<PAGE>
As filed with the Securities and Exchange Commission on February 7, 2000
Registration No. 333-92461
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
PRIME RESPONSE, INC.
(Exact name of registrant as specified in its charter)
-------------------
<TABLE>
<S> <C> <C>
Delaware 7372 13-3972166
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification Number)
Incorporation or
Organization)
</TABLE>
150 CambridgePark Drive
Cambridge, Massachusetts 02140
(617) 876-8300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
-------------------
Peter J. Boni
President and Chief Executive Officer
Prime Response, Inc.
150 CambridgePark Drive
Cambridge, Massachusetts 02140
(617) 876-8300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
Copies to:
<TABLE>
<S> <C>
John A. Burgess, Esