................................9
3.24 Qualified Small Business............................................................................9
3.25 Minute Books........................................................................................9
3.26 Insurance...........................................................................................9
3.27 Consolidation of Old Participate....................................................................9
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Section 4 Representations and Warranties of the Purchasers............................................................9
4.1 Experience; Speculative Nature of Investment.......................................................10
4.2 Investment.........................................................................................10
4.3 Rule 144...........................................................................................10
4.4 No Public Market...................................................................................10
4.5 Access to Data.....................................................................................10
4.6 Authorization......................................................................................10
4.7 Brokers or Finders.................................................................................11
4.8 Tax Liability......................................................................................11
Section 5 Conditions to Purchasers' Obligations to Close..............................................................11
5.1 Representations and Warranties Correct.............................................................11
5.2 Covenants..........................................................................................11
5.3 Blue Sky...........................................................................................11
5.4 Certificate of Incorporation.......................................................................11
5.5 Rights Agreement...................................................................................11
5.6 Compliance Certificate.............................................................................11
5.7 Board of Directors.................................................................................12
5.8 Opinion of Company Counsel.........................................................................12
5.9 Vesting Agreement With Alan K. Warms...............................................................12
5.10 Management Rights Letter...........................................................................12
Section 6 Conditions to Company's Obligations to Close...............................................................12
6.1 Representations....................................................................................12
6.2 Covenants..........................................................................................12
6.3 Blue Sky...........................................................................................12
6.4 Certificate of Incorporation.......................................................................12
6.5 Rights Agreement...................................................................................12
Section 7 Miscellaneous..............................................................................................13
7.1 Governing Law......................................................................................13
7.2 Survival...........................................................................................13
7.3 Expenses...........................................................................................13
7.4 Successors and Assigns.............................................................................13
7.5 Entire Agreement; Amendment........................................................................13
7.6 Notices, etc.......................................................................................13
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7.7 Delays or Omissions................................................................................14
7.8 California Corporate Securities Law................................................................14
7.9 Counterparts.......................................................................................14
7.10 Severability.......................................................................................14
7.11 Exculpation Among Purchasers.......................................................................14
7.12 Titles and Subtitles...............................................................................15
EXHIBITS
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A Schedule of Purchasers................................................................................A-1
B Certificate of Incorporation..........................................................................B-1
C Stockholder Rights Agreement..........................................................................C-1
D Compliance Certificate................................................................................D-1
E Opinion of Company Counsel............................................................................E-1
F Founder Stock Vesting Agreement.......................................................................F-1
G Management Rights Letter..............................................................................G-1
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PARTICIPATE.COM, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (the "AGREEMENT")
is made as of September 17, 1999 by and among Participate.com, Inc., a
Delaware corporation (the "COMPANY"), and the persons and entities listed on
the Schedule of Purchasers attached hereto as EXHIBIT A (each a "PURCHASER,"
and collectively, the "PURCHASERS").
SECTION 1
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 AUTHORIZATION. The Company will, prior to the Initial Closing
(as defined below), authorize the sale and issuance of up to 4,532,174 shares
(the "Shares") of the Company's Series B Preferred Stock (the "SERIES B
PREFERRED"), and the issuance of such shares of common stock of the Company
(the "COMMON Stock") issuable upon conversion of the Shares having the
rights, privileges and preferences as set forth in the Certificate of
Incorporation (the "CERTIFICATE OF INCORPORATION") in the form attached to
this Agreement as EXHIBIT B.
1.2 SALE OF SHARES. Subject to the terms and conditions of this
Agreement, each of the Purchasers agrees to purchase, severally and not
jointly, and the Company agrees to sell and issue to each Purchaser,
severally and not jointly, the number of shares set forth in the column
designated "Number of Series B Shares" opposite such Purchaser's name on the
Schedule of Purchasers, at a cash purchase price of $2.95 per share (the
"PURCHASE PRICE").
SECTION 2
CLOSING DATES; DELIVERY
2.1 CLOSING. The purchase and sale of the Shares hereunder shall
take place at one or more closings (each of which is referred to in this
Agreement as a "CLOSING"). The initial closing (the "INITIAL CLOSING") shall
take place on September 17, 1999 and the subsequent closing(s) shall take
place on such date or dates as shall be approved by the Company's Board of
Directors (the "BOARD OF DIRECTORS") no later than ninety (90) days following
the Initial Closing (each such closing date is referred to in this Agreement
as a "CLOSING DATE"). The Company may sell up to the balance of the
authorized shares of Series B Preferred not sold at the Initial Closing to
such persons in any subsequent closing as may be approved by the Board of
Directors. All such sales shall be made on the terms and conditions set forth
in this Agreement. Any shares of Series B Preferred sold at subsequent
closings shall be deemed to be "SHARES" for all purposes under this Agreement
and any purchasers thereof shall be deemed to be "PURCHASERS" for all
purposes under this Agreement. Each Closing shall be held at the offices of
Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California,
at 2:00 p.m. local time, on each Closing Date, or at such other time and
place upon which the Company and the Purchasers agree.
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2.2 DELIVERY. At each Closing, the Company will deliver to each
Purchaser a certificate registered in such Purchaser's name representing the
number of Shares that such Purchaser is purchasing against payment of the
purchase price therefor as set forth in the column designated "Purchase
Price" opposite such Purchaser's name on the Schedule of Purchasers, by check
payable to the Company or wire transfer per the Company's instructions.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions dated as of the
date of this Agreement and delivered to the Purchasers (the "SCHEDULE OF
EXCEPTIONS"), the Company represents and warrants to each Purchaser as
follows:
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The
Company is a corporation duly organized and existing under, and by virtue of,
the laws of the State of Delaware and is in good standing under such laws.
The Company has requisite corporate power and authority to own and operate
its properties and assets, and to carry on its business as presently
conducted. The Company is presently qualified to do business as a foreign
corporation in each jurisdiction where the failure to be so qualified would
have a material adverse effect on the Company's business as now conducted.
3.2 CORPORATE POWER. The Company will have at each Closing Date
all requisite legal and corporate power and authority to execute and deliver
this Agreement and that certain Stockholder Rights Agreement entered into
between the Company and the Purchaser, and attached as EXHIBIT C (the "RIGHTS
AGREEMENT"), to sell and issue the Shares hereunder, to issue the shares of
Common Stock issuable upon conversion of the Shares, and to carry out and
perform its obligations under the terms of this Agreement and the Rights
Agreement (together the "AGREEMENTS") and the Certificate of Incorporation.
3.3 SUBSIDIARIES. The Company has no subsidiaries and does not
otherwise own or control, directly or indirectly, any equity interest in any
corporation, association or business entity. The Company is not a participant
in any joint venture, partnership or similar arrangement.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists or will, upon the filing of the Certificate of Incorporation,
consist of 24,000,000 shares of Common Stock, of which 4,149,450 shares are
issued and outstanding as of the date of this Agreement, 624,000 shares of
Series A Preferred Stock (the "SERIES A PREFERRED"), all of which are issued
and outstanding as of the date of this Agreement and 4,532,174 shares of
Series B Preferred, none of which are issued and outstanding prior to the
Initial Closing. The outstanding shares have been duly authorized and validly
issued in compliance with applicable laws, and are fully paid and
nonassessable. The Company has reserved (a) 4,532,174 shares of Series B
Preferred for issuance hereunder, (b) 4,532,174 shares of Common Stock for
issuance upon conversion of the Series B Preferred, and (c) 935,550 shares of
its Common Stock for issuance to employees, consultants or directors pursuant
to its 1999 Stock Option Plan, of which options to purchase 65,000 shares of
Common Stock are
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currently issued. The Common Stock, the Series A Preferred and the Series B
Preferred shall have the rights, preferences, privileges and restrictions set
forth in the Certificate of Incorporation. Except as set forth in the
Schedule of Exceptions, there are no options, warrants or other rights to
purchase any of the Company's authorized and unissued capital stock. Except
as set forth in the Schedule of Exceptions, no stock plan, stock purchase,
stock option or other agreement or understanding between the Company and any
holder of any equity securities or rights to purchase equity securities
provides for acceleration or other changes in the vesting provisions or other
terms of such agreement or understanding as the result of any merger,
consolidated sale of stock or assets, change in control or any other
transaction(s) by the Company.
3.5 AUTHORIZATION. All corporate action on the part of the
Company and its directors necessary for the authorization, execution,
delivery and performance of the Agreements by the Company, the authorization,
sale, issuance and delivery of the Shares, the Common Stock issuable upon
conversion of the Shares, and the performance of all of the Company's
obligations under the Agreements has been taken or will be taken prior to the
Closing. The Agreements, when executed and delivered by the Company, shall
constitute valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable
remedies, except that the indemnification provisions of Section 1.10 of the
Rights Agreement may be further limited by principles of public policy. The
Shares, when issued in compliance with the provisions of this Agreement, will
be validly issued, will be fully paid and nonassessable, and will have the
rights, preferences and privileges described in the Certificate of
Incorporation; the Common Stock issuable upon conversion of the Shares has
been duly and validly reserved and, when issued in compliance with the
provisions of this Agreement and the Certificate of Incorporation will be
validly issued, and will be fully paid and nonassessable; and the Shares and
the Common Stock issued upon conversion of the Shares will be free of any
liens or encumbrances, other than any liens or encumbrances created by or
imposed upon the Purchaser; PROVIDED, HOWEVER, that the Shares, and the
Common Stock issuable upon conversion of the Shares, are subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein and in the Rights Agreement. The sale of the Shares and the
Common Stock issuable upon conversion of the Shares are not subject to any
preemptive rights or rights of first refusal.
3.6 FINANCIAL STATEMENTS. The Company has delivered to each
Investor the audited financial statements (balance sheet and profit and loss
statement, statement of stockholders' equity and statement of cash flows,
including notes thereto) of Extranet Solutions, LLC, a Delaware limited
liability company, ("OLD PARTICIPATE") for the fiscal year then ended
December 31, 1998, and its unaudited financial statements (balance sheet,
profit and loss statement and statement of Cash Flows) as at and for the
six-month period ended June 30, 1999 (the "FINANCIAL STATEMENTS"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated and with each other, except that unaudited Financial Statements may
not contain all footnotes required by generally accepted accounting
principles. The Financial Statements fairly present the financial condition
and operating results of Old Participate as of the dates, and for the
periods, indicated therein, subject in the case of unaudited Financial
Statements, to normal year-end audit adjustments. Except as set forth in the
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Financial Statements, neither the Company nor Old Participate has any
material liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to December 31, 1998
and (ii) obligations under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which, in both cases,
individually or in the aggregate, are not material to the financial condition
or operating results of the Company or Old Participate. Except as disclosed
in the Financial Statements, the Company is not a guarantor or indemnitor of
any indebtedness of any other person, firm or corporation. The Company
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with generally accepted accounting
principles.
3.7 MATERIAL OBLIGATIONS. The Company has no material liabilities
or obligations, absolute or contingent (individually or in the aggregate),
except (a) liabilities and obligations which have been incurred in the
ordinary course of business which have not been, either in any case or in the
aggregate, material and (b) liabilities and obligations under a lease for its
principal offices.
3.8 CHANGES. To the best of the Company's knowledge, since June
30, 1999, there has not been:
(a) Any change in the assets, liabilities, financial
condition or operations of Old Participate or the Company from that reflected
in the Financial Statements, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or is
expected to have a material adverse effect on such assets, liabilities,
financial condition, operations or prospects of Old Participate or the
Company;
(b) Any resignation or termination of employment any
officer or key employee of Old Participate or the Company; and the Company,
to the best of its knowledge, does not know of the impending resignation or
termination of employment of any such officer or key employee;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of Old Participate or the Company by
way of guaranty, endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the properties,
business, prospects or financial condition of Old Participate or the Company
(as such business is presently conducted and as it is presently proposed to
be conducted;
(e) Any waiver by Old Participate or the Company of a
valuable right or of a material debt owed to it;
(f) Any direct or indirect loans made by Old Participate
or the Company to any stockholder, member, employee, officer or director of
Old Participate or the Company, other than advances made in the ordinary
course of business;
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(g) Any material change in any compensation arrangement or
agreement with any employee, officer, member or stockholder or Old
Participate or the Company;
(h) Any declaration or payment of any dividend or other
distribution of the assets of Old Participate or the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by Old Participate or the Company, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of
business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets by Old
Participate or the Company;
(l) Any change in any material agreement to which Old
Participate or the Company is a party or by which it is bound which
materially and adversely affects the business, assets, liabilities, financial
condition, operations or prospects of Old Participate the Company;
(m) Any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected
the business, assets, liabilities, financial condition, operations or
prospects of Old Participate or the Company; or
(n) Any arrangement or commitment by Old Participate or the
Company to do any of the acts described in this Section 3.8.
3.9 MATERIAL CONTRACTS AND COMMITMENTS. To the Company's
knowledge, all of the material contracts, agreements and instruments to which
the Company is a party are valid, binding and in full force and effect in all
material respects, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. Except
for agreements explicitly contemplated hereby and agreements between the
Company and its employees with respect to the sale of the Common Stock, there
are no agreements, understanding or proposed transactions between the Company
and any of its officers, directors, affiliates or any affiliate thereof.
There are no agreements, understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which Old Participate or
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, Old
Participate or the Company in excess of $50,000 (other than obligations of,
or payments to, Old Participate or the Company arising from purchase or sale
agreements entered into in the ordinary course of business), (ii) the
transfer or license of any patent, copyright, trade secret or other
proprietary right to or from Old Participate or the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), (iii) provisions restricting the development, manufacture or
distribution of Old Participate's or the Company's products or services, or
(iv) indemnification by Old Participate or the Company with respect to
infringements of proprietary rights (other than indemnification obligations
arising from purchase, sale or license agreements entered into in the
ordinary course of business).
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For the purposes of the foregoing, all indebtedness, liabilities, agreements,
understandings, instruments, contracts and proposed transactions involving
the same person or entity (including persons or entities the Company has
reason to believe are affiliated therewith) shall be aggregated for the
purpose of meeting the individual minimum dollar amounts.
3.10 INTELLECTUAL PROPERTY, TRADEMARKS, ETC. To the best of its
knowledge (but without having conducted any special investigation or patent
search), the Company has the right to use, free and clear of all liens,
charges, claims and restrictions, all intellectual property, patents,
trademarks, service marks, trade names, copyrights, licenses and rights
necessary to the business of the Company as presently conducted. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service
marks, trade names, copyrights, trade secrets, licenses, information and
other proprietary rights and processes of any other person or entity other
than such licenses or agreements arising from the purchase of "off the shelf"
or standard products. Neither Old Participate nor the Company has received
any communications alleging that Old Participate or the Company has violated
or, by conducting its business as presently proposed, would violate any of
the patents, trademarks, service marks, trade -names, copyrights or trade
secrets or other proprietary rights of any other person or entity nor is
aware of any such violation. The Company does not believe it is or will be
necessary to utilize any inventions, trade secrets or proprietary information
of any of its employees made prior to their employment by the Company, except
for inventions, trade secrets or proprietary information that have been
assigned to the Company.
3.11 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to its properties and assets, and has good title to
all its leasehold interests, in each case subject to no mortgage, pledge,
lien, lease, encumbrance or charge, other than (a) the lien of current taxes
not yet due and payable and (b) possible minor liens and encumbrances which
do not in any case materially detract from the value of the property subject
thereto or materially impair the operations of the Company, and which have
not arisen otherwise than in the ordinary course of business. The Company is
in compliance with all material terms of each lease to which it is a party or
is otherwise bound.
3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The
Company is not in violation of any term of its Certificate of Incorporation ,
Amended and Restated Limited Liability Company Agreement or Bylaws or in any
material respect of any term or provision of any material mortgage,
indebtedness, indenture, contract, agreement, instrument, judgment or decree,
and to the Company's knowledge, the Company is not in violation of any order,
statute, rule or regulation applicable to the Company. The execution,
delivery and performance of and compliance with the Agreements, and the
issuance of the Shares and the Common Stock issuable upon conversion of the
Shares, have not resulted and will not result in any material violation of,
or conflict with, or constitute a material default under, the Company's
Certificate of Incorporation or Bylaws or any of its agreements, nor result
in the creation of, any mortgage, pledge, lien, encumbrance or charge upon
any of the properties or assets of the Company.
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3.13 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court
or governmental agency (nor, to the Company's knowledge, is there any threat
thereof). The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency
or instrumentality. There is no action, suit, proceeding or investigation by
the Company currently pending or which the Company intends to initiate.
3.14 REGISTRATION RIGHTS. Except as provided in the Rights
Agreement, the Company is not under any contractual obligation to register
any of its presently outstanding securities or any of its securities which
may hereafter be issued.
3.15 GOVERNMENTAL CONSENT, ETC. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of the Agreements or the offer, sale or issuance of
the Shares, and the Common Stock issuable upon conversion of the Shares, or
the consummation of any other transaction contemplated hereby or thereby,
except (a) filing of the Certificate of Incorporation in the office of the
Delaware Secretary of State, and (b) qualification (or taking such action as
may be necessary to secure an exemption from qualification, if available) of
the offer and sale of the Shares, and the Common Stock issuable upon
conversion of the Shares, under applicable state Blue Sky laws, which filings
and qualifications, if required, will be accomplished in a timely manner.
3.16 OFFERING. Subject to the accuracy of the each Purchaser's
representations in Section 4 hereof, the offer, sale and issuance of the
Shares to be issued in conformity with the terms of this Agreement, and the
issuance of the Common Stock to be issued upon conversion of the Shares,
constitute transactions exempt from the registration requirements of Section
5 of the Securities Act of 1933, as amended (the "SECURITIES ACT").
3.17 BROKERS OR FINDERS. The Company has not engaged any brokers,
finders or agents, and the Purchasers have not incurred, and will not incur,
directly or indirectly, as a result of any action taken by the Company, any
liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with the Agreements. In the event that the
preceding sentence is in any way inaccurate, the Company hereby agrees to
indemnify and hold harmless each Purchaser from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
such Purchaser or any of its officers, partners, employees or representatives
is responsible.
3.18 EMPLOYEES. The Company has no collective bargaining
agreements with any of its employees. There is no labor union organizing
activity pending or, to the Company's knowledge, threatened with respect to
the Company. Except as set forth in the Schedule of Exceptions, the Company
is not a party to or bound by any currently effective employment contract,
deferred compensation arrangement, bonus plan, incentive plan, profit sharing
plan, retirement agreement or other employee compensation plan or agreement.
To the Company's knowledge, no employee of the Company, nor any consultant
with whom the Company has contracted, is in violation of any term of any
employment contract, proprietary information agreement or any other agreement
relating to the
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right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. Neither Old
Participate nor the Company has received any notice alleging that any such
violation has occurred. No employee of the Company has been granted the right
to continued employment by the Company or to any material compensation
following termination of employment with the Company. The Company is not
aware that any officer or key employee, or that any group of key employees,
intends to terminate his, her or their employment with the Company, nor does
the Company have a present intention to terminate the employment of any
officer, key employee or group of key employees.
3.19 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Each
current and former employee, officer and consultant of Old Participate and
the Company has executed a Proprietary Information and Inventions Agreement
in the form previously provided to the Purchasers' special counsel. No
current or former employee, officer or consultant of Old Participate or the
Company has excluded works or inventions made prior to his or her employment
with Old Participate or the Company from his or her assignment of inventions
pursuant to such employee, officer or consultant's Proprietary Information
and Inventions Agreement.
3.20 COMPLIANCE WITH LAWS; PERMITS. To the Company's knowledge,
neither Old Participate nor the Company is in violation of any applicable
statute, rule, regulation, order or restriction of any domestic or foreign
government or any instrumentality or agency thereof in respect of the conduct
of its business or the ownership of its properties which violation would
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company. The Company has all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or
financial condition of the Company, and believes it can obtain, without undue
burden or expense, any similar authority for the conduct of its business as
planned to be conducted.
3.21 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge,
the Company is not in violation of any applicable statute, law, or regulation
relating to the environment or occupational health and safety, and to the
best of its knowledge, no material expenditures are or will be required in
order to comply with any such existing statute, law or regulation.
3.22 OBLIGATIONS TO RELATED PARTIES. There are no obligations of
the Company to officers, directors, stockholders, members or employees of the
Company or Old Participate other than (a) for payment of salary for services
rendered, (b) reimbursement for reasonable expenses incurred on behalf of the
Company or Old Participate and (c) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
the Company). To the best of the Company's knowledge, no officer, director or
stockholder, member or any member of their immediate families, is, directly
or indirectly, interested in any material contract with Old Participate
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or the Company (other than such contracts as relate to any such person's
ownership of capital stock or other securities of the Company). Neither the
Company nor Old Participate is a guarantor or indemnitor of any indebtedness
of any other person, firm or corporation.
3.23 TAX RETURNS AND PAYMENTS. Old Participate and the Company have
timely filed all tax returns (federal, state and local) required to be filed by
them. All taxes shown to be due and payable on such returns, any assessments
imposed, and to the Company's knowledge, all other taxes due and payable by Old
Participate or the Company on or before the Closing, have been paid, or will be
paid, prior to the time they become delinquent. Neither Old Participate nor the
Company have been advised (a) that any of their returns, federal, state or
other, have been or are being audited as of the date hereof or (b) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes. The Company has no knowledge of any liability of any tax to be imposed
upon its properties or assets as of the date of this Agreement that is not
adequately provided for.
3.24 QUALIFIED SMALL BUSINESS. To the Company's knowledge, the Company
is a "qualified small business" within the meaning of Section 1202(d) of the
Internal Revenue Code of 1986, as amended (the "Code"), as of the date hereof
and the Shares should qualify as "qualified small business stock" as defined in
Section 1202(c) of the Code as of the date hereof. The Company further
represents and warrants that, as of the date hereof, it meets the "active
business requirement" of Section 1202(e) of the Code, and it has made no
"significant redemptions" within the meaning of Section 1202(c)(3)(B) of the
Code.
3.25 MINUTE BOOKS. The minute books of Old Participate and the Company
made available to the Purchasers contain a complete summary of all actions and
meetings of directors and stockholders since the time of incorporation.
3.26 INSURANCE. The Company has fire and casualty insurance policies
with coverage customary for companies similarly situated to the Company.
3.27 CONSOLIDATION OF OLD PARTICIPATE. The Company and Old Participate
have agreed to the roll-up of Old Participate into the Company and the
dissolution of Old Participate (the "Roll-Up") and the Roll-Up has been
consummated. The documents and agreements entered into by the Company and Old
Participate in connection with the Roll-Up (the "Roll-Up Agreements") are in
substantially the same form as have been provided to the Purchasers prior to the
Closing. Pursuant to the Roll-Up, the Company has acquired good and marketable
title to all properties, assets and leasehold estates purported to be
transferred pursuant to the Roll-Up Documents and the Roll-Up Documents are
valid and binding obligations of the parties thereto, enforceable in accordance
with their terms.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company
with respect to the purchase of Shares by such Purchaser, and with respect only
to such Purchaser, as follows:
- 9 -
<PAGE>
4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT. The Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. The Purchaser acknowledges that
its investment in the Company is highly speculative and entails a substantial
degree of risk and the Purchaser is in a position to lose the entire amount of
such investment.
4.2 INVESTMENT. The Purchaser is acquiring the Shares and the
underlying Common Stock for investment for its own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof. The Purchaser understands that the Series B Preferred to
be purchased hereby and the underlying Common Stock have not been, and will not
be, registered under the Securities Act by reason of a specific exemption from
the registration provisions of the Securities Act, the availability of which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Purchaser's representations as expressed herein. The
Purchaser is an "accredited investor" within the meaning of Regulation D, Rule
501(a), promulgated by the Securities and Exchange Commission.
4.3 RULE 144. The Purchaser acknowledges that the Shares and the
underlying Common Stock must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is
available. The Purchaser is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction" or
in transactions directly with a "market maker" and the number of shares being
sold during any three-month period not exceeding specified limitations.
4.4 NO PUBLIC MARKET. The Purchaser understands that no public market
now exists for any of the securities issued by the Company and that the Company
has made no assurances that a public market will ever exist for the Company's
securities.
4.5 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the
Company's business, management and financial affairs with its management. The
Purchaser has also had an opportunity to ask questions of officers of the
Company, which questions were answered to its satisfaction. The Purchaser
understands that such discussions, as well as any written information issued by
the Company, were intended to describe certain aspects of the Company's business
and prospects but were not a thorough or exhaustive description.
4.6 AUTHORIZATION. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except as the
indemnification provisions of Section 1.10 of the Rights Agreement may be
limited by principles of public policy, and subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
- 10 -
<PAGE>
4.7 BROKERS OR FINDERS. The Purchaser has not engaged any brokers,
finders or agents, and the Company has not, and will not, incur, directly or
indirectly, as a result of any action taken by the Purchaser, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreements. In the event that the preceding sentence is in
any way inaccurate, such Purchaser agrees to indemnify and hold harmless the
Company and each other Purchaser from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability) for which the Company, any other Purchaser, or
any of their officers, directors, employees or representatives, is responsible.
4.8 TAX LIABILITY. The Purchaser has reviewed with its own tax advisors
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by the Agreements. With respect to such matters,
the Purchaser relies solely on such advisors and not on any statements or
representations of the Company or any of its agents other than the
representations and warranties set forth herein. The Purchaser understands that
it (and not the Company) shall be responsible for its own tax liability that may
arise as a result of this investment or the transactions contemplated by the
Agreements.
SECTION 5
CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE
The Purchasers' obligations to purchase the Shares at each Closing are,
unless waived by the Purchasers, subject to the fulfillment on or before the
Closing of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the Closing Date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
the Agreements to be performed by the Company on or prior to the Closing shall
have been performed or complied with in all material respects.
5.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares, and the
Common Stock issuable upon conversion of the Shares.
5.4 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
shall have been duly authorized, executed and filed with the Secretary of State
of the State of Delaware.
5.5 RIGHTS AGREEMENT. The Company and the Purchasers shall have
executed and delivered the Rights Agreement.
5.6 COMPLIANCE CERTIFICATE. The President of the Company shall have
executed a Compliance Certificate, in the form of EXHIBIT D hereto, certifying
the satisfaction of the conditions to closing listed in Sections 5.1 and 5.2
hereof.
- 11 -
<PAGE>
5.7 BOARD OF DIRECTORS. The directors of the Company shall be Alan K.
Warms, Steve Bowsher, Mark DeNino, Jim Collis, and two (2) outside directors to
be nominated by Alan K. Warms.
5.8 OPINION OF COMPANY COUNSEL. Each Purchaser shall have received from
Wilson Sonsini Goodrich & Rosati, counsel for the Company, an opinion, dated as
of the Closing, in the form attached hereto as EXHIBIT E.
5.9 VESTING AGREEMENT WITH ALAN K. WARMS. The Company and Alan K. Warms
shall have executed and delivered a Founder Stock Vesting Agreement in the form
attached hereto as EXHIBIT F.
5.10 MANAGEMENT RIGHTS LETTER. The Company shall have executed and
delivered a Management Rights Letter in substantially the form set forth as
EXHIBIT G to each Purchaser that has requested such letter.
SECTION 6
CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE
The Company's obligation to sell and issue the Shares at each Closing
is, unless waived by the Company, subject to the fulfillment of the following
conditions:
6.1 REPRESENTATIONS. The representations and warranties made by each
Purchaser in Section 4 hereof shall be true and correct as of the Closing Date.
6.2 COVENANTS. All covenants, agreements and conditions contained in
the Agreements to be performed by the Purchasers on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares, and the
Common Stock issuable upon conversion of the Shares.
6.4 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
shall have been duly authorized, executed and filed with the Secretary of State
of the State of Delaware.
6.5 RIGHTS AGREEMENT. The Company and the Purchasers shall have
executed and delivered the Rights Agreement.
- 12 -
<PAGE>
SECTION 7
MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of Delaware.
7.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchasers and the
closing of the transactions contemplated hereby.
7.3 EXPENSES. If the Initial Closing is effected, the Company shall
reimburse the reasonable fees of Cooley Godward LLP, special counsel for the
Purchasers, not to exceed $20,000, and shall, upon receipt of a bill therefor,
reimburse the reasonable out of pocket expenses for such counsel. If any action
at law or in equity is necessary to enforce or interpret the terms of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
7.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto;
PROVIDED, HOWEVER, that the rights of the Purchasers to purchase the Shares
shall not be assignable without the consent of the Company.
7.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto at each Closing constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
PROVIDED, HOWEVER, that Purchasers holding a majority of the Common Stock issued
or issuable upon conversion of the outstanding Shares may, with the Company's
prior written consent, waive, modify, or amend on behalf of all Purchasers, any
provision hereof.
7.6 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Purchaser, at such Purchaser's address, as shown on the
Schedule of Purchasers, or at such other address as such Purchaser shall have
furnished to the Company in writing or (b) if to any other holder of any Shares,
at such address as such holder shall have furnished the Company in writing, or,
until any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Shares who has so furnished an address to the
Company, or (c) if to the Company, one copy should be sent to its address set
forth on the cover page of this Agreement and addressed to the attention of the
President, or at such other address as the Company shall have furnished to the
Purchasers.
- 13 -
<PAGE>
Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.
7.7 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such non-defaulting party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement, shall be cumulative and not
alternative.
7.8 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO
EXEMPT.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; PROVIDED THAT no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
7.11 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares and Common Stock issuable upon conversion of the Shares.
- 14 -
<PAGE>
7.12 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
(THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.)
- 15 -
<PAGE>
The foregoing Agreement is hereby executed as of the date first above
written.
"COMPANY"
PARTICIPATE.COM, INC.
a Delaware corporation
By:
-------------------------------------------
Alan K. Warms
President
"PURCHASER"
InterWest Partners VII, L.P.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
InterWest Investors VII, L.P.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
TL Ventures IV, L.P.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
(SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT)
<PAGE>
TL Ventures IV Interfund L.P.
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
CEA Capital Partners USA, L.P.
By: CEA Management Corp.,
its authorized representative
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
CEA Capital Partners USAW CI, L.P.
By: CEA Management Corp.,
its authorized representative
By:
-------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
(SIGNATURE PAGE TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT)
<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
NO. OF SERIES B
---------------
INVESTOR SHARES PURCHASE PRICE
-------- ------ ---------------
<S> <C> <C>
InterWest Partners VII, L.P. 1,621,437 $ 4,783,239.00
InterWest Investors VII, LP 73,563 $ 217,011.00
c/o InterWest Partners
3000 Sand Hill Road #3-255
Menlo Park, CA 94025
TL Ventures IV L.P. 1,155,954 $ 3,410,064.00
TL Ventures IV Interfund L.P. 30,546 $ 90,111.00
c/o TL Ventures IV LLC
700 Building
435 Devon Park Drive
Wayne, PA 19087
CEA Capital Partners USA, L.P. 906,842 $ 2,675,183.90
CEA Capital Partners USA CI, L.P. 279,658 $ 824,991.10
c/o CEA Management Corp.
17 State Street, 35th Floor
New York, NY 10004
Previous Investors 464,174 $ 1,369,313.00
---------- --------------
TOTALS: 4,532,174 $13,369,913.00
</TABLE>
A-1
<PAGE>
EXHIBIT B
FORM OF
CERTIFICATE OF INCORPORATION
B-1
<PAGE>
EXHIBIT C
FORM OF STOCKHOLDER RIGHTS AGREEMENT
C-1
<PAGE>
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
Pursuant to Section 5.6 of that certain Series B Preferred Stock
Purchase Agreement dated September ___, 1999 among Participate.com, Inc., a
Delaware corporation (the "COMPANY"), and the Purchaser listed therein (the
"AGREEMENT"), the undersigned, Alan K. Warms, does hereby certify on behalf of
the Company as follows:
1. He is the duly elected President of the Company;
2. The Company has fulfilled all of the conditions specified in
Sections 5.1 and 5.2 of the Agreement; and,
3. Except as set forth in the Schedule of Exceptions to Representations
and Warranties attached to the Agreement as Exhibit B, the representations and
warranties of the Company set forth in Section 3 of the Agreement are true and
correct as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
___ day of September, 1999.
------------------------------------------
Alan K. Warms
President
D-1
<PAGE>
EXHIBIT E
FORM OF OPINION OF COMPANY COUNSEL
E-1
<PAGE>
EXHIBIT F
FORM OF FOUNDER STOCK VESTING AGREEMENT
F-1
<PAGE>
EXHIBIT G
FORM OF MANAGEMENT RIGHTS LETTER
[Company Letterhead]
____________, 1999
InterWest Partners VII, L.P.
3000 Sand Hill Road
Building 3, Suite 255
Menlo Park, California 94025
Re: Management Rights
Dear Sirs:
You have informed us that pursuant to regulations promulgated by the U.S.
Department of Labor, you are required to receive "management rights" in
connection with portfolio investments that you make. This letter will confirm
our agreement that pursuant to the purchase of Series B Preferred Stock of
Participate.com, Inc. (the "Company") by InterWest Partners VII, L.P.
("Investor"), Investor will be entitled to the following contractual management
rights, in addition to rights to nonpublic financial information, inspection
rights, and other rights specifically provided to all investors in the current
financing:
(1) Investor shall be entitled to consult with and advise management of
the Company on significant business issues, including management's proposed
annual operating plans, and management will meet with Investor regularly during
each year at the Company's facilities at mutually agreeable times for such
consultation and advice and to review progress in achieving said plans;
(2) Investor may examine the books and records of the Company and
inspect its facilities and may request information at reasonable times and
intervals concerning the general status of the Company's financial condition and
operations, provided that access to highly confidential proprietary information
and facilities need not be provided; and
(3) If Investor is not represented on this Company's Board of
Directors, the Company shall invite a representative of Investor to attend all
meetings of its Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices, minutes,
consents, and other material that it provides to its directors; provided,
however, that the Company reserves the right to exclude such representative from
access to any material or meeting or portion thereof if the Company believes
upon advice of counsel that such exclusion is reasonably necessary to preserve
the attorney-client privilege, to protect highly confidential proprietary
information or for other similar reasons. Such representative may participate in
discussions of matters brought to the Board of Directors.
G-1
<PAGE>
Investor agrees, and any representative of Investor will agree, to hold in
confidence and trust and not use or disclose any confidential information
provided to or learned by it in connection with its rights under this letter.
The rights described herein shall terminate and be of no further force or effect
(i) upon the consummation of the sale of the Company's securities pursuant to a
registration statement filed by the Company under the Securities Act of 1933, as
amended in connection with the firm commitment underwritten offering of its
securities to the general public, or (ii) at such time as the Investor and any
affiliates hold less than ten percent (10%) of the outstanding Series B
Preferred Stock of the Company. The confidentiality provision hereof will
survive any such termination.
Very truly yours,
- -----------------------------------------------------
By:
--------------------------------------------------
[name]
[title]
G-2
<PAGE>
================================================================================
PARTICIPATE.COM, INC.
945 WEST GEORGE STREET, THIRD FLOOR
CHICAGO, ILLINOIS 60657-5007
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
MARCH 28, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1 Authorization and Sale of Preferred Stock................................................................1
1.1 Authorization.......................................................................................1
1.2 Sale of Shares......................................................................................1
Section 2 Closing Dates; Delivery..................................................................................1
2.1 Closing.............................................................................................1
2.2 Delivery............................................................................................2
Section 3 Representations and Warranties of the Company............................................................2
3.1 Organization and Standing; Certificate and Bylaws...................................................2
3.2 Corporate Power.....................................................................................2
3.3 Subsidiaries........................................................................................2
3.4 Capitalization......................................................................................2
3.5 Authorization.......................................................................................3
3.6 Financial Statements................................................................................4
3.7 Material Obligations................................................................................4
3.8 Changes.............................................................................................4
3.9 Material Contracts and Commitments..................................................................5
3.10 Intellectual Property, Trademarks, etc..............................................................6
3.11 Title to Properties and Assets; Liens, etc..........................................................6
3.12 Compliance with Other Instruments, None Burdensome, etc.............................................7
3.13 Litigation, etc.....................................................................................7
3.14 Registration Rights.................................................................................7
3.15 Governmental Consent, etc...........................................................................7
3.16 Offering............................................................................................7
3.17 Brokers or Finders..................................................................................7
3.18 Employees...........................................................................................8
3.19 Proprietary Information and Inventions Agreement....................................................8
3.20 Compliance with Laws; Permits.......................................................................8
3.21 Environmental and Safety Laws.......................................................................9
3.22 Obligations to Related Parties......................................................................9
3.23 Tax Returns and Payments............................................................................9
3.24 Minute Books........................................................................................9
3.25 Insurance...........................................................................................9
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
Section 4 Representations and Warranties of the Purchasers.........................................................9
4.1 Experience; Speculative Nature of Investment........................................................9
4.2 Investment.........................................................................................10
4.3 Rule 144...........................................................................................10
4.4 No Public Market...................................................................................10
4.5 Access to Data.....................................................................................10
4.6 Authorization......................................................................................10
4.7 Brokers or Finders.................................................................................10
4.8 Tax Liability......................................................................................11
Section 5 Conditions to Purchasers' Obligations to Close..........................................................11
5.1 Representations and Warranties Correct.............................................................11
5.2 Covenants..........................................................................................11
5.3 Blue Sky...........................................................................................11
5.4 Certificate of Incorporation.......................................................................11
5.5 Stockholder Rights Agreement.......................................................................11
5.6 Compliance Certificate.............................................................................11
5.7 Opinion of Company Counsel.........................................................................12
Section 6 Conditions to Company's Obligations to Close............................................................12
6.1 Representations....................................................................................12
6.2 Covenants..........................................................................................12
6.3 Blue Sky...........................................................................................12
6.4 Certificate of Incorporation.......................................................................12
6.5 Stockholder Rights Agreement.......................................................................12
Section 7 Miscellaneous...........................................................................................12
7.1 Governing Law......................................................................................12
7.2 Survival...........................................................................................12
7.3 Expenses...........................................................................................12
7.4 Successors and Assigns.............................................................................13
7.5 Entire Agreement; Amendment........................................................................13
7.6 Notices, etc.......................................................................................13
7.7 Delays or Omissions................................................................................13
7.8 Counterparts.......................................................................................14
7.9 Severability.......................................................................................14
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
7.10 Exculpation Among Purchasers.......................................................................14
7.11 Titles and Subtitles...............................................................................14
EXHIBITS
A Schedule of Purchasers.................................................................................A-1
B Certificate of Incorporation...........................................................................B-1
C Stockholder Rights Agreement...........................................................................C-1
D Compliance Certificate.................................................................................D-1
E Opinion of Company Counsel.............................................................................E-1
F Schedule of Approved Investors.........................................................................F-1
</TABLE>
-iii-
<PAGE>
PARTICIPATE.COM, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "AGREEMENT") is
made as of March 28, 2000 by and among Participate.com, Inc., a Delaware
corporation (the "COMPANY"), and the persons and entities listed on the Schedule
of Purchasers, Initial Closing, attached hereto as EXHIBIT A (each a
"PURCHASER," and collectively, the "PURCHASERS").
SECTION 1
AUTHORIZATION AND SALE OF PREFERRED STOCK
1.1 AUTHORIZATION. The Company will, prior to the Initial Closing (as
defined below), authorize the sale and issuance of up to 3,843,624 shares (the
"SHARES") of the Company's Series C Preferred Stock (the "SERIES C PREFERRED"),
and the issuance of such shares of common stock of the Company (the "COMMON
STOCK") issuable upon conversion of the Shares having the rights, privileges and
preferences as set forth in the Amended and Restated Certificate of
Incorporation (the "CERTIFICATE OF INCORPORATION") in the form attached to this
Agreement as EXHIBIT B.
1.2 SALE OF SHARES. Subject to the terms and conditions of this
Agreement, each of the Purchasers agrees to purchase, severally and not jointly,
and the Company agrees to sell and issue to each Purchaser, severally and not
jointly, the number of shares set forth in the column designated "Number of
Series C Shares" opposite such Purchaser's name on the Schedule of Purchasers,
at a cash purchase price of $5.40 per share (the "PURCHASE PRICE").
SECTION 2
CLOSING DATES; DELIVERY
2.1 CLOSING. The purchase and sale of the Shares hereunder shall take
place at one or more closings (each of which is referred to in this Agreement as
a "CLOSING"). The initial closing (the "INITIAL CLOSING") shall take place on
the date hereof and the subsequent closing(s) shall take place on such date or
dates as shall be approved by the Company's Board of Directors (the "BOARD OF
DIRECTORS") no later than NINETY (90) days following the Initial Closing (each
such closing date is referred to in this Agreement as a "CLOSING DATE") The
Company may sell up to the balance of the authorized shares of Series C
Preferred not sold at the Initial Closing to such persons in any subsequent
closing as may be approved by the Board of Directors; provided that the approval
of Diamond Technology Partners Incorporated shall be required to for (x) the
sale of Series C Preferred to any investors not listed on EXHIBIT F and (y) the
sale of Series C Preferred to an investor listed on EXHIBIT F in excess of the
shares indicated on such exhibit. All such sales shall be made on the terms and
conditions set forth in this Agreement. Any shares of Series C Preferred sold at
subsequent closings shall be deemed to be "SHARES" for all purposes under this
Agreement and any purchasers thereof shall be deemed to be "PURCHASERS" for all
purposes under this Agreement. Each Closing
<PAGE>
shall be held at the offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill
Road, Palo Alto, California, at 2:00 p.m. local time, on each Closing Date, or
at such other time and place upon which the Company and the Purchasers agree.
2.2 DELIVERY. At each Closing, the Company will deliver to each
Purchaser a certificate registered in such Purchaser's name representing the
number of Shares that such Purchaser is purchasing against payment of the
purchase price therefor as set forth in the column designated "Purchase Price"
opposite such Purchaser's name on the Schedule of Purchasers, by check payable
to the Company or wire transfer per the Company's instructions.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions dated as of the date
of this Agreement and delivered to the Purchasers (the "SCHEDULE OF
EXCEPTIONS"), the Company represents and warrants to each Purchaser as follows,
in each case as of the date hereof and as of the Closing Date (except as
otherwise specified below):
3.1 ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of Delaware and is in good standing under such laws. The Company has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted. The Company is
presently qualified to do business as a foreign corporation in each jurisdiction
where the failure to be so qualified would have a material adverse effect on the
Company's business as now conducted.
3.2 CORPORATE POWER. The Company will have at each Closing Date all
requisite legal and corporate power and authority to execute and deliver this
Agreement and that certain Amended and Restated Stockholder Rights Agreement
entered into among the Company, the Purchasers and the stockholders party
thereto and attached as EXHIBIT C (the "STOCKHOLDER RIGHTS AGREEMENT"), to sell
and issue the Shares hereunder, to issue the shares of Common Stock issuable
upon conversion of the Shares, and to carry out and perform its obligations
under the terms of this Agreement and the Stockholder Rights Agreement
(together, the "AGREEMENTS") and the Certificate of Incorporation.
3.3 SUBSIDIARIES. The Company has no subsidiaries and does not
otherwise own or control, directly or indirectly, any equity interest in any
corporation, association or business entity. The Company is not a participant in
any joint venture, partnership or similar arrangement.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists or will, upon the filing of the Certificate of Incorporation, consist
of 24,000,000 shares of Common Stock, of which 8,507,646 shares are issued and
outstanding as of the date of this Agreement, 624,000 shares of Series A
Preferred Stock (the "SERIES A PREFERRED"), all of which are issued and
outstanding as of the date of this Agreement, 8,701,980 shares of Series B
Preferred (the "SERIES B PREFERRED"), all of which are issued and outstanding as
of the date of this Agreement, and 3,843,624 shares of Series C Preferred, none
of which are issued and outstanding prior to the Initial Closing. All
outstanding
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shares of Common Stock, Series A Preferred and Series B Preferred have been
duly authorized and validly issued in compliance with applicable laws, and
are fully paid and non-assessable. The Company has reserved (a) 3,843,624
shares of Series C Preferred for issuance hereunder, (b) 8,701,980 shares of
Common Stock for issuance upon conversion of the Series B Preferred, (c)
3,843,624 shares of Common Stock for issuance upon conversion of the Series C
Preferred, and (d) 2,694,680 shares of its Common Stock for issuance to
employees, consultants or directors pursuant to its 1999 Stock Option Plan,
of which options to purchase 1,430,104 shares of Common Stock are currently
outstanding as of the date of this Agreement. The Common Stock, the Series A
Preferred, the Series B Preferred and the Series C Preferred shall have the
rights, preferences, privileges and restrictions set forth in the Certificate
of Incorporation. Except as set forth in the Schedule of Exceptions and the
Stockholder Rights Agreement there are no options, warrants or other rights
to purchase any of the Company's authorized and unissued capital stock.
Except as set forth in the Schedule of Exceptions and the Stockholder Rights
Agreement no stock plan, stock purchase, stock option or other agreement or
understanding between the Company and any holder of any equity securities or
rights to purchase equity securities provides for acceleration or other
changes in the vesting provisions or other terms of such agreement or
understanding as the result of any merger, consolidated sale of stock or
assets, change in control or any other transaction(s) by the Company.
3.5 AUTHORIZATION. All corporate action on the part of the Company and
its directors necessary for the authorization, execution, delivery and
performance of the Agreements by the Company, the authorization, sale, issuance
and delivery of the Shares, the Common Stock issuable upon conversion of the
Shares, and the performance of all of the Company's obligations under the
Agreements has been taken or will be taken prior to the Closing. The Agreements,
when executed and delivered by the Company, shall constitute valid and binding
obligations of the Company, enforceable in accordance with their terms, subject
to laws of general application relating to bankruptcy, insolvency and the relief
of debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies, except that the indemnification provisions of Section
1.10 of the Stockholder Rights Agreement may be further limited by principles of
public policy.
The Shares, when issued in compliance with the provisions of this
Agreement, will be validly issued, will be fully paid and non-assessable, and
will have the rights, preferences and privileges described in the Certificate of
Incorporation; the Common Stock issuable upon conversion of the Shares has been
duly and validly reserved and, when issued in compliance with the provisions of
this Agreement and the Certificate of Incorporation will be validly issued, and
will be fully paid and non-assessable; and the Shares and the Common Stock
issued upon conversion of the Shares will be free of any liens or encumbrances,
other than any liens or encumbrances created by or imposed upon the Purchaser;
PROVIDED, HOWEVER, that the Shares, and the Common Stock issuable upon
conversion of the Shares, are subject to restrictions on transfer under state
and/or federal securities laws as set forth herein and in the Stockholder Rights
Agreement. The sale of the Shares and the Common Stock issuable upon conversion
of the Shares are not subject to any preemptive rights or rights of first
refusal.
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3.6 FINANCIAL STATEMENTS. The Company has delivered to each Investor
the audited financial statements (balance sheet and profit and loss statement,
statement of stockholders' equity and statement of cash flows, including notes
thereto) of Extranet Solutions, LLC, a Delaware limited liability company ("OLD
PARTICIPATE") for the fiscal year ended December 31, 1998, and the unaudited
financial statements (balance sheet, statement of operations and statement of
Cash Flows) for the Company for the fiscal year ended December 31, 1999 (the
"FINANCIAL STATEMENTS"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods indicated and with each other, except that
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present the financial condition and operating results of Old Participate and the
Company, as the case may be, as of the dates, and for the periods, indicated
therein, subject in the case of unaudited Financial Statements, to normal
year-end audit adjustments. Except as set forth in the Financial Statements,
neither the Company nor Old Participate has any material liabilities, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to December 31, 1999 and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in the Financial
Statements, which, in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company or Old
Participate. Except as disclosed in the Financial Statements, the Company is not
a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with generally
accepted accounting principles.
3.7 MATERIAL OBLIGATIONS. The Company has no material liabilities or
obligations, absolute or contingent (individually or in the aggregate), except
(a) liabilities and obligations which have been incurred in the ordinary course
of business which have not been, either in any case or in the aggregate,
material and (b) liabilities and obligations under a lease for its principal
offices.
3.8 CHANGES. To the best of the Company's knowledge, since December 31,
1999, there has not been:
(a) Any change in the assets, liabilities, financial condition
or operations of Old Participate or the Company from that reflected in the
Financial Statements, other than changes in the ordinary course of business,
none of which individually or in the aggregate has had or is expected to have a
material adverse effect on such assets, liabilities, financial condition,
operations or prospects of Old Participate or the Company;
(b) Any resignation or termination of employment any officer
or key employee of Old Participate or the Company; and the Company, to the best
of its knowledge, does not know of the impending resignation or termination of
employment of any such officer or key employee;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of Old Participate or the Company by way
of guaranty, endorsement, indemnity, warranty or otherwise;
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(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business,
prospects or financial condition of Old Participate or the Company (as such
business is presently conducted and as it is presently proposed to be conducted;
(e) Any waiver by Old Participate or the Company of a valuable
right or of a material debt owed to it;
(f) Any direct or indirect loans made by Old Participate or
the Company to any stockholder, member, employee, officer or director of Old
Participate or the Company, other than advances made in the ordinary course of
business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, member or stockholder or Old Participate
or the Company;
(h) Any declaration or payment of any dividend or other
distribution of the assets of Old Participate or the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by Old Participate or the Company, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets by Old
Participate or the Company;
(l) Any change in any material agreement to which Old
Participate or the Company is a party or by which it is bound which materially
and adversely affects the business, assets, liabilities, financial condition,
operations or prospects of Old Participate the Company;
(m) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
Old Participate or the Company; or
(n) Any arrangement or commitment by Old Participate or the
Company to do any of the acts described in this Section 3.8.
3.9 MATERIAL CONTRACTS AND COMMITMENTS. To the Company's knowledge, all
of the material contracts, agreements and instruments to which the Company is a
party are valid, binding and in full force and effect in all material respects,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. Except for agreements explicitly
contemplated hereby and agreements between the Company and its shareholders and
employees with respect to the sale of the Common Stock, there are no agreements,
understanding or proposed transactions between the
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<PAGE>
Company and any of its officers, directors, affiliates or any affiliate
thereof. There are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which Old
Participate or the Company is a party or, to its knowledge, by which it is
bound which may involve (i) obligations (contingent or otherwise) of, or
payments to, Old Participate or the Company in excess of $50,000 (other than
obligations of, or payments to, Old Participate or the Company arising from
purchase or sale agreements entered into in the ordinary course of business),
(ii) the transfer or license of any patent, copyright, trade secret or other
proprietary right to or from Old Participate or the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), (iii) provisions restricting the development, manufacture or
distribution of Old Participate's or the Company's products or services, or
(iv) indemnification by Old Participate or the Company with respect to
infringements of proprietary rights (other than indemnification obligations
arising from purchase, sale or license agreements entered into in the
ordinary course of business). For the purposes of the foregoing, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts.
3.10 INTELLECTUAL PROPERTY, TRADEMARKS, ETC. The Company has the right
to use, free and clear of all liens, charges, claims and restrictions, all
intellectual property, patents, trademarks, service marks, trade names,
copyrights, licenses and rights necessary to the business of the Company as
presently conducted. There are no outstanding options, licenses or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products. Neither Old Participate nor the Company has
received any communications alleging that Old Participate or the Company has
violated or, by conducting its business as presently proposed, would violate any
of the patents, trademarks, service marks, trade-names, copyrights or trade
secrets or other proprietary rights of any other person or entity nor is aware
of any such violation. The Company does not believe it is or will be necessary
to utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been assigned to
the Company. Section 3.10 of the Schedule of Exceptions contains a list of all
patents, trademarks and licenses of the Company.
3.11 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) the lien of current taxes not yet due and
payable and (b) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and which have not arisen otherwise than
in the ordinary course of business. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
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<PAGE>
3.12 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The
Company is not in violation of any term of its Certificate of Incorporation or
Bylaws or of any term or provision of any material mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decree applicable to the
Company, and to the Company's knowledge, the Company is not in violation of any
order, statute, rule or regulation applicable to the Company. The execution,
delivery and performance of and compliance with the Agreements, and the issuance
of the Shares and the Common Stock issuable upon conversion of the Shares, have
not resulted and will not result in (i) any violation of or conflict with the
Company's Certificate of Incorporation or Bylaws or (ii) any material violation
of or conflict with, or constitute a default under any agreements to which the
Company is a party, nor result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company.
3.13 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency nor, to the Company's knowledge, is there any threat
thereof. The Company is not a party or subject to the provisions of any order,
writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.14 REGISTRATION RIGHTS. Except as provided in the Stockholder Rights
Agreement, the Company is not under any contractual obligation to register any
of its presently outstanding securities or any of its securities, which may
hereafter be issued.
3.15 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of the Agreements or the offer, sale or issuance of the Shares, and the
Common Stock issuable upon conversion of the Shares, or the consummation of any
other transaction contemplated hereby or thereby, except (a) filing of the
Certificate of Incorporation in the office of the Delaware Secretary of State
and (b) qualification (or taking such action as may be necessary to secure an
exemption from qualification, if available) of the offer and sale of the Shares,
and the Common Stock issuable upon conversion of the Shares, under applicable
state Blue Sky laws, which filings and qualifications, if required, will be
accomplished in a timely manner.
3.16 OFFERING. Subject to the accuracy of the each Purchaser's
representations in Section 4 hereof, the offer, sale and issuance of the Shares
to be issued in conformity with the terms of this Agreement, and the issuance of
the Common Stock to be issued upon conversion of the Shares, constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "SECURITIES ACT").
3.17 BROKERS OR FINDERS. The Company has not engaged any brokers,
finders or agents, and the Purchasers have not incurred, and will not incur,
directly or indirectly, as a result of any action taken by the Company, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with the Agreements. In the event that the preceding
sentence is in any way inaccurate, the Company hereby agrees to indemnify and
hold harmless each Purchaser
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<PAGE>
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability
or asserted liability) for which such Purchaser or any of its officers,
partners, employees or representatives is responsible.
3.18 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. Except
as set forth in the Schedule of Exceptions, the Company is not a party to or
bound by any currently effective employment contract, deferred compensation
arrangement, bonus plan, incentive plan, profit sharing plan, retirement
agreement or other employee compensation plan or agreement. To the Company's
knowledge, no employee of the Company, nor any consultant with whom the Company
has contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the right
of any such individual to be employed by, or to contract with, the Company
because of the nature of the business to be conducted by the Company; and to the
Company's knowledge the continued employment by the Company of its present
employees, and the performance of the Company's contracts with its independent
contractors, will not result in any such violation. Neither Old Participate nor
the Company has received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate his, her or
their employment with the Company, nor does the Company have a present intention
to terminate the employment of any officer, key employee or group of key
employees.
3.19 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. Each current and
former employee, officer and consultant of Old Participate and the Company has
executed a Proprietary Information and Inventions Agreement in the form
previously provided to the Purchasers' special counsel. No current or former
employee, officer or consultant of Old Participate or the Company has excluded
works or inventions made prior to his or her employment with Old Participate or
the Company from his or her assignment of inventions pursuant to such employee,
officer or consultant's Proprietary Information and Inventions Agreement.
3.20 COMPLIANCE WITH LAWS; PERMITS. To the Company's knowledge, neither
Old Participate nor the Company is in violation of any applicable statute, rule,
regulation, order or restriction of any domestic or foreign government or any
instrumentality or agency thereof in respect of the conduct of its business or
the ownership of its properties which violation would materially and adversely
affect the business, assets, liabilities, financial condition, operations or
prospects of the Company. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company, and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted.
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<PAGE>
3.21 ENVIRONMENTAL AND SAFETY LAWS. The Company is not in violation of
any applicable statute, law, or regulation relating to the environment or
occupational health and safety, and to the best of its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
3.22 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, members or employees of the
Company or Old Participate other than (a) for payment of salary for services
rendered, (b) reimbursement for reasonable expenses incurred on behalf of the
Company or Old Participate and (c) for other standard employee benefits made
generally available to all employees (including stock option agreements
outstanding under any stock option plan approved by the Board of Directors of
the Company). To the best of the Company's knowledge, no officer, director or
stockholder, member or any member of their immediate families, is, directly or
indirectly, interested in any material contract with Old Participate or the
Company (other than such contracts as relate to any such person's ownership of
capital stock or other securities of the Company). Neither the Company nor Old
Participate is a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
3.23 TAX RETURNS AND PAYMENTS. Old Participate and the Company have
timely filed all tax returns (federal, state and local) required to be filed by
them. All taxes shown to be due and payable on such returns, any assessments
imposed, and to the Company's knowledge, all other taxes due and payable by Old
Participate or the Company on or before the Closing, have been paid, or will be
paid, prior to the time they become delinquent. Neither Old Participate nor the
Company have been advised (a) that any of their returns, federal, state or
other, have been or are being audited as of the date hereof or (b) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes. The Company has no knowledge of any liability of any tax to be imposed
upon its properties or assets as of the date of this Agreement that is not
adequately provided for.
3.24 MINUTE BOOKS. The minute books of the Company made available to
the Purchasers contain a complete summary of all actions and meetings of
directors and stockholders since the time of incorporation.
3.25 INSURANCE. The Company has fire and casualty insurance policies
with coverage customary for companies similarly situated to the Company.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company
with respect to the purchase of Shares by such Purchaser, and with respect only
to such Purchaser, as follows:
4.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT. The Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. The Purchaser acknowledges that
its
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investment in the Company is highly speculative and entails a substantial
degree of risk and the Purchaser is in a position to lose the entire amount of
such investment.
4.2 INVESTMENT. The Purchaser is acquiring the Shares and the
underlying Common Stock for investment for its own account, not as a nominee or
agent, and not with the view to, or for resale in connection with, any
distribution thereof. The Purchaser understands that the Shares and the
underlying Common Stock have not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the Purchaser's representations as expressed herein. The Purchaser is an
"accredited investor" within the meaning of Regulation D, Rule 501(a),
promulgated by the Securities and Exchange Commission.
4.3 RULE 144. The Purchaser acknowledges that the Shares and the
underlying Common Stock must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is
available. The Purchaser is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction" or
in transactions directly with a "market maker" and the number of shares being
sold during any three-month period not exceeding specified limitations.
4.4 NO PUBLIC MARKET. The Purchaser understands that no public market
now exists for any of the securities issued by the Company and that the Company
has made no assurances that a public market will ever exist for the Company's
securities.
4.5 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the
Company's business, management and financial affairs with its management. The
Purchaser has also had an opportunity to ask questions of officers of the
Company, which questions were answered to its satisfaction. The Purchaser
understands that such discussions, as well as any written information issued by
the Company, were intended to describe certain aspects of the Company's business
and prospects but were not a thorough or exhaustive description.
4.6 AUTHORIZATION. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except as the
indemnification provisions of Section 1.10 of the Stockholder Rights Agreement
may be limited by principles of public policy, and subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
4.7 BROKERS OR FINDERS. The Purchaser has not engaged any brokers,
finders or agents, and the Company has not, and will not, incur, directly or
indirectly, as a result of any action taken by the Purchaser, any liability for
brokerage or finders' fees or agents' commissions or any similar charges
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in connection with the Agreements. In the event that the preceding sentence is
in any way inaccurate, such Purchaser agrees to indemnify and hold harmless the
Company and each other Purchaser from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability) for which the Company, any other Purchaser, or
any of their officers, directors, employees or representatives, is responsible.
4.8 TAX LIABILITY. The Purchaser has reviewed with its own tax advisors
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by the Agreements. With respect to such matters,
the Purchaser relies solely on such advisors and not on any statements or
representations of the Company or any of its agents other than the
representations and warranties set forth herein. The Purchaser understands that
it (and not the Company) shall be responsible for its own tax liability that may
arise as a result of this investment or the transactions contemplated by the
Agreements.
SECTION 5
CONDITIONS TO PURCHASERS' OBLIGATIONS TO CLOSE
The Purchasers' obligations to purchase the Shares at each Closing are,
unless waived by the Purchasers, subject to the fulfillment on or before the
Closing of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct in
all material respects as of the Closing Date except representations and
warranties that are qualified as to materiality, which shall be true and correct
as of the Closing Date.
5.2 COVENANTS. All covenants, agreements and conditions contained in
the Agreements to be performed by the Company on or prior to the Closing shall
have been performed or complied with in all material respects.
5.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares, and the
Common Stock issuable upon conversion of the Shares.
5.4 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
shall have been duly authorized, executed and filed with the Secretary of State
of the State of Delaware.
5.5 STOCKHOLDER RIGHTS AGREEMENT AMENDMENT. The Company, the Purchasers
and the requisite stockholders of the Company shall have executed and delivered
the Stockholder Rights Agreement.
5.6 COMPLIANCE CERTIFICATE. The President of the Company shall have
executed a Compliance Certificate, in the form of EXHIBIT D hereto, certifying
the satisfaction of the conditions to closing listed in Sections 5.1 and 5.2
hereof.
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5.7 OPINION OF COMPANY COUNSEL. Each Purchaser shall have received from
Wilson Sonsini Goodrich & Rosati, counsel for the Company, an opinion, dated as
of the Closing, in the form attached hereto as EXHIBIT E.
SECTION 6
CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE
The Company's obligation to sell and issue the Shares at each Closing
is, unless waived by the Company, subject to the fulfillment of the following
conditions:
6.1 REPRESENTATIONS. The representations and warranties made by each
Purchaser in Section 4 hereof shall be true and correct as of the Closing Date.
6.2 COVENANTS. All covenants, agreements and conditions contained in
the Agreements to be performed by the Purchasers on or prior to the Closing Date
shall have been performed or complied with in all material respects.
6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky
law permits and qualifications, or have the availability of exemptions
therefrom, required by any state for the offer and sale of the Shares, and the
Common Stock issuable upon conversion of the Shares.
6.4 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
shall have been duly authorized, executed and filed with the Secretary of State
of the State of Delaware.
6.5 STOCKHOLDER RIGHTS AGREEMENT. The Company, the Purchasers and the
requisite stockholders of the Company shall have executed and delivered the
Stockholder Rights Agreement.
SECTION 7
MISCELLANEOUS
7.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the internal laws of the State of Delaware without reference to conflicts of
laws principles.
7.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchasers and the
closing of the transactions contemplated hereby.
7.3 EXPENSES. If the Initial Closing is effected, the Company shall
reimburse the reasonable fees of Latham & Watkins, special counsel for the
Purchasers, not to exceed $20,000, and shall, upon receipt of a bill therefor,
reimburse the reasonable out of pocket expenses for such counsel. If any action
at law or in equity is necessary to enforce or interpret the terms of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.
- 12 -
<PAGE>
7.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto;
PROVIDED, HOWEVER, that the rights of each Purchaser to purchase the Shares
shall not be assignable without the consent of the Company except to any entity
controlled by such Purchaser.
7.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto at each Closing constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
PROVIDED, HOWEVER, that Purchasers holding a majority of the Common Stock issued
or issuable upon conversion of the outstanding Shares may, with the Company's
prior written consent, waive, modify, or amend on behalf of all Purchasers, any
provision hereof.
7.6 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger,
addressed (a) if to a Purchaser, at such Purchaser's address, as shown on the
Schedule of Purchasers, or at such other address as such Purchaser shall have
furnished to the Company in writing or (b) if to any other holder of any Shares,
at such address as such holder shall have furnished the Company in writing, or,
until any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Shares who has so furnished an address to the
Company, or (c) if to the Company, one copy should be sent to its address set
forth on the cover page of this Agreement and addressed to the attention of the
President, or at such other address as the Company shall have furnished to the
Purchasers.
Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid.
7.7 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such non-defaulting party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement, shall be cumulative and not
alternative.
- 13 -
<PAGE>
7.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.9 CALIFORNIA CORPORATE SECURITIES LAW.
THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT
HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY
PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL
UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100,
25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES
TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
7.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; PROVIDED THAT no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
7.11 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable to any other Purchaser for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares and Common Stock issuable upon conversion of the Shares.
7.12 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
(THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.)
- 14 -
<PAGE>
The foregoing Agreement is hereby executed as of the date first above
written.
"COMPANY"
PARTICIPATE.COM, INC.
a Delaware corporation
By:
-----------------------------------------------
Alan K. Warms
President
"PURCHASERS"
Diamond Technology Partners Incorporated
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
DTP Investments, LLC
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
BREAKAWAY CAPITAL I LLC
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
<PAGE>
BREAKAWAY CAPITAL FRIENDS I LLC
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
INTERWEST PARTNERS VII, LP
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
INTERWEST INVESTORS VII, LP
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
TL VENTURES IV LP
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
TL VENTURES IV INTERFUND LP
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
<PAGE>
CEA CAPITAL PARTNERS USA, LP
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
CEA CAPITAL PARTNERS USA CI, LP
By:
-----------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
(SIGNATURE PAGE TO SERIES C PREFERRED STOCK PURCHASE AGREEMENT)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
SCHEDULE OF PURCHASERS, INITIAL CLOSING
NO. OF SERIES C
INVESTOR PREFERRED SHARES PURCHASE PRICE
---------------------------------------------- -------------------------- ----------------
<S> <C> <C>
Diamond Technology Partners Incorporated 740,741 $5.40
DTP Investments, LLC 740,741 $5.40
Breakaway Capital I LLC 131,617 $5.40
Breakaway Capital Friends I LLC 53,568 $5.40
InterWest Partners VII, LP 670,691 $5.40
InterWest Investors VII, LP 32,118 $5.40
TL Ventures IV LP 479,300 $5.40
TL Ventures IV Interfund LP 12,666 $5.40
CEA Capital Partners USA, LP 376,010 $5.40
CEA Capital Partners USA CI, LP 115,956 $5.40
</TABLE>
A-1
<PAGE>
EXHIBIT B
FORM OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
B-1
<PAGE>
EXHIBIT C
FORM OF AMENDED AND RESTATED STOCKHOLDER RIGHTS AGREEMENT
C-1
<PAGE>
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
Pursuant to Section 5.6 of that certain Series C Preferred Stock
Purchase Agreement dated March 28, 2000 among Participate.com, Inc., a
Delaware corporation (the "COMPANY"), and the Purchaser listed therein (the
"AGREEMENT"), the undersigned, Alan K. Warms, does hereby certify on behalf
of the Company as follows:
1. He is the duly elected President of the Company;
2. The Company has fulfilled all of the conditions specified in
Sections 5.1 and 5.2 of the Agreement; and
3. Except as set forth in the Schedule of Exceptions to
Representations and Warranties attached to the Agreement as Exhibit B, the
representations and warranties of the Company set forth in Section 3 of the
Agreement are true and correct as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this certificate
this 28th day of March, 2000.
----------------------------------------
Alan K. Warms
President
D-1
<PAGE>
EXHIBIT E
FORM OF OPINION OF COMPANY COUNSEL
E-1
<PAGE>
<TABLE>
<CAPTION>
EXHBIT F
SCHEDULE OF APPROVED INVESTORS
<S> <C> <C>
Diamond Technology Partners Incorporated 740,741 4,000,001.40
DTP Investments, LLC 740,741 4,000,001.40
c/o Diamond Technology Partners Incorporated
Suite 3000
875 North Michigan Ave
Chicago, IL 60611
Breakaway Capital I LLC 131,617 710,731.80
Breakaway Capital Friends I LLC 53,568 289,267.20
c/o Breakaway Solutions
50 Rowes Wharf
Boston, MA 02110
Tel. (617) 960-3400
InterWest Partners VII, LP 670,691 3,621,731.40
InterWest Investors VII, LP 32,118 173,437.20
c/o InterWest Partners
3000 Sand Hill Road #3-255
Menlo Park, CA 94025
TL Ventures IV LP 479,300 2,588,220.00
TL Ventures IV Interfund LP 12,666 68,396.40
c/o TL Ventures IV LLC
700 Building
435 Devon Park Drive
Wayne, PA 19087
CEA Capital Partners USA, LP 376,010 2,030,454.00
CEA Capital Partners USA CI, LP 115,956 626,162.40
c/o CEA Management Corp
17 State Street, 35th Floor
New York, NY 10004
Employees of Participate.com, Inc. 185,186 1,000,004.40
Other Investors* 258,733 1,397,158.20
Other New Investors** 46,296 249,998.40
------ ----------
Totals 3,843,623 20,755,564.20
--------- -------------
</TABLE>
_______________________________________________________________
*limited to current holders of Series A Preferred Stock.
**limited to selected investment bankers.
F-1
<PAGE>
EXHIBIT 10.13
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT.
COMMON STOCK WARRANT
OF
PARTICIPATE.COM, INC.
MARCH 28, 2000 525,000 SHARES
THIS CERTIFIES THAT, for value received, the sufficiency of
which is hereby acknowledged, DIAMOND TECHNOLOGY PARTNERS INCORPORATED, a
Delaware corporation (the "Warrantholder"), is entitled, on the terms and
subject to conditions set forth below, to subscribe for and purchase from
Participate.com, Inc., a Delaware corporation (the "Company"), 525,000 fully
paid and non-assessable shares of Common Stock (the "Warrant Shares") at the
Warrant Price (as defined below).
This Warrant is subject to the following terms and conditions:
1. CERTAIN DEFINITIONS. As used herein, the following terms
shall have the following meanings:
(a) "Acquisition Transaction" means (i) the sale, lease or
other transfer, in one or a series of transaction, of all or substantially all
of the Company's assets to any person or group (as such term is defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) (a "Group")
or (ii) the consummation of any transaction or series of transactions, the
result of which is that any person or Group (other than the stockholders of the
Company immediately prior to such transaction or series of transactions or their
Related Parties) beneficially owns, directly or indirectly, 50% or more of the
voting power of the voting stock of the Company, provided, however, that
transfers of assets of the Company to any direct or indirect wholly owned
subsidiary shall not constitute an Acquisition Transaction (subject to Section 6
below).
(b) "Common Stock" means the common stock, par value $.001 per
share, of the Company.
(c) "IPO" means a bona fide firm commitment public offering of
shares of capital stock of the Company pursuant to a registration statement
filed under the Securities Act of 1933, as amended, and declared effective by
the Securities and Exchange Commission.
<PAGE>
(d) "Market Price" means: (i) if this Warrant becomes
exercisable by reason of an IPO, the price per share at which Common Stock is
sold in the IPO or (ii) if this Warrant becomes exercisable by reason of an
Acquisition Transaction, a price per share of Common Stock equal to the fair
market value of the Common Stock immediately prior to the closing of the
Acquisition Transaction.
(e) "Related Party" of any person (other than an individual)
means any parent, subsidiary or affiliate of such person or any stockholder of
or holder of partnership interests in such person. With respect to any
individual, "Related Party" means members of such individual's immediate family
and any trust, all the beneficiaries of which are such individual or members of
his immediate family.
(f) "Warrant Price" means the price of a share of Common Stock
in the IPO, subject to adjustment as provided in Section 4 below.
2. TERM OF WARRANT; VESTING.
(a) TERM OF WARRANT. This Warrant may be exercised, in whole
or in part, at any time after the closing of an IPO or an Acquisition
Transaction and prior to 5:00 p.m. PST, on March 28, 2003 (the "Term"). Upon the
expiration of the Term, this Warrant, to the extent not exercised, shall
terminate.
(b) VESTING. This Warrant shall vest according to the schedule
set forth below:
<TABLE>
<CAPTION>
--------------------------------------- ------------------------------------
PORTION OF AMOUNT OF QUALIFYING REVENUE
WARRANT VESTED RECEIVED BY THE COMPANY
--------------------------------------- ------------------------------------
<S> <C>
0% $0 - $9,999,999
--------------------------------------- ------------------------------------
40% $10,000,000 - $14,999,999
--------------------------------------- ------------------------------------
60% $15,000,000 - $19,999,999
--------------------------------------- ------------------------------------
80% $20,000,000 - $24,999,999
--------------------------------------- ------------------------------------
100% $25,000,000 or more
--------------------------------------- ------------------------------------
</TABLE>
For purposes of the foregoing table, "Qualifying Revenue"
means gross revenue received by the Company and its subsidiaries during the
period from March 1, 2000 through March 31, 2002, attributable to business
relationships with customers introduced or referred to by Warrantholder or its
affiliates and excluding any customers with which the Company had prior
substantive dialog. Qualifying Revenue includes, without limitation, all revenue
received from any of those persons listed on the referral list to be prepared
and agreed to by Warrantholder and the Company within 45 days of the date hereof
and attached hereto as Exhibit A (the "Referral List"). The Referral List may be
amended and supplemented from time to time by Warrantholder, with the approval
of the Company which approval shall not be unreasonably withheld. The Company
acknowledges and agrees that the Referral List is confidential, proprietary
information of the Warrantholder, and the Company agrees to treat the Referral
List as confidential and not to solicit any of the persons listed on the
Referral List without the prior written consent of the Warrantholder.
2
<PAGE>
3. EXERCISE OF WARRANT.
(a) EXERCISE PROCEDURE. This Warrant may be exercised by the
Warrantholder in whole or in part; provided, however, that this Warrant shall
not be exercised for fewer than 1,000 shares unless the unexercised portion is
less than 1,000 shares in which event it may be exercised in full). Upon
delivery of this Warrant (with the Notice of Exercise in the form attached as
ATTACHMENT A), together with payment of the Warrant Price for the Warrant Shares
thereby pursuant to Section 3(b) below, at the principal office of the Company
or at such other office or agency as the Company may designate by notice in
writing to the holder hereof, the holder of this Warrant shall be entitled to
receive a certificate or certificates for the Warrant Shares so purchased.
(b) EXERCISE PRICE. Upon exercise, the Warrantholder shall
either (i) deliver a check or wire transfer payable to the Company in an amount
equal to the product of the Warrant Price multiplied by the number of Warrant
Shares being purchased upon such exercise (the "EXERCISE PRICE") or (ii)
surrender to the Company a number of securities of the Company having a Market
Price equal to the Exercise Price of the Warrant Shares being purchased upon
such exercise.
(c) DELIVERY OF CERTIFICATES; REPLACEMENT WARRANT.
Certificates for shares of Common Stock purchased upon exercise of this
Warrant will be delivered by the Company to the Warrantholder within ten (10)
business days after the date of the Exercise Notice. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company will prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and will, within such 10-day period, deliver such
new Warrant to the Warrantholder.
(d) EFFECTIVE TIME OF EXERCISE. The Common Stock issuable upon
the exercise of this Warrant will be deemed to have been issued to the
Warrantholder at the time the Exercise Notice and the Exercise Price have been
delivered to the Company (the "EXERCISE TIME"), and the Warrantholder will be
deemed for all purposes to have become the record holder of such Common Stock at
the Exercise Time.
(e) WARRANT SHARES. The issuance of certificates for shares of
Common Stock upon exercise of this Warrant will be made without charge to the
Warrantholder for any issuance tax in respect thereof or other cost incurred by
the Company in connection with such exercise and the related issuance of Warrant
Shares. Each share of Common Stock issuable upon exercise of this Warrant will,
upon payment of the Exercise Price therefor, be fully paid and nonassessable and
free from all liens and charges with respect to the issuance thereof.
(f) REGISTRATION OF TRANSFER. The Company will not close its
books against the transfer of this Warrant or of any share of Common Stock
issued or issuable upon the exercise of this Warrant in any manner which
interferes with the timely exercise of this Warrant. The Company will from time
to time take all such action as may be necessary to assure that the par value
per share of the unissued Common Stock acquirable upon exercise of this Warrant
is at all times equal to or less than the Exercise Price then in effect.
3
<PAGE>
(g) REQUIRED FILINGS OR APPROVALS. The Company will assist and
cooperate with the Warrantholder in the event that Warrantholder is required to
make any governmental filings or obtain any governmental approvals prior to or
in connection with any exercise of this Warrant (including, without limitation,
making any filings required to be made by the Company).
(h) CONDITIONAL EXERCISE. Notwithstanding any other provision
hereof, if an exercise of any portion of this Warrant is to be made in
connection with an IPO or an Acquisition Transaction, the exercise of any
portion of this Warrant may, at the election of the Warrantholder, be
conditioned upon the consummation of the IPO or an Acquisition Transaction in
which case such exercise will not be deemed to be effective until the
consummation of the IPO or an Acquisition Transaction.
(i) RESERVATION OF SHARES. The Company will at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock solely for the purpose of issuance upon the exercise of the Warrant, such
number and class of shares of Common Stock issuable upon the exercise of all
outstanding Warrants. All shares of Common Stock which are so issuable will,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges. The Company will take all such actions as may
be necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which will be
immediately delivered by the Company upon each such issuance).
4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF WARRANT SHARES.
The number and kind of Warrant Shares purchasable upon the
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time in accordance with the following provisions:
(a) ADJUSTMENTS FOR SUBDIVISIONS, COMBINATIONS OR
CONSOLIDATION OF COMMON STOCK. In the event the outstanding shares of Common
Stock shall be subdivided by stock split, stock dividends or otherwise, into a
greater number of shares of Common Stock, the Warrant Price then in effect
shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Warrant Price then in effect shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(b) ADJUSTMENTS FOR STOCK DIVIDENDS AND OTHER DISTRIBUTIONS.
In the event the Corporation at any time or from time to time makes, or fixes a
record date for the determination of holders of Common Stock entitled to receive
any distribution (excluding any repurchases of securities by the Corporation not
made on a pro rata basis from all holders of any class of the Corporation's
securities) payable in property or in securities of the Corporation other than
shares of Common Stock, and other than as otherwise adjusted in this Section 4,
then and in each such event provision shall be made such that the Warrantholder
shall receive at the time of such distribution, the
4
<PAGE>
amount of property or the number of securities of the Corporation that the
Warrantholder would have received had it been the holder of Warrant Shares at
the time of such distribution.
(c) ADJUSTMENTS FOR DILUTING ISSUES. In addition to the
adjustments provided in subparagraphs (a) and (b) above, the Warrant Price shall
be subject to further adjustment from time to time as follows:
(i) SPECIAL DEFINITIONS. For purposes of this Section
4(c), the following definitions shall apply:
(A) "Options" shall mean rights, options or
warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible
Securities.
(B) "Conversion Date" shall mean the first
day of the Term.
(C) "Convertible Securities" shall mean
securities convertible into or exchangeable for
Common Stock.
(D) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or,
pursuant to Section 4(c)(iii), deemed to be issued)
by the Company after the Conversion Date other than
shares of Common Stock issued (or, pursuant to
Section 4(c)(iii), deemed to be issued):
(1) to officers, directors and
employees of, and consultants to, the
Company pursuant to plans and arrangements
approved by the Board;
(2) upon exercise of Options issued
prior to the Conversion Date; or
(3) upon conversion or exchange of
Convertible Securities outstanding on the
Conversion Date.
(E) "Original Issue Date" shall mean March
28, 2000.
(ii) NO ADJUSTMENT OF WARRANT PRICE. No adjustment in
the Warrant Price for any series of Preferred Stock shall be made in
respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued
or deemed to be issued by the Company is less than the Warrant Price in
effect on the date of, and immediately prior to such issue.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK.
(A) OPTIONS AND CONVERTIBLE SECURITIES.
Except as otherwise provided in Section
4(c)(i)(D)(1)-(3) and 4(c)(ii), in the event the
Company at
5
<PAGE>
any time or from time to time after the Conversion
Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of any
holders of any class of securities entitled to
receive any such Options or Convertible Securities,
then the maximum number of shares (as set forth in
the instrument relating thereto without regard to
any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable
upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the
conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue
or, in case such a record date shall have been
fixed, as of the close of business on such record
date, provided that in any such case in which
additional shares of Common Stock are deemed to be
issued:
(1) no further adjustment in the
Warrant Price shall be made upon the
subsequent issue of Convertible Securities
or shares of Common Stock upon the exercise
of such Options or conversion or exchange of
such Convertible Securities;
(2) if such Options or Convertible
Securities by their terms provide, with the
passage of time or otherwise, for any
increase or decrease in the consideration
payable to the Company, or increase or
decrease in the number of shares of Common
Stock issuable, upon the exercise,
conversion or exchange thereof, the Warrant
Price computed upon the original issue
thereof (or upon the occurrence of a record
date with respect thereto), and any
subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming
effective, be recomputed to reflect such
increase or decrease insofar as it affects
such Options or the rights of conversion or
exchange under such Convertible Securities;
(3) upon the expiration of any such
Options or any rights of conversion or
exchange under such Convertible Securities
which shall not have been exercised, the
Warrant Price computed upon the original
issue thereof (or upon the occurrence of a
record date with respect thereto), and any
subsequent adjustments based thereon, shall,
upon such expiration, be recomputed as if:
(a) in the case of
Convertible Securities or Options
for Common Stock, the only
additional shares of Common Stock
issued were shares of Common Stock,
if any, actually issued upon the
exercise of such Options or the
conversion or exchange of such
Convertible Securities, and the
consideration received therefor was
the consideration actually received
by the Corporation for the issue of
all such Options, whether or not
6
<PAGE>
exercised, plus the consideration
actually received by the Company
upon such exercise, or for the issue
of all such Convertible Securities
which were actually converted or
exchanged, plus the additional
consideration, if any, actually
received by the Company upon such
conversion or exchange, and
(b) in the case of Options
for Convertible Securities, only the
Convertible Securities, if any,
actually issued upon the exercise
thereof were issued at the time of
issue of such Options and the
consideration received by the
Corporation for the Additional
Shares of Common Stock deemed to
have been then issued was the
consideration actually received by
the Company for the issue of all
such Options, whether or not
exercised, plus the consideration
deemed to have been received by the
Company upon the issue of the
Convertible Securities with respect
to which such Options were actually
exercised;
(4) no readjustment pursuant to
clause (2) or (3) above shall have the
effect of increasing the Warrant Price to an
amount which exceeds the lower of (i) the
Warrant Price on the original adjustment
date, or (ii) the Warrant Price that would
have resulted from any issuance of
Additional Shares of Common Stock between
the original adjustment date and such
readjustment date; and
(5) in the case of any Options which
expire by their terms not more than thirty
(30) days after the date of issue thereof,
no adjustment of the Warrant Price shall be
made until the expiration or exercise of all
such Options.
(d) ADJUSTMENT OF WARRANT PRICE UPON ISSUANCE OF ADDITIONAL
SHARES OF COMMON STOCK. In the event the Company shall issue Additional Shares
of Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 4(c)(iii)) without consideration or for a consideration per
share less than the Warrant Price in effect on the date of, and immediately
prior to such issue, then and in such event, such Warrant Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Warrant Price by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at the Warrant Price
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; and provided further that, for the purposes of
this Section 4(c)(iv), 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
7
<PAGE>
outstanding, and (B) the number of shares of Common Stock into which the then
outstanding shares of Preferred Stock could be converted if fully converted on
the day immediately preceding the given date, and (C) the total number of shares
of Common Stock issuable upon exercise of stock options outstanding as of the
Original Issue Date.
(i) DETERMINATION OF CONSIDERATION. For purposes of
this Section 4(c)(v), the consideration received by the Company for the
issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) CASH AND PROPERTY: Such consideration
shall:
(1) insofar as it consists of cash,
be computed at the aggregate amount of cash
received by the Company prior to amounts
paid or payable for accrued interest or
accrued dividends and prior to any
commissions or expenses paid by the Company;
(2) insofar as it consists of
property other than cash, be computed at the
fair value thereof at the time of such
issue, as determined in good faith by the
Board of Directors; and
(3) in the event Additional Shares
of Common Stock are issued together with
other shares or securities or other assets
of the Corporation for consideration which
covers both, be the proportion of such
consideration so received, computed as
provided in clauses (1) and (2) above, as
determined in good faith by the Board of
Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation
for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 4(c)(iii)(A),
relating to Options and Convertible Securities, shall
be determined by dividing
(1) the total amount, if any,
received or receivable by the Company as
consideration for the issue of such Options
or Convertible Securities, plus the minimum
aggregate amount of additional consideration
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein for a subsequent
adjustment of such consideration) payable to
the Company upon the exercise of such Option
or the conversion or exchange of such
Convertible Securities, or in the case of
Options for Convertible Securities, the
exercise of such Options for Convertible
Securities and the conversion or exchange of
such Convertible Securities by
(2) the maximum number of shares of
Common Stock (as set forth in the
instruments relating thereto, without regard
to any provision contained therein for a
subsequent adjustment of such
8
<PAGE>
number) issuable upon the exercise of such
Options or the conversion or exchange of
such Convertible Securities.
(e) RECLASSIFICATION, CONSOLIDATION, MERGER, ETC. In case of
any reclassification, exchange, substitution or change of outstanding securities
of the class issuable upon exercise of this Warrant (other than as a result of a
subdivision or combination), or in case of any consolidation or merger of the
Company with or into another corporation, or the sale, transfer or lease of all
or substantially all of the assets of the Company, the Company, or such
successor corporation, as the case may be, shall execute a new Warrant,
providing that the holder of this Warrant shall have the right to exercise such
new Warrant, and procure upon such exercise in lieu of each Warrant Share
previously issuable upon exercise of this Warrant, the kind and amount of shares
of stock, other securities, money and property receivable upon such
reclassification, exchange, substitution, change, consolidation, merger, sale,
transfer or lease by a holder of one Warrant Share immediately prior to such
event. Such new Warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4. The provisions of this paragraph (a) shall similarly apply to successive
reclassifications, exchanges, substitutions, changes, consolidations, mergers,
sales, transfers or leases.
(f) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in
the Warrant Price for subdivisions or combinations as contemplated under
paragraph (d) above, the number of shares of Common Stock purchasable hereunder
shall be adjusted, to the nearest whole share, to the product obtained by
multiplying the number of shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
(g) NO IMPAIRMENT. The Company shall not, by amendment of its
Certificate of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
its terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Section 4 and in taking all such action as may be necessary or appropriate
to protect the Warrantholder's rights under this Section 4 against impairment.
(h) NOTICES. Upon any adjustment of the Warrant Price and any
increase or decrease in the number of shares of Common Stock purchasable upon
the exercise of this Warrant, the Company shall give written notice of such
adjustment promptly thereafter to the registered holder of this Warrant (the
"Notice"). The Notice shall be mailed to the address of such holder as shown on
the books of the Company and shall state the Warrant Price as adjusted and the
increased or decreased number of shares purchasable upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation of each.
9
<PAGE>
5. ACQUISITION TRANSACTION. If the Company undertakes an
Acquisition Transaction then, simultaneously with and as a condition to the
Acquisition Transaction, the Company shall, at its election, either (i) cause
the Company Acquiror (as defined below) to assume this Warrant and cause
provision to be made so that the Warrantholder shall thereafter be entitled
to receive, upon exercise of this Warrant, the Warrant Shares, whereupon the
Company shall be released from this Warrant, or (ii) cause the Company
Acquiror to pay the Warrant Value (as defined below) to the Warrantholder
upon consummation of the Acquisition Transaction. If this Warrant becomes
exercisable by reason of an acquisition Transaction and the Company does not
cause the Company Acquiror to pay the Warrant Value to the Warrantholder,
this Warrant shall remain outstanding in accordance with its terms and all
references herein to the "Company" shall thereafter be deemed to apply to the
Company Acquiror and all references herein to the "Warrant Shares" shall
thereafter be deemed to apply to the common stock of the Company Acquiror.
"Company Acquiror" shall mean the Company or other entity, as applicable,
surviving the Acquisition Transaction. "Warrant Value" shall mean the fair
market value of this Warrant immediately prior to the closing of the
Acquisition Transaction ("Fair Market Value"), as determined by an investment
banking firm of established national reputation selected by the Warrantholder
and stated in a written opinion delivered to the Company and the
Warrantholder. The fees and expenses of such investment banking firm shall be
paid by the Company and its determination of the Fair Market Value shall be
conclusive and binding on all parties in the absence of fraud or manifest
error.
6. ACQUISITION OR IPO BY SUBSIDIARY.
(a) IPO BY SUBSIDIARY. If, prior to an IPO, the Company
transfers all or substantially all of its assets to any direct or indirect
wholly owned subsidiary (a "Subsidiary") and the Subsidiary subsequently
undertakes a transaction which would constitute an IPO (a "Subsidiary IPO") if
undertaken by the company, then, simultaneously with and as a condition to the
Subsidiary IPO, the Subsidiary shall assume this Warrant, provision shall be
made so that the Warrantholder shall be entitled to receive, upon exercise of
this Warrant, shares of stock or other securities or property of the Subsidiary
to which it is entitled under this Warrant, and the Company shall be released
from this Warrant.
(b) ACQUISITION OF SUBSIDIARY. If, prior to an Acquisition
Transaction, the Company transfers all or substantially all of its assets to a
Subsidiary and the Subsidiary subsequently undertakes a transaction which would
constitute an Acquisition Transaction (a "Subsidiary Acquisition") if undertaken
by the Company, then, simultaneously with and as a condition to the Subsidiary
Acquisition, the Company shall, at its election, either (i) cause the Subsidiary
Acquiror (as defined below) to assume this Warrant and cause provision to be
made so that the Warrantholder shall thereafter be entitled to receive, upon
exercise of this Warrant, the Warrant Shares, whereupon the Company shall be
released from this Warrant, or (ii) cause the Subsidiary Acquiror to pay the
Warrant Value (as defined above, except that references to Acquisition
Transaction shall mean Subsidiary Acquisition) to the Warrantholder upon
consummation of the Subsidiary Acquisition. If this Warrant becomes exercisable
by reason of a Subsidiary Acquisition and the Subsidiary does not cause the
Subsidiary Acquiror to pay the Warrant Value to the Warrantholder, this Warrant
shall remain outstanding in accordance with its terms and all references herein
to the "Company" shall thereafter be deemed to apply to the Subsidiary Acquiror
and all references herein to the "Warrant Shares" shall thereafter be deemed to
10
<PAGE>
apply to the common stock of the Subsidiary Acquiror. "Subsidiary Acquiror"
shall mean the Subsidiary or other entity, as applicable, surviving the
Subsidiary Acquisition.
7. FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued in connection with any
exercise hereunder. In lieu of such fractional share to which the
Warrantholder would otherwise be entitled, the Company shall make a cash
payment equal to the Warrant Price multiplied by such fraction.
8. NO RIGHTS AS A STOCKHOLDER. Other than as provided herein,
no holder of this Warrant, as such, shall be entitled to vote or receive
dividends or be deemed to be a stockholder of the Company for any purpose,
nor shall anything contained in this Warrant be construed to confer upon the
holder of this Warrant, as such, any rights of a stockholder of the Company
or any right to vote, give or withhold consent to any corporate action,
receive notice of meetings, receive dividends or subscription rights, or
otherwise.
9. COMPLIANCE WITH ACT; DISPOSITION OF WARRANT OR WARRANT
SHARES.
(a) COMPLIANCE WITH ACT. The Warrantholder, by acceptance
hereof, agrees that this Warrant, and the Warrant Shares to be issued upon
exercise hereof are being acquired for investment and that the Warrantholder
will not offer, sell or otherwise dispose of this Warrant except under
circumstances which will not result in a violation of the Securities Act of
1933, as amended (the "Act"), or any applicable state securities laws. Upon
exercise of this Warrant, unless the Warrant Shares being acquired are
registered under the Act and any applicable state securities laws or an
exemption from such registration is available, the Warrantholder hereof shall
confirm in writing that the shares of Common Stock so purchased are being
acquired for investment and not with a view toward distribution or resale in
violation of the Act and shall confirm such other matters related thereto as may
be reasonably requested by the Company. This Warrant and all shares of Common
Stock issued upon exercise of this Warrant (unless registered under the Act and
any applicable state securities laws) shall be stamped or imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
The legend shall be removed by the Company, upon the request
of the Warrantholder, at such time as the restrictions on the transfer of the
applicable security shall have terminated.
(b) DISPOSITION OF WARRANT OR WARRANT SHARES. With respect to
any offer, sale or other disposition of this Warrant or any shares of Common
Stock acquired pursuant to the exercise of this Warrant prior to registration of
such Warrant or shares (other than (i) a transfer not involving a change in
beneficial ownership, (ii) in transactions involving the distribution without
consideration
11
<PAGE>
of any such securities by the Warrantholder to any of its partners, or retired
partners, or to the estate of any of its partners or retired partners, (iii)
transactions involving the transfer of any such security by the Warrantholder to
(x) one or more of its members, (y) a limited partnership, the limited partners
of which are all employees of affiliates of the ultimate parent company of the
general partner of such limited partnership or (z) additional limited
partnerships or other entities held directly or indirectly by employees of
affiliates of the ultimate parent company of such entities, (iv) in transactions
involving the transfer without consideration of any such securities by the
Warrantholder during his or her lifetime by way of gift or on death by will or
intestacy, or (v) transfers by the Warrantholder to any partnership or limited
liability company at least 80% of the capital and profits of which are owned by
the Warrantholder), the Warrantholder hereof agrees to give written notice to
the Company prior thereto, describing briefly the manner thereof, together with
a written opinion of the Warrantholder's counsel, or other evidence, if
reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state securities law then in effect)
of this Warrant or such shares of Common Stock and indicating whether or not
under the Act certificates for this Warrant or such shares of Common Stock to be
sold or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to ensure compliance with such law.
Promptly upon receiving such written notice and reasonably satisfactory opinion
or other evidence, if so requested, the Company, as promptly as practicable but
no later than seven (7) days after receipt of the written notice, shall notify
the Warrantholder that the Warrantholder may sell or otherwise dispose of this
Warrant or such shares of Common Stock, all in accordance with the terms of the
notice delivered to the Company. If a determination has been made pursuant to
this Section 7(b) that the opinion of counsel for the Warrantholder or other
evidence is not reasonably satisfactory to the Company, the Company shall so
notify the Warrantholder promptly with details thereof after such determination
has been made. Notwithstanding the foregoing, this Warrant or such shares of
Common Stock may, as to such federal laws, be offered, sold or otherwise
disposed of in accordance with Rule 144 under the Act, provided that the Company
shall have been furnished with such information as the Company may reasonably
request to provide a reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing this Warrant or the shares of
Common Stock thus transferred (except a transfer pursuant to Rule 144) shall
bear a legend as to the applicable restrictions on transferability in order to
ensure compliance with such laws, unless in the aforesaid opinion of counsel for
the Warrantholder, such legend is not required in order to ensure compliance
with such laws. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions.
(c) MARKET STANDOFF AGREEMENT. In connection with the
Company's initial sale of its Common Stock to the public pursuant to an offering
registered under the Act, the Warrantholder agrees, upon request of the Company
or the underwriter(s) managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Warrant Shares (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
one hundred eighty (180) days) from the effective date of such registration as
may be requested by the underwriters.
12
<PAGE>
10. MISCELLANEOUS.
(a) The terms of this Warrant shall be binding upon and shall
inure to the benefit of any successors or assigns of the Company and of any
permitted assigns of the Warrantholder.
(b) Receipt of this Warrant by the holder hereof shall
constitute acceptance of and agreement to the foregoing terms and conditions.
(c) Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of any such mutilation, upon surrender and cancellation of such
Warrant, the Company at its expense will execute and deliver, in lieu thereof, a
new Warrant of like date and tenor.
(d) Any provision of this Warrant may be amended, waived or
modified upon the written consent of the Company and the holders of a majority
of the Warrant Shares issued or issuable upon exercise of this Warrant or any
successor warrant(s).
(e) This Warrant shall be governed by the internal substantive
laws, but not the choice of law rules, of the State of Delaware.
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer.
PARTICIPATE.COM, INC.
--------------------------------------------
Alan K. Warms, President and Chief Executive
Officer
Acknowledged and accepted:
DIAMOND TECHNOLOGY PARTNERS, INC.
By:
-----------------------------------------
Title:
--------------------------------------
<PAGE>
ATTACHMENT A
NOTICE OF EXERCISE
TO: Participate.com, Inc.
945 West George Street
Third Floor
Chicago, IL 60657
______ 1. The undersigned hereby elects to purchase ___________ shares of the
Common Stock of Participate.com, Inc. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
______ 2. The undersigned hereby elects to exercise the purchase right with
respect to _______ percent of such shares of Common Stock through net issue
exercise, as set forth in Section 3(b) of the attached Warrant.
Please issue a certificate or certificates representing such
shares of Common Stock in the name of the undersigned or in such other name as
is specified below:
---------------------------------
(Name)
---------------------------------
---------------------------------
(Address)
The undersigned represents that the above shares of Common
Stock are being acquired for the account of the undersigned for investment and
not with a view to, or for resale in connection with, the distribution thereof
and that the undersigned has no present intention of distributing or reselling
such shares.
---------------------------------
(Signature)
---------------------------------
(Date)
<PAGE>
EXHIBIT 10.14
SHEFFIELD SQUARE PROFESSIONAL CENTRE
2835 NORTH SHEFFIELD AVENUE
945 WEST GEORGE STREET
CHICAGO, ILLINOIS
OFFICE LEASE
Between
Sheffield Square L.L.C., an Illinois limited liability company
("Landlord")
and
Extranet Solutions L.L.C., a Delaware Limited Liability Company
("Tenant")
Lease dated November 3, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
<S> <C>
Base Rent ................................................................. 1
Use of Premises ........................................................... 2
Additional Rent ........................................................... 3
Estimated Expenses ........................................................ 4
Readjustments ............................................................. 5
Delivery of Possession .................................................... 6
Services .................................................................. 7
Condition and Care of Premises ............................................ 8
Surrender of Premises ..................................................... 9
Holding Over .............................................................. 10
Rules and Regulation ...................................................... 11
Rights Reserved to Landlord ............................................... 12
Alterations ............................................................... 13
Assignment and Subletting ................................................. 14
Waiver of Certain Client Claims; Indemnity by Tenant ...................... 15
Damage or Destruction by Casualty ......................................... 16
Eminent Domain ............................................................ 17
Default: Landlord's Rights and Remedies ................................... 18
Subordination ............................................................. 19
Mortgagee Protection ...................................................... 20
Insurance and Subrogation ................................................. 21
Nonwaiver ................................................................. 22
Estoppel Certificate ...................................................... 23
Tenant - Corporation or Partnership ....................................... 24
Real Estate Brokers ....................................................... 25
Notices ................................................................... 26
Miscellaneous ............................................................. 27
Prior Occupancy ........................................................... 28
Security Deposit .......................................................... 29
Right of Termination ...................................................... 30
Landlord .................................................................. 31
Title and Covenant Against Liens .......................................... 32
Default Under Other Leases ................................................ 33
Exculpatory Provisions .................................................... 34
</TABLE>
Exhibit A - Premises
Exhibit B - Additional Terms
Exhibit C - Workletter
Exhibit D - Rules and Regulations
<PAGE>
SHEFFIELD SQUARE PROFESSIONAL CENTRE
2835 NORTH SHEFFIELD AVENUE
945 W. GEORGE ST.
CHICAGO, ILLINOIS
OFFICE LEASE
THIS LEASE, made as of the 3rd day of November, 1998
WITNESSETH:
Sheffield Square L.L.C., an Illinois limited liability company (herein
called "Landlord"), hereby leases to Extranet Solutions, L.L.C. a Delaware
Limited Liability Company (herein called "Tenant"), and Tenant hereby accepts
the premises commonly known as Suite 300 (herein called "Premises"), subject
to the terms of the Work Letter, attached hereto as EXHIBIT C as outlined on
the floor plan attached hereto as "Exhibit A" on the third floor of the
office building located at 945 W. George Street, Chicago, Illinois (herein
called "Building"), for a term (herein called "Term") of Five years
commencing on February 1st, 1999, (herein called "Commencement Date") and
ending on January 31st, 2004, (herein called "Expiration Date"), unless
sooner terminated as provided herein, paying as rent ("Rent") therefore the
sums hereinafter provided, without any setoff, abatement, counterclaim or
deduction whatsoever, except as otherwise provided herein.
IN CONSIDERATION THEREOF, THE PARTIES HERETO COVENANT AND AGREE:
1. Base Rent. Subject to periodic adjustment as hereinafter provided,
Tenant shall pay an annual base rent (herein called "Base Rent") to Landlord
for the Premises of One Hundred Sixteen Thousand Three Hundred Forty Dollars
($116,340.00) payable in equal monthly installments (herein called "Monthly
Base Rent") of Nine Thousand Six Hundred Ninety Five and 00/100 Dollars
($9695.00) in advance on the first day of the Term and on the first day of
each calendar month thereafter of the Term. All rental payments should be
directed to the management office of the Building. Base Rent shall be subject
to an annual escalation as outlined in Exhibit "B". If the Term shall begin
on any date except the first day of a calendar month, or shall end on any day
except the last day of a calendar month, then Monthly Base Rent for any such
partial calendar month within the Term shall be prorated. Except as otherwise
provided herein, the payment of Rent hereunder is independent of each and
every other covenant and agreement contained in this Lease.
Upon signing this Lease Tenant shall pay to Landlord the first full month's
rent plus a security deposit equal to four months' Monthly Base Rent.
2. Use of Premises. Tenant shall use and occupy the Premises for general
office purposes and internet services and for no other use.
3. Additional Rent. In addition to paying the Base Rent specified in
Section 1 hereof, Tenant shall pay to Landlord as additional rent the amounts
(herein collectively called "Additional Rent") specified on "Exhibit B"
attached hereto and made a part hereof, in accordance with the definitions in
this Section 3 and as further provided in Sections 4 and 5 and Exhibit C and
all other monies due and owing under the Lease shall be considered Additional
Rent.
<PAGE>
a. "Expenses" shall mean those costs and expenses paid or incurred by or on
behalf of Landlord for owning, managing, operating, maintaining and repairing
the Building, the land upon which the Building stands (herein called the "Land")
and the personal property used in conjunction therewith (said Building, Land and
personal property herein collectively called the "Project"), including without
limitation Taxes (defined herein), the cost of security and security devices and
systems, snow and ice and trash removal, cleaning and sweeping, planting and
replacing decorations, flowers and landscaping, maintenance, repair and
replacement of utility systems, elevators and escalators, electricity, water,
sewers, fuel, heating, lighting, air conditioning, window cleaning,
janitorial service, insurance (including but not limited to, fire, extended
coverage, all risk, liability, worker's compensation, elevator, or any other
insurance carried by the Landlord and applicable to the Project) painting,
uniforms, management fees, supplies, sundries, sales or use taxes on supplies
or services, cost of wages and salaries of all persons engaged in the
operation, management, maintenance and repair of the Project, and so-called
fringe benefits (social security taxes, unemployment insurance taxes, cost
for providing coverage for disability benefits, cost of any pensions,
hospitalization, welfare or retirement plans, or any other similar or like
expenses incurred under the provisions of any collective bargaining
agreement, or any other cost or expense which Landlord pays or incurs to
provide benefits for employees so engaged in the operation, management,
maintenance and repair of the Project), assessments of property owners'
association for property within which the Project is located, the charges of
any independent contractor who, under contract with the Landlord or its
representatives, does any of the work of operating, managing, maintaining or
repairing of the Project, legal and accounting expenses (including, but not
limited to, such expenses as relate to seeking or obtaining reductions in and
refunds of real estate taxes) or any other expense or charge, whether or not
herein before mentioned, which, in accordance with generally accepted
accounting and management principles, would be considered as an expense of
owning, managing, operating, maintaining or repairing the Project, except as
hereinafter provided. Expenses shall not include costs of alterations of the
premises of tenants of the Building, costs of capital improvements to the
Building, depreciation charges, interest and principal payments on mortgages,
ground rental payments, real estate brokerage and leasing commissions, any
expenditures for which Landlord is entitled to be reimbursed (other than
pursuant to rent escalation or tax and operating expense reimbursement
provisions in leases), except as hereinafter provided.
Notwithstanding anything contained in the above definition of Expenses to the
contrary, the cost of any capital improvements to the Building made after the
date of this Lease which reduce Expenses or which are required under any
governmental laws, regulations, or ordinances amortized over such period as
Landlord shall reasonably determine, together with interest on the
unamortized cost of any such improvements (at the prevailing construction
loan rate available to Landlord on the date the cost of such improvements was
incurred) shall be included in Expenses. Nothing contained herein to the
contrary, "Expenses" shall not include the following: (a) depreciation and
amortization; (b) expenses incurred by Landlord to prepare, renovate,
repaint, redecorate or perform any other work in any space leased to an
existing tenant or prospective tenant of the Building; (c) expenses incurred
by Landlord for repairs or other work occasioned by fire, windstorm, or other
insurable casualty or condemnation; (d) expenses incurred by Landlord to
lease space to new tenants or to retain existing tenants including leasing
commissions, advertising and promotional expenditures; (e) expenses incurred
by Landlord to resolve disputes, enforce or negotiate lease terms with
prospective or existing tenants or in connection with any financing, sales or
syndication of the Building or the Development; (f) interest, principal,
points and fees, amortization or other costs associated with any debt and
rent payable under any lease to which this Lease is subject and all costs and
expenses associated with any such debt or lease and any ground lease rent,
irrespective of whether this Lease is subject or subordinate thereto; (j)
expenses incurred for the repair, maintenance or operation of any pay parking
garage including, but not limited to, salaries and benefits of any
attendants, electricity, insurance and taxes; (k) except as provided herein,
the cost of alterations, capital improvements, equipment replacement and
other items which, under generally accepted accounting principles, are
properly classified as capital expenditures; (l) expenses for the replacement
of any item covered under warranty; (m) cost to correct any penalty or fine
incurred by Landlord due to Landlord's violation of any federal, state, or
local law, except as provided herein, or regulation and any interest, or
penalties due for late payment by Landlord of any of the Building Operating
Expenses; (n) cost
<PAGE>
of repairs necessitated by Landlord's negligence or willful misconduct; (o)
expenses for any item or service which Tenant pays directly to a third party
or separately reimburses Landlord and expenses incurred by Landlord to the
extent the same are reimbursable or reimbursed from any other tenants or
occupants of the property, or third parties; (p) expenses for any item or
service not provided to Tenant, but exclusively to certain other tenants in
the Building or Development; (q) salaries of (i) employees above the grade of
building superintendent or building manager; and (ii) employees whose time is
not spent directly in the operation of the Building.
If any item of Expenses, though paid or incurred in one calendar year,
relates to more than one calendar year, such item shall be proportionately
allocated among such related calendar years.
b. The tax component of Expenses shall further be defined as real estate
taxes, assessments (whether they be general or special), sewer rents, rates
and charges, transit taxes, taxes based upon leases or the receipt of rent,
and any other federal, state or local governmental charges, general, special,
ordinary or extraordinary (but not including income or franchise taxes or any
other taxes imposed upon or measured by the Landlord's income or profits,
except as provided herein), which may now or hereafter be levied, assessed or
imposed against the Land or the Building. The Building and the Land are
herein collectively called the "Real Property." Taxes shall also include any
personal property taxes (attributable to the Adjustment Year in which paid)
imposed upon the furniture, fixtures, machinery, equipment, aperture, systems
or appurtenances used in connection with the Real Property or the operation
thereof.
Notwithstanding anything contained in the above definition of Taxes to the
contrary: If at any time the method of taxation then prevailing shall be
altered so that any new or additional tax, assessment, levy, imposition or
charge or any part thereof shall be imposed upon Landlord in place or partly
in place of any taxes or contemplated increase therein, or in addition to
Taxes, and shall be measured by or be based in whole or in part upon the Real
Property, the rents or other income therefrom or any leases of any part
thereof, then all such new taxes, assessments, levies, impositions or charges
or part thereof, to the extent that they are so measured or based, shall be
included in Taxes levied, assessed or imposed against the Real Property to
the extent that such items would be payable if the Real Property were the
only property of Landlord subject thereto and the income received by Landlord
from the Real Property were the only income of Landlord.
Notwithstanding the year for which any such taxes or assessments are levied,
(1) in the case of special taxes or assessments which may be payable in
installments, the amount of each installment, plus any interest payable
thereon, paid during an Adjustment Year shall be included in Taxes for that
year and (2) if any taxes or assessments payable during any Adjustment Year
shall be computed with respect to a period in excess of twelve (12) calendar
months, then taxes or assessments applicable to the excess period shall be
included in Taxes for that year, except as provided in the preceding
sentence. All references to Taxes "for" a particular Base or Adjustment Year
shall be deemed to refer to Taxes paid during such Base or Adjustment Year
without regard to when such Taxes are levied, assessed, or otherwise imposed.
c. The buildings located at 2835 N. Sheffield and 945 W. George are
operated by the same management. Many Expense items will be shared between
the buildings and Landlord will assign a reasonable percentage of each such
Expense item to each building.
4. Estimated Expenses. Prior to the beginning of each Adjustment Year,
Landlord shall deliver to Tenant a detailed statement of Estimated Expenses
(herein "Estimated Expenses") for that Adjustment Year. With the monthly Base
Rent, Tenant shall pay to Landlord one-twelfth (1/12th) of Tenant's
Proportionate Share (as defined in Exhibit B) of the Estimated Expenses as
Additional Rent. If Landlord fails to provide the Statement of Estimated
Expenses, Tenant shall pay Additional Rent based upon 105% of the prior
year's Estimated Expenses (defined herein) if the latter is available.
Landlord reserves the right to adjust the Estimated Expenses at any time
during an Adjustment Year.
5. Readjustments. The following readjustments with regard to Additional
Rent shall be made by Landlord and Tenant:
(a) "Base Year" shall mean the year in which this lease commences.
<PAGE>
(b) "Adjustment Year" shall mean each calendar year after the base
year that is a part of the Term. Following the end of each Adjustment Year
and after Landlord shall have determined the amount of Expenses for such
Adjustment Year, Landlord shall notify Tenant in writing (any such notice
herein called "Landlord's Statement") of such Expenses and Tenant's
Proportionate share of such adjustment (herein "Expense Adjustment") for such
Adjustment Year. Tenant shall, within thirty (30) days after the date of
Landlord's Statement, pay to Landlord an amount equal to the excess of the
Expense Adjustment over the estimated Expenses paid by Tenant during such
Adjustment Year. If the estimated Expenses paid by Tenant during such
Adjustment Year exceeds the Expense Adjustment owed for such Adjustment Year,
then Landlord shall credit such excess to Rent payable after the date of
Landlord's Statement, or may, at its option, credit such excess to any Rent
theretofore due and owing, until such excess has been exhausted or if the
excess exceeds two months Rent, return to Tenant, within ten (10) days after
the issuance of the Landlord's Statement, all such excess. If this Lease
shall expire or be terminated prior to full application of such excess,
Landlord shall pay to Tenant the balance thereof not theretofore applied
against Rent and not reasonably required for payment of Rent for the
Adjustment Year in which the Lease expires, subject to Tenant's obligations
hereof, provided Tenant shall have vacated the Premises and otherwise
surrendered the Premises to Landlord in accordance with this Lease and Tenant
is not then in default under this Lease. No interest or penalties shall occur
on any amounts which Landlord is obligated to credit or pay to Tenant by
reason of this Section 5. The tax component of the Landlord's Statement may
be unavailable until late in the Adjustment Year. Landlord's best estimate of
Taxes shall be used for purposes of the Landlord's Statement and readjusted
when the actual tax component is determined.
(c) Intentionally
(d) Books and Records. Landlord shall maintain books and records
showing Expenses in accordance with sound accounting and management
practices. Tenant and its representative shall have the right to examine such
books and records showing Expenses upon reasonable prior notice and during
normal business hours at any time within thirty (30) days following service
of Landlord's Statement provided for in Section 5a. In the event that Tenant
so examines the books, Tenant shall have the right to retain a Certified
Public Accountant ("CPA"), reasonably acceptable to Landlord. In the event
that the CPA determines that Landlord's estimate of the Total Rent exceeds
the actual Total Rent by more than five percent (5%), Landlord shall, in
addition to returning any excess to Tenant as aforesaid, reimburse Tenant for
CPA's reasonable fees.
(e) Proration and Survival. With respect to any Adjustment Year
which does not fall entirely within the Term, Tenant shall be obligated to
pay as Additional Rent for such Adjustment Year only a prorata share of
Additional Rent as herein above determined, equal to said Additional Rent
multiplied by a fraction, the numerator of which is the number of days of the
Term falling within the Adjustment Year, and whose denominator is 365.
Following expiration or termination of this Lease, Tenant shall pay any
Additional Rent due to Landlord within fifteen (15) business days after the
date of Landlord's Statement sent to Tenant. Without limitation on other
obligations of Tenant which shall survive the expiration of the Term, the
obligations of Tenant to pay Additional Rent provided for in this Lease shall
survive the expiration or termination of this Lease.
(f) No Decrease In Base Rent. In no event shall any Additional Rent
result in a decrease of the Base Rent payable hereunder as set forth in
Section 1 hereof.
(g) Additional Rent. All amounts payable by Tenant as or on account
of Additional Rent shall be deemed to be Additional Rent due under this
Lease. In addition, Tenant's obligation to pay for any additional services
which Landlord may agree to provide, whether before or after the Commencement
Date of this Lease, shall also constitute Additional Rent if the Landlord so
designates.
6. Delivery of Possession. If Landlord shall be unable for any reason to
give possession of the Premises on the Commencement Date to Tenant, Landlord
shall not be subject to any liability for failure to give possession. Under
such circumstances the Rent reserved and
<PAGE>
covenants to be paid herein shall not commence until possession of the
Premises is given to Tenant, but such failure to give possession on the
Commencement Date shall not affect the validity of this Lease or otherwise
affect the obligations of Tenant hereunder, nor shall the same be construed
to extend the Term. Notwithstanding anything contained herein to the
contrary, in the event that Landlord fails to give possession of the Premises
on the Commencement Date, and such failure continues for forty-five or more
days, Tenant may, at its option, terminate this Lease with written notice to
Landlord, and Landlord shall then have five (5) days to return any Security
Deposit or other sums paid hereunder to Tenant, and, at such time, neither
party shall have any further rights or obligations hereunder. The Premises
shall neither be deemed incomplete or unavailable for Tenant's possession or
occupancy if only minor or insubstantial details of construction, decoration
or mechanical adjustments remain to be completed in the Premises or any part
thereof, or if the delay in the availability of the Premises for occupancy
shall be due to special work, changes, alterations material amounts of:
special work; changes; alterations; or additions required or made by Tenant
in the Premises or any part thereof, or shall be caused by Tenant through the
delay of Tenant in submitting plans, supplying information, approving plans,
specifications or estimates, giving authorizations, or shall be caused in
whole or in part by delay or default on the part of Tenant or any other
reason set forth in an agreement of Landlord to perform work within the
Premises (herein called the "Work Letter"), if any, attached hereto. In the
event of any dispute as to whether possession of the Premises has been
tendered to Tenant or whether the Premises are ready for Tenant's occupancy,
the decision of Landlord's architect shall be final and binding on the
parties.
7. Services. Landlord, as long as Tenant is not in default under any of
the covenants of this Lease (subject to applicable cure periods), shall
furnish the following services:
(a) Air-cooling and heat when necessary to provide a temperature
condition required, in Landlord's judgment (such temperature shall not exceed
74 degrees Fahrenheit when outside temperatures are 95 degrees Fahrenheit or
less and not drop below 68 degrees Fahrenheit in the winter) for comfortable
occupancy of the Premises under normal business operations, daily from 8:00
a.m. to 6:00 p.m. (Saturdays from 8:00 a.m. to 1:00 p.m.), Sundays and
holidays excepted. Landlord's agreements hereunder are also subject to
voluntary or mandatory Presidential or other governmental restrictions, laws
or regulations on energy use, and the provisions of Section 8D hereof.
(b) Domestic water in common with other tenants from City of
Chicago mains for drinking, lavatory and toilet purposes drawn through
fixtures installed by Landlord, or by Tenant in the Premises with Landlord's
written consent, and hot water in common with other tenants for lavatory
purposes from regular Building supply. Tenant shall pay Landlord as
additional rent at rates fixed by Landlord for domestic water and hot water
furnished for any other purpose. Tenant shall not waste or permit the waste
of water.
(c) Passenger elevator service in common with Landlord and other
persons, daily from 8:00 a.m. to 6:00 p.m. (Saturdays from 8:00 a.m. to 1:00
p.m.), Sundays and holidays excepted, and freight elevator service in common
with Landlord and other persons, daily from 8:00 a.m. to 5:00 p.m.,
Saturdays, Sundays and holidays excepted. Such normal elevator service,
passenger or freight, if furnished at other times shall be optional with
Landlord and shall never be deemed a continuing obligation. Landlord shall,
however, provide limited passenger elevator service daily at all times such
normal passenger service is not furnished.
(d) Electricity shall not be furnished by Landlord, but shall be
furnished by Commonwealth Edison Company or other approved electric utility
company serving the area. Landlord shall permit Tenant to receive such
service direct from such utility company at Tenant's cost, and shall permit
Landlord's wire and conduits, to the extent available, suitable and safely
capable, to be used for such purposes. Tenant shall make all necessary
arrangements with the utility company for metering and paying for electric
current furnished by it to Tenant, and Tenant shall pay for all charges for
electric current consumed on the Premises during Tenant's occupancy thereof.
The electricity used during the performance of janitor service, or for the
making of alterations or repairs in the Premises, or for the operation of the
Building's heating, ventilating or air-conditioning systems at times other
than as provided in Section 7(a) hereof, or for the operation of any special
or supplementary heating, ventilating or air-conditioning systems
<PAGE>
which may be required for computer or data processing equipment or for other
special equipment or machinery installed by or on behalf of Tenant, shall be
paid for proportionately by Tenant. Tenant shall make no alterations or
additions to the electric equipment or appliances in the Premises or the
Building without the prior written consent of Landlord in each instance.
Tenant also agrees to pay for all lamps, bulbs, ballasts and starters used in
the Premises during the Term hereof. Tenant covenants and agrees that at all
times its use of electric current shall never exceed the capacity of the
feeders to the Building or the risers or wiring installed thereon. Landlord
hereby represents and warrants that the Premises and the current electrical
wiring, conduits, and the like located therein are equipped to handle the
demands of normal office equipment, including, but not limited to, computers,
copiers, facsimile machines, and other standard equipment.
(e) Landlord may, but shall have no obligation to, provide such
extra or additional services as it is reasonably possible for Landlord to
provide, and as Tenant may from time to time request in writing, within a
reasonable period after the time such extra or additional services are
requested. Tenant shall pay for such extra or additional services at
Landlord's scheduled rate therefor from time to time, or if there be no
scheduled rate, than at the rate of 120% of Landlord's cost in providing
them, such amount to be considered additional rent hereunder. All charges for
such extra or additional services shall be due and payable as Additional
Rent at the same time as the installment of Base Rent with which they are
billed, or if billed separately, shall be due and payable within THIRTY (30)
business days after Tenant receives Landlord's bill therefore. Any such
billings for extra or additional services shall include an itemization of the
extra or additional services rendered and the charge for each such service.
(f) Charges for any services for which Tenant is required to pay
from time to time hereunder including but not limited to hoisting services or
after hours heating or air conditioning shall be due and payable as
Additional Rent at the same time as Monthly Base Rent with which they are
billed, or, if billed separately, shall be due and payable within ten (10)
business days after such billing. If Tenant shall fail to make payment for
any such services, Landlord may, with notice to Tenant, discontinue any or
all of such services and such discontinuance shall not be deemed to
constitute an eviction or disturbance of the Tenant's use and possession of
the Premises or relieve Tenant from paying Monthly Base Rent or performing
any of its other obligations under this Lease.
(g) INTENTIONALLY OMITTED.
(h) Daily janitorial service in common areas only (Landlord will
provide no janitorial services within the Premises). Tenant shall place all
refuse in area on floor of Premises designated by Landlord.
(i) Window cleaning, minimally twice yearly.
Landlord does not warrant that any of the services mentioned above will be
free from interruptions caused by war, insurrection, civil commotion, riots,
acts of God or the enemy or governmental action, repairs, renewals,
improvements, alterations, strikes, lockouts, picketing, whether legal or
illegal, accidents, inability of Landlord to obtain electricity, gas water or
any other causes beyond Landlord's reasonable control, provided that the
foregoing are not due, in whole or in part, to Landlord's negligence or
willful misconduct. Any such interruption of services shall never be deemed
an eviction (actual or constructive) or a disturbance of Tenant's use and
possession of the Premises or any part thereof and shall never render
Landlord liable to Tenant for damages or relieve Tenant from performance of
Tenant's obligations under this Lease. It is further agreed that Tenant's
obligation to pay rent under this Lease is independent from any obligation or
covenant of Landlord with regard to the repair or improvement of the Premises
or to provide any service to the Premises (such as utilities or supplies) and
from each and every
<PAGE>
other covenant and agreement contained in this Lease, and Tenant agrees to
make timely payment of rent irrespective of any claims by the Tenant that
Landlord is obligated to make any repair or improvement to the Premises or
provide any service to the Premises. IF SUCH INTERRUPTION OF SERVICES RENDERS
THE PREMISES UNTENANTABLE FOR TWENTY (20) CONSECUTIVE DAYS, TENANT MAY
TERMINATE THIS LEASE BY PROVIDING LANDLORD WRITTEN NOTICE.
Tenant agrees to cooperate fully with Landlord at all times, in abiding by
all regulations and requirements which Landlord may reasonably prescribe for
the proper functioning and protection of all utilities and services
reasonably necessary for the operation of the Premises and the Building. With
reasonable prior written notice, except in the case of emergency, Landlord
and its contractors shall have free access to any and all mechanical
installations, and Tenant agrees that there shall be no construction or
partitions or other obstructions which might interfere with the moving of the
servicing equipment of Landlord to or from the enclosures containing said
installations. Tenant further agrees that neither Tenant nor its employees,
agents, licensees, invitees or contractors shall at any time tamper with,
adjust or otherwise in any manner affect Landlord's mechanical installations.
8. Condition and Care of Premises.
(a) Prior to taking possession of the Premises the Tenant shall have the
opportunity to inspect and measure same upon reasonable notice to Landlord.
Tenant's taking possession of the Premises or any portion thereof shall be
conclusive evidence against Tenant that the portion of the Premises taken
possession of was then in good order and satisfactory condition and that the
Rentable Area as stated in Exhibit B is ACCEPTABLE. No promises of Landlord
to alter, remodel, improve, repair, or decorate or clean the Premises or any
part thereof have been made, and no representation respecting the condition
of the Premises, the Building or the Land has been made to Tenant by or on
behalf of Landlord, except to the extent expressly set forth herein or in any
Work Letter attached to this Lease.
(b) Tenant shall notify Landlord of any material damage to the Premises,
regardless of the cause of damage. Except for any damage resulting from any
wanton or negligent act of Landlord, or its respective employees or agents,
and subject to the provisions of Section 16 hereof, Tenant shall at its own
expense keep the Premises in good repair and tenantable condition. If Tenant
does not make repairs promptly and adequately when required to do so,
Landlord may, but need not, UPON FIVE DAYS NOTICE, make such repairs and
replacements and Tenant shall pay Landlord as Additional Rent, on written
demand within 30 days, the cost thereof, and in addition, Tenant shall pay to
Landlord as Additional Rent on TEN DAYS NOTICE, an amount equal to 20% of
such cost as an overhead and supervision fee.
(c) This Lease does not grant any rights to light or air over or about
the real property of Landlord. Landlord specifically excepts and reserves to
itself the use of any roofs, the exterior portions of the Premises, all
rights to and the land and improvements below the improved floor level of the
Premises, to the improvements and air rights above the Premises and to the
improvements and air rights located outside the demising walls of the
Premises and to such areas within the Premises required for installation of
utility lines and other installations required to serve any occupants of the
Building and to maintain and repair same, and no rights with respect thereto
are conferred upon Tenant, unless otherwise specifically provided herein.
(d) LANDLORD REPRESENTS AND WARRANTS THAT THE CURRENT HVAC SYSTEM
SUPPORTS REGULAR OFFICE USE AND REQUIREMENTS. THIS SUBPARAGRAPH SHALL ONLY
APPLY IN THE EVENT THAT TENANT INSTALLS OR OTHERWISE USES MACHINES OR
EQUIPMENT WHICH REQUIRE ELECTRICITY THAT MATERIALLY EXCEEDS THE NORMAL
REQUIREMENTS OF A STANDARD OFFICE HVAC SYSTEM. Whenever, in Landlord and
Tenant's reasonable judgment, Tenant's use or occupation of the Premises,
including lighting, personnel, heat generating machines or equipment,
individually or cumulatively, causes the design loads for the system
providing heat and air-cooling to be exceeded, or to affect adversely the
temperature or humidity otherwise maintained by the heating, ventilating and
air-conditioning system in the Premises or Building, Landlord may, but shall
not be obligated to, temper such excess loads by installing supplementary
heating or air-conditioning units in the Premises or elsewhere where
necessary. In such event, the cost of such units and the expense of
installation, including, without limitation, the cost of preparing working
drawings and specifications, plus 20% of such
<PAGE>
cost as an overhead and supervision fee, shall be paid by Tenant as
additional rent within ten (10) business days after Landlord's demand
therefor. Alternatively, Landlord may require Tenant to install such
supplementary heating or air-conditioning unit at Tenant's sole expense.
Landlord may operate and maintain any such supplementary heating or
air-conditioning units, but shall have no continuing obligation to do so or
liability in connection there with. The expense resulting from the operation
and maintenance of any such supplementary heating or air-conditioning units,
including rent for space occupied by any supplementary heating or
air-conditioning units, installed outside the Premises, shall be paid by
Tenant to Landlord as additional rent at rates fixed by Landlord.
Alternatively, Landlord may require Tenant to operate and maintain any such
supplementary units, also at Tenant's sole expense. Notwithstanding the
above, Landlord warrants that the HVAC is adequate to handle up to seventy
employees working on personal computers.
(e) If sprinkler heads or any part of the sprinkler system shall be damaged
or is not in proper working order by reason of any act or omission of Tenant,
Tenant's agents, servants, employees, licensees, or visitors, Tenant shall
forthwith restore the same to good working condition at its own expense.
Landlord represents and warrants to Tenant that the sprinkler heads and the
sprinkler system are, and shall be as of the Effective Date, in good working
order and in accordance with all applicable laws.
9. Surrender of Premises.
(a) At the termination of this Lease by lapse of time or otherwise, or
upon termination of Tenant's right of possession without terminating this
Lease, Tenant shall surrender possession of the Premises to Landlord and
deliver all keys to the Premises to Landlord and make known to Landlord the
combination of all locks of vaults then remaining in the Premises, and shall,
subject to the following subparagraphs, return the Premises and all equipment
and fixtures of Landlord therein to Landlord in as good condition as when
Tenant originally took possession, ordinary wear and tear, loss or damage by
fire or other insured casualty, and damage resulting from the act of Landlord
or any of its respective employees and agents excepted, failing which
Landlord may restore the Premises and such equipment and fixtures to such
condition and Tenant shall pay the actual reasonable cost thereof to Landlord
on 10 DAYS demand.
(b) All installations, additions, partitions, hardware, light fixtures,
supplementary heating or air conditioning units, non-trade fixtures and
improvements, except movable furniture and equipment belonging to
Tenant, in or upon the Premises, whether placed there by Tenant or Landlord
(collectively "Additions"), shall be Landlord's property and shall remain
upon the Premises upon expiration of the Term or sooner termination of this
Lease or Tenant's possession hereunder, all without compensation, allowance
or credit to Tenant; provided, however, that if Landlord notifies Tenant in
writing prior to placing or approving the Additions, Tenant, at Tenant's sole
cost and expense, shall promptly remove such of the installations, additions,
partitions, hardware, light fixtures, supplementary heating or air
conditioning units, non-trade fixtures and improvements or any additions so
specified which are placed in the Premises by Tenant as are designated in
such notice and repair any damage to the Premises caused by such removal,
failing which, Landlord may remove the same and repair the Premises and
Tenant shall pay the actual reasonable cost thereof to Landlord on 10 DAYS
written demand.
(c) Tenant shall leave in place any floor covering without compensation
to Tenant, or Tenant shall remove any NON-BUILDING STANDARD floor covering
and shall remove all fastenings, paper, glue, bases or other vestiges and
restore the floor surface to its previous condition, or shall pay to
Landlord upon demand the cost for restoring the floor surface to such
condition. Tenant shall also remove Tenant's furniture, machinery, safes,
trade fixtures and other items of movable personal property of every kind and
description from the Premises and restore any damage to the Premises caused
thereby, such removal and restoration to be performed prior to the expiration
of the Term or no later than ten (10) days following the earlier termination
of this Lease or Tenant's right of possession, whichever might be earlier
(and upon prior written notice to Landlord, in the event such removal occurs
after termination of this Lease or Tenant's right to possession), failing
which Landlord may do so and thereupon the provisions of Section 18 shall
apply. TENANT SHALL NOT BE REQUIRED TO REMOVE PHONE AND DATA LINES THAT ARE
INSTALLED IN CONDUIT OR PULLED THROUGH WALLS.
<PAGE>
(d) All obligations of Tenant under this Section 9 shall survive the
expiration of the Term or sooner termination of this Lease.
10. Holding Over. Tenant shall pay Landlord, in order to compensate
Landlord for Tenant's wrongful withholding of possession for the time Tenant
remains in possession, for each day Tenant retains possession of the Premises
or any part thereof after the Expiration Date or sooner termination of this
Lease or Tenant's possession hereunder, an amount which is 175% of the amount
of Rent per day, based on the annual rate of Base Rent and Additional Rent
applicable under Section 1 and 2, for each day of the period in which such
retention of possession occurs, and Tenant shall also pay all direct damages
sustained by Landlord by reason of such retention. Nothing in this Section
contained, however, shall be construed or operate as a waiver of Landlord's
right of re-entry or any other right or remedy of Landlord.
11. Rules and Regulations. Tenant agrees to observe and not to
interfere with the rights reserved to Landlord contained in Section 12 hereof
and elsewhere in this Lease, and agrees, for itself, its employees, agents,
invitees, licensees and contractors, to comply with the rules and regulations
delivered to Tenant in this Lease, and such other reasonable rules and
regulations as shall be adopted by Landlord pursuant to Section 12 or any
other Section of this Lease.
Any material violation by Tenant, or by any of its employees, agents,
licensees, invitees or contractors, of any of the rules and regulations or
other Section of this Lease, or as may hereafter be adopted by Landlord
pursuant to Section 12 or any other Section of this Lease, may be restrained.
But whether or not so restrained, Tenant acknowledges and agrees that it
shall be and shall remain liable for all direct actual damages, losses, costs
and expenses resulting from any violation by Tenant, or by any of its
employees, agents, licensees, invitees or contractors, of any of said rules
and regulations. Nothing contained in this Lease shall be construed to impose
upon Landlord any duty or obligation to enforce said rules and regulations
or the terms, covenants or conditions of any other lease against any other
tenant or any other person, and Landlord and its beneficiaries shall not be
liable to Tenant for violation of the same by any other tenant, its
employees, agents, licensees, invitees or contractors, or by any other person.
All parking on Landlord controlled lots, for Tenants and visitors, is by
permit only. All violators will be towed at car owner's expense.
12. Rights Reserved to Landlord. Landlord reserves the following
rights, exercisable without notice and without liability to Tenant for
damage or injury to property, person or business, and without effecting an
eviction or disturbance of Tenant's use or possession or giving rise to any
claim for setoff or abatement of Rent or affecting any of Tenant's
obligations under this Lease:
(a) To change the name or street address of the Building;
provided, however, that Landlord pays for the reasonable cost of the change
of Tenant's stationary.
(b) To install and maintain signs on the exterior and interior
of the Building.
(c) To prescribe the location and style of the suite number and
identification sign or lettering for the Premises.
(d) To retain at all times, and to use in appropriate instances,
pass keys to the Premises.
(e) To grant to anyone the right to conduct any business or render
any service in the Building, whether or not it is the same as or similar to
the use expressly permitted to Tenant by Section 2.
(f) To exhibit the Premises at reasonable hours during the last
three (3) months of the Lease Term, after the Lease or Tenant's right to
possession is otherwise terminated.
(g) To have access for Landlord and other tenants or occupants of
the Building to any mail chutes according to the rules of the United States
Postal Service.
<PAGE>
(h) To enter the Premises, with prior reasonable written notice,
except in the case of emergency, and at reasonable hours for reasonable
purposes, including without limitation for inspection, for supplying janitor
service or other service to be provided to Tenant hereunder.
(i) To require all persons entering or leaving the Building during
such hours as Landlord may from time to time reasonably determine to identify
themselves to security personnel by registration or otherwise in accordance
with Building security controls, and to establish their right to enter or
leave in accordance with the rules and regulations. Landlord shall not be
liable in damages for any error with respect to admission to or eviction or
exclusion from the Building of any person. In case of fire, casualty,
invasion, insurrection, mob, riot, civil disorder, public excitement or other
commotion, or threat thereof, Landlord reserves the right to limit or prevent
access to the Building during the continuance of the same, shut down
elevator service, activate elevator emergency controls, or otherwise take
such action or preventive measures deemed necessary by Landlord for the
safety or security of the tenants or other occupants of the Building or the
protection of the Building and the property in the Building. Tenant agrees to
cooperate in any reasonable safety or security program developed by Landlord.
(j) To control and prevent access to common area and other
non-general public areas of the Building.
(k) Provided that reasonable access to the Premises shall be
maintained and the business of Tenant shall not be interfered with materially
or unreasonably, to rearrange, relocate, enlarge, reduce, close or change
corridors, exits, elevators, stairs, lavatories, doors, entrances in or to
the Building and to decorate and to make repairs, alterations, additions and
improvements, structural or otherwise, in or to the Building or any part
thereof, including the Premises, and any adjacent building, land, street or
alley, including for the purpose of connection with or entrance into or use
of the Building in conjunction with any adjoining or adjacent building or
buildings, now existing or hereafter constructed, and may for such purposes
erect scaffolding and other structures reasonably required by the character
of the work to be performed, and during such operations may enter upon the
Premises and take into and upon or through any part of the Building,
including the Premises, all materials and equipment that may be required to
make such repairs, alterations, improvements, or additions, and in that
connection Landlord may close public entry ways, other public spaces, stairways
or corridors and interrupt or temporarily suspend any services or facilities
agreed to be furnished by Landlord, all without liability to Landlord, except as
contained herein. Landlord may at its option make any repairs, alterations,
improvements and additions in and about the Building and Premises during
ordinary business hours and; provided that except in the event of an emergency,
the business of Tenant shall not be interfered with materially or unreasonably,
and if Tenant desires to have such work done during other than ordinary business
hours, Tenants shall pay all overtime and additional expenses resulting
therefrom. Notwithstanding anything contained herein to the contrary, in the
event that the business of Tenant is interfered with materially and
unreasonably due to Landlords additions for a period of five or more
consecutive business days, Tenant shall have the option to terminate this
Lease, at which time Landlord shall return to Tenant the Security Deposit, and
upon Tenant's surrender of the Premises, neither party shall have any further
rights or obligations hereunder. Tenant acknowledges that the Building is in
the process of being rehabilitated. As such, demolition and construction
activity may affect the Tenant's operations from time to time. Tenant
expressly waives any and all claims which it may have against Landlord for
any inconveniences which may arise during such rehabilitations and Landlord
shall at all times use its best efforts to minimize any inconvenience caused
by rehabilitation.
(l) From time to time to make and adopt such reasonable rules and
regulations, in addition to or other than or by way of amendment or
modification of the rules and regulations contained in Exhibit B attached to
this Lease or other Sections of this Lease, or adopted pursuant to this or
other Sections of this Lease, for the protection or welfare of the Building
or its tenants or occupants, as Landlord may reasonably determine, and
Tenant agrees to abide by and comply with all such rules and regulations.
13. Alterations. Tenant shall not make alterations in or additions or
improvements to the Premises without Landlord's advance written consent in
each instance, and such consent shall not be unreasonably withheld or delayed.
All work of the nature herein contemplated shall be at
<PAGE>
Tenant's expense and done by contractors employed by or on behalf of Landlord
or otherwise reasonably approved by Landlord, and shall comply with all
insurance requirements and with all ordinances and regulations of the
municipality in which the Building is located or any department or agency
thereof, and with the requirements of all statutes and regulations of the
State of Illinois or of any department or agency thereof. All required
working drawings and specifications shall be prepared by Landlord's
architect, space planner or engineers at Tenant's expense.
Subject to obtaining Landlord's prior written approval of its selection and
compliance with the further provisions of this paragraph, Tenant may elect to
use an architect, at Tenant's sole cost, for the preparation of floor plan
layout and other necessary information relating to the desired alterations in
or additions or improvements to the Premises. It may do so provided (1) the
resulting information shall be sufficiently detailed so that, after written
approval by Tenant and Landlord of such floor plan layout and information,
Landlord's architect can transfer such detailed information to the working
drawings and specifications, (2) Landlord's building standards are used in
all details, and (3) such floor plan layout and information shall be
furnished to Landlord in sufficient time to provide thirty (30) days for
Landlords' architect to prepare said working drawings and specifications.
Before proceeding with the work of the nature herein contemplated IF
APPLICABLE, Landlord shall (1) submit to Tenant the estimate of the
Landlord's contractor of the cost of such work based on said working drawings
and specifications, (2) Landlord shall obtain Tenant's approval to the
working drawings and specifications and (3) obtain Tenant's written request
that said work be done.
The costs of such work shall include all labor and materials; general
conditions (including demolition and the removal of rubbish from the property
and the transportation thereof to a dump, building permit fee, field
supervision, outside hoisting, if any, and the like); premium cost of
workmen's compensation, public liability and property damage insurance
carried by Landlord's contractors, overhead charges and fees of Landlord's
contractors; the charges of Landlord's architect or engineer (1) for
preparation and printing of working drawings and specifications and (2) for
supervision of construction; together with twenty percent of all of the costs
of such work for overhead and construction management services by Landlord;
and reimbursement of any other expenses incurred in connection with the work
performed for the Tenant.
IF LANDLORD IS TO DO THE ALTERATIONS, Landlord may, at its election, act as
general contractor and as one or more of the subcontractors. If Landlord or
its beneficiary shall elect to act as general contractor or a subcontractor,
the costs of the work performed by the Landlord or its beneficiary in such
capacity shall be determined in accordance with the paragraph immediately
above.
Landlord shall not be obligated to proceed with such work until the estimate
of the cost of such work is approved in writing by Tenant and the entire cost
of such work is paid by Tenant to Landlord. Any deficit shall be paid to
Landlord as Additional Rent after completion of the work and after Landlord
shall have assembled and submitted to Tenant the complete costs thereof.
All alterations and additions to the Premises, whether temporary or permanent
in character and whether made or paid for by Landlord or Tenant, shall
without compensation to Tenant become Landlord's property upon installation
on the Premises and shall, unless Landlord requests their removal in writing,
upon granting it approval of such alterations and additions, be relinquished
to Landlord in good condition, ordinary wear excepted, at the termination or
this Lease by lapse of time or otherwise.
14. Assignment and Subletting.
(a) Tenant shall not, without the prior written consent of
Landlord, WHICH SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED, in each
instance, either prior or subsequent to the Commencement Date, (1) assign,
transfer, mortgage, pledge, hypothecate or encumber or subject to or permit
to exist upon or be subjected to any lien or charge, this Lease or any
interest under it, (2) allow to exist or occur any transfer of or lien upon
this Lease or the Tenant's interest herein by operation of law, (3) sublet
the Premises or any part thereof, or (4) permit the use or occupancy of the
Premises or any part thereof for any purpose not provided for under Section 2
<PAGE>
of this Lease or by anyone other than the Tenant and Tenant's employees. In
no event shall this Lease be assigned or assignable by voluntary or
involuntary bankruptcy proceedings or otherwise, and in no event shall this
Lease or any rights or privileges hereunder be an asset of Tenant under any
bankruptcy, insolvency or reorganization proceedings, except as provided by
law.
(b) Without thereby limiting the generality of the foregoing
provisions of this Section 14, Tenant expressly covenants and agrees not to
enter into any lease, sublease, license, concession or other agreement for
use, occupancy or utilization of the Premises which provides for rental or
other payment for such use, occupancy or utilization based in whole or in
part on the net income or profits derived by any person from the property
leased, used, occupied or utilized (other than an amount based on a fixed
percentage or percentages of receipts or sales), and that any such purported
lease, sublease, license, concession or other agreement shall be absolutely
void and ineffective as a conveyance of any right or interest in the
possession, use, occupancy or utilization of any part of the Premises.
(c) Consent by Landlord to any assignment, subletting, use,
occupancy, transfer or encumbrance shall not operate to relieve Tenant from
any covenant or obligation hereunder except to the extent, if any, expressly
provided for in such consent, nor shall such consent be deemed to be a
consent to, or relieve Tenant from, obtaining Landlord's consent to any
subsequent assignment, subletting, use, occupancy, transfer or encumbrance by
Tenant or anyone claiming by, through or under Tenant. Tenant shall payall
of Landlord's costs, charges and expenses, including without limitation,
reasonable attorney's fees, incurred in connection with any assignment,
subletting, use, occupancy, transfer or encumbrance made or requested by
Tenant.
(d) Tenant shall, by notice in writing, advise Landlord of its
intention from, on and after a stated date (which shall not be less than
THIRTY (30) days after the date of the giving of Tenant's notice to Landlord)
to assign this Lease or sublet any part or all of the Premises for the
balance or any part of the Term, and, in such event, Landlord shall have the
right, to be exercised by giving written notice to Tenant within thirty (30)
days after receipt of Tenant's notice, to terminate this Lease with
respect to the space described in Tenant's notice as of the date stated in
subparagraph e. Tenant's notice shall include the name and address of the
proposed assignee or sub-tenant, and sufficient information as Landlord deems
necessary to permit Landlord to determine the financial responsibility,
experience and character of the proposed assignee or sub-tenant. If Tenant's
notice covers all of the Premises and if Landlord exercises its right to
terminate this Lease as to such space, then the Term of this Lease shall
expire and end on the date stated in Tenant's notice for the commencement of
the proposed assignment or sublease as fully and completely as if that date
had been the Expiration Date. If, however, Tenant's notice covers less than
all of the Premises, and if Landlord exercises its right to terminate this
Lease with respect to such space described in Tenant's notice, then as of the
date stated in Tenant's notice for the commencement of the proposed sublease,
the Base Rent and the Tenant's Proportionate Share as defined herein shall be
adjusted on the basis of the number of rentable square feet retained by
Tenant, and this Lease as so amended, shall continue thereafter in full force
and effect.
(e) If Landlord, upon receiving Tenant's said notice with
respect to any such space, does not exercise its right to terminate as
aforesaid, Landlord will not unreasonably withhold its consent to Tenant's
assignment of this Lease or subletting the space covered by its notice.
Tenant acknowledges and agrees that Landlord has a vital interest in the
nature, variety and location of tenants in the Building as a whole and that
Landlord's right to withhold its consent to any proposed assignment or
subletting for reasonable business concerns and purposes is a material
consideration for the rental rate and terms contained in this Lease.
Landlord shall not be deemed to have unreasonably withheld its consent to a
proposed assignment of this Lease or to a proposed sublease of part or all of
the Premises if its consent is withheld because: (1) Tenant is then in
default hereunder; (2) any notice of termination of this Lease or termination
of Tenant's possession shall have been given under Section 18 hereof; (3)
either the portion of the Premises which Tenant proposes to sublease, or the
remaining portion of the Premises, or the means of ingress or egress to
either the portion of the Premises which Tenant proposes to sublease or the
remaining portion of the Premises, or the proposed use of the Premises or any
<PAGE>
portion thereof by the proposed assignee or sub-tenant will violate any
village, city, state or federal law, ordnance or regulation, including, without
limitation, any applicable building code or zoning ordinances; (4) the proposed
use of the Premises by the proposed assignee or sub-tenant does not conform
with the use set forth in Section 2 hereof; (5) in the reasonable judgment of
Landlord the proposed assignee or sub-tenant is of a character or is engaged
in a business which would be deleterious to the reputation of the Building or
Landlord, or the Proposed assignee or sub-tenant is not sufficiently financially
responsible or experienced to perform its obligations under the proposed
assignment or sublease; or (6) the proposed assignee or sub-tenant is an
occupant of the Building; Tenant agrees that all advertising by Tenant or on
Tenant's behalf with respect to the assignment of this Lease or subletting of
any part of the Premises must be REASONABLY approved in writing by Landlord
prior to publication.
(f) If Tenant, having first obtained Landlord's consent to any
assignment or sublease, or if Tenant, as debtor or debtor in possession, or a
trustee in bankruptcy for Tenant pursuant to the Bankruptcy Code, 11 U.S.C. 101
et seq., as amended from time to time (the "Bankruptcy Code"), shall assign
this Lease or sublet the Premises, or any part thereof, at a rental in excess
of the Rent for prorata portion thereof due and payable by Tenant under this
Lease, then Tenant shall pay to Landlord as additional rent fifty percent (50%)
of the net (less commissions, advertising fees, and reasonable attorney's fees)
of such excess rent within ten (10) days after Tenant's receipt of same under
any such assignment or, in the case of a sub-lease, within five (5) days after
the first day of each month during the term of any sublease, the excess of all
rent and other consideration due from the sub-tenant for such month over the
Rent then payable to Landlord pursuant to the provisions of this Lease for said
month (or if only a portion of the Premises is being sublet, the excess of all
rent and other consideration due from the sub-tenant for such month over the
portion of the Rent then payable to Landlord pursuant to the provisions of this
Lease for said month which is allocated on a rentable square footage basis to
the space sublet). Notwithstanding the foregoing, Landlord shall not be
responsible for any deficiency if Tenant shall assign or sublet the Premises or
any part thereof at a rental less than Rent provided for herein.
(g) If Tenant shall assign this Lease as permitted herein, the
assignee shall expressly assume all of the obligations of Tenant hereunder in
such assignment, the form of which shall be reasonably satisfactory to
Landlord, and which must be furnished to Landlord not later than fifteen (15)
days prior to the effective date of the assignment. If Tenant shall sublease
the Premises as permitted herein, Tenant shall obtain and furnish to Landlord,
not later than fifteen (15) days prior to the effective date of such sublease
and in form satisfactory to Landlord, the written agreement of such sub-tenant
to the effect that the sub-tenant will attorn to Landlord, at Landlord's option
and written request, in the event this Lease terminates before the expiration
of the sublease.
(h) If Tenant is a corporation (other than a corporation whose stock
is traded through a national or regional exchange or over-the-counter), any
transaction or series of transactions (including without limitation any
dissolution, merger, consolidation or other reorganization of Tenant, or any
issuance, sale, gift, transfer or redemption of any capital stock of Tenant,
whether voluntary, involuntary or by operation of law, or any combination of
any of the foregoing transactions) resulting in the transfer of control of
Tenant, other than by reason of death, shall be deemed to be transfer of
Tenant's interest under this Lease for the purpose of Section 14a and 14c. The
term "control" as used in this Section 14h means the power to directly or
indirectly direct or cause the direction of the management or policies of
Tenant. If Tenant is a corporation, a change or series of changes in ownership
of stock which would result in direct or indirect change in ownership by the
stockholders or an affiliated group of stockholders of less than fifty percent
(50%) of the outstanding stock as of the date of the execution and delivery of
this Lease shall not be considered a change of control. In addition, if Tenant
is an individual, for the purpose of Section 14a and 14c, any incorporation of
the business which Tenant conducts at the Premises shall be deemed a transfer
of Tenant's interest under this Lease.
15. Waiver of Certain Claims; Indemnity by Tenant.
(a) To the extent permitted by law at the time that any subsequent
claim is brought, Tenant releases Landlord, its beneficiaries, the managing
agent of the Real Property,
<PAGE>
and their respective officers, directors, agents, partners and employees, from
and waives all claims for damages to person or property sustained by Tenant or
by any occupant of the Premises or the Building, or by any other person,
resulting directly or indirectly from fire or other casualty, or any cause or
any existing or future condition, defect, matter or thing in or about the
Premises, the Building or any part thereof, or from any equipment or
appurtenance therein, or from any accident in or about the Building, or from
any act or neglect of any tenant or other occupant of the Building or any part
thereof or of any other person, provided that the foregoing is not due, in whole
or in part, to Landlord's negligence or willful misconduct. Said release and
waiver shall apply especially, but not exclusively, to damage caused by water,
snow, frost, steam, excessive heat or cold, sewerage, gas, odor or noise, or the
bursting or leaking of any pipes or plumbing fixtures, broken glass, sprinkling
or air conditioning devises or equipment, or the flooding of basements, and
shall apply without distinction as to the person whose act or neglect was
responsible for the damage and whether the damage was due to any of the
occurrences specifically enumerated above, or from any other thing or
circumstance, whether of a like nature or of a wholly different nature. If any
damage to the Premises or the Building or any equipment or appurtenance therein,
whether belonging to Landlord or to other tenants or occupants of the Building,
results directly from any intentional act or neglect of Tenant, subject to the
waiver of subrogation provisions set forth in paragraph 21 hereof, its
employees, agents, licensees, invitees or contractors, Tenant shall be liable
therefor and Landlord may at its option repair such damage and Tenant shall upon
demand by Landlord reimburse Landlord, such reimbursement being paid as
Additional Rent, for all reasonable direct and actual costs of such repairs and
damages in excess of amounts, if any, paid to Landlord under insurance covering
such damages. All personal property belonging to Tenant or any occupant of the
Premises that is in the Building or the Premises shall be there at the risk of
Tenant or other person only, and Landlord shall not be liable for damage thereto
or theft or misappropriation thereof.
(b) Tenant agrees to indemnify and hold Landlord, its beneficiary,
the managing agent of the Real Property, and their respective officers,
directors, agents, partners and employees harmless against all ACTUAL AND
DIRECT loss, damages, liabilities, claims, liens, cost and expenses, including
without limitation reasonable attorney's fees, in connection with injuries to
any persons or damage to or theft or misappropriation or loss of property
occurring in or about the Premises arising from Tenant's occupancy of the
Premises, or the conduct of its business or from any activity, work, or thing
done, permitted or suffered by Tenant in or about the Premises, including but
not limited to any repairs, installations, alterations or additions undertaken,
for any reason, by Landlord or Tenant, or from any breach or default on the
part of Tenant in the performance of any covenant or agreement on the part of
Tenant to be performed pursuant to the terms of this Lease, or due to any other
act or omission of Tenant, or any of its employees, agents, licensees,
invitees or contractors, provided none of the foregoing are due, in whole or in
part, to Landlord's negligence or willful misconduct.
16. Damage or Destruction by Casualty.
(a) If the Premises or the Building shall be damaged by fire or other
casualty and if such damage does not render all or a substantial portion of the
Premises or the Building untenantable, then Landlord shall proceed with
reasonable promptness to repair and restore the Premises or the Building so as
to render the Premises tenantable, subject to reasonable delays for insurance
adjustments and delays caused by matters beyond Landlord's reasonable control,
and also subject to zoning laws and building codes then in effect. If any such
damage renders all or a substantial portion of the Premises or the Building
untenantable, Landlord shall, except during the last year of the Term hereof,
within thirty (30) days after the occurrence of such damage, estimate the
length of time that will be required to substantially complete the repair and
restoration of the Premises or the Building, as the case may be, necessitated
by such damage and shall by notice advise Tenant of such estimate. If it is so
estimated that the amount of time required to substantially complete such
repair and restoration will exceed 150 days days from the date such damage
occurred, then either Landlord or Tenant (but as to Tenant, only if all or more
than ten percent (10%) of the Premises are rendered untenantable and the
estimated time required to substantially complete such repair or restoration of
the Premises will exceed such 150 day period) shall have the right to
terminate this Lease as of the date of such damage by giving notice to the
other at any time within twenty (20) days after Landlord gives Tenant the
notice containing said estimate (it being understood that Landlord may, if it
elects to do so, also give such notice of
<PAGE>
termination together with the notice containing said estimate). If the
Premises are made partially untenantable as aforesaid during the last year of
the Term hereof, Landlord OR TENANT may terminate this Lease as of the date
of the fire or other casualty by giving written notice thereof to THE OTHER
PARTY within thirty (30) days after the date of the fire or other casualty,
in which event the Monthly Base Rent and any Additional Rent shall be
apportioned on a per diem basis to the date of such fire or other casualty.
Unless this Lease is terminated as provided above in the preceding sentence,
Landlord shall proceed with reasonable promptness to repair and restore the
Building or the Premises so as to render the Premises tenantable, subject to
reasonable delays for insurance adjustments and delays caused by matters
beyond the Landlord's reasonable control, and also subject to zoning laws and
building codes then in effect. Landlord shall have no liability to Tenant,
and Tenant shall not be entitled to terminate this Lease (except as
hereinafter provided) if such repairs and restoration are not in fact
completed within the time period estimated by Landlord, as aforesaid, or
within said 150 days. However, if the Premises are not substantially repaired
or restored within 180 days after the date of such fire or other casualty,
then either party may terminate this Lease, effective as of the date of such
fire or other casualty, by giving written notice to the other party not later
than thirty (30) days after the expiration of said 180 day period, but prior
to substantial completion of repair or restoration. Notwithstanding anything
to the contrary herein set forth: (1) Landlord shall have no duty pursuant to
this Section 16 to repair or restore any portion of improvements, additions
or alterations made by or on behalf of Tenant in the Premises or improvements
which are not building standard improvements performed by Landlord pursuant
to the Work Letter, if any; (2) Landlord shall not be obligated (but may, at
its option, so elect) to repair or restore the Premises or improvements if
the damage is due to an uninsurable casualty or if insurance proceeds are
insufficient to pay for such repair or restoration, or if any Mortgagee
(defined in Section 18) applies proceeds of insurance to reduce its loan
balance, and the remaining proceeds, if any, available to Landlord are not
sufficient to pay for such repair or restoration; and (3) In the event the
Premises or the Building are damaged by fire or the casualty resulting from
Tenant's neglect or intentional act, Landlord shall have no obligation to
rebuild or restore the Building or the Premises or any part thereof and
Tenant shall not have the right to terminate the Lease pursuant to this
Section, nor shall Tenant be released from any of its obligations hereunder
(including, without limitation, its duty to repair the Premises, its
liability to Landlord or damages caused by such fire or other casualty or its
obligation to pay rent).
(b) In the event any such fire or casualty damage renders the
Premises untenantable and if this Lease shall not be terminated pursuant to
the foregoing provisions of this Section 16 by reason of such damage, then
Rent shall abate during the period beginning with the date of such damage and
ending with the date when Landlord substantially completes its repair or
restoration required hereunder. Provided that Tenant occupies restored or
undamaged portions of the Premises, such abatement shall be in an amount
bearing the same ratio to the total amount of Rent for such period as the
portion of the Premises being repaired and restored by Landlord and not
theretofore delivered to Tenant from time to time bears to the entire
Premises. In the event of termination of this Lease pursuant to this Section
16, Rent shall be apportioned on a per diem basis prior to the date of the
fire or casualty.
(c) In the event of any such fire or casualty, and if the Lease is
not terminated pursuant to the foregoing provisions of this Lease, Tenant
shall AT TENANT'S SOLE OPTION, repair and restore any portion of alterations,
additions or improvements made by or on behalf of Tenant in the Premises
which Landlord is not required to restore pursuant to Section 16a and 16b
hereof.
17. Eminent Domain. If the entire Building or a substantial part
thereof, or any part thereof which includes all or a substantial part of the
Premises, or which is necessary to the economical operation of the Building,
shall be taken or condemned by any competent authority for any public or
quasi-public use or purpose, the Term of this Lease shall end upon and not
before the earlier of the date when the possession of the part so taken shall
be required for such use or purpose or the effective date of the taking, and
without apportionment of the award to or for the benefit of Tenant. If any
condemnation proceeding shall be instituted in which it is sought to take or
damage any part of the Real Property, the taking of which would, in
Landlord's opinion, prevent the economical operation of the Building or if
the grade of any street or alley adjacent to the Building is changed or any
such street or alley is closed by any competent
<PAGE>
authority, and such taking, damage, change of grade or closing makes it
necessary or desirable to remodel the Building to conform to the taking,
damage, changed grade or closing, Landlord shall have the right to terminate
this Lease upon not less than ninety (90) days' written notice to Tenant
prior to the date of termination designated in the notice. In either of the
events referred to above, Rent at the then current rate shall be apportioned
on a per diem basis and be payable prior to the date of the termination. No
money or other considerations shall be payable by Landlord to Tenant for the
right of termination. Tenant shall have no right to claim or share in any
condemnation award, whether for a total or partial taking, for loss of
Tenant's leasehold or improvements or other loss or expenses, or in any
judgment for damages caused by any change of grade or street or alley closing.
18. Default: Landlord's Rights and Remedies.
(a) The occurrence of any one or more of the following matters
constitutes a Default by Tenant under this Lease:
(i) Failure by Tenant to pay any Rent within five (5) days
after written notice to Tenant of such failure to pay the same on the due
date;
(ii) Failure by Tenant to pay, within five (5) days after
written notice thereof to Tenant, any other moneys required to be paid by
Tenant under this Lease;
(iii) Failure by Tenant to observe or perform any of the
covenants in respect of assignment, subletting or other transfer of Tenant's
interest under this Lease set forth in Section 14;
(iv) Failure by Tenant to cure forthwith, immediately after
receipt of notice from Landlord, any hazardous condition which Tenant has
created or permitted in violation of law or of this Lease;
(v) Failure by Tenant to observe or perform any other
covenant, agreement, condition or provision of this Lease, if such failure
shall continue for thirty (30) days after written notice thereof from
Landlord to Tenant;
(vi) The levy upon execution or the attachment by legal
process of the Lease hold interest of Tenant, or the filing or creation of a
lien in respect of such leasehold interest, which lien shall not be released,
discharged, bonded over or insured over by the Chicago Title Insurance
Company, within ten (10) days from the date of such filing;
(vii) Intentionally Omitted.
(viii) Tenant becomes insolvent or bankrupt or admits in
writing its inability to pay its debts as they mature, or makes an assignment
for the benefit of creditors, or applies for or consents to the appointment
of a trustee or receiver for Tenant or for the major part of its property;
(ix) A trustee or receiver is appointed for Tenant or for the
major part of its property and is not discharged within thirty (30) days after
such appointment; or
(x) Bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings for relief under any bankruptcy
law, or similar law for the relief of debtors, are instituted (a) by Tenant or
(b) against Tenant and are allowed against it or are consented to by it or are
not dismissed within sixty (60) days after such institution.
(xi) any matter described elsewhere in this Lease as a Default.
(b) If a Default occurs, Landlord shall have the rights and
remedies hereinafter set forth, which shall be distinct, separate and
cumulative and shall not operate to exclude or deprive Landlord of any other
right or remedy allowed it at law or in equity or elsewhere in this Lease:
<PAGE>
(i) Landlord may terminate this Lease by giving to Tenant written
notice of Landlord's election to do so, in which event the Term of this Lease
shall end, and all right, title and interest of Tenant hereunder shall
expire, on the date stated in such notice;
(ii) Landlord may terminate the right of Tenant to possession
of the Premises without terminating this Lease by giving written notice to
Tenant that Tenant's right of possession shall end on the date stated in such
notice, whereupon the right of Tenant to possession of the Premises or any
part thereof shall cease on the date stated in such notice. An election by
Landlord to terminate Tenant's right to possession of the Premises without
terminating the Lease shall not preclude a subsequent election by Landlord to
terminate the Lease; and
(iii) Landlord may enforce the provisions of this Lease and
may enforce and protect the rights of Landlord hereunder by a suit or suits
in equity or at law for the specific performance of any covenant or agreement
contained herein, and for the enforcement of any other appropriate legal or
equitable remedy, including without limitation injunctive relief, and for
recovery of all moneys due to become due from Tenant under any of the
provisions of this Lease. An election by Landlord to enforce its rights
hereunder in a suit or suits in equity or at law shall not preclude a
subsequent election by Landlord to terminate this Lease or terminate Tenant's
right of possession by written notice, as provided above;
(iv) If the Monthly Base Rent is not paid within ten (10) days
after it becomes due, Tenant shall pay, as Additional Rent, an amount equal
to ten (10) percent of all rent due to reimburse Landlord for the loss Tenant
agrees Landlord will incur by reason of Tenant's failure to pay such amount
in a timely manner.
(c) If Landlord exercises any of the remedies provided for in
subparagraphs 1 and 2 of the foregoing Section 18b, Tenant shall surrender
possession of and vacate the Premises and immediately deliver possession
thereof to Landlord, and Landlord may re-enter and take complete and peaceful
possession of the Premises, with or without process of law, full and complete
license so to do being hereby granted to Landlord, and Landlord may remove
all occupants and property therefrom, using such force as may be necessary,
without being deemed in any manner guilty of trespass, eviction or forcible
entry and detainer, and without relinquishing Landlord's right to Rent or any
other right given to Landlord hereunder or by law or in equity.
(d) If Landlord terminates the right of Tenant to possession of the
Premises without terminating this Lease, such termination of possession shall
not release Tenant, in whole or in apart, from Tenant's obligation to pay the
Rent hereunder for the full term, and the aggregate amount of the rent (based
on the latest applicable rate of Base Rent and the rate of the latest
determined additional rent) for the period from the date stated in the notice
terminating possession to the end of the Term shall be immediately due and
payable by the Tenant to the Landlord, together with any other money's due
hereunder, and the Landlord shall have the right, from time to time, to
recover from Tenant, and Tenant shall remain liable for, all Rent not thereto
accelerated and paid pursuant to the foregoing sentence and any other sums
thereafter accruing as they become due under this Lease during the period from
the date of such notice of termination of possession to the stated end of the
Term. In any such case, Landlord will use its best efforts to relet the
Premises or any part thereof for the account of Tenant for such Rent, for such
time (which may be for a term extending beyond the Term of this Lease) and
upon such terms as Landlord in Landlord's sole discretion shall determine and
Landlord may reasonably reject any tenant offered by Tenant and shall not be
required to observe any instructions given by Tenant relative to such
reletting. Also, in any such case, Landlord may make repairs, alterations and
additions in or to the Premises and redecorate the same to the extent deemed
by Landlord necessary or desirable, and in connection therewith Landlord may
change the locks to the Premises, and Tenant shall upon written demand pay
the cost thereof together with Landlord's reasonable actual expenses of
reletting. Landlord may collect the rents from any such reletting and apply
the same first to the payment of the reasonable expenses of reentry,
redecoration, repair and alterations and the reasonable expenses of reletting
and second to the payment of Rent herein provided to be paid by Tenant, and
any excess or residue shall operate only as an offsetting credit against the
amount of Rent due and owing or paid as a result of acceleration or
<PAGE>
as the same thereafter becomes due and payable hereunder, but the use of such
offsetting credit to reduce the amount of Rent due Landlord, if any, shall
not be deemed to give Tenant any right, title or interest in or to such
excess or residue and any such excess or residue shall belong to Landlord
solely; provided that in no event shall Tenant be entitled to a credit on its
indebtedness to Landlord in excess of the aggregate sum (including Base Rent
and Additional Rent) which would have been paid by Tenant for the period for
which the credit to Tenant is being determined, had no Default occurred. No
such re-entry, repossession, repairs, alterations, additions or reletting
shall be construed as an eviction or ouster of Tenant or as an election on
Landlord's part to terminate this Lease, unless a written notice of such
intention is given to Tenant, or shall operate to release Tenant in whole or
in part from any of Tenant's obligations hereunder. Landlord may, at any time
and from time to time, sue and recover judgment for any deficiencies from time
to time remaining after the application from time to time of the proceeds of
any such reletting.
(e) In the event of the termination of this Lease by Landlord as
provided for by subparagraph 1 of section 18B, Landlord shall be entitled to
recover from Tenant all the fixed dollar amounts of Rent accrued and unpaid
for the period up to and including such termination date, as well as all
other additional sums payable by Tenant, or for which Tenant is liable or in
respect of which Tenant has agreed to indemnify Landlord under any of the
provisions of this Lease, which may be then owing and unpaid, and all costs
and expenses, including without limitation court costs and reasonable
attorneys fees incurred by Landlord in the enforcement of its rights and
remedies hereunder, and in addition, Landlord shall be entitled to recover as
damages for loss of the bargain and not as a penalty (1) the unamortized cost
of leasehold improvements, addition, alterations, if any, paid for by
Landlord pursuant to this Lease and any Workletter attached hereto, (2) the
aggregate sum which at the time of such termination represents the excess,
if any, of the present value on the aggregate rents at the same annual rate
for the remainder of the Term as then in effect pursuant to the applicable
provisions of this Lease, over the then present value of the then aggregate
fair rental value of the Premises for the balance of the Term, such present
value to be computed in each case on the basis of a 3% per annum discount
from the respective dates upon which such rentals would have been payable
hereunder had this Lease not been terminated, and (3) any damages in addition
thereto, including reasonable attorneys' fees and court costs, which Landlord
shall have sustained by reason of the breach of any of the covenants of this
Lease other than for the payment of rent.
(f) All property removed from the Premises by Landlord pursuant to
any provisions of this Lease or by law may be handled, removed or stored by
Landlord at the cost and reasonable actual expense of Tenant, and Landlord
shall in no event be responsible for the value, preservation or safekeeping
thereof. Tenant shall pay Landlord for all expenses incurred by Landlord in
such removal and for storage charges for such property so long as the same
shall be in Landlord's possession or under Landlord's control. All such
property not removed from the Premises or retaken from storage by Tenant
within thirty (30) days after the end of the Term, however terminated, or
after the termination of Tenant's right of possession, shall, at Landlord's
option, be conclusively deemed to have been conveyed by Tenant to Landlord as
by bill of sale, without further payment or credit by Landlord to Tenant.
(g) In the event of any default by Tenant as provided in Section
18a, Landlord may, but shall not be obligated to, and without waiving or
releasing Tenant from any obligation under this Lease, make such payment or
perform such other act to the extent Landlord may deem desirable. Tenant
shall pay all such expenses incurred by Landlord, as provided in Section 18h
below.
(h) Tenant or Landlord, as the case may be shall pay all of other
party's reasonable costs, charges and expenses, including without limitation
court costs and reasonable attorney's fees, incurred in enforcing the other
party's obligations under this Lease.
19. Subordination
(a) Landlord may have heretofore or may hereafter encumber with a
mortgage or trust deed the Building, the Land, the Real Property or any
interest therein, and may have heretofore and may hereafter sell and lease
back the Land, or any part of the Real Property, and
<PAGE>
may have heretofore or may hereafter encumber the Lease hold estate under
such lease with a mortgage or trust deed. (Any such mortgage or trust deed is
herein called a "Mortgage" and the holder of any such mortgage or the
beneficiary under any such trust deed is herein called a "Mortgagee." Any
such lease of the underlying land is herein called a "Ground Lease," and the
lessor under any such lease is herein called a "Ground Lessor." Any Mortgage
which is a first lien against the Building, the Land, the Real Property, the
Leasehold estate under a Ground Lease or any interest therein is herein
called a "First Mortgage" and the holder or beneficiary of any first Mortgage
is herein called a "First Mortgagee"). Either the Landlord, or any Mortgagee
may require Tenant to, complete, execute and deliver to Landlord or
Landlord's designee or to any first Mortgagee or Ground Lessor, a written
estoppel certificate pursuant to the terms and conditions of Section 23
hereof.
(b) If requested by a Mortgagee or Ground Lessor, Tenant will
either (i) subordinate its interest in this Lease to said Mortgage or Ground
Lease, and to any and all advances made thereunder and to the interest
thereon, and to all renewals, replacements, supplements, amendments,
modifications and extensions thereof, or (ii) make certain of Tenant's rights
and interest in this Lease superior thereto; and Tenant will promptly execute
and deliver such agreement or agreements as may be reasonably required by
such Mortgagee or Ground Lessor; provided however, Tenant covenants it will
not subordinate this Lease to any Mortgage other than a First Mortgage
without the prior written consent of the First Mortgagee and provided that
such Mortgagee or Ground Lessor simultaneously covenants with Tenant that it
will not disturb Tenant's use and Occupancy of the Premises.
(c) It is further agreed that if any Mortgage shall be foreclosed,
of if any Ground Lease be terminated, (i) the liability of the Mortgagee or
purchaser at such foreclosure sale or the liability of a subsequent owner
designated as Landlord under this Lease shall exist only so long as such
Mortgagee, purchaser or owner is the owner of the Building, Land or Real
Property, and such liability shall not continue or survive after further
transfer of ownership; and (ii) upon written notice of election to Tenant
from the Mortgagee, if the mortgage shall be foreclosed, or form the Ground
Lessor, if the Ground Lease shall be terminated, Tenant agrees to attorn to
the purchaser at any foreclosure sale or to the Ground Lessor, and to
recognize such purchaser or Ground Lessor as the then Landlord under this
Lease to the extent and effect as the original Landlord hereunder. While this
provision shall be self-executing and shall not require any further writing
to be effective, Tenant agrees to execute and deliver, at any time and from
time to time, upon the request of Landlord or any such Mortgagee or Ground
Lessor, any instrument which, in the reasonable judgment of the Landlord, may
be necessary or appropriate in any such events to evidence such attornment.
(d) Should any prospective First Mortgagee or Ground Lessor require
a modification or modifications of this Lease, which modification or
modifications will not cause an increased cost or expense to Tenant or in any
other way materially and adversely change the rights and obligations of
Tenant hereunder, in the reasonable judgment of Tenant, then and in such
event, Tenant agrees that this Lease may be so modified and agrees to execute
whatever documents are reasonably required therefor and deliver the same to
Landlord within ten (10) business days following the request therefor. Should
any prospective Mortgagee or Ground Lessor require execution of a short form
of lease for recording (containing, among other customary provisions, the
names of the parties, a description of the Premises and the Term of this
Lease), Tenant agrees to execute such short form of lease and deliver the
same to Landlord within ten (10) business days following the request therefor.
(e) If Tenant fails within ten (10) business days after written
demand therefor to execute and deliver any instruments as may be reasonably
necessary or proper to effectuate any of the covenants of Tenant set forth
above in this Section 19, Tenant shall be in default hereunder.
20. Mortgagee Protection. Tenant agrees to give any First Mortgagee,
by registered or certified mail, a copy of any notice or claim of default
served upon the Landlord by Tenant, provided that prior to such notice Tenant
has been notified in writing (by way of service on Tenant of a copy of an
assignment of Landlord's interests in leases, or otherwise) of the address of
such First Mortgagee. Tenant further agrees that if Landlord shall have
failed to cure or
<PAGE>
correct such default, then the First mortgagee shall have an additional
thirty (30) days within which to cure or correct such default (or if such
default cannot be cured or corrected within that time, then such additional
time as may be reasonably necessary if such First Mortgagee has commenced
within such thirty (30) days and is diligently pursuing the remedies or steps
necessary to cure or correct such default, before Tenant may exercise any
right or remedy which it may have on account of any such default of Landlord.
21. Insurance and Subrogation.
(a) Tenant, at its sole cost and expense, shall carry insurance
during the entire Term hereof insuring Tenant, and insuring Landlord, the
managing agent for the Real Property and their respective officers,
directors, agents, partners and employees, as their interests may appear,
with terms, coverage and in companies reasonably satisfactory to Landlord,
and with such increases in limits as Landlord may from time to time request,
but initially Tenant shall maintain the following coverages in the following
amounts:
(i) Public liability insurance with the broad form
comprehensive general liability endorsement, including contractual liability
insurance covering Tenant's indemnity obligations hereunder, in an amount not
less than $1,000,000.00 combined single limit per occurrence.
(ii) "All risk" physical damage insurance including fire,
sprinkler leakage, vandalism and extended coverage for the full replacement
cost of all additions, improvements and alterations to the Premises (except
to the extent the same are part of building standard work performed by
Landlord pursuant to the Work Letter, if any, attached hereto) and of all
office furniture, trade fixtures, office equipment, merchandise and all other
items of Tenant's property on the Premises.
(iii) Business interruption or extra expense insurance with
limits not less than those carried by a prudent tenant. Tenant shall, prior
to the commencement of the Term and from time to time during the Term, or at
any time upon written request from Landlord, furnish to Landlord policies or
certificates evidencing the foregoing insurance coverage. Tenant's policies
shall state that such insurance coverage may not be reduced, canceled or not
renewed without at least thirty (30) days' prior written notice to Landlord
and Tenant (unless such cancellation is due to non-payment of premium, and in
that case only ten (10) day's prior written notice shall be sufficient).
(b) Tenant shall comply with all applicable laws and ordinances,
all orders and decrees of court and all requirements of other governmental
authority, and shall not directly or indirectly make any use of the Premises
which may thereby be prohibited or be dangerous to person or property or
which may jeopardize any insurance coverage, or may increase the cost of
insurance or require additional insurance coverage.
(c) Each of Landlord and Tenant hereby waives any and every claim,
including insurer's subrogation claims, for recovery from the other for any
and all loss or damage to the Building or Premises or to the contents
thereof, and including claims for deductible and self-insurance retention
amounts, whether such loss or damage is due to the negligence of Landlord or
Tenant or its respective officers, directors, agents, employees or invitees
of any of them. Furthermore, Landlord and Tenant agree that as respects any
rights or claims between them, they shall each look solely to their
respective insurance carriers in the event of any physical loss or damage.
22. Nonwaiver. No waiver of any condition expressed in this Lease
shall be implied by any neglect of Landlord or Tenant, as the case may be, to
enforce any remedy on account of the violation of such condition, whether or
not such violation be continued or repeated subsequently, and no express
waiver shall affect any condition other than the one specified in such waiver
and that one only for the time and in the manner specifically stated. Without
limiting Landlord's or Tenant's rights under the provision of Section 10, as
the case may be, it is agreed that no receipt of monies by Landlord from
Tenant or attempt to cure the Lease by Landlord after the termination in any
way of the Term or of Tenant's right of possession hereunder or after the
<PAGE>
giving of any notice shall reinstate, continue or extend the Term or affect
any notice given to Tenant or Landlord prior to the receipt of such monies or
such attempt to cure. It is also agreed that after the service or notice or
the commencement of a suit or after final judgment for possession of the
Premises, Landlord may receive and collect any monies due, and the payment of
said monies shall not waive or affect any said notice, suit or judgment.
23. Estoppel Certificate. Tenant agrees that from time to time upon not
less than ten (10) days prior request by Landlord, or any existing or
prospective First Mortgagee or Ground Lessor, Tenant will, and Tenant will
cause any sub-tenant, licensee, concessionaire or other occupant of the
Premises claiming by, through or certificate certifying (a) that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the Lease as modified is in full force and effect and identifying the
modifications); (b) the date upon which Tenant began paying Rent and the dates
to which the Rent and other charges have been paid, (c) that the Landlord is
not in default under any provision of this Lease, or, if in default, the nature
thereof in detail; (d) that the Premises have been completed in accordance with
the terms hereof and Tenant is in occupancy and paying Rent on a current basis
with no rental offsets or claims; (e) that there has been no prepayment of Rent
other than that provided for in the Lease; (f) that there are no actions,
whether voluntary or otherwise, pending against Tenant under the Bankruptcy
Code or the bankruptcy laws of any state, and (g) such other matters as may be
required by the Landlord, First Mortgagee, or Ground Lessor, including, without
limitation, any other information concerning the status of this Lease or the
parties' performance hereunder reasonably requested by the party to whom such
estoppel certificate is to be addressed. Tenants' failure to complete, execute
and deliver any such estoppel certificate within the aforesaid ten (10) day
period shall be deemed to be a Default under Section 18 of this Lease.
24. Tenant - Corporation or Partnership. In case Tenant is a corporation,
Tenant (1) represents and warrants that this Lease has been duly authorized,
executed and delivered by and on behalf of Tenant and constitutes the valid and
binding agreement of Tenant in accordance with the terms hereof and (2) if
Landlord so requests, Tenant shall deliver to Landlord, concurrently with the
delivery of this Lease executed by Tenant, certified resolutions of the board
of directors (and shareholders, if required) authorizing Tenant's execution and
delivery of this Lease and the performance of Tenant's obligations hereunder.
In case Tenant is a partnership, Tenant represents and warrants that all of the
persons who are general or managing partners in said partnership have executed
this Lease on behalf of Tenant, or that this Lease has been executed and
delivered pursuant to and in conformity with a valid and effective
authorization therefor by all of the general or managing partners of such
partnership, and is and constitutes the valid and binding agreement of the
partnership and each and every partner therein in accordance with its terms, to
the extent permitted by law. If Tenant is a partnership or corporation whose
stock is not publicly traded, then at the time this Lease is executed and from
time to time thereafter, at Landlord's request, Tenant shall furnish landlord
with a list of Tenant's partners or shareholders, as the case may be.
25. Real Estate Brokers. Tenant AND LANDLORD represent and warrant that
BOTH PARTIES HAVE dealt with and only with Corporate Real Estate Solutions and
Goodman Realty Group as broker in connection with this Lease and agrees to
indemnify and hold THE OTHER PARTY harmless from all losses, damages and
liabilities, claims, liens, costs and expenses including without limitation
reasonable attorneys' fees, arising from any claims or demands of any other
broker or brokers or finders for any commission alleged to be due such other
broker or brokers or finders claiming to have dealt with Tenant OR LANDLORD in
connection with this Lease.
26. Notices. All notices to or demands upon Landlord or Tenant desired
or required to be given under any of the provisions hereof shall be in
writing. Any notices or demands from Landlord to Tenant shall be deemed to
have been given if a copy thereof has been personally delivered to Tenant or
Tenant's agent (including without limitation delivery by messenger or
courier) or two (2) days after such notice is mailed by United States
registered or certified mail addressed to Tenant at the Premises. If Tenant
is a corporation and is not in occupancy of the Premises, any notices or
demands from Landlord to Tenant shall also be deemed to have been given if a
copy thereof is mailed by registered or certified mail to Tenant's registered
agent in Illinois. Any notices or demands from Landlord to Tenant may be
signed by Landlord, its beneficiary, the managing agent for the Real Property
or any agent of any of them. Any notices
<PAGE>
or demands from Tenant to Landlord shall be deemed to have been given if a copy
thereof has been personally delivered to Landlord (including without limitation
delivery by messenger or courier, with evidence of receipt) at Landlord's
address for payment of Rent or mailed by registered or certified mail return
receipt requested with a copy to Building Manager, c/o Goodman Realty Group,
2835 North Sheffield, Chicago, Illinois 60657. Either party may, upon notice to
the other, change its address for receipt of notices or demands. All notices to
or demands upon Landlord or Tenant mailed by registered or certified mail shall
be deemed served at the time the same were posted.
27. Miscellaneous.
(a) Each provision of this Lease shall extend to and shall bind and
inure to the benefit not only of Landlord and Tenant, but also their respective
heirs, legal representatives, successors and assigns, but this provision shall
not operate to permit any assignment, subletting, mortgage, lien, charge, or
other transfer or encumbrance contrary to the provisions of this Lease, and
this Lease shall not inure to the benefit of any assignee, heir,
administrators, devisees, legal representative, transferee or successor of
Tenant except upon the prior written consent or election of Landlord.
(b) no modification, waiver or amendment of this Lease or of any of
its conditions or provisions shall be binding upon Landlord unless in writing
signed by Landlord.
(c) Submission of this instrument for examination shall not
constitute a reservation of or option for the Premises or in any manner bind
Landlord, and no lease or obligation of Landlord shall arise until this
instrument is signed and delivered by Landlord and Tenant; provided, however,
the execution and delivery by Tenant of this Lease to Landlord or the managing
agent or leasing agent of the Real Property shall constitute an irrevocable
offer by Tenant to lease the Premises on the terms and condition herein
contained, which offer may not be revoked for fifteen (15) days after such
delivery.
(d) The word "Tenant" whenever used herein shall be construed to
mean Tenants or any one or more of them in all cases where there is more than
one Tenant; and the necessary grammatical changes required to make the
provisions hereof apply either to corporations or other organizations,
partnerships or other entities, or individuals, shall in all cases be assumed
as though in each case fully expressed. In all cases where there is more than
one person or entity comprising Tenant, the liability of each shall be joint
and several.
(e) Clauses, plats, exhibits and riders, if any, affixed to this
Lease are made an integral part hereof. In the event of variation or
discrepancy the duplicate original hereof, including such clauses, plats,
exhibits and riders, attached hereto shall control.
(f) The headings of Sections are for convenience only and shall not
be used to limit, expand or construe the contents of the Sections.
(g) Time is of the essence of this Lease and of each and all
provisions thereof.
(h) All amounts (including, without limitation, Base Rent and
Additional Rent) owed by Tenant to Landlord pursuant to any provision of this
Lease shall bear interest from the day due until paid at the annual rate equal
to three percentage points in excess of the rate of interest announced from
time to time by the First National Bank of Chicago or any successor thereto, as
its corporate base rate, unless a lesser rate shall then by the maximum rate
permissible by law with respect thereto, in which event said lesser rate shall
be charged. NOTWITHSTANDING THE ABOVE, INTEREST WILL BE WAIVED FOR UP TO FIVE
DAYS FOR THE FIRST FIVE TIMES DURING THE TERM OF THIS LEASE THAT BASE RENT AND
ADDITIONAL RENT IS NOT RECEIVED WHEN DUE.
(i) the invalidity or unenforceability of any provision of this
Lease shall not impair or affect in any manner the validity, enforceability or
effect of any other provisions of this Lease.
<PAGE>
(j) All negotiations, considerations, representations,
understandings and agreements, oral or written, heretofore made between the
parties hereby and any of their agents are merged in this Lease, which alone
fully and completely express the agreement between Landlord and Tenant.
Nothing contained in this Lease shall be deemed or construed by the parties
hereto or by any third party, to create the relationship of principal and
agent, partnership, joint venture or any association between Landlord and
Tenant, it being expressly understood and agreed that neither the method of
computation of rent nor any other provisions contained in this Lease not any
acts of the parties hereto shall be deemed to create any relationship between
Landlord and Tenant other than the relationship of landlord and tenant. The
laws of the State of Illinois shall govern the validity, performance and
enforcement of this Lease.
(k) Without limiting the provisions of Section 7 or any other
provisions of this Lease, if Landlord fails to perform timely any of the
terms, covenants and conditions of this Lease on Landlord's part to be
performed and such failure is due in whole or in part to any strike,
lockout, labor trouble, civil disorder, inability to procure materials, failure
of power, restrictive governmental laws and regulations, riots,
insurrections, war, fuel shortages, accidents, casualties, acts of God, acts
caused directly or indirectly by Tenant (or any other cause beyond the
reasonable control of Landlord), then Landlord shall not be deemed in default
under this Lease as result of such failure, unless such failure is due, in
whole or in part, to Landlord's negligence or willful misconduct.
(l) Any rights, reserved or granted to Landlord hereunder may be
exercised by Landlord, its beneficiaries or the managing agents for the Real
property or their respective agents, employees, contractors or designees.
(m) Any payment received from Tenant may be applied by Landlord at
any time against any obligation due and owing by Tenant under this Lease,
notwithstanding any statement appearing on or referred to in any remittance
from Tenant or any prior application of such payment. If a petition under the
Bankruptcy Code is initiated within ninety (90) days after receipt by
Landlord of any such payment, the payment shall be deemed applicable to any
unpaid obligations then due in the inverse order of their maturity.
(n) At any time hereafter, Landlord may (upon ninety (90) days
prior notice) substitute for the Premises other premises in the Building
(herein referred to as the "New Premises") provided that the New Premises
shall be useable for Tenant's purpose, and of similar quality, view, and
containing similar improvements; and if Tenant is already in occupancy of the
Premises, then in addition Landlord shall pay the expenses of Tenant's moving
from the Premises to the New Premises and for improving the New Premises so
that they are substantially similar to the Premises, including the reasonable
cost of Tenant's stationary. Such move shall be made during evenings,
weekends, or otherwise so as to incur the least inconvenience to Tenant.
(o) Tenant acknowledges that the Premises are located in a heavy
timber building with open ceilings, except as shown herein, and exposed
brick walls. As such, Landlord cannot be responsible for Tenant equipment or
Tenant space use that has special sensitivity to dust exposure such as
computer equipment or other types of activities.
(p) The underlining of any words, numbers or sentences in this
Lease shall not alter their meaning in any manner.
28. Prior Occupancy. Landlord may, but only by giving prior written
consent, authorize Tenant to take possession of all or any part of the
Premises prior to the Commencement Date. If Tenant does take possession
pursuant to authority so given, all of the covenants and conditions of this
Lease shall apply to and shall control such pre-Term occupancy. Rent for such
pre-Term occupancy shall be paid upon occupancy on the first day of each
calendar month thereafter at the rate set forth in Section 1 and Section 3
hereof. If the Premises are occupied for a fractional month, Rent shall be
prorated on a per diem basis for such fractional month. No such early
possession shall be deemed to accelerate the stated Expiration Date of this
Lease.
29. Security Deposit. Concurrently with the execution of this Lease,
Tenant has deposited with Landlord or its beneficiaries the sums as provided
in Section 1 as security for the
<PAGE>
full and faithful performance of every provision of this Lease to be
performed by Tenant, such sums to be held by Landlord without any obligation
on Landlord's part to pay or credit any interest thereon. If Tenant defaults
with respect to any provision of this Lease, including but not limited to the
provisions relating to the payment of Rent, and improper removal of property
from the Premises upon termination of either the Lease or Tenant's right to
possession, Landlord, at Landlord's option, may use, apply or retain any
part of said security deposit for the payment of any Rent and any other sum
in default, or for the payment of 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 reason or
Tenant's default. If any portion of said security deposit is so used or
applied, Tenant shall within TEN (10) days after written demand therefor
deposit cash with Landlord or its beneficiaries or other designee or Landlord
in an amount sufficient to restore the security deposit to the amount
required by the lease, and Tenant's failure to do so shall be a material
breach of this Lease. The use, application or retention of the security
deposit, or any portion thereof, by Landlord shall not prevent Landlord from
exercising any other right or remedy provided by this Lease or by law or at
equity (it being intended that Landlord shall not first be required to
proceed against the security deposit) and shall not operate as a limitation on
any recovery to which Landlord may otherwise be entitled. Except to the
extend required by law, Landlord and its beneficiaries shall not be
required to keep said security deposit separate from their general funds and
Tenant shall not be entitled to interest on any security deposit. In no
event shall the security deposit held hereunder be used or credited to the
final months' Rent hereunder. If Tenant shall fully and faithfully perform
every provision of this Lease to be performed by it, said security deposit or
any balance thereof shall be returned to Tenant within thirty (30) days after
the expiration of the Lease Term and Tenant's vacation of the Premises. In
Absence of evidence satisfactory to the Landlord of permitted assignments of
the right to receive the security deposit, or of the remaining balance
thereof, Landlord may return the same to the original Tenant, regardless of
one or more assignments of Tenant's interest in this Lease or the security
deposit. In the event, upon the return of the security deposit, or the
remaining balance thereof, to the original Tenant, Landlord shall be
completely relieved of liability with respect to the security deposit.
Landlord may deliver the security deposit funds deposited hereunder by Tenant
to the purchaser of Landlord's interest in Building, in the event that such
interest is sold, and thereupon Landlord and its beneficiaries shall be
discharged from any further liability with respect to said security deposit,
although such purchaser shall be liable to Tenant hereunder. Notwithstanding
anything to the contrary contained herein, so long as Tenant has not been in
default in the payment of any monies due under this Lease the thirty seventh
month Base Rent and the forty ninth month Base Rent can be satisfied by
reducing the security deposit accordingly.
30. Right of Termination. This Section Intentionally Omitted.
31. Landlord. The term "Landlord" as used in this Lease means only the
owner of Landlord's interest in the Premises from time to time. In the event
of any assignment, conveyance or sale, once or successively, of Landlord's
interest in the Premises or any assignment of this Lease by Landlord, said
Landlord making such sale, conveyance or assignment shall be and hereby is
entirely freed and relieved of all covenants and obligations of Landlord
hereunder accruing after such sale, conveyance or assignment, and Tenant
agrees to look solely to such purchaser, grantee or assignee with respect
thereto. A Mortgagee (or assignee under an assignment in connection with a
Mortgage) shall not be deemed such a purchaser, grantee or assignee under this
Section 31, unless and until the foreclosure of any Mortgage or the
conveyance or transfer of Landlord's interest under this Lease in lieu of
foreclosure, and then subject to the provisions of Section 19. This Lease
shall not be affected by any such assignment, conveyance or sale, the Tenant
agrees to attorn the purchaser, grantee or assignee, and such purchaser,
grantee or assignee shall be subject to the terms and conditions hereof.
32. Title and Covenant Against Liens. Landlord's title is and always
shall be paramount to the title of Tenant, and nothing in this Lease
contained shall empower Tenant to do any act which can, shall or may encumber
the title of Landlord. Tenant covenants and agrees not to suffer or permit
any lien of mechanics or materialmen to be placed upon or against the
Premises, the Building the Land, or against the Tenant's leasehold interest
in the Premises and, in case of any such lien attaching, to immediately pay
and remove, bond over, or induce Chicago Title Insurance Company to insure
over same. Tenant has no authority or power to cause or permit
<PAGE>
any lien or encumbrance of any kind whatsoever, whether created by act of
Tenant, operation of law or otherwise, to attach to or be placed upon the
Premises, the Building or the Land, and any and all liens and encumbrances
created by Tenant shall attach only to Tenant's interest in the Premises. If
any such liens so attach and Tenant fails to pay and remove the same within
ten (10) days after written demand by Landlord, Landlord, at its elective,
may pay and satisfy the same, and in such event the sums so paid by Landlord,
with interest from the date of payment at the rate set forth in Section 27
hereof for amounts owned Landlord by Tenant, shall be deemed to be additional
rent due and payable by Tenant immediately upon written notice from Landlord.
33. Default Under Other Leases. If the term of any lease or Tenant's
possession under any lease heretofore or hereafter made by Tenant for any
space in the Building, other than this Lease, shall be terminated or
terminable after the making of this Lease because of any default by Tenant
under such other lease, such fact shall be default hereunder and shall
empower Landlord to terminate this Lease upon notice to Tenant or to exercise
any of the rights or remedies set forth in Section 18.
34. Exculpatory Provisions. It is expressly understood and agreed by and
between the parties hereto, anything herein to the contrary notwithstanding,
that each and all of the representations, warranties, covenants, undertaking
and agreements herein made on the part of any Landlord while in form
purporting to the representations, warranties, covenants, undertakings and
agreements of such Landlord are nevertheless each and every one of them made
and intended, not as personal representations, warranties, covenants,
undertakings and agreements by such Landlord, or for the purpose or with the
intention of binding such Landlord personally, but are made and intended for
the purpose only of subjecting such Landlord's interest in the Premises and
the Real Property to the terms of this Lease and for no other purpose
whatsoever, and in case of default hereunder by such Landlord (or default
through, under or by any of the agents or representatives), Tenant shall look
solely to the interest of such Landlord in the Premises and the Real Property
and Landlord shall not have any personal liability to pay any indebtedness
accruing hereunder or to perform any covenant, either express or implied,
herein contained; that no personal liability or personal responsibility of
any sort is assumed by, nor shall at any time be asserted or enforceable
against, Landlord, individually or personally, on account of this Lease or on
account of any representation, warranty, covenant, undertaking or agreement
of Landlord in this Lease contained, either express or implies, all such
personal liability, if any, being expressly waived and released by Tenant and
by all persons claiming, through or under Tenant.
35. Liability. In the absence of fraud, no person, firm or corporation
executing this Lease as agent, trustee or in any other representative capacity
or the heirs, administrators, executors, legal representatives, successors,
assigns, officers, directors or employees of any such person, firm or
corporation, shall ever be deemed or held individually liable hereunder for any
reason whatsoever.
36. Hazardous Materials. Tenant, its agents, employees or contractors,
shall not (either with or without negligence) cause or permit the escape,
disposal or release of any biologically or chemically active or other
hazardous substance or materials on or about the Premises. Tenant shall not
allow the generating, storage or use of such substances or materials on or
about the Premises in any manner not sanctioned by law or by the highest
standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Premises any such
materials or substances except to use in the ordinary course of Tenant's
business, and then only after written notice is given to Landlord of the
identity of such substances or materials. Without limitations, hazardous
substances and materials shall include those described in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended,
42 U.S.C. 9601 et seq., any applicable state or local laws and the
regulations adopted under these acts. If any lender or governmental agency
shall ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall be
reimbursed by Tenant to Landlord upon demand as additional charges if such
requirement applies to the Premises. In addition, Tenant shall execute
affidavits, representations and the like from time to time at Landlord's
request concerning Tenant's best knowledge, without inquiry, regarding the
presence of hazardous substances or materials on the Premises. In all events,
Tenant shall indemnify Landlord in the manner elsewhere provided in
<PAGE>
reasonable costs thereof shall be reimbursed by Tenant to Landlord upon
demand as additional charges in such requirement applies to the Premises. In
addition, Tenant shall execute affidavits, representations and the like from
time to time at Landlord's request concerning Tenant's best knowledge,
without inquiry, regarding the presence of hazardous substances or materials
on the Premises. In all events, Tenant shall indemnify Landlord in the manner
elsewhere provided in this Lease from any release of hazardous materials on
the Premises caused by Tenant or persons acting under Tenant. Tenant shall,
at Tenant's cost and expense, take all investigatory and/or remedial action
required or ordered by any governmental authority, statute or ordinance for
the cleanup and removal of any contamination involving such hazardous
substances created or caused directly or indirectly by Tenant during Term.
Such remediation shall include the corrective work and restoring of the
Premises to the functional condition prior to the required actions for
cleanup and removal of any contamination involving such hazardous substances.
Tenant's liability under this Section shall survive the expiration of the
Lease. Landlord represents and warrants that the Premises are in compliance,
and will be in compliance as of the Effective Date, with all applicable laws,
rules, requirements, and the like.
IN WITNESS WHEREOF, the parties have caused this Lease to be
executed as of the date first above written.
LANDLORD:
Sheffield Square L.L.C., and Illinois limited liability company
/s/ GARY D. GOODMAN
- ---------------------------------- -------------------------------------
Gary D. Goodman
ITS: Manager
TENANT:
Extranet Solutions, L.L.C., a Delaware Limited Liability Company
ATTEST: BY: /s/ Alan Warms
--------------------------- --------------------
ITS: MANAGING MEMBER
-------------------------
<PAGE>
EXHIBIT B
ADDITIONAL LEASE PROVISIONS
"Rentable Area of the Premises" shall be deemed to be 6250 GROSS square feet,
"Rentable Area of the Building" shall be deemed to be 19,163 square feet.
1. Tenant's Proportionate Share.
For those expense item(s) attributable to tenants generally of the Building,
including Taxes and Expenses, "Tenant's Proportionate Share" shall be
determined by dividing the Rentable Area of the Premises by the Rentable Area
of the Building. This percentage shall be deemed to be 32.6 percent. For
those expense item(s) not attributable to tenants generally in the Building,
Tenant's Proportionate Share will be determined by dividing the Rentable Area
of the Premises by the Rentable Area of the Building reduced by rentable
square feet in the Building that does not utilize that particular expense
item(s). The Landlord's Statement shall list Tenant's Proportionate Share
for each expense item(s).
2. Tenant's Expenses. Intentionally Omitted
3. Pass Throughs.
In the event the Building Expenses during any Adjustment year shall exceed
the Expenses paid during the Base year, Tenant shall pay, as Additional Rent,
Tenant's proportionate share of such increases.
4. Base Rent Escalation.
In addition, on each of the annual anniversary dates of the Commencement Date
of the Lease, the Base Rent shall increase as follows:
<TABLE>
<CAPTION>
YEAR ANNUAL MONTHLY
RENT BASE RENT
<S> <C> <C>
1 $116,340 $ 9,695
2 $121,224 $10,102
3 $126,326 $10,527
4 $131,658 $10,972
5 $137,231 $11,436
</TABLE>
5. Intentionally Omitted.
6. Parking.
Landlord will provide three (3) unassigned staff parking spaces for Tenant's
use and one (1) client parking spaces with a maximum of five (5) in and outs
per day in lots controlled by the Landlord which are within one block of the
Building, or, if parked by valet service, street parking within one block of
the Building, during normal business hours, which shall be defined as 8:00
A.M. to 6:00 P.M. weekdays and 9:00 A.M. to 1:00 P.M. Saturdays. The use of
these spaces shall be subject to those terms and conditions listed below:
Landlord shall make this parking available except when presented with
circumstances beyond its control.
Tenant acknowledges that the Landlord is not responsible for damage or loss
caused by any and all events, including but not limited to storm, theft,
accident, vandalism, or any loss of personal property within the vehicle and
shall indemnify and save Landlord harmless from any liability for loss
arising out of such circumstances.
<PAGE>
IF ANY GOVERNMENTAL AUTHORITY CANCELS OR RESTRICTS LANDLORDS PARKING RIGHTS
OR IF THE CTA CANCELS IT LEASE WITH LANDLORD, Landlord retains the right to
cancel this parking agreement at any time providing the Tenant with one
month's written prior notice. Should Tenant be in default under the terms of
this Lease, Landlord may cancel this parking agreement without notice.
Landlord retains the right to cancel guest parking at any time and change
from a monthly fee to a daily cash basis fee.
Tenant agrees to abide by all rules and regulations as may be established
from time to time by Landlord, and shall display a parking permit in the
vehicle when using the parking lot.
In the event Landlord cancels or terminates any of the parking space to be
made available to Tenant under this paragraph, the Monthly Base Rent due from
Tenant shall be reduced by the amount of $80.00 per month per parking space
from the time of such cancellation or termination.
7. AS AN INCENTIVE TO LANDLORD TO EXECUTE THIS LEASE, TENANT HAS STATED THAT
IT HOPES TO RECEIVE $500,000 FROM INVESTORS BY MARCH 1, 1999. IN THE EVENT
THAT TENANT HAS NOT RECEIVED ONE HALF OF THIS SUM BY FEBRUARY 5, 1999 AND THE
ENTIRE SUM BY MARCH 1, 1999, LANDLORD, AT LANDLORD'S SOLE OPTION, MAY CANCEL
THIS LEASE BY PROVIDING WRITTEN NOTICE TO TENANT BY MARCH 15, 1999. IN THE
EVENT THAT THIS LEASE IS CANCELLED, TENANT WILL BE RESPONSIBLE FOR REPAYING
LANDLORD FOR ALL COSTS OF EXHIBIT C AND ANY OTHER WORK DONE IN THE PREMISES
FOR TENANT.
<PAGE>
EXHIBIT C
WORK LETTER
945 W. George Street, Chicago, Illinois
This Work Letter is attached to the foregoing Lease (the "Lease")
wherein Tenant is leasing certain office space (the "Premises") in 945 W.
George Street, Chicago, Illinois. Capitalized terms used herein, unless
otherwise defined in the Work Letter, shall have the respective meanings
assigned to them in the Lease.
Landlord and Tenant named in the Lease hereby agree as follows:
Premises will be delivered in "as is" conDITION EXCEPT AS FOLLOWS:
PREMISES WILL BE RECARPETED, PATCHED WHERE NECESSARY AND REPAINTED
DAMAGED OR STAINED CEILING TILES WILL BE REPLACED.
KITCHEN BASE CABINETS AND SINK WILL BE INSTALLED IN KITCHEN.
ALL DOORS WILL BE INSTALLED AND FUNCTIONAL.
ALL LIGHTING, EXISTING ELECTRICAL AND HVAC WILL BE IN GOOD WORKING ORDER.
The first floor elevator entry will be tiled and finished in a manner similar
to the first floor stair entrance.
ALL OTHER PROVISIONS OF EXHIBIT C HAVE BEEN INTENTIONALLY OMITTED.
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. Access to Building: On Saturdays (except from 8:00 A.M. to 1:00
P.M.), Sundays and holidays, and on other days between the hours of 6:00
P.M. and 8:00 A.M. the following day, access to the Building may be
restricted and access shall be gained only by exhibiting an appropriate
security pass or by otherwise complying with the established Building
security regulations. Landlord may from time to time establish security
controls and regulations for the purpose of regulating or restricting access
to the Building. Landlord may restrict access to washrooms by key
combination or other security device. Tenant shall abide by all such
security controls and regulations so established.
2. Protecting Premises: Before leaving the premises unattended,
Tenant shall close and securely lock all doors or other means of entry to the
Premises and shut off all utilities, lights and machines in the Premises.
Tenant shall be responsible for protecting the Premises and all property and
persons in the Premises from theft, robbery, pilferage and other crimes and
keeping the Premises secure.
3. Building Directory: The directory of the Building shall display
Tenant's name and will be provided at the expense of Landlord. Any
additional names other than Tenant's name requested by Tenant to be displayed
in the directory must be approved by Landlord in writing, and, if so
approved, will be provided at the sole expense of the Tenant.
4. Large Articles: Furniture, freight and other large or heavy
articles may be brought into the building only at times and in the manner
(including use of freight elevators and the loading area) designated by
Landlord, and always at Tenant's sole responsibility. All damage done to the
Building by moving or maintaining such furniture, freight or articles shall
be repaired at the expense of Tenant. Removal of all furniture, equipment,
cartons and similar articles from the Premises or the Building shall be
arranged with the Management Office prior to the move.
5. Signs: Tenant shall not paint, display, inscribe, maintain or
affix any sign, placard, picture, advertisement, name, notice, lettering or
direction on any part of the outside or inside of the Building, or on any
part of the outside of the Premises, or any part of the inside of the
Premises which can be seen from the outside of the Premises, without the
prior written consent of Landlord, and then only such name or names or
content and in such a color, size, style, character, material and manner of
affixing as may be first reasonably approved by Landlord in writing.
Landlord reserves the right to remove at Tenant's expense all sign matter
not consented to or approved by Landlord.
6. Advertising: Tenant shall not in any manner use the name of the
Building for any purpose or use any picture or likeness of the Building in
any letterheads, envelopes, circulars, notices, advertisements, containers or
wrapping material.
7. Compliance with Laws: Tenant shall comply with all applicable
laws, ordinances, governmental orders and regulations and applicable orders
and directions from any public office or body having jurisdiction, with
respect to the Premises or the Building and the use or occupancy thereof.
Tenant shall not make or permit any use of the Premises or the Building which
directly or indirectly is forbidden by law, ordinance, governmental
regulation or order or direction of applicable public authority, or which may
be dangerous to person or property.
8. Hazardous Materials: Tenant shall not use (or permit to be brought
into the Premises or the Building) any flammable oils or fluids, or any
explosive or other articles deemed hazardous to persons or property, or do or
permit to be done anything in or upon the Premises or bring or keep anything
therein, which shall not comply with all rules, orders, regulations or
requirements of any organization, bureau, department or body having
jurisdiction with respect thereto (and Tenant shall at all times comply with
all such rules, orders, regulations or
<PAGE>
requirements), or which shall invalidate or increase the rate of insurance on
the Building, its appurtenances, contents or operation.
9. Defacing and Altering Premises and Overloading: Tenant shall not
place anything or allow anything to be placed in the Premises near the glass
of any door, partition, wall or window which may be unsightly from outside
the Premises, and Tenant shall not place or permit to be placed any article
of any kind on any window ledge or on the outside of the exterior walls of
the Premises or the Building. Blinds, shades, awnings or other forms of
outside window ventilators or similar devices, shall not be placed in or
about the outside windows in the Premises. No blinds, shades, draperies or
other forms of inside window covering other than those provided by Landlord
or approved in writing by the Landlord may be installed in the Premises.
Excepting therefrom the following, the cost of which to Tenant is less than
Five Thousand and No/100 Dollars ($5,000.00), Tenant shall not do any
painting or decorating in the Premises or install any floor coverings in the
Premises or make, paint, cut or drill into, drive nails, screws or other
fasteners into or in any way deface any part of the Premises or Building
without in each instance obtaining the prior written consent of Landlord,
which shall not be unreasonably withheld. Tenant shall not overload any floor
or part therof in the premises in excess of the live load therefor, or any
facility in the Building or any public corridors or elevators therein while
bringing in or removing any large or heavy articles. Landlord may direct and
control the location of safes and all other heavy articles and, if considered
necessary by Landlord, require supplementary supports at the expense of
Tenant of such material and dimensions as Landlord may deem necessary to
properly distribute the weight.
10. Obstruction of Public Areas: Tenant shall not take or permit to be
taken in or out of other entrances of the Building, or take or permit on
other elevators, any item normally or required by Landlord to be taken in or
out through service doors or in or on freight elevators; and Tenant shall
not, whether temporarily, accidentally or otherwise, allow anything to remain
in, place or store anything, in or obstruct in any way, any sidewalk, court,
passageway, entrance, exit, loading or shipping area or hall, corridor,
elevator or stairway. Tenant shall lend its full cooperation to keep such
areas free from all obstruction and in a clean and sightly condition, and
move all supplies, furniture and equipment as soon as received directly to
the Premises, and shall move all such items and waste (other than waste
customarily removed by Building emloyees) that are at any time being taken
from the Premises directly to the areas designated for disposal. All courts,
passageways, entrances, exits, loading or shipping areas, elevators,
stairways, corridors, halls and roofs are not for the use of the general
public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence in the judgment of
Landlord shall be prejudicial to the safety or security of the Building or
its occupants. No tenant and no employee, agent, licensee, invitee or
contractor of Tenant shall enter into areas reserved for the exclusive use of
Landlord or its agents, employees, licensees or invitees.
11. Keys and Additional Locks: Tenant shall not attach or permit to be
attached additional locks or similar devices to any door or window, change
existing locks or the mechanisms thereof, or make or permit to be made any
keys or any door other than those provided by Landlord. If more than two keys
for one lock are desired, Landlord will provide them to Tenant upon payment
therefor by Tenant. Upon termination of this lease or of Tenant's possession,
Tenant shall surrender all keys to the Premises and all keys for offices,
rooms or toilet rooms which have been furnished to Tenant or which Tenant
shall have made, and in the event of loss of any keys so furnished, Tenant
shall pay Landlord therefor.
12. Communications or Utility Connections: If Tenant desires signal,
communication, alarm or other utility or similar service connections
installed or changed. Tenant shall not install or change the same without the
prior written approval of Landlord, and then only under direction of Landlord
and at Tenant's expense. Tenant shall not install in the Premises any
equipment which requires a substantial amount of electrical current,
including without limitation computer or data processing equipment, without
the advance written consent of Landlord, and Tenant shall ascertain from
Landlord the maximum amount of load or demand for or use of electrical
current which can safely be permitted in the Premises, taking into account
the capacity of the electric wiring in the Building and the Premises and the
needs of other tenants of the Building, and shall not in any event connect a
greater load than such safe capacity.
<PAGE>
13. Management Office: Service requirements of Tenant will be attended to
only upon application at the management office for the Building. Employees of
Landlord, its beneficiaries or the managing agent of the Real Property shall
not perform any work or do anything outside of their duties unless under
special instructions from Landlord.
14. Outside Services: No tenant shall obtain for use upon the Premises
ice, drinking water, towel or other similar services on the Premises, except
from persons authorized by Landlord and at the hours and under regulations
fixed by Landlord.
15. Toilet Rooms: The toilet rooms, urinals, wash bowls and the other
bathroom apparatus shall not be used for any purpose other than for which
they were constructed, and no foreign substance of any kind whatsoever shall be
thrown therein, and the expense of any breakage, stoppage or damage resulting
from the violation of this rule shall be borne by the tenant who, or whose
employees, agents, licensees, invitees or contractors, shall have caused it.
16. Intoxication: Landlord reserves the right to exclude or expel from the
Building any person who, in the judgment of Landlord, is intoxicated or under
the influence of liquor or other drugs, or who shall in any manner do any act
in violation of any of the rules of the Building.
17. Vending Machines: No vending machines of any description shall be
installed, maintained or operated in the Premises without the prior written
consent of Landlord.
18. Nuisances and Certain Other Prohibited Uses: Tenant shall not (i)
conduct itself or permit its employees, agents, licensees, invitees or
contractors to conduct themselves in a manner inconsistent with the comfort or
convenience of other tenants or the first-class character of the Buliding; (ii)
install or operate any internal combustion engine, boiler, machinery,
refrigerating, heating or air-conditioning apparatus or space heater in or
about the Premises; (iii) carry on any business in or about the Premises or
the Building or sell any article, thing or service except those ordinarily
embraced within the permitted use of the Premises specified in Section 3; (iv)
use the Premises for housing, lodging or sleeping purposes; (v) this section
intentionally omitted; (vi) place any radio or television antennae on the roof
or on or in any part of the inside or outside of the Building other than the
inside of the Premises; (vii) operate or permit to be operated any radio,
television, record player, stereo, tape player, musical instrument or other
sound producing instrument or device inside or outside the Premises which may be
heard outside the Premises; (viii) use any illumination or power for the
operation of any equipment or device other than electricity; (ix) operate any
electrical device from which may emanate electrical waves which may interfere
with or impair radio or television broadcasting or reception from or in the
Building or elsewhere; (x) bring or permit to be in the Building any bicycle or
other vehicle, or dog (except in the company of a blind or deaf person) or
other animal or bird; (xi) make or permit any objectionable noise or odor to
emanate from the Premises; (xii) disturb, solicit or canvass any occupant of the
Building; (xiii) do anything in or about the Premises tending to create or
maintain a nuisance or do any act tending to injure the reputation of the
Building; or (xiv) throw or drop or permit to be thrown or dropped any article
from any terrace, window or other opening in the Building.
19. Room-to-Room Canvass: Tenant shall not make any room-to-room canvass
to solicit business from other tenants or occupants of the Building or for
any other purpose and shall not exhibit, sell or offer to sell, use, rent or
exchange any products or services in or from the Premises unless ordinarily
embraced within the permitted use of the Premises specified in Section 3.
20. Waste: Tenant shall not waste electricity, water, heat or
air-conditioning and agrees to cooperate fully with Landlord to assure the most
effective and energy efficient operation of the Building heating and
air-conditioning, and shall not allow the adjustment (except by Landlord's
authorized building personnel) of any electricity, water, heat or
air-conditioning controls. Tenant shall keep corridor doors closed and shall not
open any windows, except that if the air circulation shall not be in operation,
windows which are operable may be opened with Landlord's prior written consent.
Tenant shall lower and adjust any venetian blinds,
<PAGE>
shades or draperies on the windows in the Premises if such lowering and
adjustment reduces the sunlight and additional heat load created thereby in
the Premises.
21. All desk chairs must have plastic carpet pads beneath them to avoid
damage to carpet and subfloor.
22. All movement of garbage out of the Premises shall be done at hours
designated by the Landlord.
23. This Section Intentionally Omitted.
24. Unless specifically provided for in this Lease, Tenant shall not use
Landlord-controlled parking lots, and shall instruct its agents, employees
and invitees not to do so. Landlord shall have the right to tow all
unauthorized vehicles and assess daily parking rates to repeated offenders.
<PAGE>
EXHIBIT 10.15
--------------------------------------------------------
UNION TOWER
---------------------------------------------------------
OFFICE LEASE
BETWEEN
UNION TOWER INVESTORS II, L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
LANDLORD
AND
PARTICIPATE.COM, INC.
A DELAWARE CORPORATION
TENANT
DATED FEBRUARY 9, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1
PREMISES AND TERM..............................................................1
ARTICLE 2
BASE RENT......................................................................2
ARTICLE 3
ADDITIONAL RENT................................................................2
ARTICLE 4
COMMENCEMENT OF TERM...........................................................5
ARTICLE 5
CONDITION OF PREMISES..........................................................5
ARTICLE 6
USE AND RULES .................................................................5
ARTICLE 7
SERVICES AND UTILITIES ........................................................6
ARTICLE 8
ALTERATIONS AND LIENS .........................................................9
ARTICLE 9
REPAIRS ......................................................................11
ARTICLE 10
CASUALTY DAMAGE ..............................................................11
ARTICLE 11
INSURANCE, SUBROGATION, AND WAIVER OF CLAIMS .................................13
<PAGE>
ARTICLE 12
CONDEMNATION .................................................................14
ARTICLE 13
RETURN OF POSSESSION .........................................................15
ARTICLE 14
HOLDING OVER .................................................................16
ARTICLE 15
NO WAIVER ....................................................................16
ARTICLE 16
ATTORNEYS' FEES AND JURY TRIAL ...............................................17
ARTICLE 17
PERSONAL PROPERTY TAXES, RENT TAXES AND OTHER TAXES ..........................17
ARTICLE 18
REASONABLE APPROVALS .........................................................17
ARTICLE 19
SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION............................17
ARTICLE 20
ESTOPPEL CERTIFICATE .........................................................18
ARTICLE 21
ASSIGNMENT AND SUBLETTING ....................................................19
ARTICLE 22
RIGHTS RESERVED BY LANDLORD ..................................................22
<PAGE>
ARTICLE 23
LANDLORD'S REMEDIES ..........................................................23
ARTICLE 24
LANDLORD'S RIGHT TO CURE .....................................................27
ARTICLE 25
CAPTIONS, DEFINITIONS AND SEVERABILITY .......................................28
ARTICLE 26
CONVEYANCE BY LANDLORD AND LIABILITY .........................................33
ARTICLE 27
INDEMNIFICATION ..............................................................33
ARTICLE 28
SAFETY AND SECURITY DEVICES, SERVICES AND PROGRAMS............................34
ARTICLE 29
COMMUNICATIONS AND COMPUTER LINES ............................................34
ARTICLE 30
HAZARDOUS MATERIALS ..........................................................36
ARTICLE 31
MISCELLANEOUS ................................................................38
ARTICLE 32
OFFER ........................................................................39
ARTICLE 33
NOTICES ......................................................................39
<PAGE>
ARTICLE 34
REAL ESTATE BROKERS ..........................................................39
ARTICLE 35
SECURITY DEPOSIT .............................................................40
ARTICLE 36
AMERICANS WITH DISABILITIES ACT...............................................41
ARTICLE 37
OPTION TO EXTEND .............................................................42
ARTICLE 38
SIGNS ........................................................................44
ARTICLE 39
PARKING / GENERATOR ..........................................................46
ARTICLE 40
TERMINATION OPTION ...........................................................48
ARTICLE 41
EXPANSION OPTION .............................................................48
ARTICLE 42
ENTIRE AGREEMENT .............................................................50
</TABLE>
RIDER ONE
EXHIBIT A - BASE RENT
EXHIBIT B - EXCLUSIONS FROM OPERATING EXPENSES
EXHIBIT C - FORM OF LETTER OF CREDIT
EXHIBIT D - CLEANING AND JANITORIAL SPECIFICATIONS
EXHIBIT E - COMMENCEMENT DATE AND EXPIRATION DATE CONFIRMATION
WORK AGREEMENT
<PAGE>
OFFICE LEASE
THIS LEASE made as of the 9th day of February, 2000 (the "EFFECTIVE
DATE"), between UNION TOWER INVESTORS II, L.L.C., a Delaware limited
liability company ("Landlord"), and PARTICIPATE.COM, INC. a Delaware
corporation ("TENANT"), whose address is 945 West George Street, Chicago,
Illinois 60657.
WITNESSETH:
ARTICLE 1
PREMISES AND TERM
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
that certain space (the "PREMISES") consisting of the entire rentable area on
the sixteenth (16th) floor (consisting of 20,667 rentable square feet) (the
"SIXTEENTH FLOOR PREMISES") and the entire rentable area on the seventeenth
(17th) floor (consisting of 20,667 rentable square feet) (the "SEVENTEENTH FLOOR
PREMISES"), in the building known as Union Tower (the "BUILDING"), located at
550 West Van Buren Street, Chicago, Illinois (the "PROPERTY," as further
described in Article 25), subject to the provisions herein contained. The term
of this Lease (the "TERM") shall commence on the Sixteenth Floor Commencement
Date (as hereafter defined) (the "COMMENCEMENT DATE"). If Tenant does not
exercise the Expansion Option (as defined in Article 41), the Term shall end on
the date that is the last day of the 120th full calendar month following the
Commencement Date, unless sooner terminated as provided herein. If Tenant
exercises the Expansion Option (as defined in Article 41), the Term shall end on
the date that is the last day of the 120th full calendar month following the
Expansion Space Commencement Date (as defined in Article 41), unless sooner
terminated as provided herein. The applicable date on which this Lease ends is
referred to herein as the "EXPIRATION DATE,"
The term of this Lease with respect to the Sixteenth Floor Premises
shall commence on the date (the "SIXTEENTH FLOOR COMMENCEMENT DATE") which is
the earlier to occur of (i) the "sixteenth floor delivery date," or (ii)
"Substantial Completion" of the "Sixteenth Floor Work" (as such terms are
defined in the Work Agreement between Landlord and Tenant, entered into
contemporaneously herewith). The Term of this Lease with respect, to the
Seventeenth Floor Premises shall commence on the date (the Seventeenth Floor
Commencement Date") which is the earlier to occur of (i) the "SEVENTEENTH FLOOR
DELIVERY DATE," or (ii) "Substantial Completion" of the "Seventeenth Floor
Work" (as such terms are defined in the Work Agreement). Promptly after
Landlord Substantially Completes the Sixteenth Floor Work and the Seventeenth
Floor Work, Landlord and Tenant shall execute and deliver to each other a
supplement to this Lease in the form attached as EXHIBIT E confirming the
Commencement Date and Expiration Date. If Tenant exercises the Expansion Option,
then promptly after Landlord Substantially Completes the "Expansion Space Work"
(as defined in Article 41), Landlord and Tenant
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shall execute and deliver to each other an additional supplement to this Lease
in the form attached as Exhibit E confirming the Commencement Date and revised
Expiration Date.
Landlord and Tenant agree that for purposes of this Lease, the rentable
area of the Premises is 41,334 square feet and the rentable area of the Property
is 332,608 square feet. The rentable area of the Premises shall increase to
62,001 square feet in the event that Tenant exercises the Expansion Option (as
defined in Article 41).
ARTICLE 2
BASE RENT
Tenant shall pay Landlord Base Rent as set forth in EXHIBIT A attached
hereto, in monthly installments, in advance on or before the first day of each
calendar month during the Term, except that Base Rent for the first full
calendar month for which Base Rent shall be due, shall be paid when Tenant
executes this Lease. If the Commencement Date is a day other than the first day
of a calendar month, or if the Term ends on a day other than the last day of a
calendar month, then the Base Rent for such month shall be prorated by
multiplying the then applicable monthly Base Rent by a fraction, the numerator
of which is the number of days in the partial month included in the Term and the
denominator of which is 30.
ARTICLE 3
Additional Rent
(A) TAXES. Tenant shall pay Landlord an amount equal to Tenant's
Prorata Share of Taxes in excess of the amount of Taxes paid by Landlord during
the calendar year 2000 ("BASE TAX YEAR"). The terms "TAXES" and "TENANTS PRORATA
SHARE" shall have the meanings specified therefor in Article 25.
(B) OPERATING EXPENSES. Tenant shall pay Landlord an amount equal to
Tenant's Prorata Share of Operating Expenses in excess of the amount of
Operating Expenses paid by Landlord during the calendar year 2000 ("BASE EXPENSE
YEAR"). The term "OPERATING EXPENSES" shall have the meaning specified therefor
in Article 25.
(C) MANNER OF PAYMENT. Taxes and Operating Expenses shall be paid in
the following manner:
(i) Landlord may reasonably estimate in advance the amounts Tenant
shall owe for Taxas and Operating Expenses for any full or
partial calendar year of the Term; provided that no such
estimated payments shall be payable until the calendar year
2001. In such event, Tenant shall pay such estimated amounts,
on a monthly basis, on or before the first day of each
calendar month, together with Tenant's payment of Base Rent.
Such estimate may be reasonably adjusted from time
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to time by Landlord, but not more than one (1) time in any
calendar year and only upon thirty (30) days prior written
notice to Tenant.
(ii) Within one hundred twenty (120) days after the end of each
calendar year, or as soon thereafter as practicable, Landlord
shall provide a statement (the "STATEMENT") to Tenant showing:
(a) the amount of actual Taxes and Operating Expenses for such
calendar year, with a listing of amounts for major categories
of Operating Expenses, and such amounts for the Base Year, (b)
any amount paid by Tenant towards Taxes and Operating Expenses
during such calendar year on an estimated basis, and (c) any
revised estimate of Tenant's obligations for Taxes and
Operating Expenses for the current calendar year as reasonably
determined by Landlord.
(iii) If the Statement shows that Tenant's estimated payments were
less than Tenant's actual obligations for Taxes and Operating
Expenses for such year, Tenant shall pay the difference. If
the Statement shows an increase in Tenant's estimated payments
for the current calendar year, Tenant shall pay the difference
between the new and former estimates, for the period of
January 1 of the current calendar year through the month in
which the Statement is sent. Tenant shall make such payments
within thirty (30) days after Landlord sends the Statement.
(iv) If the Statement shows that Tenant's estimated payments
exceeded Tenant's actual obligations for Taxes and Operating
Expenses, Tenant shall receive a credit for the difference
against payments of Rent next due. If the Term shall have
expired and no further Rent shall be due, Tenant shall receive
a refund of such difference, within thirty (30) days after
Landlord sends the Statement.
(v) So long as Tenant's obligations hereunder are not adversely
affected thereby, Landlord reserves the right to reasonably
change, from time to time, the manner or timing of the
foregoing payments. In lieu of providing one Statement
covering Taxes and Operating Expenses, Landlord may provide
separate statements, at the same or different times. No delay
by Landlord in providing the Statement (or separate
statements) shall be deemed a default by Landlord or a waiver
of Landlord's right to require payment of Tenant's obligations
for actual or estimated Taxes or Operating Expenses. In no
event shall a decrease in Taxes or Operating Expenses below
the Base Year amounts ever decrease the monthly Base Rent, or
give rise to a credit in favor of Tenant. All Statement (or
separate statements) must be delivered to Tenant within three
(3) years from the end of the applicable calendar in which
such amounts are inccured.
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(D) PRORATION. If the Term commences other than on January 1, or ends
other than on December 31, Tenant's obligations to pay estimated and actual
amounts towards Taxes and Operating Expenses for such first or final calendar
years shall be prorated to reflect the portion of such years included in the
Term. Such proration shall be made by multiplying the total estimated or actual
(as the case may be) Taxes and Operating Expenses, for such calendar years 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.
(E) LANDLORD'S RECORDS. Landlord shall maintain records respecting
Taxes and Operating Expenses and determine the same in accordance with generally
accepted accounting principles, consistently applied. Although this Lease
contemplates the computation of Taxes and Operating Expenses on a cash basis,
Landlord shall make reasonable and appropriate accrual adjustments to ensure
that each calendar year includes substantially the same recurring items.
Landlord reserves the right to change to a full accrual system of accounting so
long as the same is consistently applied and Tenant's obligations are not
adversely affected. Tenant or its representative shall have the right to examine
such records, including records for the Base Year, upon reasonable prior notice
specifying such records Tenant desires to examine, during normal business hours
at the place or places where such records are normally kept (provided that such
records shall be kept in, or made available for Tenant's review in, Chicago,
Illinois) by sending such notice no later than ninety (90) days following the
furnishing of the Statement. Tenant may take exception to matters included in
Taxes or Operating Expenses, or Landlord's computation of Tenant's Prorata Share
of either, by sending notice specifying such exception and the reasons therefor
to Landlord within thirty (30) days after Tenant completes its audit, but in no
event later than ninety (90) days after Landlord furnishes the Statement. Such
Statement shall be considered final, except as to matters to which exception is
taken after examination of Landlord's records in the foregoing manner and within
the foregoing times. Tenant acknowledges that Landlord's ability to budget and
incur expenses depends on the finality of such Statement, and accordingly agrees
that time is of the essence of this Paragraph. If Tenant takes exception to any
matter contained in the Statement as provided herein, Landlord shall refer the
matter to an independent certified public accounting firm designated by
Landlord, which firm shall not have prepared the Statement, whose certification
as to the proper amount shall be final and conclusive as between Landlord and
Tenant. Tenant shall promptly pay the cost of such certification unless such
certification determines that Tenant was overbilled by more than three percent
(3%), in which event Landlord shall pay the cost of such certification. If such
certification indicates that the amount actually paid by Tenant, in relation to
a matter for which Tenant has taken exception pursuant to this Paragraph,
exceeds the amount Tenant should have paid, then Landlord shall credit the
difference against the then next due payments to be made by Tenant under this
Article 3, or if the Lease has expired, such amount shall be refunded to Tenant
within thirty (30) days of such certification. Pending resolution of any such
exceptions in the foregoing manner, Tenant shall continue paying Tenant's
Prorata Share of Taxes and Operating Expenses in the amounts determined by
Landlord, subject to adjustment after any such exceptions are so resolved.
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In the event that a tenant of the Building other than Tenant performs
an audit of Landlord's books and records regarding such tenant's prorata share
of Taxes or Operating Expenses, and such audit reveals that Landlord made an
error in the computation of an item of Taxes or Operating Expenses, and
provided that (1) such error was not de minimis, and (2) tenants of the
Building, including Tenant, pay their Prorata Share of the item of Taxes or
Operating Expenses that is the subject of such error on the same basis as the
tenant that performed the audit, then Landlord shall adjust Tenant's Prorata
Share of such item in the same manner as adjusted for the tenant that performed
the audit, whether increased or decreased.
(F) RENT AND OTHER CHARGES. Base Rent, Taxes, Operating Expenses and
any other amounts which Tenant is or becomes obligated to pay Landlord under
this Lease or other agreement entered into in connection herewith, are sometimes
herein referred to collectively as "Rent," and all remedies applicable to the
non-payment of Rent shall be applicable thereto. Rent shall be paid at any
office maintained by Landlord or its agent at the Property, or at such other
place as Landlord may designate in writing with reasonable notice to Tenant.
ARTICLE 4
COMMENCEMENT OF TERM
The Commencement Date is set forth in Article 1. During any period that
Tenant shall be permitted to enter the Premises prior to the Commencement Date,
other than to occupy the same (E.G., to perform alterations or improvements),
Tenant shall comply with all terms and provisions of this Lease, except those
provisions requiring the payment of Rent.
ARTICLE 5
CONDITION OF PREMISES
Tenant agrees to accept the Premises, Property, Systems and Equipment
(as defined in Article 25) "as is," except for latent defects, without any
agreements, representations, understandings or obligations on the part of
Landlord to perform any alterations, repairs or improvements except as expressly
set forth in this Lease or the Work Agreement.
ARTICLE 6
USE AND RULES
Tenant shall use the Premises for general office purposes and no other
purpose whatsoever, in compliance with all applicable Laws, and without
disturbing or interfering with any other tenant or occupant of the Property.
Tenant will comply with all Laws
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regulations and other requirements, including without limitation, environmental,
health, safety and police requirements and regulations respecting the Premises,
now or hereinafter in force, at its sole cost, and will not use the Premises for
any immoral purposes; provided, however, that Tenant shall not be obligated to
make any structural or capital improvements to the Premises in order to comply
with any particular Law unless such Law is applicable to the Premises due to
Tenant's specific use thereof. Tenant shall not use the Premises in any manner
so as to cause a cancellation of Landlord's insurance policies, or an increase
in the premiums thereunder. Tenant shall comply with all rules set forth in
Rider One attached hereto (the "RULES"). Landlord shall have the right to
reasonably amend such Rules and supplement the same with other reasonable Rules
(not expressly inconsistent with this Lease) relating to the Property, or the
promotion of safety, care, cleanliness or good order therein, and all such
amendments or new Rules shall be binding upon Tenant after five (5) days notice
thereof to Tenant, provided that any amendment or supplement to the Rules does
not materially and adversely affect any of Tenant's rights under this Lease. All
Rules shall be applied on a non-discriminatory basis, but nothing herein shall
be construed to give Tenant or any other Person (as defined in Article 25) any
claim, demand or cause of action against Landlord arising out of the violation
of such Rules by any other tenant, occupant, or visitor of the Property, or out
of the enforcement or waiver of the Rules by Landlord in any particular
instance. In the event of any conflict between the terms of this Lease and the
Rules, the terms of this Lease shall govern.
ARTICLE 7
SERVICES AND UTILITIES
Landlord shall provide the following services and utilities (the cost
of which shall be included in Operating Expenses unless otherwise stated herein
or in any separate rider hereto):
(A) Heat and air-conditioning from 7:00 a.m. until 6:00 p.m. Monday
through Friday, except on Holidays (as defined in Article 25), and on Saturdays
from 8:00 a.m. until 1:00 p.m. The Building standard heating, ventilating and
air conditioning system is set forth in Exhibit C to the Work Agreement, and
Landlord shall maintain the system in accordance therewith, subject to
adjustments pursuant to mandatory and voluntary compliance by Landlord with Laws
relating to energy use. Landlord shall not be responsible for inadequate
air-conditioning or ventilation to the extent the same occurs because Tenant
uses any item of equipment consuming more than 500 watts at rated capacity
without providing adequate air-conditioning and ventilation therefor. Whenever
heat generating machines or equipment installed by Tenant affect the temperature
otherwise maintained by Landlord in the Premises, or whenever the occupancy or
electrical load exceeds the air conditioning standards set forth by Landlord,
Landlord shall be relieved of responsibility for maintaining such standards and
in such event Tenant shall, promptly, following delivery of written notice by
Landlord to Tenant, either (i) discontinue use of such heat generating machines
or equipment, or (ii) install supplementary air conditioning units in the
Premises, the cost, installation, operation and maintenance of
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which shall be paid by Tenant to Landlord at such rates as Landlord generally
charges tenants in the Building from time to time, which rates shall be
available in the office of the Building. Tenant has requested, and Landlord has
consented to, the installation of a supplemental HVAC unit for the Sixteenth
Floor Premises, the size of which shall be subject to Landlord's reasonable
approval and the installation of which shall be performed in accordance with
plans approved in advance by Landlord. The maximum available amount of
supplemental air conditioning capacity that is connected to the Building's
condenser water riser and available to Tenant for such supplemental HVAC unit is
15 tons per full floor of the Premises. Tenant may re-allocate a portion of the
supplemental air conditioning capacity that is available to the Premises toward
a particular floor of the Premises, provided that in no event may Tenant's
allocation of supplemental air conditioning capacity to a single floor of the
Premises exceed thirty (30) tons. Tenant will cooperate with Landlord and abide
by all regulations and requirements which Landlord may prescribe for the proper
functioning of the ventilating and air conditioning systems.
(B) Water for drinking, lavatory and toilet purposes at those points of
supply provided for nonexclusive general use of other tenants at the Property.
(C) Customary office cleaning and trash removal service, Monday through
Friday evenings, in and about the Premises, in accordance with the Cleaning and
Janitorial Specifications attached hereto as Exhibit D.
(D) Operatorless passenger elevator service and freight elevator
service (subject to scheduling by Landlord) in common with Landlord and other
tenants and their contractors, agents and visitors.
(E) Tenant shall have access to the Building twenty-four (24) hours per
day, seven (7) days per week. After normal business hours, access to the
Building will be provided using a key card or other similar access and
monitoring system. A security representative of Landlord will be at the Property
twenty-four (24) hours per day, seven (7) days per week.
(F) Landlord shall seek to provide such extra utilities or services
as Tenant may from time to time request, if the same are reasonable and
feasible for Landlord to provide and do not involve modifications or
additions to the Property or existing Systems and Equipment (as defined in
Article 25), and if Landlord shall receive Tenant's request within a
reasonable period prior to the time such extra utilities or services are
required. Landlord may comply with written or oral requests by any officer or
employee of Tenant, unless Tenant shall notify Landlord of, or Landlord shall
request, the names of authorized individuals (up to 3 for each floor on which
the Premises are located) and procedures for written requests. Tenant shall,
for such extra utilities or services, pay the rates that Landlord generally
charges tenants in the Building for such utilities or services, which rates
shall be available in the office of the Building and are subject to
adjustment from time to time. All charges for such extra utilities or
services shall be due at the same time as the installment of Base Rent with
which the same are billed, or if billed separately, shall be due within
thirty (30) days after such billing. In the event Tenant shall
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fail to make payment for such additional services, Landlord may, in addition to
all other remedies which Landlord may have for the non-payment of Rent and
without notice to Tenant, discontinue any or all such additional services, and
such discontinuance shall not be held or pleaded as an eviction or as a
disturbance in any manner whatsoever of Tenant's possession, or relieve Tenant
from the payment of Rent when due, or vary or change any other provision of this
Lease, or render Landlord liable for damages of any kind whatsoever.
At Tenant's sole cost and expense, the Premises shall be separately
metered and Tenant shall pay directly to the utility company all electricity
charges with respect to Tenant's electrical consumption within the Premises.
Tenant's use of electrical service shall not exceed the safe and lawful capacity
of the Building's existing electrical circuits, which are designed to and shall
provide a total of 7.5 watts per rentable square foot for all Tenant
requirements, including lighting, outlets and supplemental air conditioning. In
the event that Tenant requires HVAC service outside of the normal Building hours
set forth in Article 7(A) above, Landlord shall seek to provide same, provided
that Landlord shall receive Tenant's request within a reasonable period prior to
the time such extra HVAC service is needed. Landlord may comply with written or
oral requests by any officer or employee of Tenant. Tenant shall pay the rates
that Landlord generally charges tenants in the Building for such extra HVAC
service, which rates shall be available in the office of the Building and are
subject to adjustment from time to time. All charges for extra HVAC service
shall be due at the same time as the installment of Base Rent with which the
same are billed, or if billed separately, shall be due within thirty (30) days
after such billing. Landlord's current charges for extra HVAC service are $50 to
$60 per hour. Tenant shall pay for the cost of all supplemental air conditioning
capacity used by Tenant based on the rates that Landlord generally charges
tenants in the Building for such usage, which rates shall be available in the
office of the Building and are subject to adjustment from time to time.
Landlord's current charges for supplemental air conditioning capacity is $30 per
ton per month. Alternatively, Tenant may pay for supplemental air conditioning
capacity based upon Tenant's actual usage thereof as determined through Tenant's
installation of a meter off the riser that measures Tenant's use thereof.
Landlord agrees to operate and maintain the Building in accordance with
the standard of other comparable first-class office buildings in the Chicago
loop area.
Landlord does not warrant that any services or utilities will be free
from shortages, failures, variations, or interruptions caused by repairs,
maintenance, replacements, improvements, alterations, changes of service,
strikes, lockouts, labor controversies, accidents, inability to obtain services,
fuel, stream, water or supplies, governmental requirements or requests, or other
causes beyond Landlord's reasonable control. None of the same shall be deemed an
eviction or disturbance of Tenant's use and possession of the Premises or any
part thereof, or render Landlord liable to Tenant for abatement of Rent, or
relieve Tenant from performance of Tenant's obligations under this Lease.
Landlord in no event shall be liable for damages by reason of loss of profits,
business interruption or other consequential damages.
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Notwithstanding anything to the contrary in the Lease, in the event
that there shall be an interruption, curtailment or suspension of the Building's
elevator, electricity or HVAC service or water supply in the manner required to
be provided in this Article 7 (and no reasonably equivalent alternative service
or supply is provided by Landlord and Tenant is unable to and does not use the
Premises or more than 20,000 rentable square feet of the Premises as a result of
such interruption, curtailment or suspension (a "SERVICE INTERRUPTION"), and if
(i) such Service Interruption shall not have been caused, in whole or in part,
by an act or omission or negligence of Tenant, or of Tenant's agents, employees,
contractors or visitors, (ii) such Service Interruption does not arise as a
result of a matter, event or condition affecting the general area in which the
Property is located, such as a city-wide power outage, and (iii) Tenant shall
have given written notice respecting such Service Interruption to Landlord, such
Service Interruption continues for more than five (5) consecutive business days
after Landlord receives such notice, Rent hereunder shall thereafter be abated
in the same proportion as the portion of the Premises affected by the Service
Interruption bears to the entire Premises from the end of such five (5)
consecutive business day period until such time as such services or utilities
are restored or Tenant begins using the Premises (or affected portion thereof)
again for the conduct of Tenant's business, whichever shall first occur. If a
Service Interruption occurs and if (i) such Service Interruption shall not have
been caused, in whole or in part, by an act or omission or negligence of
Tenant, or of Tenant's agents, employees, contractors or visitors, and (ii) such
Service Interruption does not arise as a result of a matter, event or condition
affecting the general area in which the Property is located, such as a city-wide
power outage, Tenant may terminate this Lease if Landlord fails to
substantially complete the cure of such Service Interruption within one hundred
twenty (120) days after commencing the same, subject to extension due to force
majeure (as defined in Article 10), provided that such extension for force
majeure shall not exceed thirty (30) days. In order to exercise the foregoing
termination right, Tenant must send Landlord written notice of termination
specifying the basis for termination at any time after the expiration of the 120
day period (as the same may be extended by reason of force majeure) described in
the preceding sentence. Such termination right shall not be available to Tenant
if Landlord substantially completes the cure of such Service Interruption prior
to receiving Tenant's termination notice. Such abatement of Rent and termination
right shall be Tenant's sole recourse in the event of a Service Interruption.
ARTICLE 8
ALTERATIONS AND LIENS
Tenant shall make no additions, changes, alterations or improvements
(the "WORK") to the Premises or the Systems and Equipment (as defined in
Article 25) pertaining to the Premises without the prior written consent of
Landlord, which consent will not be unreasonably withheld, conditioned or
delayed, as long as any proposed additions, changes, alterations or
improvements do not affect the Systems and Equipment or the structure of the
Property and as long as Tenant complies with the other requirements of this
Article 8. Although Tenant must comply with the other provisions of this
Article 8,
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Tenant must provide prior notice to Landlord, but need not obtain Landlord's
consent, as a condition of performing (a) cosmetic improvements such as
painting or re-carpeting, or (b) additions, changes, alterations or
improvements that do not affect the Systems and Equipment or the structure of
the Property and which cost less than $25,000 in the aggregate. Landlord may
impose reasonable requirements as a condition of such consent including
without limitation the submission of plans and specifications for Landlord's
prior written approval, obtaining necessary permits, posting bonds, obtaining
insurance, prior approval of contractors, subcontractors and suppliers, prior
receipt of copies of all contracts and subcontracts, contractor and
subcontractor lien waivers, affidavits listing all contractors,
subcontractors and suppliers, use of union labor (if Landlord uses union
labor), affidavits from engineers reasonably acceptable to Landlord stating
that the Work will not adversely affect the Systems and Equipment or the
structure of the Property, and reasonable requirements as to the manner and
times in which such Work shall be done. All Work shall be performed in a good
and workmanlike manner and all materials used shall be of a quality
comparable to or better than those in the Premises and Property and shall be
in accordance with plans and specifications approved by Landlord, and
Landlord may require that all such Work be performed under Landlord's
supervision. In all cases, Tenant shall pay Landlord's out-of-pocket expenses
incurred in connection with Landlord's review of Tenant's plans and
specifications and Landlord's supervision of the Work. If Landlord consents
or supervises, the same shall not be deemed a warranty as to the adequacy of
the design, workmanship or quality of materials, and Landlord hereby
expressly disclaims any responsibility or liability for the same. Landlord
shall under no circumstances have any obligation to repair, maintain or
replace any portion of the Work, unless the necessity for such repair,
maintenance or replacement is due to the negligence or willful misconduct of
Landlord or its agents or their respective employees or contractors.
Tenant shall keep the Property and Premises free from any mechanic's,
materialman's or similar liens or other such encumbrances in connection with any
Work on or respecting the Premises not performed by or at the request of
Landlord, and shall indemnify and hold Landlord harmless from and against any
claims, liabilities, judgments, or costs (including attorneys' fees) arising out
of the same or in connection therewith. Tenant shall give Landlord notice at
least ten (10) days prior to the commencement of any Work on the Premises (or,
if applicable, such additional time as may be necessary under applicable Laws to
afford Landlord the opportunity of posting and recording appropriate notices of
non-responsibility). Within thirty (30) days after written notice by Landlord of
the existence of a lien, Tenant shall either (i) cause the lien to be released
and removed of record, (ii) provide Landlord with endorsements (reasonably
acceptable to Landlord and any Holder) to Landlord's and Holder's title
insurance policies insuring against the enforcement of such lien, or (iii)
provide Landlord with a bond from a company reasonably satisfactory to Landlord
and in form, substance and amount reasonably satisfactory to Landlord, insuring
against loss arising from the enforcement of such lien. If Tenant shall fail to
take any of the foregoing actions, Landlord may pay the amount necessary to
remove such lien or encumbrance, without being responsible for investigating the
validity thereof. The amount so paid shall be deemed additional Rent under this
Lease payable upon demand, without limitation as to other remedies available to
Landlord under this Lease. Nothing contained in this Lease shall authorize
Tenant to do any act which shall
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subject Landlord's title to the Property or Premises to any liens or
encumbrances whether claimed by operation of law or express or implied contract.
To the fullest extent permitted by applicable Law, any claim to a lien or
encumbrance upon the Property or Premises arising in connection with any Work on
or respecting the Premises not performed by or at the request of Landlord shall
be null and void, or at Landlord's option shall attach only against Tenant's
interest in the Premises and shall in all respects be subordinate to Landlord's
title to the Property and Premises.
ARTICLE 9
REPAIRS
Except for customary cleaning and trash removal provided by Landlord
under Article 7, and damage covered under Article 10, Tenant shall keep the
Premises in good and sanitary condition, working order and repair (including
without limitation, carpet, wallcovering, doors, plumbing and other fixtures,
equipment, alterations and improvements whether installed by Landlord or
Tenant). In the event that any repairs, maintenance or replacements are
required, Tenant shall promptly arrange for the same either through Landlord for
such reasonable charges as Landlord may from time to time establish, or such
contractors as Landlord generally uses at the Property or such other contractors
as Landlord shall first reasonably approve in writing, and in a first class,
workmanlike manner. If Tenant does not with reasonable promptness make such
arrangements, Landlord may, after reasonable prior notice to Tenant, but need
not, make such repairs, maintenance and replacements, and the actual
out-of-pocket costs paid or incurred by Landlord therefor shall be reimbursed by
Tenant promptly after request by Landlord (such request to be accompanied by
supporting documentation in reasonable detail). Tenant shall indemnify Landlord
and pay for any repairs, maintenance and replacements to areas of the Property
outside the Premises, the Systems or Equipment, caused, in whole or in part, as
a result of moving any furniture, fixtures, or other property to or from the
Premises, or by Tenant or its employees, agents, contractors, or visitors.
Except as provided in the preceding sentence, or for damage covered under
Article 10, Landlord shall keep the common areas, the Systems and Equipment and
the structural portions of the Property in good and sanitary condition, working
order and repair, and in general compliance with all applicable laws, rules and
regulations and in accordance with the standard of other comparable first-class
office buildings in the Chicago loop area (the cost of which shall be included
in Operating Expenses, as described in Article 25, except as limited therein).
ARTICLE 10
CASUALTY DAMAGE
If the Premises or any common areas of the Property providing access
thereto shall be damaged by fire or other casualty, and if such casualty does
not cause a termination of this Lease as hereinafter provided, Landlord shall
use available insurance proceeds to restore the same. Such restoration shall be
to substantially the condition prior to the casualty, except for modifications
required by zoning and building codes and other Laws,
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any other modifications to the common areas deemed desirable by Landlord
(provided access to the Premises is not materially impaired) or required by any
Holder (as defined in Article 25), and except that Landlord shall not be
required to repair or replace any of Tenant's furniture, furnishings, fixtures
or equipment, or any alterations or improvements in excess of any work performed
or paid for by Landlord under any separate agreement signed by the parties in
connection herewith. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or its visitors, or injury to Tenant's business resulting in
any way from such damage or the repair thereof. However, Landlord shall allow
Tenant a proportionate abatement of Rent during the time and to the extent the
Premises are unfit for occupancy for the conduct of Tenant's business and not
occupied by Tenant for the conduct of Tenant's business as a result thereof
(unless Tenant or its employees or agents caused the damage). Notwithstanding
the foregoing to the contrary, Landlord may elect to terminate this Lease by
notifying Tenant in writing of such termination within sixty (60) days after the
date of damage (such termination notice to include a termination date providing
at least ninety (90) days for Tenant to vacate the Premises), if the Property
shall be materially damaged by Tenant or its employees or agents, or if the
Property shall be damaged by fire or other casualty or cause such that: (a)
repairs to the Premises and access thereto cannot reasonably be completed within
one hundred fifty (150) days after the casualty without the payment of overtime
or other premiums, (b) more than forty percent (40%) of the Premises is affected
by the damage, and fewer than 18 months remain in the Term, or any material
damage occurs to the Premises during the last 12 months of the Term, (c) any
Holder (as defined in Article 25) shall require that the insurance proceeds or
any portion thereof be used to retire the Mortgage debt (or shall terminate the
ground lease, as the case may be), or the damage is not fully covered by
Landlord's insurance policies, or (d) the cost of the repairs, alterations,
restoration or improvement work would exceed forty percent (40%) of the
replacement value of the Building. Tenant agrees that Landlord's obligation to
restore, and the abatement of Rent provided herein, shall be Tenant's sole
recourse in the event of such damage, and, except as provided below in this
Article 10, Tenant waives any other rights Tenant may have under any applicable
law to terminate the Lease by reason of damage to the Premises or Property.
Tenant acknowledges that this Article represents the entire agreement between
the parties respecting damage to the Premises or Property.
Notwithstanding anything to the contrary contained in this Article 10,
Tenant may terminate this Lease if Tenant is unable to use all or a substantial
portion of the Premises for the conduct of Tenant's business as a result of fire
or other casualty not caused by Tenant or its employees or agents, and (a)
Landlord fails to commence, restoration work to the Premises within sixty (60)
days after the damage occurs, or (b) Landlord fails to substaintially complete
such work within one hundred fifty (150) days after the date of such casualty,
or such additional time as may be necessary due to strikes, lock-outs or other
labor troubles, shortages of equipment or materials, governmental requirements,
power shortages or outages or other causes beyond Landlord's reasonable control
(collectively, "FORCE MAJEURE"), which time period for events of force majeure
shall in no event exceed, in the aggregate, more than one hundred and twenty
(120) days, or (c) such work is reasonably estimated (which estimate Landlord
shall provide to Tenant within sixty (60) days following the casualty), to take
more than one hundred fifty (150) days from the date
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of casualty to substantially complete, or (d) more than forty percent (40%) of
the Premises is affected by the damage, and fewer than twelve (12) months remain
in the Term. In order to exercise any of the foregoing termination rights,
Tenant must send Landlord notice specifying the basis for termination, and such
notice must be given no later than thirty (30) days following the occurrence of
the condition serving as the basis for the termination right invoked by Tenant,
except in the case of Tenant's termination right in (c) above, in which case
such notice must be given by Tenant within ten (10) business days after Tenant's
receipt of Landlord's estimate.
ARTICLE 11
INSURANCE, SUBROGATION, AND WAIVER OF CLAIMS
Tenant shall maintain during the Term Commercial General Liability
insurance, with limits of not less than $2,000,000 per occurrence for
personal injury, bodily injury or death, or property damage or destruction
(including loss of use thereof). Such insurance shall be primary and any
insurance carried by Landlord or any other insured shall be excess and
noncontributory. Tenant shall also maintain during the Term workers'
compensation insurance as required by statute, employer's liability insurance
in an amount of not less than $500,000 per occurrence, and primary,
noncontributory, "all-risk" property damage insurance covering Tenant's
personal property, business records, fixtures and equipment, for damage or
other loss caused by fire or other casualty or cause including, but not
limited to, vandalism and malicious mischief, theft, water damage of any
type, including sprinkler leakage, bursting or stoppage of pipes, explosion,
business interruption, and other insurable risks in amounts not less than the
full insurable replacement value of such property and full insurable value of
such other interests of Tenant (subject to reasonable deductible amounts).
Landlord shall, as part of Operating Expenses, maintain during the Term
Commercial General Liability insurance, with limits of not less than
$2,000,000 per occurrence for personal injury, bodily injury or death, or
property damage or destruction (including loss of use thereof). Landlord
shall also, as part of Operating Expenses, maintain during the Term workers'
compensation insurance as required by statute, and primary, non-contributory,
extended coverage or "all-risk" property damage insurance, in an amount equal
to one hundred percent (100%) of the full insurable replacement value of the
Property (exclusive of the costs of excavation, foundations and footings, and
such risks required to be covered by Tenant's insurance, and subject to
reasonable deductible amounts), or such other amount necessary to prevent
Landlord from being a co-insured, and such other coverage as Landlord shall
deem appropriate or that may be required by any Holder (as defined in
Article 25).
Tenant shall provide Landlord with certificates evidencing such
coverage (and, with respect to liability coverage, showing Landlord and such
other parties that Landlord shall reasonably designate in a written notice to
Tenant from time to time as named insureds) prior to the Commencement Date,
which shall state that such insurance coverage may not be changed in any
material manner (provided that a change shall be deemed material if it
adversely affects Landlord or causes Tenant's insurance to fail to comply
with the terms of this Article 11) or canceled without at least thirty (30)
days prior written notice to Landlord,
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and shall provide renewal certificates to Landlord at least thirty (30) days
prior to expiration of such policies. Except as provided to the contrary herein,
any insurance carried by Landlord or Tenant shall be for the sole benefit of the
party carrying such insurance. Any insurance policies hereunder may be "blanket
policies," provided that payments made in connection with other properties
covered by such blanket policies shall not diminish the insurance amounts
required hereunder. All insurance required hereunder shall be provided by
responsible insurers and Tenant's insurer shall have a rating of at least A-X in
the then current edition of Best's Key Rating Insurance guide and shall
otherwise be reasonably acceptable to Landlord. By this Article, Landlord and
Tenant intend that their respective property loss risks shall be borne by
responsible insurance carriers to the extent above provided, and Landlord and
Tenant hereby agree to look solely to, and seek recovery only from, their
respective insurance carriers in the event of a property loss to the extent that
such coverage is agreed to be provided hereunder. The parties each hereby waive
all rights and claims against such other for such losses, and waive all rights
of subrogation of their respective insurers, provided such waiver of subrogation
shall not affect the right of the insured to recover thereunder. The parties
agree that their respective insurance policies are now, or shall be, endorsed
such that said waiver of subrogation shall not affect the right of the insured
to recover thereunder, so long as no material additional premium is charged
therefor.
Tenant shall carry and maintain during the entire Term, at Tenant's
sole cost and expense, increased amounts of the insurance required to be carried
by Tenant pursuant to this Article 11, and such other reasonable types of
insurance coverage and in such reasonable amounts covering the Premises and
Tenant's operations therein as may be reasonably requested by Landlord.
ARTICLE 12
CONDEMNATION
If the whole or any material part of the Premises or Property shall be
taken by power of eminent domain or condemned by any competent authority for any
public or quasi-public use or purpose, or if any adjacent property or street
shall be so taken or condemned, or reconfigured or vacated by such authority in
such manner as to require the use, reconstruction or remodeling of any part of
the Premises or Property, or if Landlord shall grant a deed or other instrument
in lieu of such taking by eminent domain or condemnation, Landlord shall have
the option to terminate this Lease upon one hundred twenty (120) days notice,
provided such notice is given no later than one hundred eighty (180) days after
the date of such taking, condemnation, reconfiguration, vacation, deed or other
instrument. Tenant shall have reciprocal termination rights if the whole or any
material part of the Premises is permanently taken, or if access to the Premises
is permanently materially impaired. Landlord shall be entitled to receive the
entire award or payment in connection therewith, except that Tenant shall have
the right to file any separate claim available to Tenant for any taking of
Tenant's personal property and fixtures belonging to Tenant and removable by
Tenant upon expiration of the Term, and for moving expenses (so long as such
claim does not diminish the award available to
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Landlord or any Holder, and such claim is payable separately to Tenant). All
Rent shall be apportioned as of the date of such termination, or the date of
such taking, whichever shall first occur. If any part of the Premises shall be
taken, and this Lease shall not be so terminated, the Rent shall be
proportionately abated.
ARTICLE 13
RETURN OF POSSESSION
At the expiration or earlier termination of this Lease or Tenant's
right of possession, Tenant shall surrender possession of the Premises in the
condition required under Article 9, ordinary wear and tear, loss or damage by
fire or other insured casualty, damage resulting from the wanton or negligent
acts of Landlord or its agents excepted, and shall surrender all keys, any key
cards, and any parking stickers or cards, to Landlord, and advise Landlord as to
the combination of any locks or vaults then remaining in the Premises, and shall
remove all trade fixtures and personal property. All improvements, fixtures and
other items in or upon the Premises (except trade fixtures and personal property
belonging to Tenant), whether installed by Tenant or Landlord, shall be
Landlord's property and shall remain upon the Premises, all without
compensation, allowance or credit to Tenant. However, if prior to such
termination or within ten (10) days thereafter Landlord so directs by notice,
Tenant shall promptly remove such of the foregoing items as are designated in
such notice and restore the Premises to the condition prior to the installation
of such items; provided, Landlord shall not require removal of customary office
improvements installed in compliance with the express provisions of this Lease,
the improvements installed pursuant to the Work Agreement or improvements
installed during the Term that are consistent with the improvements installed
pursuant to the Work Agreement, or improvements installed by Tenant with
Landlord's written approval (except as expressly required by Landlord in
connection with granting such approval). If Tenant shall fail to perform any
repairs or restoration, or fail to remove any items from the Premises required
hereunder, Landlord may do so, and Tenant shall pay Landlord the cost thereof
upon demand. All property removed from the Premises by Landlord pursuant to any
provisions of this Lease or any Law may be handled or stored by Landlord at
Tenant's expense, and Landlord shall in no event be responsible for the value,
preservation or safekeeping thereof. All property not removed from the Premises
or retaken from storage by Tenant within thirty (30) days after expiration or
earlier termination of this Lease or Tenant's right to possession, shall at
Landlord's option be conclusively deemed to have been conveyed by Tenant to
Landlord as if by bill of sale without payment by Landlord. Unless prohibited by
applicable Law, following the expiration or earlier termination of this Lease,
Landlord shall have a lien against such property for the costs incurred in
removing and storing the same.
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ARTICLE 14
HOLDING OVER
Unless Landlord expressly agrees otherwise in writing, Tenant shall pay
Landlord one hundred fifty percent (150%) of the amount of Rent then applicable
(or the highest amount permitted by Law, whichever shall be less) prorated on
per diem basis for each day Tenant shall retain possession of the Premises or
any part thereof after expiration or earlier termination of this Lease, together
with all actual damages sustained by Landlord on account thereof, including,
without limitation, any claims by any succeeding tenant founded on such delay.
The foregoing provisions shall not serve as permission for Tenant to hold-over,
nor serve to extend the Term (although Tenant shall remain bound to comply with
all provisions of this Lease until Tenant vacates the Premises, and shall be
subject to the provisions of Article 13). Notwithstanding the foregoing to the
contrary, at any time before or after expiration or earlier termination of the
Lease, Landlord may serve notice advising Tenant of the amount of Rent and other
terms required, should Tenant desire to enter a month-to-month tenancy (and if
Tenant shall hold over beyond the expiration or earlier termination of the Lease
more than one full calendar month after such notice, Tenant shall thereafter be
deemed a month-to-month tenant, on the terms and provisions of this Lease then
in effect, as modified by Landlord's notice, and except that Tenant shall not be
entitled to any renewal or expansion rights contained in this Lease or any
amendments hereto).
ARTICLE 15
NO WAIVER
No provision of this Lease will be deemed waived by either party unless
expressly waived in writing signed by the waiving party. No waiver shall be
implied by delay or any other act or omission of either party. No waiver by
either party of any provision of this Lease shall be deemed a waiver of such
provision with respect to any subsequent matter relating to such provision, and
Landlord's consent or approval respecting any action by Tenant shall not
constitute a waiver of the requirement for obtaining Landlord's consent or
approval respecting any subsequent action. Acceptance of Rent by Landlord shall
not constitute a waiver of any breach by Tenant of any term or provision of this
Lease. No acceptance of a lesser amount than the Rent herein stipulated shall be
deemed a waiver of Landlord's right to receive the full amount due, nor shall
any endorsement or statement on any check or payment or any letter accompanying
such check or payment be deemed an accord and satisfaction, and Landlord may
accept such check or payment without prejudice to Landlord's right to recover
the full amount due. The acceptance of Rent or of the performance of any other
term or provision from any Person other than Tenant, including any Transferee,
shall not constitute a waiver of Landlord's right to approve any Transfer.
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ARTICLE 16
ATTORNEYS' FEES AND JURY TRIAL
In the event of any litigation between the parties, the prevailing
party shall be entitled to obtain, as part of the judgment, all reasonable
attorneys' fees, costs and expenses incurred in connection with such litigation,
except as may be limited by applicable Law. In the interest of obtaining a
speedier and less costly hearing of any dispute, the parties hereby each
irrevocably waive the right to trial by jury.
ARTICLE 17
PERSONAL PROPERTY TAXES, RENT TAXES AND OTHER TAXES
Tenant shall pay prior to delinquency all taxes, charges or other
governmental impositions assessed against or levied upon Tenant's fixtures,
furnishings, equipment and personal property located in the Premises, and any
Work to the Premises under Article 8. Whenever possible, Tenant shall cause all
such items to be assessed and billed separately from the property of Landlord.
In the event any such items shall be assessed and billed with the property of
Landlord, Tenant shall pay Landlord its share of such taxes (allocated on an
equitable basis), charges or other governmental impositions within thirty (30)
days after Landlord delivers a statement and a copy of the assessment or other
documentation, showing the amount of such impositions applicable to Tenant's
property. Tenant shall pay any separate rent tax or sales tax, service tax,
transfer tax or value added tax, or any other applicable tax on the Rent or
services herein or otherwise respecting this Lease.
ARTICLE 18
REASONABLE APPROVALS
Whenever Landlord's approval or consent is expressly required under
this Lease (including Article 21) or any other agreement between the parties,
Landlord shall not unreasonably withhold, condition or delay such approval or
consent, except as expressly provided herein to the contrary and except for
matters affecting the structure, safety or security of the Property, or the
appearance of the Property from any common or public areas.
ARTICLE 19
SUBORDINATION, ATTORNMENT AND MORTGAGEE PROTECTION
This Lease is subject and subordinate to all Mortgages (as defined in
Article 25) now or hereafter placed upon the Property, and all other
encumbrances and matters of public record applicable to the Property. This
clause shall be self-operative and no further instrument of subordination shall
be required by any ground or underlying lessor or by any Holder (as defined in
Article 25), provided, that such ground or underlying lessor or Holder
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shall accept this Lease and not disturb Tenant's occupancy, so long as Tenant
does not Default and fail to cure within the time permitted hereunder, and
provided further, that as a condition precedent to the effectiveness of this
Lease, Landlord shall obtain a subordination, non-disturbance and attornment
agreement from LaSalle Bank, N.A., in form and substance reasonably acceptable
to Tenant and LaSalle Bank, N.A. In connection with any Mortgage or ground lease
entered into after the Effective Date, Landlord shall endeavor to deliver, or
cause to be delivered to Tenant, and Tenant shall execute, a subordination,
non-disturbance and attornment agreement, which shall be on such mortgagee's or
ground lessor's form (and reasonably acceptable to Tenant). If any foreclosure
proceedings are initiated by any Holder or a deed in lieu is granted (or if any
ground lease is terminated), Tenant agrees, upon written request of any such
Holder or any purchaser at foreclosure sale, to attorn and pay Rent to such
party and to execute and deliver any instruments in commercially reasonable form
necessary or appropriate to evidence or effectuate such attornment (provided
such Holder or purchaser shall agree to accept this Lease and not disturb
Tenant's occupancy, so long as Tenant does not default and fail to cure within
the time permitted hereunder). However, in the event of attornment, no Holder
shall be: (i) liable for any act or omission of Landlord, or subject to any
offsets or defenses which Tenant might have against Landlord (prior to such
Holder becoming Landlord under such attornment), (ii) liable for any security
deposit or not actually received by such Holder or bound by any Rent prepaid
more than one (1) month in advance, or (iii) bound by any modification of this
Lease entered into after the date of such Holder's Mortgage that is not
consented to by such Holder (provided that Tenant has received notice from
Landlord of the name and address of such Holder). Any Holder (as defined in
Article 25) may elect to make this Lease prior to the lien of its Mortgage, by
written notice to Tenant, and if the Holder of any prior Mortgage shall require,
this Lease shall be prior to any subordinate Mortgage. Tenant agrees to give any
Holder by certified mail, return receipt requested, a copy of any notice of
default served by Tenant upon Landlord, provided that prior to such notice
Tenant has been notified in writing (by way of service on Tenant of a copy of an
assignment of leases, or otherwise) of the name and address of such Holder.
Tenant further agrees that if Landlord shall have failed to cure such default
within the times permitted Landlord for cure under this Lease, any such Holder
whose address has been provided to Tenant and who has received a notice of
default from Tenant shall have an additional period of thirty (30) days in which
to cure (or such additional time as may be required due to causes beyond such
Holder's control, including time to obtain possession of the Property by power
of sale or judicial action). Tenant shall execute such documentation as Landlord
may reasonably request from time to time, in order to confirm the matters set
forth in this Article in recordable form.
ARTICLE 20
ESTOPPEL CERTIFICATE
Tenant shall from time to time, within twenty (20) days after written
request from Landlord or any Holder, execute, acknowledge and deliver to
Landlord or any Holder a statement (i) certifying that this Lease is unmodified
and in full force and effect or, if modified, stating the nature of such
modification and certifying that this Lease as so
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modified, is in full force and effect (or if this Lease is claimed not to be in
force and effect, specifying the ground therefor) and any dates to which the
Rent has been paid in advance, and the amount of any Security Deposit, (ii)
acknowledging that, to Tenant's knowledge, there are not any uncured defaults on
the part of Landlord or Tenant hereunder, or specifying such defaults if any are
claimed, (iii) stating whether Tenant has any rights to offsets or abatement of
Rent, and (iv) certifying such other matters pertaining to this Lease as
Landlord may reasonably request, or as may be requested by Landlord's current or
prospective Holders, insurance carriers, auditors, and prospective purchasers.
Any such statement may be relied upon by any such parties. If Tenant shall fail
to execute and return such statement with such modifications that Tenant deems
reasonably necessary to make the certificate accurate within the time required
herein, Tenant shall be deemed to have agreed with the matters set forth
therein.
ARTICLE 21
ASSIGNMENT AND SUBLETTING
(A) TRANSFERS. Tenant shall not, without the prior written consent
of Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed, as further described below: (i) assign, mortgage, pledge,
hypothecate, encumber, or permit any lien to attach to, or otherwise
transfer, this Lease or any interest hereunder, by operation of law or
otherwise, (ii) sublet the Premises or any part thereof, or (iii) permit the
use of the Premises by any Persons (as defined in Article 25) other than
Tenant and its employees (all of the foregoing are hereinafter sometimes
referred to collectively as "TRANSFERS" and any Person to whom any Transfer
is made or sought to be made is hereinafter sometimes referred to as a
"TRANSFEREE"). If Tenant shall desire Landlord's consent to any Transfer,
Tenant shall notify Landlord in writing, which notice shall include: (a) the
proposed effective date (which shall not be less than thirty (30) nor more
than one hundred eighty (180) days after Tenant's notice), (b) the portion of
the Premises to be Transferred (herein called the "SUBJECT SPACE"), (c) the
terms of the proposed Transfer and the consideration therefor, the name and
address of the proposed Transferee, and a copy of all documentation
pertaining to the proposed Transfer, and (d) current financial statements of
the proposed Transferee certified by an officer, partner or owner thereof,
and any other information that Landlord may reasonably require to enable
Landlord to determine the financial responsibility, character, and reputation
of the proposed Transferee, nature of such Transferee's business and proposed
use of the Subject Space, and such other information as Landlord may
reasonably require. Any Transfer made without complying with this Article
shall, at Landlord's option, be null, void and of no effect, or shall
constitute a Default under this Lease. Whether or not Landlord shall grant
consent, Tenant shall pay the reasonable out-of-pocket costs and expenses
incurred by Landlord in reviewing and processing Tenant's request for
consent, within thirty (30) days after presentation by Landlord of its
statement setting forth such costs and expenses.
(B) APPROVAL. Landlord will not unreasonably withhold, condition or
delay its consent (as provided in Article 18) to any proposed Transfer of the
Subject Space to the Transferee on the terms specified in Tenant's notice. The
parties hereby agree that it shall
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be reasonable under this Lease and under any applicable Law for Landlord to
withhold consent to any proposed Transfer where one or more of the following
applies (without limitation as to other reasonable grounds for withholding
consent): (i) the Transferee is of a character or reputation or engaged in a
business which is not consistent with the quality of the Property, (ii) the
Transferee intends to use the Subject Space for purposes which are not permitted
under this Lease, (iii) the Subject Space is not regular in shape with
appropriate means of ingress and egress suitable for normal renting purposes,
(iv) the Transferee is either a government (or agency or instrumentality
thereof), foreign embassy or other foreign entity or person having diplomatic
immunity, or an occupant of the Property (provided, however, that if there is no
vacant space comparable in size to the Subject Space available for occupancy at
the Property, then a Transfer to an occupant of the Property may occur), (v) the
proposed Transferee does not have a reasonable financial condition in relation
to the obligations to be assumed in connection with the Transfer, or (vi) Tenant
has committed and failed to cure a Default at the time Tenant requests consent
to the proposed Transfer.
(C) TRANSFER PREMIUM. If Landlord consents to a Transfer, and as a
condition thereto which the parties hereby agree is reasonable, Tenant shall pay
Landlord fifty percent (50%) of any Transfer Premium derived by Tenant from such
Transfer. "TRANSFER PREMIUM" shall mean all rent, additional Rent or other
consideration paid by such Transferee in excess of the Rent payable by Tenant
under this Lease (on a monthly basis during the Term, and on a per rentable
square foot basis, if less than all of the Premises is transferred), after
deducting the reasonable expenses incurred by Tenant for any changes,
alterations and improvements to the Premises, any other economic concessions or
services provided to the Transferee, and any customary brokerage commissions and
legal fees paid in connection with the Transfer. If part of the consideration
for such Transfer shall be payable other than in cash, Landlord's share of such
non-cash consideration shall be in such form as is reasonably satisfactory to
Landlord. The percentage of the Transfer Premium due Landlord hereunder shall be
paid by Tenant with each installment of Rent due immediately following Tenant's
receipt of any Transfer Premium from the Transferee.
(D) RECAPTURE. Notwithstanding anything to the contrary contained in
this Article, Landlord shall have the option, by giving written notice to
Tenant within fifteen (15) days after receipt of Tenant's notice of any
proposed Transfer, to recapture the Subject Space, if (i) the proposed
Transfer if an assignment of the Lease or a sublease of the entire Premises
for the balance of the Term, (ii) the term of the proposed Transfer,
including all renewal terms, exceeds fifty percent (50%) of the balance of
the Term, or (iii) the Subject Space, either by itself or when added to any
other portion of the Premises at the time of Tenant's notice of Transfer than
subject to a sublease, exceeds fifty percent (50%) of the rentable square
feet of the Premises. Such recapture notice shall cancel and terminate this
Lease with respect to the Subject Space as of the date stated in Tenant's
notice as the effective date of the proposed Transfer (or at Landlord's
option, shall cause the Transfer to be made to Landlord or its agent, in
which case the parties shall execute the Transfer documentation promptly
thereafter), unless Tenant elects (and notifies Landlord in writing of such
election) (the "OPTION TO VOID A RECAPTURE"), within five (5) business days
after Landlord notifies Tenant that it intends to recapture the Subject Space,
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to void the notice of the Proposed Transfer, whereupon (i) Landlord shall not
recapture the Subject Space, (ii) the proposed Transfer shall not occur, and
(iii) the Lease shall continue in full force with respect to the Subject Space,
with Tenant in occupancy thereof. If this Lease shall be cancelled with respect
to less than the entire Premises, the Rent reserved herein shall be prorated on
the basis of the number of rentable square feet retained by Tenant in proportion
to the number of rentable square feet contained in the Premises and Tenant's
Prorata Share of Taxes and Operating Expenses shall be equitably adjusted based
on the rentable square feet retained by Tenant, this Lease as so amended shall
continue thereafter in full force and effect, and upon request of either party,
the parties shall execute written confirmation of the same.
(E) TERMS OF CONSENT. If Landlord consents to a Transfer: (a) the
terms and conditions of this Lease shall in no way be deemed to have been
waived or modified, (b) such consent shall not be deemed consent to any
further Transfer by either Tenant or a Transferee, (c) no Transferee, other
than a Related Entity, shall succeed to any rights provided in this Lease or
any amendment hereto to extend the Term of this Lease, expand the Premises,
or lease additional space, any such rights being deemed personal to Tenant,
(d) no Transfer relating to this Lease or agreement entered into with respect
thereto, whether with or without Landlord's consent, shall relieve Tenant or
any guarantor of this Lease from liability under this Lease, (e) Tenant shall
deliver to Landlord promptly after execution, an original executed copy of
all documentation pertaining to the Transfer in form reasonably acceptable to
Landlord, and (f) Tenant shall furnish upon Landlord's request a complete
statement, certified by an independent certified public accountant, or
Tenant's chief financial officer, setting forth in detail the computation of
any Transfer Premium Tenant has derived and shall derive from such Transfer.
Landlord or its authorized representatives shall have the right at all
reasonable times to audit the books, records and papers of Tenant relating to
any Transfer Premium, and shall have the right, at Landlord's expense, to
make copies thereof. If the Transfer Premium respecting any Transfer shall be
found understated, Tenant shall within thirty (30) days after demand pay the
deficiency, and if understated by more than three percent (3%), Tenant shall
pay Landlord's actual, out-of-pocket costs of such audit. Any sublease
hereunder shall be subordinate and subject to the provisions of this Lease,
and if this Lease shall be terminated during the term of any sublease,
Landlord shall have the right to: (i) treat such sublease as canceled and
repossess the Subject Space by any lawful means, or (ii) require that such
subtenant attorn to and recognize Landlord as its landlord under any such
sublease. If Tenant shall Default and fail to cure within the time permitted
for cure under Article 23(A), Landlord is hereby irrevocably authorized, as
Tenant's agent and attorney-in-fact, to direct any Transferee to make all
payments under or in connection with the Transfer directly to Landlord (which
Landlord shall apply towards Tenant's obligations under this Lease) until
such Default is cured.
(F) CERTAIN TRANSFERS. For purposes of this Lease, the term "TRANSFER"
shall also include (a) if Tenant is a partnership, the withdrawal or change,
voluntary, involuntary or by operation of law, of a majority of the partners, or
a transfer of a majority of partnership interests, within a twelve (12) month
period, or the dissolution of the partnership, and (b) if Tenant is a
corporation, the dissolution, merger, consolidation or
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other reorganization of Tenant, or within a twelve (12) month period: (i) the
sale or other transfer of more than an aggregate of fifty percent (50%) of the
voting shares of Tenant (other than to immediate family members by reason of
gift or death) or (ii) the sale, mortgage, hypothecation or pledge of more than
an aggregate of fifty percent (50%) of Tenant's net assets. For purposes of this
Lease, the term "TRANSFER" shall not include the transfer or sale of any of
Tenant's stock, or the stock of any affiliate of Tenant, on a nationally
recognized stock exchange.
(G) RELATED ENTITIES. Notwithstanding anything to the contrary in this
Article 21, Tenant may, without Landlord's consent, permit any corporation or
other business entity which controls or is controlled by, or is under common
control with Tenant (a "RELATED ENTITY") to sublet all or part of the Premises
or receive an assignment of the Lease, provided that (i) Tenant shall not be in
Default under this Lease, (ii) prior to or promptly after (but in no event more
than thirty (30) days) such subletting or assignment, as the case may be, Tenant
gives Landlord written notice of such sublease or assignment and furnishes
Landlord with the name of any such Related Entity, together with a certification
of Tenant, and such other proof as Landlord may reasonably request, that such
subtenant or assignee, as the case may be, is a Related Entity of Tenant.
Landlord shall have the right, at any reasonable time, to examine such books and
records of Tenant as may be necessary to establish that such sublessee or
assignee, as the case may be, is a Related Entity of Tenant. Such subletting or
assignment shall not relieve Tenant of any of Tenant's liability or obligations
under this Lease. For the purposes hereof "CONTROL" shall mean the power to
directly or indirectly direct or cause the direction of the management or
policies of such corporation or entity.
ARTICLE 22
RIGHTS RESERVED BY LANDLORD
Except to the extent expressly limited herein, Landlord reserves full
rights to control the Property (which rights may be exercised without subjecting
Landlord to claims for constructive eviction, abatement of Rent, damages or
other claims of any kind), including more particularly, but without limitation,
the following rights:
(A) To change the name or street address of the Property upon
reasonable prior notice to Tenant; install and maintain signs on the exterior
and interior of the Property; retain at all times, and use in appropriate
instances, keys to all doors within and into the Premises; grant to any person
the right to conduct any business or render any service at the Property, whether
or not it is the same or similar to the use permitted Tenant by this Lease; and
have access for Landlord and other tenants of the Property to any mail chutes
located on the Premises according to the rules of the United States Postal
Service.
(B) To enter the Premises at reasonable hours for reasonable purposes
and upon reasonable prior notice (which may be verbal), including inspection and
supplying cleaning service or other services (for which no notice shall be
required) to be provided Tenant hereunder, to show the Premises to current and
prospective mortgage lenders,
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ground lessors, insurers, and prospective purchasers, tenants and brokers, at
reasonable hours upon reasonable prior notice, and if Tenant shall abandon the
Premises for a period of one hundred eighty (180) days, at any time, or shall
vacate the same during the last three (3) months of the Term, to decorate,
remodel, repair, or alter the Premises.
(C) To limit or prevent access to the Property, shut down elevator
service, activate elevator emergency controls, or otherwise take such action or
preventative measures reasonably deemed necessary by Landlord for the safety of
tenants or other occupants of the Property or the protection of the Property and
other property located thereon or therein, in case of fire, invasion,
insurrection, riot, civil disorder, public excitement or other dangerous
condition, or threat thereof.
(D) To decorate and to make alterations, additions and improvements,
structural or otherwise, in or to the Property or any part thereof, and any
adjacent building, structure, parking facility, land, street or alley (including
without limitation changes and reductions in corridors, lobbies, parking
facilities and other public areas and the installation of kiosks, planters,
sculptures, displays, escalators, mezzanines, and other structures, facilities,
amenities and features therein, and changes for the purpose of connection with
or entrance into or use of the Property in conjunction with any adjoining or
adjacent building or buildings, now existing or hereafter constructed), so long
as Tenant maintains reasonable access to the Premises. In connection with such
matters, or with any other repairs, maintenance, improvements, or alterations,
in or about the Property, Landlord may erect scaffolding and other structures
reasonably required, and during such operations may enter upon the Premises and
take into and upon or through the Premises, all materials required to make such
repairs, maintenance, alterations or improvements, and may close public entry
ways, other public areas, restrooms, stairways or corridors.
(E) Intentionally Deleted.
In connection with entering the Premises to exercise any of the
foregoing rights, Landlord shall: (a) provide reasonable advance written or oral
notice to Tenant's on-site manager or other appropriate person (except in
emergencies, or for routine cleaning or other routine matters), (b) take
reasonable steps to minimize any interference with Tenant's business, (c)
Landlord shall diligently complete any work for which it is entering the
Premises, and (d) Landlord shall properly store all equipment and materials at
the end of each workday.
ARTICLE 23
LANDLORD'S REMEDIES
(A) DEFAULT. The occurrence of any one or more of the following events
shall constitute a "DEFAULT" by Tenant, which if not cured within any applicable
time permitted for cure below, shall give rise to Landlord's remedies set forth
in Paragraph (B), below: (i) failure by Tenant to make when due any payment of
Rent, unless such failure is cured within ten (10) days after written notice to
Tenant; (ii) failure by Tenant to observe or
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perform any of the terms or conditions of this Lease to be observed or
performed by Tenant other than the payment of Rent, or as provided below,
unless such failure is cured within thirty (30) days after written notice to
Tenant setting forth in reasonable detail the nature and extent of the
failure, or such shorter period expressly provided elsewhere in this Lease
(provided, if the nature of Tenant's failure is such that more time is
reasonably required in order to cure, Tenant shall not be in Default if
Tenant commences to cure within such period and thereafter reasonably seeks
to cure such failure to completion); (iii) failure by Tenant to comply with
the Rules, unless such failure is cured within five (5) business days after
notice (provided, if the nature of Tenant's failure is such that more time is
reasonably required in order to cure, Tenant shall not be in Default if
Tenant commences to cure within such period and thereafter reasonably seeks
to cure such failure to completion); (iv) vacation of all of the Premises for
more than one hundred eighty (180) consecutive days, or, if the Premises
consist of three (3) full floors or more, vacation of at least two (2) full
floors of the Premises for more than one hundred eighty (180) days, but in
either case, only if Tenant has failed to pay Rent when due, or the failure
of Tenant to occupy the Premises within one hundred eighty (180) days after
the Commencement Date; (v) (a) making by Tenant or any guarantor of this
Lease ("GUARANTOR") of any general assignment for the benefit of creditors,
(b) filing by or against Tenant or any Guarantor of a petition to have Tenant
or such Guarantor adjudged a bankrupt or a petition for reorganization or
arrangement under any Law relating to bankruptcy (unless, in the case of a
petition filed against Tenant or such Guarantor, the same is dismissed within
sixty (60) days, (c) appointment of a trustee or receiver to take possession
of substantially all of Tenant's assets located on the Premises or of
Tenant's interest in this Lease, where possession is not restored to Tenant
within sixty (60) days, (d) attachment, execution or other judicial seizure
of substantially all of Tenant's assets located on the Premises or of
Tenant's interest in this Lease, (e) Tenant's or any Guarantor's convening of
a meeting of its creditors or any class thereof for the purpose of effecting
a moratorium upon or composition of its debts, or (f) Tenant's or any
Guarantor's insolvency or admission of an inability to pay its debts as they
mature; (vi) any material misrepresentation herein, or material
misrepresentation or omission in any financial statements or other materials
provided by Tenant or any Guarantor in connection with negotiating or
entering this Lease or any material misrepresentation or omission by Tenant
in connection with any Transfer under Article 21; and (vii) cancellation of
any guaranty of this Lease by any Guarantor. Failure by Tenant to comply with
the provisions of this Lease regarding payment of Rent or to comply with same
material, non-monetary term or condition of this Lease on three occasions
during any twelve (12) month period shall cause any failure to comply with
such term or condition during the succeeding twelve (12) month period, at
Landlord's option, to constitute an incurable Default, if Landlord has given
Tenant notice of each such failure within ten (10) days after each such
failure occurs. The notice and cure periods provided herein are in lieu of,
and not in addition to, any notice and cure periods provided by Law.
(B) REMEDIES. If a Default occurs and is not cured within any
applicable time permitted under Paragraph (A), Landlord shall have the rights
and remedies hereinafter set forth, which shall be distinct, separate and
cumulative with and in addition to any other right or remedy allowed under any
Law or, other provisions of this Lease:
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(i) Landlord may terminate this Lease, repossess the
Premises by detainer suit, summary proceedings or
other lawful means, and recover as damages a sum of
money equal to: (a) any unpaid Rent as of the
termination date including interest at the Default
Rate (as defined in Article 25), (b) any unpaid Rent
which would have accrued after the termination date
through the time of award including interest at the
Default Rate, less such loss of Rent that Tenant
proves could have been reasonably avoided, (c) any
unpaid Rent which would have accrued after the time
of award during the balance of the Term, less such
loss of Rent that Tenant proves could be reasonably
avoided, discounted to present value at an interest
rate equal to the average yield on United States
Treasury securities having a maturity date closest to
the Expiration Date, and (d) any other amounts
necessary to compensate Landlord for all damages
proximately caused by Tenant's failure to perform its
obligations under this Lease, including without
limitation all Costs of Reletting (as defined in
Paragraph F). For purposes of computing the amount of
Rent herein that would have accrued after the time of
award, Tenant's Prorata Share of Taxes and Operating
Expenses shall be projected, based upon the average
rate of increase, if any, in such items from the
Commencement Date through the time of award.
(ii) If applicable Law permits, Landlord may terminate
Tenant's right of possession and repossess the
Premises by detainer suit, summary proceedings or
other lawful means, without terminating this Lease
(and if such Law permits, and Landlord shall not have
expressly terminated the Lease in writing, any
termination shall be deemed a termination of Tenant's
right of possession only). In such event, Landlord
may recover: (a) any unpaid Rent as of the date
possession is terminated, including interest at the
Default Rate, (b) any unpaid Rent which accrues
during the Term from the date possession is
terminated through the time of award (or which may
have accrued from the time of any earlier award
obtained by Landlord through the time of award),
including interest at the Default Rate, less any Net
Re-Letting Proceeds (as defined in Paragraph F)
received by Landlord during such period, and less
such loss of Rent that Tenant proves could have been
reasonably avoided, and (c) any other amounts
necessary to compensate Landlord for all damages
proximately caused by Tenant's failure to perform
its obligations under this Lease, including without
limitation, all Costs of Reletting (as defined in
Paragraph F). Landlord may bring suits for such
amounts or portions thereof, at any time or times as
the same accrue or after the same have accrued, and
no suit or recovery of any portion due hereunder
shall be deemed a waiver of Landlord's right to
collect all amounts to which Landlord is entitled
hereunder, nor shall
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the same serve as any defense to any subsequent suit
brought for any amount not theretofore reduced to
judgment.
(C) MITIGATION OF DAMAGES. If Landlord terminates this Lease or
Tenant's right to possession, Landlord shall use reasonable efforts to mitigate
Landlord's damages, and Tenant shall be entitled to submit proof of such failure
to mitigate as a defense to Landlord's claims hereunder if mitigation of damages
by Landlord is required by applicable law. If Landlord has not terminated this
Lease or Tenant's right to possession, Landlord shall have no obligation to
mitigate and may permit the Premises to remain vacant or abandoned; in such
case, Tenant may seek to mitigate damages by attempting to sublease the
Premises or assign this Lease (subject to Article 21).
(D) SPECIFIC PERFORMANCE, COLLECTION OF RENT AND ACCELERATION. Landlord
shall at all times have the rights and remedies (which shall be cumulative with
each other and cumulative and in addition to those rights and remedies available
under Paragraph (B), above or any Law or other provision of this Lease), without
prior demand or notice except as required by applicable Law: (i) to seek any
declaratory, injunctive or other equitable relief, and specifically enforce this
Lease, or restrain or enjoin a violation or breach of any provision hereof, and
(ii) to sue for and collect any unpaid Rent which has accrued. Notwithstanding
anything to the contrary contained in this Lease, to the extent not expressly
prohibited by applicable Law, in the event of any Default by Tenant not cured
within any applicable time for cure hereunder, Landlord may terminate this Lease
or Tenant's right to possession and accelerate and declare that all Rent
reserved for the remainder of the Term shall be immediately due and payable (in
which event, Tenant's Prorata Share of Taxes and Operating Expenses for the
remainder of the Term shall be projected based upon the average rate of
increase, if any, in such items from the Commencement Date through the date of
such declaration), and such amount shall be discounted to present value at an
interest rate equal to the average yield on United States Treasury securities
having a maturity date closest to the Expiration Date; provided, Landlord shall,
after receiving payment of the same from Tenant, be obligated to turn over to
Tenant any actual Net Re-Letting Proceeds thereafter received during the
remainder of the Term, up to the amount so received from Tenant pursuant to this
provision.
(E) LATE CHARGES AND INTEREST. On the second occasion and each
subsequent occasion during a Lease Year that Tenant fails to pay any Rent within
five (5) business days of its due date, Tenant shall pay, as additional Rent, a
service charge of Two Hundred Dollars ($200.00) for bookkeeping and
administrative expenses, if Rent is not received within five (5) business days
after its due date. In addition, Rent paid more than five (5) business days
ater due shall accrue interest from the due date at the Default Rate (as
defined in Article 25), until payment is received by Landlord. Such service
charge and interest payments shall not be deemed consent by Landlord to late
payments, nor a waiver of Landlord's right to insist upon timely payments at
any time, nor a waiver of any remedies to which Landlord is entitled as a
result of the late payment of Rent.
(F) CERTAIN DEFINITIONS. "NET RE-LETTING PROCEEDS" shall mean the total
amount of rent and other consideration paid by any Replacement Tenants, less all
Costs
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of Re-Letting, during a given period of time. "COSTS OF RE-LETTING" shall
include without limitation, all reasonable costs and expenses incurred by
Landlord for any repairs, maintenance, changes, alterations and improvements to
the Premises, brokerage commissions, advertising costs, attorneys' fees, any
customary free rent periods or credits, tenant improvement allowances, take-over
lease obligations and other customary, necessary or appropriate economic
incentives required to enter leases with Replacement Tenants, and costs of
collecting rent from Replacement Tenants. "REPLACEMENT TENANTS" shall mean any
Persons (as defined in Article 25) to whom Landlord relets the Premises or any
portion thereof pursuant to this Article.
(G) OTHER MATTERS. No re-entry or repossession, repairs, changes,
alterations and additions, reletting, acceptance of keys from Tenant, or any
other action or omission by Landlord shall be construed as an election by
Landlord to terminate this Lease or Tenant's right to possession, or accept a
surrender of the Premises, nor shall the same operate to release the Tenant in
whole or in part from any of Tenant's obligations hereunder, unless express
written notice of such intention is sent by Landlord or its agent to Tenant. To
the fullest extent permitted by Law, all rent and other consideration paid by
any Replacement Tenants shall be applied: first, to the Costs of Re-Letting,
second, to the payment of any Rent theretofore accrued, and the residue, if any,
shall be held by Landlord and applied to the payment of other obligations of
Tenant to Landlord as the same become due (with any remaining residue to be
retained by Landlord). Rent shall be paid without any prior demand or notice
therefor (except as expressly provided herein) and without any deduction,
set-off or counterclaim, or relief from any valuation or appraisement laws,
except as otherwise expressly provided for in this Lease. Landlord may apply
payments received from Tenant to any obligations of Tenant then accrued, without
regard to such obligations as may be designated by Tenant. Landlord shall be
under no obligation to observe or perform any provision of this Lease on its
part to be observed or performed which accrues after the date of any Default by
Tenant hereunder not cured within the times permitted hereunder. The times set
forth herein for the curing of Defaults by Tenant are of the essence of this
Lease. Tenant hereby irrevocably waives any right otherwise available under any
Law to redeem or reinstate this Lease.
ARTICLE 24
LANDLORD'S RIGHT TO CURE
Except as expressly provided to the contrary in any provision of this
Lease, if Landlord shall fail to perform any term or provision under this
Lease required to be performed by Landlord, Landlord shall not be deemed to be
in default hereunder nor subject to any claims for damages of any kind, unless
such failure shall have continued for a period of thirty (30) days after written
notice thereof by Tenant; provided, if the nature of Landlord's failure is such
that more than thirty (30) days are reasonably required in order to cure,
Landlord shall not be in default if Landlord commences to cure such failure
within such thirty (30) day period, and thereafter reasonably seeks to cure such
failure to completion. The aforementioned periods of time permitted for Landlord
to cure shall be extended for any period of time during which Landlord is
delayed in, or prevented from,
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curing due to fire or other casualty, strikes, lock-outs or other labor
troubles, shortages of equipment or materials, governmental requirements, power
shortages or outages, acts or omissions by Tenant or other Persons, and other
causes beyond Landlord's reasonable control.
If Landlord shall fail to cure within the times permitted for cure
herein, Landlord shall be subject to such remedies as may be available to
Tenant, including, without limitation, all of the rights and remedies Tenant may
have at law or in equity (subject to the other provisions of this Lease);
provided, however, in recognition that Landlord must receive timely payments of
Rent and operate the Property, Tenant shall have no right of self-help to
perform repairs or any other obligation of Landlord, and shall have no right to
withhold, set-off or abate Rent.
ARTICLE 25
CAPTIONS, DEFINITIONS AND SEVERABILITY
The captions of the Articles and Paragraphs of this Lease are for
convenience of reference only and shall not be considered or referred to in
resolving questions of interpretation. If any term or provision of this Lease
shall be found invalid, void, illegal, or unenforceable with respect to any
particular Person by a court of competent jurisdiction, it shall not affect,
impair or invalidate any other terms or provisions hereof, or its enforceability
with respect to any other Person, the parties hereto agreeing that they would
have entered into the remaining portion of this Lease notwithstanding the
omission of the portion or portions adjudged invalid, void, illegal, or
unenforceable with respect to such Person.
(A) "BUILDING" shall mean the structure identified in Article 1 of this
Lease.
(B) "DEFAULT RATE" shall mean the prime rate of interest, as announced
by THE WALL STREET JOURNAL from time to time, plus five percent (5%) per annum,
or the highest rate permitted by applicable Law, whichever shall be less.
(C) "HOLDER" shall mean the holder of any Mortgage at the time in
question, and where such Mortgage is a ground lease, such term shall refer to
the ground lessor.
(D) "HOLIDAYS" shall mean all federally observed holidays, including
New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day,
Veterans' Day, Thanksgiving Day, Christmas Day.
(E) "LANDLORD" and "TENANT" shall be applicable to one or more Persons
as the case may be, and the singular shall include the plural, and the neuter
shall include the masculine and feminine; and if there be more than one, the
obligations thereof shall be joint and several. For purposes any provisions
indemnifying or limiting the liability of Landlord, the term "Landlord" shall
include Landlord's present and future partners,
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beneficiaries, trustees, officers, directors, employees, shareholders,
principals, agents, affiliates, successors and assigns.
(F) "LAW" shall mean all federal, state, county and local governmental
and municipal laws, statutes, ordinances, rules, regulations, codes, decrees,
orders and other such requirements, applicable equitable remedies and decisions
by courts in cases where such decisions are considered binding precedents in the
state in which the Property is located, and decisions of federal courts applying
the Laws of such State.
(G) "LEASE YEAR" shall mean each twelve (12) month period during the
Term, commencing on the Commencement Date, without regard to calendar years;
provided, however, if the Commencement Date occurs on a day other than the first
day of a calendar month, the first Lease Year shall also include the period from
the Commencement Date to the last day of the calendar month in which the
Commencement Date occurs.
(H) "MORTGAGE" shall mean all mortgages, deeds of trust, ground leases
and other such encumbrances now or hereafter placed upon the Property or
Building, or any part thereof, and all renewals, modifications, consolidations,
replacements, increases, spreaders or extensions thereof, and all indebtedness
now or hereafter secured thereby and all interest thereon.
(I) "OPERATING EXPENSES" shall mean all expenses, costs and amounts
(other than Taxes) of every kind and nature which Landlord shall pay during any
calendar year any portion of which occurs during the Term, because of or in
connection with the ownership, management, repair, maintenance, restoration and
operation of the Property, including without limitation, any amounts paid for:
(a) utilities for the Property, including but not limited to electricity, power,
gas, steam, oil or other fuel, water, sewer, lighting, heating, air conditioning
and ventilating, (b) permits, licenses and certificates necessary to operate,
manage and lease the Property, (c) insurance applicable to the Property, not
limited to the amount of coverage Landlord is required to provide under this
Lease, (d) supplies, tools, equipment and materials used in the operation,
repair and maintenance of the Property, (e) accounting, legal, inspection,
consulting, concierge and other services, (f) any equipment rental (or
installment equipment purchase or equipment financing agreements), or management
agreements (including the cost of any management fee actually paid thereunder
and the fair rental value of any office space provided thereunder, up to
customary and reasonable amounts), (g) wages, salaries and other compensation
and benefits (including the fair value of any parking privileges provided) for
all persons engaged in the operation, maintenance or security of the Property,
and employer's Social Security taxes, unemployment taxes or insurance, and any
other taxes which may be levied on such wages, salaries, compensation and
benefits, and (h) operation, repair, and maintenance of all Systems and
Equipment and components thereof (including replacement of components),
janitorial service, alarm and security service, window cleaning, trash removal,
elevator maintenance, cleaning of walks, parking facilities and building walls,
removal of ice and snow, replacement of wall and floor coverings, ceiling tiles
and fixtures in lobbies, corridors, restrooms and other common or public areas
or
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facilities, maintenance and replacement of shrubs, trees, grass, sod and other
landscaped items, irrigation systems, drainage facilities, fences, curbs, and
walkways, re-paving and re-striping parking facilities, and roof repairs. If the
Property is not fully occupied during all or a portion of any calendar year,
Landlord may, in accordance with sound accounting and management practices,
determine the amount of variable Operating Expenses (i.e., those items which
vary according to occupancy levels) that would have been paid had the Property
been fully occupied, and the amount so determined shall be deemed to have been
the amount of variable Operating Expenses for such year (such determination is
referred to herein as "GROSSING UP" variable Operating Expenses. If Landlord
grosses up such variable Operating Expenses during a calendar year, Landlord
shall also gross up the amount of variable Operating Expenses for the Base
Expense Year for purposes of determining Tenant's Prorata Share of Operating
Expenses due and payable with respect to such calendar year.
Notwithstanding the foregoing, Operating Expenses shall not, however,
include:
(i) depreciation, interest and amortization on Mortgages,
and other debt costs or ground lease payments, if
any; legal fees in connection with leasing, tenant
disputes or enforcement of leases; real estate
brokers' leasing commissions; improvements or
alterations to tenant spaces; the cost of providing
any service directly to and paid directly by, any
tenant; any costs expressly excluded from Operating
Expenses elsewhere in this Lease; costs of any items
to the extent Landlord receives reimbursement from
insurance proceeds or from a third party (such
proceeds to be deducted from Operating Expenses in
the year in which received);
(ii) capital expenditures, except those: (a) made
primarily to reduce Operating Expenses, or to comply
with any Laws or other governmental requirements, or
(b) for replacements (as opposed to additions or new
improvements) of non-structural items located in the
common areas of the Property required to keep such
areas in good condition; provided, all such permitted
capital expenditures (together with reasonable
financing charges) shall be amortized for purposes of
this Lease over the shorter of: (i) their useful
lives, or (ii) the period during which the reasonably
estimated savings in Operating Expenses equals the
expenditures; and
(iii) The items listed on EXHIBIT B attached hereto.
(J) "PERSON" shall mean an individual, trust, partnership, joint
venture, association, corporation, and any other entity.
(K) "PROPERTY" shall mean the Building, and any common or public areas
or facilities, easements, corridors, lobbies, sidewalks, loading areas,
driveways, landscaped
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areas, skywalks, parking garages and lots, and any and all other structures or
facilities operated or maintained in connection with or for the benefit of the
Building, and all parcels or tracts of land on which all or any portion of the
Building or any of the other foregoing items are located, and any fixtures,
machinery, equipment, apparatus, Systems and Equipment, furniture and other
personal property located thereon or therein and used in connection therewith,
whether title is held by Landlord or its affiliates. Possession of areas
necessary for utilities, services, safety and operation of the Property,
including the Systems and Equipment (as defined in Article 25), fire stairways,
perimeter walls, space between the finished ceiling of the Premises and the slab
of the floor or roof of the Property thereabove, and the use thereof together
with the right to install, maintain, operate, repair and replace the Systems and
Equipment, including any of the same in, through, under or above the Premises in
locations that will not materially interfere with Tenant's use of the Premises,
are hereby excepted and reserved by Landlord, and not demised to Tenant.
(L) "RENT" shall have the meaning specified therefor in Article 3(F).
(M) "SYSTEMS AND EQUIPMENT" shall mean any plant, machinery,
transformers, duct work, cable, wires, and other equipment, facilities, and
systems designed to supply heat, ventilation, air conditioning and humidity or
any other services or utilities, or comprising or serving as any component or
portion of the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life/safety systems or equipment, or any other
mechanical, electrical, electronic, computer or other systems or equipment for
the Property.
(N) "TAXES" shall mean all federal, state, county, or local
governmental or municipal taxes, fees, charges or other impositions of every
kind and nature, whether general, special, ordinary or extraordinary (including
without limitation, real estate taxes, general and special assessments, transit
taxes, water and sewer rents, taxes based upon the receipt of rent including
gross receipts or sales taxes applicable to the receipt of rent or service or
value added taxes (unless required to be paid by Tenant under Article 17),
personal property taxes imposed upon the fixtures, machinery, equipment,
apparatus, Systems and Equipment, appurtenances, furniture and other personal
property used in connection with the Property which Landlord shall pay during
any calendar year, any portion of which occurs during the Term (without regard
to any different fiscal year used by such government or municipal authority)
because of or in connection with the ownership, leasing and operation of the
Property. Notwithstanding the foregoing, there shall be excluded from Taxes all
excess profits taxes, franchise taxes, gift taxes, capital stock taxes,
inheritance and succession taxes, estate taxes, federal and state income taxes,
and other taxes to the extent applicable to Landlord's general or net income (as
opposed to rents, receipts or income attributable to operations at the
Property). If the method of taxation of real estate prevailing at the time of
execution hereof shall be, or has been altered, so as to cause the whole or any
part of the taxes now, hereafter or heretofore levied, assessed or imposed on
real estate to be levied, assessed or imposed on Landlord, wholly or partially,
as a capital levy or otherwise, or on or measured by the rents received
therefrom, then such new or altered taxes attributable to the Property shall be
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included within the term "Taxes," except that the same shall not include any
enhancement of said tax attributable to other income of Landlord. Any expenses
reasonably incurred by Landlord in attempting to protest, reduce or minimize
Taxes shall be included in Taxes in the calendar year such expenses are paid.
Tax refunds shall be deducted from Taxes in the year they are received by
Landlord, but if such refund shall relate to taxes paid in a prior year of the
Term, and the Lease shall have expired, Landlord shall mail Tenant's Prorata
Share of such net refund (after deducting expenses and attorneys' fees), up to
the amount Tenant paid towards Taxes during such year, to Tenant's last known
address. If Taxes for any period during the Term or any extension thereof, shall
be increased after payment thereof by Landlord, for any reason including without
limitation error or reassessment by applicable governmental or municipal
authorities, Tenant shall pay Landlord upon demand Tenant's Prorata Share of
such increased Taxes. Tenant shall pay increased Taxes whether Taxes are
increased as a result of increases in the assessment or valuation of the
Property (whether based on a sale, change in ownership or refinancing of the
Property or otherwise), increases in the tax rates, reduction or elimination of
any rollbacks or other deductions available under current law, scheduled
reductions of any tax abatement, as a result of the elimination, invalidity or
withdrawal of any tax abatement, or for any other cause whatsoever.
Notwithstanding the foregoing, if any Taxes shall be paid based on assessments
or bills by a governmental or municipal authority using a fiscal year other than
a calendar year, Landlord may elect to average the assessments or bills for the
subject calendar year, based on the number of months of such calendar year
included in each such assessment or bill.
(0) "TENANT'S PRORATA SHARE" of Taxes and Operating Expenses shall
be the rentable area of the Premises divided by the rentable area of the
Property on the last day of the calendar year for which Taxes or Operating
Expenses are being determined, excluding any parking facilities. Tenant
acknowledges that the "RENTABLE AREA OF THE PREMISES" under this Lease
includes the usable area, without deduction for columns or projections,
multiplied by a load or conversion factor of eleven percent (11%) for a full
floor, to reflect a share of certain areas, which may include lobbies,
corridors, mechanical, utility, janitorial, boiler and service rooms and
closets, restrooms, and other public, common and service areas. Except as
provided expressly to the contrary herein, the "RENTABLE AREA OF THE
PROPERTY" shall include all rentable area of all space leased or available
for lease at the Property, which Landlord may reasonably redetermine from
time to time, to reflect reconfigurations, additions or modifications to the
Property, provided that Landlord does so on a uniform and consistent basis,
utilizing substantially the same measuring methodology as used to calculate
the area of the Premises as set forth herein. The useable area of the
Premises is 36,908 square feet (18,454 square feet per floor) and the useable
area of the Property is 297,164 square feet. The rentable area of the
Premises and the Property as set forth in this Lease have been determined in
accordance with the Standard Method for Measuring Floor Area in Office
Buildings approved by the American National Standards Institute and the
Building Owners and Managers Association International, adopted 1996. If the
Property or any development of which it is a part, shall contain non-office
uses, Landlord shall have the right to determine in accordance with sound
accounting and management principles, Tenant's Prorata Share of Taxes and
Operation Expenses for only the office portion of the Property or of such
development, in
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which event, Tenant's Prorata Share shall be based on the ratio of the rentable
area of the Premises to the rentable area of such office portion. Similarly, if
the Property shall contain tenants who do not participate in all or certain
categories of Taxes or Operating Expenses on a prorata basis, Landlord may
exclude the amount of Taxes or Operating Expenses, or such categories of the
same, as the case may be, attributable to such tenants, and exclude the rentable
area of their premises, in computing Tenant's Prorata Share.
ARTICLE 26
CONVEYANCE BY LANDLORD AND LIABILITY
In case Landlord or any successor owner of the Property or the Building
shall convey or otherwise dispose of any portion thereof in which the Premises
are located, to another Person (and nothing herein shall be construed to
restrict or prevent such conveyance or disposition), such other Person shall
thereupon be and become landlord hereunder and shall be deemed to have fully
assumed and be liable for all obligations of this Lease to be performed by
Landlord which first arise after the date of conveyance, including the return of
any Security Deposit, and Tenant shall attorn to such other Person, and Landlord
or such successor owner shall, from and after the date of conveyance, be free of
all liabilities and obligations hereunder not then incurred. The liability of
Landlord to Tenant for any default by Landlord under this Lease or arising in
connection herewith or with Landlord's operation, management, leasing, repair,
renovation, alteration, or any other matter relating to the Property or the
Premises, shall be limited to the interest of Landlord in the Property. Tenant
agrees to look solely to Landlord's interest in the Property for the recovery of
any judgment against Landlord, and Landlord shall not be personally liable for
any such judgment or deficiency after execution thereon. The limitations of
liability contained in this Article shall apply equally and inure to the benefit
of Landlord's present and future members, partners, beneficiaries, officers,
directors, trustees, shareholders, agents and employees, and their respective
partners, heirs, successors and assigns. Under no circumstances shall any
present or future member of Landlord (if Landlord is a limited liability
company), general or limited partner of Landlord (if Landlord is a partnership),
or trustee or beneficiary (if Landlord or any partner of Landlord is a trust)
have any liability for the performance of Landlord's obligations under this
Lease.
ARTICLE 27
INDEMNIFICATION
Except to the extent arising from the intentional misconduct or
grossly negligent acts of Landlord or Landlord's agents, contractors or
employees, Tenant shall defend, indemnify and hold harmless Landlord from and
against any and all claims, demands, liabilities, damages, judgments, orders,
decrees, actions, proceedings, fines, penalties, costs and expenses, including
without limitation, court costs and attorneys' fees arising from or relating to
any loss of life, damage or injury to person, property or business occurring in
or from the Premises, or caused by or in connection with any violation of this
Lease or use of the Premises or the Property by, or any other act or omission
of, Tenant,
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any other occupant of the Premises, or any of their respective agents,
employees, contractors or guests, or any injury to person or property caused by
Tenant's and its agents, employees, contractors or guests use of the Parking
Spaces. Without limiting the generality of the foregoing, Tenant specifically
acknowledges that the indemnity undertaking herein shall apply to claims in
connection with or arising out of any "Work" as described in Article 8, the
installation, maintenance, use or removal of any "Lines" located in or serving
the Premises as described in Article 29, and the transportation, use, storage,
maintenance, generation, manufacturing, handling, disposal, release or discharge
of any "Hazardous Material" as described in Article 30 (whether or not any of
such matters shall have been theretofore approved by Landlord), except to the
extent that any of the same arises from the intentional misconduct or grossly
negligent acts of Landlord or Landlord's agents or employees.
Except to the extent arising from the intentional misconduct or
negligent acts of Tenant or Tenant's agents or employees or prohibited by Law,
Landlord shall defend, indemnify and hold Tenant harmless from and against any
and all claims, demands, liabilities, damages, judgments, orders, decrees,
actions, proceedings, fines, penalties, costs and expenses, including without
limitation, court costs and attorneys' fees arising from or relating to any loss
of life, damage or injury to person, property or business occurring in or from
the common area of the Property (expressly excluding the Parking Space), or
caused by or in connection with any negligent act or omission or violation of
this Lease by Landlord, its agents, employees, contractors or guests.
ARTICLE 28
SAFETY AND SECURITY DEVICES, SERVICES AND PROGRAMS
The parties acknowledge that safety and security devices, services
and programs provided by Landlord, if any, while intended to deter crime and
ensure safety, may not in given instances prevent theft or other criminal
acts, or ensure safety of persons or property. The risk that any safety or
security device, service or program may not be effective, or may malfunction,
or be circumvented by a criminal, is assumed by Tenant with respect to
Tenant's property and interests, and Tenant shall obtain insurance coverage
to the extent Tenant desires protection against such criminal acts and other
losses, as further described in Article 11. Tenant agrees to cooperate in any
reasonable safety or security program developed by Landlord or required by
Law.
ARTICLE 29
COMMUNICATIONS AND COMPUTER LINES
Tenant may install, maintain, replace, remove or use any communications
or computer wires, cables and related devices (collectively the "LINES") at the
Property in or serving the Premises, provided: (a) Tenant shall obtain
Landlord's prior written consent, use an experienced and qualified contractor
approved in writing by Landlord, and comply with all of the other provisions of
Article 8, (b) any such installation, maintenance,
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<PAGE>
replacement, removal or use shall comply with all Laws applicable thereto and
good work practices, and shall not interfere with the use of any then existing
Lines at the Property, (c) an acceptable number of spare Lines and space for
additional Lines shall be maintained for existing and future occupants of the
Property, as determined in Landlord's reasonable opinion, (d) if Tenant at any
time uses any equipment that may create an electromagnetic field exceeding the
normal insulation ratings of ordinary twisted pair riser cable or cause
radiation higher than normal background radiation, the Lines therefor (including
riser cables) shall be appropriately insulated to prevent such excessive
electromagnetic fields or radiation, (e) Tenant's rights shall be subject to the
rights of any regulated telephone company, and (f) Tenant shall pay all costs in
connection therewith. Landlord shall at all times maintain exclusive control
over all risers (including, without limitation, their use) located at the
Property. Landlord reserves the right to require that Tenant remove any Lines
located in or serving the Premises which are installed in violation of these
provisions, or which are at any time in violation of any Laws or represent a
dangerous or potentially dangerous condition (whether such Lines were installed
by Tenant or any other party), within ten (10) days after written notice.
Landlord may (but shall not have the obligation to): (i) install new
Lines at the Property (ii) create additional space for Lines at the Property,
and (iii) reasonably direct, monitor and/or supervise the installation,
maintenance, replacement and removal of, the, allocation and periodic
re-allocation of available space (if any) for, and the allocation of excess
capacity (if any) on, any Lines now or hereafter installed at the Property by
Landlord, Tenant or any other party (but Landlord shall have no right to monitor
or control the information transmitted through such Lines). Such rights shall
not be in limitation of other rights that may be available to Landlord by Law or
otherwise. If Landlord exercises any such rights, Landlord may charge Tenant for
the costs attributable to Tenant, or may include those costs and all other costs
in Operating Expenses under Article 25 (including without limitation, costs for
acquiring and installing Lines and risers to accommodate new Lines and spare
Lines, any associated computerized system and software for maintaining records
of Line connections, and the fees of any consulting engineers and other
experts); provided, any capital expenditures included in Operating Expenses
hereunder shall be amortized (together with reasonable finance charges) over the
period of time prescribed by Article 25.
Upon termination of this Lease, any Lines owned by Tenant and not
removed by Tenant shall, at Landlord's option, become the property of
Landlord (without payment by Landlord). If Tenant fails to remove such Lines
as required by Landlord, or violates any other provision of this Article,
Landlord may, after twenty (20) days written notice to Tenant, remove such
Lines or remedy such other violation, at Tenant's expense (without limiting
Landlord's other remedies available under this Lease or applicable Law).
Tenant shall not, without the prior written consent of Landlord in each
instance, grant to any third party a security interest or lien in or on the
Lines, and any such security interest or lien granted without Landlord's
written consent shall be null and void. Except to the extent arising from the
intentional or negligent acts of Landlord or Landlord's agents, contractors
or employees, Landlord shall have no liability for damages arising from, and
Landlord does not warrant that the Tenant's use of any Lines will be free
from the following (collectively
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called "LINE PROBLEMS"): (x) any eavesdropping or wire-tapping by
unauthorized parties, (y) any failure of any Lines to satisfy Tenant's
requirements, or (z) any shortages, failures, variations, interruptions,
disconnections, loss or damage caused by the installation, maintenance,
replacement, use or removal of Lines by or for other tenants or occupants at
the Property, by any failure of the environmental conditions or the power
supply for the Property to conform to any requirements for the Lines or any
associated equipment, or any other problems associated with any Lines by any
other cause. Under no circumstances shall any Line Problems be deemed an
actual or constructive eviction of Tenant, render Landlord liable to Tenant
for abatement of Rent, or relieve Tenant from performance of Tenant's
obligations under this Lease. Landlord in no event shall be liable for
damages by reason of loss of profits, business interruption or other
consequential damage arising from any Line Problems.
ARTICLE 30
HAZARDOUS MATERIALS
Tenant shall not transport, use, store, maintain, generate,
manufacture, handle, dispose, release or discharge any Hazardous Material upon
or about the Property, nor permit Tenant's employees, agents, contractors, and
other occupants of the Premises to engage in such activities upon or about the
Property. However, the foregoing provisions shall not prohibit the
transportation to and from, and use, storage, maintenance and handling within,
the Premises of substances customarily used in offices (or such other business
or activity expressly permitted to be undertaken in the Premises under Article
6), provided: (a) such substances shall be used and maintained only in such
quantities as are reasonably necessary for such permitted use of the Premises,
strictly in accordance with applicable Law and the manufacturers' instructions
therefor, (b) such substances shall not be disposed of, released or discharged
on the Property, and shall be transported to and from the Premises, and the
Parking Space, in compliance with all applicable Laws, and as Landlord shall
reasonably require, (c) if any applicable Law or Landlord's trash removal
contractor requires that any such substances be disposed of separately from
ordinary trash, Tenant shall make arrangements at Tenant's expense for such
disposal directly with a qualified and licensed disposal company at a lawful
disposal site (subject to scheduling and approval by Landlord), and shall ensure
that disposal occurs frequently enough to prevent unnecessary storage of such
substances in the Premises, and the Parking Space, and (d) any remaining such
substances shall be completely, properly and lawfully removed from the Property
upon expiration or earlier termination of this Lease.
Tenant shall promptly after becoming aware of same notify Landlord of:
(i) any enforcement, cleanup or other regulatory action taken or threatened by
any governmental or regulatory authority with respect to the presence of any
Hazardous Material on the Premises, or the Parking Space or the migration
thereof from or to other property, (ii) any demands or claims made or threatened
by any party against Tenant, the Premises or the Parking Space relating to any
loss or injury resulting from any Hazardous Material, (iii) any release,
discharge or nonroutine, improper or unlawful disposal or transportation of any
Hazardous Material on or from the Premises or the Parking Space, and (iv) any
matters
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where Tenant is required by Law to give a notice to any governmental or
regulatory authority respecting any Hazardous Materials on the Premises or
the Parking Space. Landlord shall have the right (but not the obligation) to
join and participate, as a party, in any legal proceedings or actions
affecting the Premises, or the Parking Space, initiated in connection with
any environmental, health or safety Law. At such times as Landlord may
reasonably request, Tenant shall provide Landlord with a written list
identifying any Hazardous Material then used, stored, or maintained upon the
Premises and the Parking Space of the Building, the use and approximate
quantity of each such material, a copy of any material safety data sheet
("MSDS") issued by the manufacturer therefor, written information concerning
the removal, transportation and disposal of the same, and such other
information as Landlord may reasonably require or as may be required by Law.
The term "HAZARDOUS MATERIAL" for purposes hereof shall mean any chemical,
substance, material or waste or component thereof which is now or hereafter
listed, defined or regulated as a hazardous or toxic chemical, substance,
material or waste or component thereof by any federal, state or local
governing or regulatory body having jurisdiction, or which would trigger any
employee or community "right-to-know" requirements adopted by any such body,
or for which any such body has adopted any requirements for the preparation
or distribution of an MSDS.
If any Hazardous Material is released, discharged or disposed of by
Tenant or any other occupant of the Premises, or their employees, agents or
contractors, on or about the Property in violation of the foregoing
provisions, Tenant shall immediately, properly and in compliance with
applicable Laws clean up and remove the Hazardous Material from the Property
and any other affected property and clean or replace any affected personal
property (whether or not owned by Landlord), at Tenant's expense. Such clean
up and removal work shall be subject to Landlord's prior written approval
(except in emergencies), and shall include, without limitation, any testing,
investigation, and the preparation and implementation of any remedial action
plan required by any governmental body having jurisdiction or reasonably
required by Landlord. If Tenant shall fail to comply with the provisions of
this Article within five (5) days after written notice by Landlord, or such
shorter time as may be required by Law or in order to minimize any hazard to
Persons or property, Landlord may (but shall not be obligated to) arrange for
such compliance directly or as Tenant's agent through contractors or other
parties selected by Landlord, at Tenant's expense (without limiting
Landlord's other remedies under this Lease or applicable Law). If any
Hazardous Material is released, discharged or disposed of on or about the
Property and such release, discharge or disposal is not caused by Tenant or
other occupants of the Premises, or their employees, agents or contractors,
such release, discharge or disposal shall be deemed casualty damage under
Article 10 to the extent that the Premises, the Parking Space, or common
areas serving the Premises are affected thereby; in such case, Landlord and
Tenant shall have the obligations and rights respecting such casualty damage
provided under Article 10.
Landlord represents and warrants that, to the best of Landlord's
knowledge, the Property is free of Hazardous Material, provided, however,
this representation and warranty shall not be construed to mean that
Hazardous Materials which are commonly used in the operation and maintenance
of newly constructed office buildings (including,
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without limitation, cleaning materials and lubricants) are not present at the
Property. Landlord shall promptly notify Tenant of the presence of Hazardous
Materials in or about the Property if the presence of such Hazardous Materials
presents a risk to the health or property of Tenant or Tenant's employees,
agents, contractors or invitees.
ARTICLE 31
MISCELLANEOUS
(A) Each of the terms and provisions of this Lease shall be binding
upon and inure to the benefit of the parties hereto, their respective heirs,
executors, administrators, guardians, custodians, successors and assigns,
subject to the provisions of Article 21 respecting Transfers.
(B) Neither this Lease nor any memorandum of lease or short form lease
shall be recorded by Tenant.
(C) This Lease shall be construed in accordance with the Laws of the
state in which the Property is located.
(D) All obligations or rights of either party arising during or
attributable to the period ending upon expiration or earlier termination of this
Lease shall survive such expiration or earlier termination.
(E) Landlord agrees that, if Tenant timely pays the Rent and performs
the terms and provisions hereunder, and subject to all other terms and
provisions of this Lease, Tenant shall hold and enjoy the Premises during the
Term, free of lawful claims by any Person acting by or through Landlord.
(F) This Lease does not grant any legal rights to "light and air"
outside the Premises nor any particular view or cityscape visible from the
Premises.
(G) Tenant shall provide Landlord with a copy of Tenant's audited
financial statements within one hundred twenty (120) days after the end of
Tenant's fiscal year.
(H) Tenant represents and warrants to Landlord that as of the
Effective Date, there has been no material adverse change in Tenant's financial
condition from the date of the most recent financial statements provided by
Tenant to Landlord.
(I) Tenant shall have the right to use the fire stairwells between the
floors of the Premises, in accordance with any Rules of the Landlord promulgated
with respect thereto.
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ARTICLE 32
OFFER
The submission and negotiation of this Lease shall not be deemed an
offer to enter the same by Landlord, but the solicitation of such an offer by
Tenant. Tenant agrees that its execution of this Lease constitutes a firm offer
to enter into the same which may not be withdrawn for a period of five (5)
business days after delivery to Landlord (or such other period as may be
expressly provided in any other agreement signed by the parties). During such
period and in reliance on the foregoing Landlord may, at Landlord's option (and
shall, if required by applicable Law), deposit any security deposit and Rent,
and proceed with any plans, specifications, alterations or improvements, and
permit Tenant to enter the Premises, but such acts shall not be deemed an
acceptance of Tenant's offer to enter this Lease, and such acceptance shall be
evidenced only by Landlord signing and delivering this Lease to Tenant.
ARTICLE 33
NOTICES
Except as expressly provided to the contrary in this Lease, every
notice or other communication to be given by either party to the other with
respect hereto or to the Premises or Property, shall be in writing and shall
not be effective for any purpose unless the same shall be served personally
or by national air courier service, or United States certified mail, return
receipt requested, postage prepaid, addressed, if to Tenant, at the address
first set forth in the Lease, until the Commencement Date, and thereafter to
the Tenant at the Premises, with a copy to McDermott, Will & Emery, 227 West
Monroe Street, Chicago, Illinois 60606, Attention: Gerald M. Offutt, P.C.,
and if to Landlord, at the address at which the last payment of Rent was
required to be made and to Union Tower Investors II, L.L.C., c/o Walton
Street Capital L.L.C., 900 North Michigan Avenue, Suite 1900, Chicago,
Illinois 60611, Attention: Luke G. Massar, or such other address or addresses
as Tenant or Landlord may from time to time designate by notice given as
above provided. Every notice or other communication hereunder shall be deemed
to have been given as of the third business day following the date of such
mailing (or as of any earlier date evidenced by a receipt from such national
air courier service or the United States Postal Service) or immediately if
personally delivered. Notices not sent in accordance with the foregoing shall
be of no force or effect until received by the foregoing parties at such
addresses required herein.
ARTICLE 34
REAL ESTATE BROKERS
Tenant represents that Tenant has dealt only with Development
Resources, Inc., CRES and Binswanger (whose commissions, if any, shall be paid
by Landlord pursuant to separate agreement) as broker, agent or finder in
connection with this Lease and agrees
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to indemnify and hold Landlord harmless from all damages, judgments,
liabilities and expenses (including reasonable attorneys' fees) arising from
any claims or demands of any other broker, agent or finder with whom Tenant
has dealt for any commission or fee alleged to be due in connection with its
participation in the procurement of Tenant or the negotiation with Tenant of
this Lease. In addition, Tenant shall indemnify and hold Landlord harmless
from all damages, judgments, liabilities and expenses (including reasonable
attorneys' fees) arising from any claims or demands of CRES for any
commission or fee alleged to be due in connection with its participation in
the procurement of Tenant or the negotiation with Tenant of this Lease,
except for any claim that is based on Landlord's breach of that certain
letter agreement, dated February 8, 2000, from Landlord to Binswanger and
CRES.
ARTICLE 35
SECURITY DEPOSIT
Tenant shall deposit with Landlord a letter of credit (as described
below) in the initial amount of $2,122,242.00 as a security deposit
("SECURITY DEPOSIT"), upon Tenant's execution and submission of this Lease.
The letter of credit shall be a clean, unconditional, stand-by, irrevocable
letter of credit in the initial amount of $2,122,242.00 (which shall be
subject to periodic reductions described below) substantially in the form
attached hereto as EXHIBIT C, issued by a federally insured national banking
association located in Chicago with a net worth in excess of $100,000,000.00
and otherwise reasonably acceptable to Landlord. The letter of credit shall
have an expiration date no earlier than the Expiration Date or shall be
renewed or replaced annually through the Expiration Date, in which event
Tenant shall submit to Landlord original amendments extending the expiration
date of the letter of credit (or replacement letters of credit with extended
expiration dates), on an annual basis no later than the date that is 30 days
prior to the expiration date of the letter of credit then in effect. Failure
to so extend the expiration date of the letter of credit through the
Expiration Date in the foregoing manner shall entitle Landlord to draw down
the letter of credit without notice to Tenant and to hold or apply the
proceeds thereof as a Security Deposit. In the event that Tenant exercises
the Expansion Option (as defined in Article 41), then on the date that
Tenant delivers Landlord the Expansion Option Notice (as defined in Article
41), Tenant shall increase the amount of the letter of credit by an amount
equal to $1,083,519.00, or submit an additional letter of credit in an amount
equal to $1,083,519.00, and shall deliver a replacement letter of credit or
additional letter of credit reflecting such increased amount to Landlord
together with the Expansion Option Notice. Beginning on the anniversary date
of the Commencement Date and on each anniversary date thereafter, and
provided Tenant is not then in default of the Lease beyond any applicable
cure periods, the amount of the letter of credit may be reduced by Tenant as
follows:
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<TABLE>
<CAPTION>
Period Required Amount Increased Amount for
- ------ (Excluding Expansion Space) Expansion Space
--------------------------- ---------------
<S> <C> <C>
Lease Year 1 $2,122,242.00 $1,083,519.00
Lease Year 2 $1,994,907.00 $1,018,508.00
Lease Year 3 $1,846,351.00 $ 942,662.00
Lease Year 4 $1,697,794.00 $ 866,815.00
Lease Year 5 $1,506,792.00 $ 769,299.00
Lease Year 6 $1,315,790.00 $ 671,782.00
Lease Year 7 $1,103,566.00 $ 563,430.00
Lease Year 8 $ 870,119.00 $ 444,243.00
Lease Year 9 $ 615,450.00 $ 314,221.00
Lease Year 10 $ 318,336.00 $ 162,528.00
</TABLE>
The Security Deposit shall serve as security for the prompt, full
and faithful performance by Tenant of the terms and provisions of this Lease.
In the event that Tenant is in Default hereunder and fails to cure within any
applicable time permitted under this Lease, or in the event that Tenant owes
any amounts to Landlord upon the expiration of this Lease which Tenant has
not promptly paid upon demand, Landlord may use or apply the whole or any
part of the Security Deposit for the payment of Tenant's obligations
hereunder. The use or application of the Security Deposit or any portion
thereof shall not prevent Landlord from exercising any other right or remedy
provided hereunder or under any Law and shall not be construed as liquidated
damages. In the event the Security Deposit is reduced by such use or
application, Tenant shall restore the letter of credit to the then required
amount of the Security Deposit, or provide Landlord with additional letters
of credit in the then required amount, within ten (10) days after written
notice.
ARTICLE 36
AMERICANS WITH DISABILITIES ACT
The parties acknowledge that Title III of the Americans With
Disabilities Act of 1990 (42 U.S.C. Section 12101 ET SEQ.) and regulations
and guidelines promulgated thereunder, as all of the same may be amended and
supplemented from time to time (collectively referred to here as the "ADA")
established requirements for accessibility and barrier removal, and that such
requirements may or may not apply to the Premises and Property depending on,
among other things: (1) whether Tenant's business is deemed a "public
accommodation" or "commercial facility", (2) whether such requirements are
"readily achievable", and (3) whether a given alteration affects a "primary
function area" or triggers "path of travel" requirements. The parties hereby
agree that: (a) Landlord shall be responsible for ADA Title III compliance on
the common areas of the Property and in the Building common areas and in the
common area lobby restrooms, (b) Tenant shall be responsible for ADA Title
III compliance in the Premises, and (c) Landlord may perform, or require that
Tenant perform, and Tenant shall be responsible for the cost of, ADA Title
III "path of travel"
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requirements triggered by alterations in the Premises. Tenant shall be solely
responsible for requirements under Title I of the ADA relating to Tenant's
employees.
Landlord represents and warrants that, to the best of Landlord's
knowledge, the common areas of the Property are in compliance with the ADA.
ARTICLE 37
OPTION TO EXTEND
Tenant is hereby granted one (1) option to extend the Term for an
additional period of five (5) consecutive years (the "EXTENSION PERIOD"), on the
same terms and conditions in effect under the Lease immediately prior to the
Extension Period, except that Tenant shall have no further right to extend after
the Extension Period, monthly Base Rent shall be the then Prevailing Rental
Rate, and the Sign Fee (as defined in Article 38) shall be increased as provided
in Article 38. If Tenant exercises an option to extend, such extension shall
apply to the entire Premises, including all Expansion Space that has been added
to the Premises pursuant to Article 37 hereof. The option to extend may be
exercised only by giving Landlord irrevocable and unconditional written notice
thereof (the "EXTENSION NOTICE") no earlier than twenty four (24) months and no
later than fifteen (15) months prior to the commencement of the Extension
Period. Such exercise shall, at Landlord's election, be null and void if Tenant
is in Default under the Lease beyond any applicable cure period at the date of
such notice or at any time thereafter and prior to commencement of the Extension
Period. Upon delivery of the Extension Notice, Tenant shall be irrevocably bound
to lease the Premises for the Extension Period (notwithstanding the absence of
an agreement over the Prevailing Rental Rent [as defined below]).
For purposes of this Article 37, "PREVAILING RENTAL RATE" means the
average per square foot rental rate per year for all leases for periods
approximately as long as the Extension Period, executed by tenants for similar
uses and lengths of time for similar multistory buildings in the vicinity of the
Property during the six (6) months immediately prior to the date upon which such
Prevailing Rental Rate is determined, where such rates were not set by the terms
of any renewal leases. In all cases, such rates shall take into consideration
the location, quality and age of the building, floor level, extent of leasehold
improvements (existing or to be provided), rental abatements, lease
takeovers/assumptions, parking charges, moving expenses and other concessions
for the benefit of Tenant, term of lease, extent of services to be provided,
distinction between "gross" and "net" lease, base year or amount allowed by
Landlord for payment of building operating expenses (expense stop), and the time
the particular rental rate under consideration became or is to become effective,
or any other relevant term or condition.
If the parties are unable to agree on the Prevailing Rental Rate within
one hundred eighty (180) days prior to the commencement of the Extension Period,
then the Prevailing Rental Rate shall be determined by appraisal as provided
below (the "APPRAISAL METHOD"). Landlord and Tenant shall attempt to agree on a
single appraiser (the "FIRST
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APPRAISER") who shall be a member of the Appraisal Institute, hereinafter
referred to as the "INSTITUTE" (or any successor association or body of
comparable standing if the Institute is not then in existence). If Landlord and
Tenant shall fail to agree on the choice of the First Appraiser within ten (10)
business days after demand by either party, then each shall select an appraiser
within five (5) business days after the expiration of the prior ten (10)
business-day period. If either Landlord or Tenant shall fail to appoint an
appraiser, then the appraiser appointed by the non-appointing party shall select
the second appraiser within five (5) business days after the expiration of the
applicable five (5) business-day period referred to above. The two appraisers
thus selected shall select, within ten (10) business days after their
appointment, a third appraiser (the "THIRD APPRAISER"). If the two appraisers so
selected shall be unable to agree on the selection of the Third Appraiser, then
either appraiser, on behalf of both, shall request such appointment by the
Institute. Any appraiser appointed or selected hereunder shall be a member in
good standing of the Institute and hold the highest general designation of
membership therein. The determination of the Prevailing Rental Rate by the
First Appraiser or the Third Appraiser, if selected as provided herein, shall be
binding on Landlord and Tenant.
If the parties elect to use the Appraisal Method, the Prevailing Rental
Rate for the Extension Period shall be determined by the First Appraiser or the
Third Appraiser, as applicable, based upon customary and usual appraisal
techniques of expert appraisers as of the scheduled commencement date of the
applicable Extension Period. As used herein, the term "FINAL ARBITER" means the
First Appraiser or, if selected, the Third Appraiser. Each of Landlord and
Tenant shall submit to the Final Arbiter its detailed analysis of its proposed
Prevailing Rental Rate. If either Landlord or Tenant fails to submit a proposed
Prevailing Rental Rate within ten (10) days of the selection or appointment of
the Final Arbiter, then the Prevailing Rental Rate proposed by the party that
has submitted a proposed Prevailing Rental Rate shall be binding on the parties.
The Final Arbiter shall request in writing that Landlord and Tenant
provide any supplemental information that may be necessary for the Final Arbiter
to render a decision regarding the Prevailing Rental Rate. The Final Arbiter
shall hold a hearing, upon not less than ten (10) days written notice to
Landlord and Tenant, and not later than twenty (20) days following selection of
the Final Arbiter, at which Landlord and Tenant shall have the opportunity to
explain and justify the Prevailing Rental Rate proposed by each party. Any party
not attending such hearing shall have waived its right to defend its proposal at
a hearing. The Final Arbiter shall prepare a written report of his or her
determination of the Prevailing Rental Rate and deliver a copy to Landlord and a
copy to Tenant within thirty (30) days of the selection or appointment of the
Final Arbiter. The Final Arbiter shall select the Prevailing Rental Rate
proposed by either Landlord or Tenant and shall not be entitled to choose any
other Prevailing Rental Rate or to make a determination based upon the average
of the Prevailing Rental Rates proposed by Landlord and Tenant. The
determination of the Final Arbiter shall be final and binding upon the parties.
In no event shall the Prevailing Rental Rate determined by the Final Arbiter for
the Extension Period be less than the Rent payable by Tenant for the immediately
preceding term.
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If the Appraisal Method is used to determine the Prevailing Rental
Rate, then the reasonable fees and expenses of the appraisers involved in the
process, including the fees and expenses of the Final Arbiter, shall be shared
equally by Landlord and Tenant.
If Tenant shall fail to exercise the option herein provided, such
option shall terminate, and shall be null and void and of no further force and
effect. Tenant's exercise of such option shall not operate to cure any default
by Tenant of any of the terms or provisions in the Lease, nor to extinguish or
impair any rights or remedies of Landlord arising by virtue of such default. If
the Lease or Tenant's right to possession of the Premises shall terminate in any
manner whatsoever before Tenant shall exercise the option herein provided, or if
Tenant shall have subleased or assigned all of the Premises, then immediately
upon such termination, sublease or assignment, the option herein granted to
extend the Term, shall simultaneously terminate and become null and void. Such
option is personal to Tenant and any Related Entity to which all of Tenant's
interest in this Lease has been assigned. Under no circumstances whatsoever
shall the assignee under a partial assignment of the Lease or an assignee, other
than a Related Entity, of an assignment of Tenant's entire interest in the
Lease, or a subtenant under a sublease of the Premises, have any right to
exercise the option to extend granted herein. Time is of the essence of this
provision.
ARTICLE 38
SIGNS
Subject to the conditions of this Article, Tenant shall have the option
to have a sign bearing its name on the west side of the roof of the Building
(the "ROOF SIGN"). In order to exercise this option, Tenant must give Landlord
written notice thereof (the "SIGN RIGHT NOTICE") on or before March 1, 2000 and
shall pay Landlord the "Sign Fee" as hereafter defined. If Tenant shall fail to
send the Sign Right Notice on or before March 1, 2000, such option shall
terminate, and shall be null and void and of no further force and effect. If
Tenant exercises the option herein provided, Landlord shall install, at Tenant's
cost, the Roof Sign, and Tenant shall maintain same at Tenant's expense, which
maintenance obligation shall be subject to all the provisions of this Lease,
including, without limitation, Article 9. If Tenant fails to maintain same to
Landlord's reasonable satisfaction, Landlord may perform such maintenance and
charge Tenant, as additional Rent, for the costs and expenses incurred by
Landlord in maintaining same. In consideration for the Roof Sign, Tenant shall
pay Landlord either (i) a one-time payment of $750,000.00, which payment shall
be due on the Commencement Date, or (ii) annual payments, each in the amount of
$100,000, with the first such payment due on the Commencement Date and each
subsequent payment due on the first day of each subsequent Lease Year during the
Term. The foregoing payment or payments are referred to herein as the "SIGN
FEE." In the event that Tenant elects to pay the Sign Fee in annual payments and
Tenant exercises the Expansion Option (as defined in Article 41), then the
annual payment due on the first day of the Lease Year occurring after the end of
the tenth Lease Year shall be prorated by multiplying $100,000 by a fraction,
the numerator of which is the number of days from the first day of the Lease
Year occurring after the end of the tenth Lease Year to and including
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the Expiration Date, and the denominator of which is 365. Tenant must notify
Landlord in the Sign Right Notice of the payment option for the Sign Fee that
Tenant desires. The following provisions shall apply to Tenant's sign rights:
(A) All aspects of Tenant's sign, including, without limitation, the
location on the west side of the roof of the Building, size, design,
materials, construction, proposed means of installation, exact location,
illumination, content and color thereof, shall be subject to Landlord's
approval, which shall not be unreasonably withheld except as provided herein,
and all aspects of Tenant's signs shall comply with all applicable Laws,
codes and ordinances. In addition, Landlord shall be entitled to consider the
existence, size and location of other rooftop structures, other signs, and
the proximity of the Roof Sign to the perimeter of the roof in determining
whether to approve the proposed location of the Roof Sign. Tenant shall not
install any sign or make any alterations, additions or improvements to any
sign, until Landlord has approved in writing professionally prepared sign
plans submitted by Tenant showing the design, size, content, color and
quality of materials of the sign, and whether it will be illuminated, and
Tenant has obtained any permits or approvals required by applicable Law.
Landlord may withhold approval of any aspect of the sign plans affecting the
appearance of the Property in Landlord's sole and absolute discretion, but
shall not unreasonably withhold approval of other aspects of the sign plans.
Without limitation on the foregoing, in no event will the Roof Sign contain
flashing or blinking lights or bulbs. In the event that either Landlord or
the City of Chicago do not approve a Roof Sign that is reasonably acceptable
to Tenant, then, prior to installing the Roof Sign, Tenant may elect not to
install a Roof Sign by delivering written notice thereof to Landlord, in
which case Tenant shall have no further right to the Roof Sign, and Landlord
shall promptly return to Tenant the Sign Fee or any portion thereof
previously paid to Landlord. Following the installation of the Roof Sign, no
changes may be made to the Roof Sign without Landlord's prior written
approval.
(B) The sign rights granted in this Article 38 are personal to Tenant.
Under no circumstances whatsoever shall the assignee under a partial assignment
of the Lease or an assignee of an assignment of Tenant's entire interest in the
Lease, or a subtenant under a sublease of the Premises, have or enjoy any, of
the sign rights granted in this Article 38. Tenant shall have the sign right
with respect to the Roof Sign provided that Tenant and, a Related Entity occupy
at least two (2) floors of the Building. In the event that Tenant assigns,
subleases or terminates such portion or portions of the Premises that Tenant and
a Related Entity no longer occupy at least two (2) floors of the Building, the
rights conferred upon Tenant herein with respect to the Roof Sign shall, at
Landlord's option, terminate and, if Landlord elects to terminate Tenant's right
to the Roof Sign, Tenant shall, at its sole cost, remove the Roof Sign and make
any necessary repairs to the Property caused by the installation or removal of
same. If the rights with respect to the Roof Sign are terminated in accordance
with the preceding sentence, all payments of the Sign Fee prior to such
termination shall be forfeited to Landlord, however, Tenant shall have no
obligation to make any additional payments of the Sign Fee after such
termination. Upon termination of this Lease or Tenant's earlier vacation of the
Premises, Tenant shall, at Tenant's sole cost, remove the Roof Sign and make any
necessary repairs to the Property caused by the installation or removal of same.
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(C) In the event that Tenant fails to pay the Sign Fee as and when due,
and such failure continues for ten (10) days after written notice to Tenant,
then, in addition to any other remedies available in this Lease to Landlord for
a Default by Tenant, Landlord may terminate Tenant's right to maintain the Roof
Sign, in which case Tenant shall remove the Roof Sign, at Tenant's expense,
promptly following receipt of written notice from Landlord to Tenant directing
Tenant to remove the Roof Sign.
(D) In the event that Tenant exercises the option to extend the Term
pursuant to Article 37, Tenant shall be obligated to pay a Sign Fee during the
Extension Period, in annual installments on the first day of each Lease Year
during the Extension Period, each such payment in an amount equal to
$150,000.00. Notwithstanding the foregoing, Tenant may notify Landlord in the
Extension Notice (as defined in Article 37) that Tenant elects to waive its
right to the Roof Sign during the Extension Period, in which case Tenant shall,
at Tenant's expense, remove the Roof Sign promptly following the beginning of
the Extension Period, and Tenant shall have no further obligation to pay the
Sign Fee during the Extension Period.
(E) Tenant shall have the right to have Tenant's name and the names of
Tenant's departments and company officers on the Building directory or
directories, at no cost to Tenant. Tenant shall have the right to have Tenant's
name in the lobby of each full floor of the Premises, subject to Landlord's
approval of the format thereof (i.e., the location, size, design, materials,
construction, proposed means of installation, exact location, illumination,
content and color thereof), which approval shall not be unreasonably withheld or
delayed.
(F) The sign rights provided in this Article 38 are non-exclusive.
Landlord reserves the right to install, or permit other parties to install,
other signs on or about the Property, including the roof of the Building;
provided, however, that Landlord agrees that it will not grant any other party
the right to install a sign on the west side of the roof of the Building.
(G) In the event that Tenant is required to remove the Roof Sign
pursuant to this Article 38, Tenant shall perform such removal in accordance
with the terms of Article 8 of this Lease, including, without limitation,
submission of plans for such removal for Landlord's approval, and Landlord's
approval of any proposed contractor therefor. In connection with such removal,
Tenant shall make any necessary repairs to the Property caused by the
installation or removal of the Roof Sign.
ARTICLE 39
PARKING / GENERATOR
Landlord hereby grants to Tenant and persons designated by Tenant a
license to use two (2) parking spaces, which shall be increased to three (3)
parking spaces if Tenant exercises the Expansion Option (as defined in Article
41) in the parking area of the Building (the "PARKING SPACES"). Tenant shall
initially pay $225 per month, per parking
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space, for the Parking Spaces, which shall be due and payable at the same
time as Base Rent under this Lease. The monthly charge for the Parking Spaces
shall be modified on an annual basis to reflect the prevailing market rate
charged by Landlord for parking spaces in the parking area of the Building.
Tenant shall at all times comply with all Laws respecting Tenant's use of the
parking areas of the Building. Except for intentional acts or negligence,
Landlord shall have no liability whatsoever for any damage to property or any
other items located in the parking areas of the Building, nor for any
personal injuries or death arising out of any matter relating to the parking
areas of the Building and Tenant's use thereof, and in all events, Tenant
agrees to look first to its insurance carrier and to require that Tenant's
employees look first to their respective insurance carriers for payment of
any losses sustained in connection with any use of the parking areas of the
Building. Tenant hereby waives on behalf of its insurance carriers all rights
of subrogation against Landlord or Landlord's agents. Landlord reserves the
right, in accordance with Article 6, to adopt, modify and enforce reasonable
Rules governing the use of the parking areas of the Building, including any
key-card, sticker or other identification or entrance system, and hours of
operation. Landlord may refuse to permit any person who violates such Rules
to park at the Building, and violation of such Rules shall subject the car to
removal from the Property. Landlord reserves the right to assign specific
spaces and to reserve spaces for visitors, small cars, handicapped persons
and for other tenants, guests of tenants or other parties, and Tenant and
persons designated by Tenant hereunder shall not park in any such assigned or
reserved spaces. Landlord also reserves the right to temporarily close all or
any portion of the parking areas in order to make repairs or perform
maintenance services to the Building or the parking areas of the Building, or
to alter, modify, re-stripe or renovate the parking areas. Landlord reserves
the right to monitor Tenant's usage of the Parking Space and remove or refuse
entrance to any vehicles which exceed the number of spaces provided to Tenant
in this Article.
Tenant may convert the use of the Parking Spaces for placement,
enclosure and connection to the Premises, at Tenant's expense, of Tenant's
back-up generator (the "GENERATOR"), subject to Landlord's reasonable prior
approval of plans and specifications for the Generator and enclosure and
connection to the Premises, and provided that the Generator and all
connections between the Generator, the Building and the Premises (the
"GENERATOR CONNECTIONS") comply at all times with all applicable Laws. Tenant
shall remove the Generator, the enclosure and the Generator Connections from
the Building and the parking area of the Building on the Expiration Date or
earlier termination of this Lease and restore the area to its original
condition, at Tenant's sole cost and expense. Tenant shall be responsible for
the maintenance of the Generator and shall comply with the manufacturer's
recommendations with respect to maintenance and operation thereof. Without
limitation on the foregoing, Tenant shall test the Generator at least once
per month, on weekends.
The rights to the Parking Spaces provided herein are personal to Tenant
and any Related Entity. Under no circumstance whatsoever shall the assignee
under a complete or partial assignment of the Lease, or a subtenant under a
complete or partial sublease of the Premises, have any rights with respect to
the Parking Spaces.
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ARTICLE 40
TERMINATION OPTION
Tenant shall have the option to terminate this Lease as of the date
(the "EARLY EXPIRATION DATE") which is the last day of the fifth (5th) Lease
Year, which option may be exercised only in strict compliance with the terms of
this Article 40. Such option shall be exercised, if at all, by delivery to
Landlord of a notice of termination (the "TERMINATION NOTICE") not less than
fifteen (15) months prior to the Early Expiration Date, and upon payment by
Tenant to Landlord of a fee (the "TERMINATION FEE"). If Tenant does not exercise
the Expansion Option (as defined in Article 41), the Termination Fee shall equal
the sum of (i) $1,319,976.13, plus (ii) three (3) months of "Gross Rent" (as
hereafter defined). If Tenant exercises the Expansion Option, the Termination
Fee shall equal the sum of (i) $1,938,728.90, plus (ii) three (3) months of
Gross Rent. The Termination Notice must be accompanied by a certified or
cashier's check in an amount equal to the Termination Fee. "GROSS RENT" shall
mean the sum of (x) the amount of Monthly Base Rent due and payable as of the
date of the Termination Notice, plus (y) the monthly payments of Tenant's
Prorata Share of Taxes and Operating Expenses due and payable as of the date of
the Termination Notice. If, and only if, Tenant timely and properly delivers the
Termination Notice accompanied by the payment of the Termination Fee, then the
term of this Lease shall end as of the Early Expiration Date, as though the
Early Expiration Date had been originally fixed as the termination date of this
Lease. All terms and conditions of this Lease and Tenant's obligations
hereunder, including, without limitation, Tenant's obligation to pay Rent, shall
continue up to and including the Early Expiration Date. All obligations of
Landlord and Tenant under this Lease not fully performed as of the Early
Expiration Date shall survive the Early Expiration Date. No Transferee, other
than a Related Entity, shall succeed to the rights provided in this Lease to
exercise the Termination Option, any such rights being deemed personal to Tenant
and such Related Entity. The termination option set forth in this Article 40 is
personal to Tenant and any Related Entity to which all of Tenant's interest in
this Lease has been assigned. Under no circumstances whatsoever shall the
assignee under a partial assignment of the Lease or an assignee, other than a
Related Entity, of an assignment of Tenant's entire interest in the Lease, or a
subtenant under a sublease of the Premises, have any right to exercise the
termination option granted herein.
ARTICLE 41
EXPANSION OPTION
Tenant shall have the expansion option set forth in this Article 41
with respect to the "Expansion Space." Landlord hereby grants Tenant the
option (the "EXPANSION OPTION") to lease the entire rentable area of the
fifteenth (15th) floor of the Building (the "EXPANSION SPACE"), consisting of
20,667 rentable square feet, on the same terms and conditions in effect under
the Lease. Tenant shall exercise the Expansion Option by delivering written
notice (the "EXPANSION OPTION NOTICE") of its exercise thereof to
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Landlord on or before July 1, 2000, otherwise Tenant shall be deemed to have
waived its right to exercise the Expansion Option. Time shall be of the essence
with respect to Tenant's exercise of the Expansion Option. In the event that
Tenant timely exercises the Expansion Option, the Expansion Space shall be added
to and become a part of the Premises demised under this Lease on the Expansion
Space Commencement Date. The lease term of the Expansion Space shall commence on
the date (the "EXPANSION SPACE COMMENCEMENT DATE") that is the earlier date of
(i) the "Expansion Space Delivery Date," or (ii) Substantial Completion of the
"Expansion Space Work" (as such terms are hereafter defined).
Tenant's right to exercise the Expansion Option is subject to the
following terms and conditions:
(i) DELIVERY OF SPACE. Landlord shall perform certain improvements to
the Expansion Space (the "EXPANSION SPACE WORK"), and shall provide Tenant with
an improvement allowance with respect to the Expansion Space Work in an amount
up to $40 per rentable square foot of the Expansion Space. The Expansion Space
Work shall be performed in accordance with the terms of the Work Agreement,
except that Landlord and Tenant shall meet promptly following Landlord's receipt
of the Expansion Option Notice to develop a construction schedule comparable to
the schedule attached to the Work Agreement, which schedule shall provide for
Substantial Completion of the Expansion Space Work on or before November 1,
2000. Landlord and Tenant shall execute a Work Agreement with respect to the
Expansion Space Work that shall conform to the agreed-upon construction
schedule for the Expansion Space Work. The "EXPANSION SPACE DELIVERY DATE" shall
be November 1, 2000, which date shall be extended one day for each day that
Landlord fails to Substantially Complete the Expansion Space Work due to any
reason other than a "Tenant Delay" (as defined in the Work Agreement).
(ii) MISCELLANEOUS. Tenant's exercise of the Expansion Option shall
not operate to cure any default by Tenant of any of the terms or provisions
in the Lease, nor to extinguish or impair any rights or remedies of Landlord
arising by virtue of such default. If the Lease or Tenant's right to
possession of the Premises shall terminate in any manner whatsoever before
Tenant shall exercise the Expansion Option, or if Tenant shall have subleased
or assigned all or any portion of the Premises other than to a Related
Entity, then immediately upon such termination, sublease or assignment, the
Expansion Option, as the case may be, shall simultaneously terminate and
become null and void. The options set forth in this Article 41 are personal
to Tenant. Under no circumstances whatsoever shall the assignee under a
partial assignment of the Lease or an assignee of Tenant's entire interest in
the Lease, or a subtenant under a sublease of the Premises, have any right to
exercise the option granted herein.
(iii) TERMS. The Expansion Space shall be leased on the terms and
conditions of this Lease, except (1) the rentable area of the Premises shall
be increased as of the Expansion Space Commencement Date by the rentable area
of the Expansion Space, (2) Tenant's Prorata Share shall be increased as of
the Expansion Space
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Commencement Date to reflect the addition of the Expansion Space to the
Premises, (3) the Annual Base Rent due under this Lease shall be increased as of
the Expansion Space Commencement Date by an amount equal to the product of (x)
the rentable square feet of the Expansion Space and (y) the Base Rent Rental
Rate then in effect, and (4) Tenant shall increase the amount of the Security
Deposit required pursuant to Article 35 and deliver Landlord a replacement
letter of credit or an additional letter of credit reflecting such increase
together with the Expansion Option Notice, as more particularly described in
Article 35 hereof. The Base Rent due under this Lease that will be due in the
event that Tenant exercises the Expansion Option is shown on Exhibit A-1. If
Tenant exercises the Expansion Option, the Term of this Lease shall end on the
date that is the last day of the 120th full calendar month following the
Expansion Space Commencement Date, unless sooner terminated in accordance with
the terms of this Lease.
(iv) DEFAULT. Tenant's exercise of its option with respect to the
Expansion Space shall be null and void if, as of the date of the exercise of the
Expansion Option by Tenant, Tenant is in Default under this Lease.
ARTICLE 42
ENTIRE AGREEMENT
This Lease, together with Rider One, Exhibit A, Exhibit A-1, Exhibit B,
Exhibit C, Exhibit D, Exhibit E and the Work Agreement (WHICH ARE HEREBY
INCORPORATED WHERE REFERRED TO HEREIN AND MADE A PART HEREOF AS THOUGH FULLY SET
FORTH), contains all the terms and provisions between Landlord and Tenant
relating to the matters set forth herein and no prior or contemporaneous
agreement or understanding pertaining to the same shall be of any force or
effect, except any such contemporaneous agreement specifically referring to and
modifying this Lease, signed by both parties. Without limitation as to the
generality of the foregoing, Tenant hereby acknowledges and agrees that
Landlord's leasing agents and field personnel are only authorized to show the
Premises and negotiate terms and conditions for leases subject to Landlord's
final approval, and are not authorized to make any agreements, representations,
understandings or obligations, binding upon Landlord, respecting the condition
of the Premises or Property, suitability of the same for Tenant's business, or
any other matter, and no such agreements, representations., understandings or
obligations not expressly contained herein or in such contemporaneous agreement
shall be of any force or effect. Neither this Lease, nor any Riders or Exhibits
referred to above may be modified, except in writing signed by both parties.
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In witness whereof, Landlord and Tenant have executed this Lease as of
the date first above written.
LANDLORD: UNION TOWER INVESTORS II, L.L.C.,
a Delaware limited liability company
By: Walton Street Real Estate Fund II, L.P.
a Delaware limited partnership, its
managing member
By: Walton Street Managers II, L.P.,
a Delaware limited partnership,
its general partner
By: WSC Managers II, Inc.,
a Delaware corporation,
its general partner
By: /s/ Howard J. Brody
------------------------
Name: Howard J. Brody
-----------------------
Title: V.P
----------------------
TENANT: PARTICIPATE.COM, INC.,
a Delaware corporation
By: /s/ Stephen J. Hawrysz
-----------------------------
Name: Stephen J. Hawrysz
---------------------------
Title: CFO
--------------------------
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CERTIFICATE OF AUTHORITY
I, Alan K. Warms, Secretary of PARTICIPATE.COM hereby certify that
Stephen J Hawrysz the officer executing the foregoing Lease on behalf of
Tenant was duly authorized to act in his capacities as Chief Financial
Officer of Participate.com, and his action is the action of Tenant.
(Corporate Seal) /s/ Alex K. Warms
----------------------------------
Secretary
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RIDER ONE
RULES
(1) On Saturdays, Sundays and Holidays, and on other days between the
hours of 6:00 P.M. and 8:00 A.M. the following day, or such other hours as
Landlord shall determine from time to time, access to the Property and/or to the
passageways, entrances, exits, shipping areas, halls, corridors, elevators or
stairways and other areas in the Property may be restricted and access gained by
use of a key to the outside doors of the Property, or pursuant to such security
procedures Landlord may from time to time reasonably impose. All such areas, and
all roofs, are not for use of the general public and Landlord shall in all cases
retain the right to control and prevent access thereto by all persons whose
presence in the reasonable judgment of Landlord shall be prejudicial to the
safety, character, reputation and interests of the Property and its tenants
provided, however, that nothing herein contained shall be construed to prevent
such access to persons with whom Tenant deals in the normal course of Tenant's
business unless such persons are engaged in activities which are illegal or
violate these Rules. No Tenant and no employee or invitee of Tenant shall enter
into areas reserved for the exclusive use of Landlord, its employees or
invitees. Tenant shall keep doors to corridors and lobbies closed except when
persons are entering or leaving.
(2) Tenant shall not paint, display, inscribe, maintain or affix any
sign, placard, picture, advertisement, name, notice, lettering or direction on
any part of the outside or inside of the Property, or on any part of the inside
of the Premises which can be seen from the outside of the Premises, without the
prior consent of Landlord, and then only such name or names or matter and in
such color, size, style, character and material as may be first approved by
Landlord in writing. Landlord reserves the right, upon prior notice to Tenant,
to remove at Tenant's expense all matter not so installed or approved without
notice to Tenant.
(3) Tenant shall not in any manner use the name of the Property for any
purpose other than that of the business address of the Tenant, or use any
picture or likeness of the Property, in any letterheads, envelopes, circulars,
notices, advertisements, containers or wrapping material without Landlord's
express consent in writing.
(4) Tenant shall not place anything or allow anything to be placed in
the Premises near the glass of any door, partition, wall or window which may be
unsightly from outside the Premises, and Tenant shall not place or permit to be
placed any article of any kind on any window ledge or on the exterior walls.
Blinds, shades, awnings or other forms of inside or outside window ventilators
or similar devices, shall not be placed in or about the outside windows in the
Premises except to the extent, if any, that the character, shape, color,
material and make thereof is first approved by the Landlord.
(5) Furniture, freight and other large or heavy articles, and all other
deliveries may be brought into the Property only at times and in the manner
reasonably designated by Landlord, in compliance with all Laws, and always at
the Tenant's sole responsibility
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and risk. Landlord may impose reasonable charges for use of freight elevators
after or before normal business hours (which charges shall be generally imposed
on tenants of the Building and shall be available in the office of the Building,
and shall be subject to adjustment from time to time). All damage done to the
Property by moving or maintaining such furniture, freight or articles shall be
repaired by Landlord at Tenant's expense. Landlord may inspect items brought
into the Property or Premises with respect to weight or dangerous nature.
Landlord may require that all furniture, equipment, cartons and similar articles
removed from the Premises or the Property be listed and a removal permit
therefor first be obtained from Landlord. Tenant shall not take or permit to be
taken in or out of other entrances or elevators of the Property, any item
normally taken, or which Landlord otherwise reasonably requires to be taken, in
or out through service doors or on freight elevators. Tenant shall not allow
anything (including without limitation, portable carts, signs, placards, and
billboards) to remain in or obstruct in any way, any lobby, plaza, corridor,
sidewalk, passageway, entrance, exit, hall, elevator, escalator, stairway,
shipping area, or other area. Tenant shall move all supplies, furniture and
equipment as soon as received directly to the Premises, and shall move all such
items and waste that are at any time being taken from the Premises directly to
the areas designated for disposal. Tenant shall cause trash and rubbish to be
deposited only in receptacles approved or designated by Landlord. Any hand-carts
used at the Property shall have rubber wheels and side guards and no other
material handling equipment may be brought upon the Property, except as Landlord
shall approve in writing in advance.
(6) Tenant shall not overload any floor or part thereof in the
Premises, or Property, including any public corridors or elevators therein
bringing in or removing any large or heavy articles, and Landlord may direct and
control the location of safes and all other heavy articles and require
supplementary supports at Tenant's expense of such material and dimensions as
Landlord may deem necessary to property distribute the weight.
(7) Tenant shall not attach or permit to be attached additional locks
or similar devices to any door or window, change existing locks or the mechanism
thereof, or make or permit to be made any keys for any door other than those
provided by Landlord. If more than two keys for one lock are desired, Landlord
will provide them upon payment therefor by Tenant. Tenant, upon termination of
its tenancy, shall deliver to the Landlord all keys of offices, rooms and toilet
rooms which have been furnished Tenant or which the Tenant shall have had made,
and in the event of loss of any keys so furnished shall pay Landlord therefor
(at the rates that are generally imposed on tenants of the Building, which shall
be available in the office of the Building, and shall be subject to adjustment
from time to time).
(8) If Tenant desires signal, communication, alarm or other utility or
similar service connections installed or changed, Tenant shall not install or
change the same without the prior approval of Landlord, and then only under
Landlord's direction at Tenant's expense. Tenant shall not install in the
Premises any equipment which requires more electric current than Landlord is
required to provide under this Lease, without Landlord's prior approval, and
Tenant shall ascertain from Landlord the maximum amount of load or
2
<PAGE>
demand for or use of electrical current which can safely be permitted in the
Premises, taking into account the capacity of electric wiring in the Property
and the Premises and the needs of tenants of the Property, and shall not in any
event connect a greater load than such safe capacity.
(9) Tenant shall not obtain for use upon the Premises ice, drinking
water, towel, janitor and other similar services, except from Persons approved
by the Landlord. Any Person engaged by Tenant to provide janitor or other
services shall be subject to direction by the manager or security personnel of
the Property.
(10) The toilet rooms, urinals, wash bowls and other such apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein and the expense of any breakage, stoppage or damage resulting from the
violation of this Rule shall be borne by the Tenant who, or whose employees or
invitees shall have caused it.
(11) The janitorial closets, utility closets, telephone closets, broom
closets, electrical closets, storage closets, and other such closets, rooms and
areas shall be used only for the purposes and in the manner designated by
Landlord, and may not be used by tenants, or their contractors, agents,
employees, or other parties without Landlord's prior written consent. With
respect to telephone risers, Landlord requires the Tenant to contract with the
approved Building telephone riser management company for all telephone cabling
extending from within the main telephone room (Netpop) up to a demarcation point
located in the Tenant's premises.
(12) Landlord reserves the right to exclude or expel from the Property
any person who, in the reasonable judgment of Landlord, is intoxicated or under
the influence of liquor or drugs, or who shall in any manner do any act in
violation of any of these Rules. Tenant shall not at any time manufacture,
sell, use or give away, any spirituous, fermented, intoxicating or alcoholic
liquors on the Premises, nor permit any of the same to occur (except in
connection with occasional social or business events conducted in the Premises
which do not violate any Laws nor bother or annoy any other tenants). Tenant
shall not at any time sell, purchase or give away, food in any form by or to
any of Tenant's agents or employees or any other parties on the Premises, nor
permit any of the same to occur (other than in lunch rooms or kitchens for
employees as may be permitted or installed by Landlord, which does not violate
any Laws or bother or annoy any other tenant, and except in connection with
occasional social or business events conducted in the Premises which do not
violate any Laws nor bother or annoy any other tenants). Tenant shall not permit
any pinball or other similar video or electronic machines on the Premises
without Landlord's prior written consent, which consent shall not be
unreasonably withheld if such machine will not bother or annoy any other
tenants. Nothing contained in the preceding sentence shall prohibit Tenant from
permitting the use of video games on computer monitors or televisions (such as
Nintendo). If any food or beverages shall be permitted to be sold or consumed on
the Premises, and Landlord believes in good faith that the sale or consumption
of food or beverages has caused or will cause infestation of the Premises or the
Property with rodents or vermin, Landlord may require that Tenant engage a
3
<PAGE>
responsible pest and rodent control service approved by Landlord on such regular
basis as Landlord reasonably requires.
(13) Tenant shall not make any room-to-room canvass to solicit business
or information or to distribute any article or material to or from other tenants
or occupants of the Property and shall not exhibit, sell or offer to sell, use,
rent or exchange any products or services in or from the Premises unless
ordinarily embraced within the Tenant's use of the Premises specified in the
Lease. No leaflets or other materials may be distributed or placed on vehicles
in any parking area or facility.
(14) Tenant shall not waste electricity, water, heat or air
conditioning or other utilities or services, and agrees to cooperate fully with
Landlord to assure the most effective and energy efficient operation of the
Property and shall not allow the adjustment (except by Landlord's authorized
Property personnel) of any controls. Tenant shall keep corridor doors closed and
shall not open any windows, except that if the air circulation shall not be in
operation, windows which are openable may be opened with Landlord's consent. As
a condition to claiming any deficiency in the air-conditioning or ventilation
services provided by Landlord, Tenant shall close any blinds or drapes in the
Premises to prevent or minimize direct sunlight.
(15) Tenant shall conduct no auction, fire or "going out of business
sale" or bankruptcy sale in or from the Premises, and such prohibition shall
apply to Tenant's creditors.
(16) Tenant shall cooperate and comply with any reasonable safety or
security programs, including fire drills and air raid drills, and the
appointment of "fire wardens" developed by Landlord for the Property, or
required by Law. Before leaving the Premises unattended, Tenant shall close
and securely lock all doors or other means of entry to the Premises and shut
off all water faucets in the Premises (except heat to the extent necessary to
prevent the freezing or bursting of pipes).
(17) Intentionally Deleted.
(18) Tenant shall not (i) carry on any business, activity or service
except those ordinarily embraced within the permitted use of the Premises
specified in the Lease and more particularly, but without limiting the
generality of the foregoing, shall not (ii) install or operate any internal
combustion engine, boiler, machinery, refrigerating, heating or air
conditioning equipment in or about the Premises, (iii) use the Premises for
housing, lodging or sleeping purposes or for the washing of clothes, (iv) place
any radio or television antennae other than inside of the Premises, (v) operate
or permit to be operated any musical or sound producing instrument or device
which may be heard outside the Premises, (vi) use any source of power other than
electricity, (vii) operate any electrical or other device from which may emanate
electrical or other waves which may interfere with or impair radio, television,
microwave, or other broadcasting or reception from or in the Property or
elsewhere, (viii) bring or permit any bicycle or other vehicle, or dog (except
in the company of a blind person or except where specifically permitted) or
other animal or
4
<PAGE>
bird in the Property, (ix) make or permit objectionable noise or odor to
emanate from the Premises, (x) do anything in or about the Premises tending
to create or maintain a nuisance or do any act tending to injure the
reputation of the Property, (xi) throw or permit to be thrown or dropped any
article from any window or other opening in the Property, (xii) use or permit
upon the Premises anything that will invalidate or increase the rate of
insurance on any policies of insurance now or hereafter carried on the
Property or violate the certificates of occupancy issued for the premises or
the Property, (xiii) use the Premises for any purpose, or permit upon the
Premises anything, that may be dangerous to persons or property (including
but not limited to flammable oils, fluids, paints, chemicals, firearms or any
explosive articles or materials) nor (xiv) do or permit anything to be done
upon the Premises in any way tending to disturb any other tenant at the
Property or the occupants of neighboring property.
(19) If the Property shall now or hereafter contain a building
garage, parking structure or other parking area or facility, the Rules set
forth below shall apply in such areas or facilities. In the event of any
conflict between the Rules set forth below and the terms of Article 41, the
provisions of Article 41 shall govern.
(i) Parking shall be available in areas designated
generally for tenant parking, for such daily or
monthly charges as Landlord may establish from time
to time, or as may be provided in any Parking
Agreement attached hereto (which, when signed by both
parties as provided therein, shall thereupon become
effective). In all cases, parking for Tenant and its
employees and visitors shall be on a "first come,
first served," unassigned basis, with Landlord and
other tenants at the Property, and their employees
and visitors, and other Persons (as defined in
Article 25 of the Lease) to whom Landlord shall grant
the right or who shall otherwise have the right to
use the same, all subject to these Rules, as the same
may be amended or supplemented, and applied on a
non-discriminatory basis, all as further described in
Article 6 of the Lease. Notwithstanding the foregoing
to the contrary, Landlord reserves the right to
assign specific spaces, and to reserve spaces for
visitors, small cars, handicapped individuals, and
other tenants, visitors of tenants or other Persons,
and Tenant and its employees and visitors shall not
park in any such assigned or reserved spaces.
Landlord may restrict or prohibit full size vans
and other large vehicles.
(ii) In case of any violation of these provisions,
Landlord may refuse to permit the violator to park,
and may remove the vehicle owned or driven by the
violator from the Property without liability
whatsoever, at such violator's risk and expense.
Landlord reserves the right to close all or a portion
of the parking areas or facilities in order to make
repairs or perform maintenance services, or to alter,
modify, re-stripe or renovate the same, or if
required by casualty, strike, condemnation, act of
God, Law or governmental requirement, or any
5
<PAGE>
other reason beyond Landlord's reasonable control. In
the event access is denied for any reason, any
monthly parking charges shall be abated to the extent
access is denied, as Tenant's sole recourse, Tenant
acknowledges that such parking areas or facilities
may be operated by an independent contractor not
affiliated with Landlord, and Tenant acknowledges
that in such event, Landlord shall have no liability
for claims arising through acts or omissions of such
independent contractor, if such contractor is
reputable.
(iii) Regular hours shall be 6 A.M. to 8 P.M., Monday
through Friday, and 10:00 A.M. to 1:00 P.M. on
Saturdays, or such other hours as may be reasonably
established by Landlord or its parking operator from
time to time, provided, however, Landlord shall make
arrangements for Tenant to have access to and use of
the parking garage twenty-four hours per day; cars
must be parked entirely within the stall lines, and
only small cars may be parked in areas reserved for
small cars; all directional signs and arrows must be
observed; the speed limit shall be 5 miles per hour;
spaces reserved for handicapped parking must be used
only by vehicles properly designated; every parker is
required to park and lock his own car; washing,
waxing, cleaning or servicing of any vehicle is
prohibited; Parking Space may be used only for
parking automobiles; parking is prohibited in areas:
(a) not striped or designated for parking,
(b) aisles, (c) where "no parking" signs are posted,
(d) on ramps, and (e) loading areas and other
specially designated areas. Delivery trucks and
vehicles shall use only those areas designated
therefor.
6
<PAGE>
EXHIBIT A
BASE RENT
<TABLE>
<CAPTION>
BASE RENT ANNUAL MONTHLY
LEASE YEAR RENTAL RATE BASE RENT BASE RENT
- ---------- ----------- --------- ---------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
1 $ 28.00 $ 1,157,352.00 $ 96,446.00
- -----------------------------------------------------------------------------------------------------------
2 $ 28.50 $ 1,178,019.00 $ 98,168.25
- -----------------------------------------------------------------------------------------------------------
3 $ 29.00 $ 1,198,686.00 $ 99,890.50
- -----------------------------------------------------------------------------------------------------------
4 $ 29.50 $ 1,219,353.00 $ 101,612.75
- -----------------------------------------------------------------------------------------------------------
5 $ 30.00 $ 1,240,020.00 $ 103,335.00
- -----------------------------------------------------------------------------------------------------------
6 $ 30.50 $ 1,260,687.00 $ 105,057.25
- -----------------------------------------------------------------------------------------------------------
7 $ 31.00 $ 1,281,354.00 $ 106,779.50
- -----------------------------------------------------------------------------------------------------------
8 $ 31.50 $ 1,302,021.00 $ 108,501.75
- -----------------------------------------------------------------------------------------------------------
9 $ 32.00 $ 1,322,688.00 $ 110,224.00
- -----------------------------------------------------------------------------------------------------------
10 $ 32.50 $ 1,343,355.00 $ 111,946.25
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit A
<PAGE>
EXHIBIT A-1
BASE RENT IF
TENANT EXERCISES THE EXPANSION OPTION
<TABLE>
<CAPTION>
BASE RENT ANNUAL MONTHLY
LEASE YEAR RENTAL RATE BASE RENT BASE RENT
- ---------- ----------- --------- ---------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
1 $ 28.00 $ 1,736,028.00 $ 144,669.00
- -----------------------------------------------------------------------------------------------------------
2 28.50 $ 1,767,028.50 $ 147,252.38
- -----------------------------------------------------------------------------------------------------------
3 $ 29.00 $ 1,798,029.00 $ 149,835.75
- -----------------------------------------------------------------------------------------------------------
4 $ 29.50 $ 1,829,029.50 $ 152,419.13
- -----------------------------------------------------------------------------------------------------------
5 $ 30.00 $ 1,860,030.00 $ 155,002.50
- -----------------------------------------------------------------------------------------------------------
6 $ 30.50 $ 1,891,030.50 $ 157,585.88
- -----------------------------------------------------------------------------------------------------------
7 $ 31.00 $ 1,922,031.00 $ 160,169.25
- -----------------------------------------------------------------------------------------------------------
8 $ 31.50 $ 1,953,031.50 $ 162,752.63
- -----------------------------------------------------------------------------------------------------------
9 $ 32.00 $ 1,984,032.00 $ 165,336.00
- -----------------------------------------------------------------------------------------------------------
10 $ 32.50 $ 2,015,032.50 $ 167,919.38
- -----------------------------------------------------------------------------------------------------------
From the end of the 10th
Lease Year to the $ 33.00 $ 2,046,033.00 $ 170,502.75
Expiration Date
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Exhibit A-1
<PAGE>
EXHIBIT B
EXCLUSIONS FROM OPERATING EXPENSES
The following expenses are excluded from Building Operating Expenses:
1. all costs related to Year 2000 compliance;
2. the cost of making an installation or alteration to the Building which
under generally accepted accounting principles is properly classified
as a capital expenditure, in which event such item shall be
capitalized;
3. advertising expenses;
4. expenses incurred by Landlord to paint, decorate or redecorate any
space leased to a tenant of the Building;
5. costs of repairing latent defects in the original construction of the
Building or in the construction of the Base Building Work;
6. expenses for any item or service provided exclusively to other tenants
at the Property and not provided to Tenant.
7. expenses incurred by Landlord for repairs or other work occasioned by
fire, windstorm, or other insurable casualty or condemnation;
8. rental payments on any ground or underlying lease for the Property
(except rental payments which constitute reimbursement for Taxes);
9. any cost representing an amount paid for services or materials to a
related person, firm or entity to the extent such amount exceeds the
amount that would be paid for such services or materials at the then
existing market rates to an unrelated person, firm or entity;
10. expenses for the repair or maintenance of any item to the extent
covered under warranty or service contract (excluding any mandatory
deductible);
11. legal fees incurred in connection with the construction of the
Building;
12. all expenses related to the remediation, clean-up or any other action
taken with respect to any environmental contamination or other
environmental problem at the Building; and
Exhibit B-1
<PAGE>
13. Costs to bring the Property into compliance with the ADA.
14. Costs or expenses of utilities directly metered to tenants of the
Building and payable separately by such tenants.
15. Costs and expenses of any special events (e.g., receptions and
concerts) for which Landlord charges a fee or receives compensation.
16. Charitable or political contributions by Landlord.
I7. Costs, other than those incurred in ordinary maintenance, for
sculpture, paintings or other objects of art.
18. Costs incurred in connection with the sale, financing, refinancing, or
change in ownership of the Building.
Exhibit B-2
<PAGE>
EXHIBIT C
FORM OF LETTER OF CREDIT
Exhibit C-1
<PAGE>
EXHIBIT D
CLEANING AND JANITORIAL SPECIFICATIONS
Exhibit D
<PAGE>
UNION TOWER
550 WEST VAN BUREN STREET
CLEANING SPECIFICATIONS
I. MAIN ENTRANCES AND LOBBY AREAS
A. NIGHTLY
1. Dust-sweep and wash hard surfaced flooring. Remove gum, tar, and
other foreign matter from flooring.
2. Power scrub granite and similar flooring using materials
recommended by granite installer.
3. If floor mats have been used during the day, they shall be
thoroughly vacuumed, cleaned and scrubbed if necessary.
4. Clean cigarette urns and replace sand or water as needed.
5. Dust baseboards, trim, louvers, molding, pictures, planter
furnishings, guard stations, ledges and all other fixtures.
6. Clean building directory and all other decorative metal; as
needed using a cloth dampened with water only.
7. Completely clean all entrance and revolving door glass and entry
way glass sidelights; clean all glass in building directory.
8. Empty and clean waste receptacles and remove waste material to
designated areas in the building. Dispose of waste and replace
plastic liners in accordance with building's recycling program.
9. Remove dirt, finger marks, smudges, etc. from doors, door
frames, walls up to twelve feet, switch plates, glass, push
plates, handles, railings, moldings, trim, etc. Damp wipe metal
trim as necessary using water only.
10. Clean public telephones with spray germicidal product and
disposable paper wipes, which will be disposed of after use on
each telephone. Dust the phone case and booth using a cloth
dampened with water only.
11. Clean lights, globes, fixtures and replace tubes and/or bulbs
as necessary using tubes and/or bulbs supplied by Owner.
<PAGE>
B. MONTHLY
1. Using materials recommend by granite installer, machine strip,
refinish and buff granite and similar flooring using
non-staining, non-slip, recommended floor finish as necessary
but not less frequently than once per month.
2. Do high dusting (as specified under office areas).
C. YEARLY
1. Completely clean floor mats as necessary, but not less than
three times per year, using method(s) recommended by floor mat
manufacturer(s).
2. Wash all wood, granite and other similar wall surfaces, using
manufacturers recommendations twice per year.
3. Clean lights, globes, fixtures and replace tubes and/or bulbs
as necessary using tubes and/or bulbs supplied by Owner twice
per year.
II. ELEVATOR LOBBIES AND PUBLIC CORRIDORS
A. NIGHTLY
1. Dust sweep hard surfaced flooring with specially treated cloths
to insure dust free floors.
2. Wash and machine scrub granite, etc. flooring.
3. Thoroughly vacuum and remove spots and stains from carpeting,
including edges and corners.
4. Empty and clean waste receptacles in accordance with building's
recycling program (replace plastic liners), ash trays, etc.;
empty and clean cigarette urns and replace sand or water as
needed.
5. Dust baseboards, trim, louvers, moldings, pictures, doors,
plants and all other fixtures, etc. within reach. Wipe clean
all signage.
6. Remove dirt, finger marks, smudges, etc. from doors, door
frames, walls, switch plates, glass, push plates, handles,
railings, moldings, trim, etc. Wipe metal trim as necessary
using water only.
7. Clean lights, globes, fixtures and replace tubes and/or bulbs
as necessary using tubes and/or bulbs supplied by Owner.
8. Clean, polish and sanitize all drinking fountains and water
coolers using approved germicidal detergent solution.
<PAGE>
B. MONTHLY
1. Power pile lift carpeting twice per month.
2. Machine strip, refinish and buff resilient tile, terrazzo,
granite, etc. flooring using approved non-slip, non-staining,
recommended floor finish once every two months.
3. Do high dusting (as specified under office areas) once every
two months.
4. Completely clean carpeting using method(s) recommended by
carpet manufacturer(s) once every three months.
5. Wash wood, granite and other similar wall surfaces once every
six months.
III. REST ROOMS
A. NIGHTLY
1. Sweep and wash flooring with approved germicidal detergents at
strengths.
2. Wash and polish mirrors, and all chrome and other bright work
including shelves, flushometers, exposed piping, toilet
partition hinges, dispensers, and all other washroom fixtures.
3. Wash all surfaces of toilets and urinals with approved
germicidal detergent solution at disinfectant strength. Bowl
cleaner to be used in the interior. Remove hard water stains
from toilet fixtures by using one ounce of bowl cleaner after
normal cleaning. Follow manufacturer's recommendations.
4. Wash clean all wash basins and counter tops, following
manufacturer's recommendations.
5. Spot clean partitions, tile walls, and doors with special
attention to areas behind sinks, around urinals and around
entrance. Remove graffiti.
6. Empty and clean towel and sanitary disposal receptacles and
waste material and refuse to designated area in the building
using janitor carts/carriages. Replace liners in all
receptacles with liners. Wash clean receptacles.
7. Clean and flush floor and other drains using germicidal
solutions.
8. Clean lights, globes, fixtures and replace tubes and/or bulbs
as necessary using tubes and/or bulbs supplied by Owner.
9. Refill all hand towel, toilet tissue and soap dispensers
nightly, supplied by Owner.
<PAGE>
B. WEEKLY
1. Wash partitions, tile walls and enamel painted surfaces with
approved germicidal detergent solution once per week.
C. MONTHLY
1. Machine scrub flooring with approved germicidal detergent
solution. Floors shall be cleaned per manufacturer's
recommendations.
2. Do high dusting and damp wipe ceiling vents.
IV. STAIRWAYS
A. NIGHTLY
1. Police stairwells and remove trash and debris.
2. Spot clean doors and walls.
3. Clean lights, globes, fixtures and replace tubes and/or bulbs as
necessary using tubes and/or bulbs supplied by Owner.
B. WEEKLY
1. Dust mop stairs and landings, dust handrails and other
horizontal surfaces.
C. MONTHLY
1. Dust all vertical surfaces and light fixtures not dusted weekly.
2. Wash stairs and landings.
3. Do high dusting (as defined in office areas) in stairwells once
every three months.
4. Seal stair treads and risers once every three months.
V. ELEVATORS
A. NIGHTLY
1. Floors in elevator cabs will be properly maintained. Vacuum and
remove spots from carpeted areas and sweep and wash hard
surfaces.
2. Clean and polish doors, inside and outside using a cloth
dampened with water only.
3. Clean elevator saddles, door tracks, etc. keeping them free
from dirt and debris,
<PAGE>
polish regularly as needed.
4. Hand clean trim, railings, etc. using a cloth dampened with
water only on all bronze surfaces.
5. Keep walls, panels, etc. clean and free from finger marks and
smudges by method recommended by the manufacturer.
B. WEEKLY
1. Clean carpeting by method recommended by manufacturer as
necessary but not more frequently than.
VI. GARAGE, BUILDING SERVICE AREAS & BUILDING EXTERIOR
A. NIGHTLY
1. Keep locker rooms, rest rooms, engineer's offices, security,
dock office, etc. (if applicable) in neat and clean condition
at all times.
2. Keep janitor closets in neat and clean condition. Clean slop
sinks. Mops, rags, and equipment to be cleaned and stored
properly. Walls and floors to be kept clean.
3. Sweep dock, garage area, service corridor and receiving area
and remove all trash and debris.
4. Compactor areas to be swept and hosed down nightly; pressure
wash as necessary.
5. Remove trash and debris from plazas, sweep or hose down as
necessary; remove gum, tar, etc. on sight.
6. Sweep and hose down sidewalks (weather permitting), remove gum,
and clean out tree wells. Wipe down all granite and stone ledges
within reach.
7. Telephone closets, hose rooms and storerooms are to be kept
free from debris and rubbish. Report storage of extraneous
material and equipment to Building Management.
8. Squeegee water pooling in plaza areas and walkways as needed.
9. Shovel snow during and immediately after snowfall and put down
appropriate ice melting materials provided by Owner. Remove snow
from sidewalks and curbs around entire property as needed.
10. Wash flooring in dock, service corridors and receiving area.
11. Machine scrub or pressure wash dock, service corridors and
receiving area as needed.
<PAGE>
12. Police entire site in accordance with the City's "Adopt a
Street Program" as needed.
13. Sweep garage area and remove all trash and debris.
B. WEEKLY
1. Machine scrub or pressure wash sidewalks and plaza area
(weather permitting).
C. MONTHLY
1. Seal service corridors.
2. Clean and dust vertical surfaces, door and frames, partitions,
etc. in loading dock areas.
3. Pressure wash exterior aggregate material walls using process
and materials recommended by installer once every three months.
Service Contractor shall wash walls to a height mutually agreed
upon with Owner.
4. Pressure wash garage area flooring as needed, but not less than
once every three months.
D. MISCELLANEOUS
1. Report to building management any observed building deficiencies,
leaking or inoperable faucets, plugged sinks or toilets, broken
fixtures, inoperable lights or switches, loose baseboards, torn
carpeting in public areas, etc...
2. Keep cleaning equipment and supply storage area in neat and
clean condition at all times. Keep equipment clean and cleaning
materials properly stored.
3. At the conclusion of all work assignments, lights are to be
turned off, doors locked and the premises left in a neat
orderly condition.
4. Service Contractor will provide and complete a daily services
journal outlining any issues which need to be brought to the
attention of Building Management. Service Contractor shall also
check the journal daily for Management notice of special duties,
areas requiring attention and service deficiencies, if
applicable.
VII. DAY PORTERS
Contractors shall provide as many Day Porters and/or Matrons as required
and approved by building management, their duties shall include, but not be
limited to the following:
A. DAILY
1. Police elevator cabs at main level; vacuum and spot clean carpeting
as needed or at least twice per day.
<PAGE>
2. Police lavatories keeping them in neat and clean condition. Wipe
clean sink, vanity tips and toilet seats. Mop up water from
floors as necessary. Spot clean mirrors. Check toilet tissue,
hand towels, soap dispensers, and sanitary supplies and refill as
necessary or at least twice per day.
3. Sweep sidewalks when necessary. Shovel snow during and
immediately after snow fall and put down appropriate ice melting
materials provided by the building as needed.
4. Police stairways and keep free from trash and debris as needed.
5. Police and keep free from trash and debris areas in main lobby
and building exterior including sidewalks, curbs and alley as
needed. Wet mop lobby flooring as necessary, particularly during
inclement weather or when snow and ice is prevalent.
6. Police entire site in accordance with the City's "Adopt a Street
Program" as needed.
7. Keep main entrance door and entryway glass free from finger
marks and smudges; clean and polish door frames and other
decorative metal. All metal is to be cleaned with a clean, soft
cloth dampened with water only as necessary.
8. Keep service corridors, utility areas, dock/receiving and garage
areas in a clean and neat condition as needed.
9. Set out walk-off mats, safety cones and appropriate signage on
rainy or snow days and keep them in a clean condition as needed.
10. As directed by building management, sweep and/or wet mop
equipment rooms, fan rooms, utility rooms, elevator pits, etc. as
needed.
11. Render any other services as directed by building management
daily or as necessary.
B. WEEKLY
1. Empty money from sanitary machines and deliver to Management
Office.
C. MONTHLY
1. Vacant tenant areas shall be kept free from trash and debris
and completely swept or vacuumed at least twice per month.
Note: The foregoing specifications are intended to be a guide to the duties
of the day personnel. It is understood and agreed by Service Contractor and
Building Management that the Day Porter's duties shall at times be directed
by Building Management's authorized representative.
Assignment of Day Personnel shall be directed by Building Management.
<PAGE>
VIII. WINDOW WASHING
A. Contractor shall clean all first floor interior lobby windows
twelve (12) times per year.
B. Contractor shall clean all first floor exterior lobby windows
twelve (12) times per year.
C. Contractor shall clean all interior windows above the first
floor two (2) times per year.
D. Contractor shall clean all exterior windows above the first
floor three (3) times per year.
E. Contractor shall supply all labor, materials and equipment
necessary to perform interior and exterior window cleaning.
Owner shall maintain and provide to the Contractor window washing
davits for use with the Contractor's window-washing rig.
Contractor agrees to install and utilize window-washing davits in
accordance with manufacturer's specifications.
F. Contractor agrees to comply with all requirements for any Owner
equipment in order to ensure safe use and operation of such
equipment.
G. Contractor shall provide all barriers and all other equipment
and materials necessary to ensure safety during interior and
exterior window cleaning.
H. Contractor agrees to comply with all requirements for any Owner
equipment in order to ensure safe use and operation of such
equipment.
I. Contractor shall notify Owner of any problems as it relates to
equipment owned and maintained by Owner.
J. Contractor shall perform interior window cleaning above the
first floor between 6:00 p.m. and 6:00 a.m., Monday through
Friday.
K. Contractor shall perform exterior window cleaning above the
first floor between 6:00 p.m. and 6:00 a.m., Monday through
Friday.
L. Contractor shall perform first floor lobby window interior and
exterior cleanings between 7:00 p.m. and 6:00 a.m., Monday
through Friday or any time Saturday and Sunday.
M. All exterior and interior window cleaning scheduling shall be
coordinated and approved by Owner prior to any window cleaning.
N. Contractor shall clean all metal mullions and frames during
regular window cleaning at no additional cost.
O. Contractor shall remove from the property or store it's window
rig in Owner designated area directly after each scheduled
exterior window cleaning. The
<PAGE>
window-washing rig must be stored and shall not be visible from
the exterior of the building after each day of service.
P. Contractor shall maintain and supply to Owner a daily service
logbook recording all cleaning activity, related activity and
equipment malfunctions.
Q. Contractor shall maintain minimum insurance coverage as
required by Owner.
IX. MISCELLANEOUS
A. Service Contractor shall pad vacuums, carts and other equipment
to prevent scratches and other damage in furniture, door frames,
etc. Cleaning personnel shall be instructed not to pull cords
around corners.
B. Report to Building Management any use of electrical/telephone
closets for storage.
C. Report to Building Management any observed building
deficiencies, e.g., leaking or inoperable faucets, plugged sinks
or toilets, broken fixtures, inoperable lights or switches, loose
baseboards, faulty locks, burnt out light bulbs, etc.
D. At the conclusion of all work assignments, lights are to be
turned off, doors closed and locked, chairs centered and gently
pushed under tables or desks so as not to scratch furniture, and
premises left in neat and orderly condition.
E. Return all keys, cardkeys, radios and any other building
equipment signed out that day.
F. Service Contractor's cleaning personnel will be required to
pass out gifts and notices to buildings tenants from time to time;
i.e., holiday gifts, window cleaning notices, tenant survey, etc.
G. All Service Contractor's equipment shall be clean and free of
dirt, shall not have stickers or other idenification and shall be
in good working order.
H. All Service Contractor's personnel are subject to nightly
inspection; cannot remove items from the building without prior
supervisory approval.
I. No personal articles in slop sinks or storage areas at any time.
J. Service Contractor will supply all cleaning supplies and
equipment necessary at their solo cost.
<PAGE>
EHXIBIT E
COMMENCEMENT DATE AND EXPIRATION DATE CONFIRMATION
LANDLORD: Union Tower Investors II, L.L.C.,
a Delaware limited partnership
TENANT: Participate.com, Inc.,
a Delaware corporation
BUILDING: Union Tower, Chicago, Illinois
LEASE DATE: February 9, 1999
Landlord and Tenant acknowledge and agree that the Commencement Date of the
Lease is _________________, 2000 and the Expiration Date is ___________, 2010.
The parties acknowledge that the Expiration Date is subject to change in the
event that Tenant exercises the Expansion Option (as defined in Article 41 of
the Lease).
LANDLORD: UNION TOWER INVESTORS II, L.L.C.,
a Delaware limited liability company
By: Walton Street Real Estate Fund II, L.P.,
a Delaware limited partnership, its
managing member
By: Walton Street Managers II, L.P.,
a Delaware limited partnership,
its general partner
By: WSC Managers II, Inc.,
a Delaware corporation,
its general partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
TENANT: PARTICIPATE.COM, INC.,
a Delaware corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Exhibit E
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
[SIGNATURE]
Arthur Andersen LLP
April 12, 2000
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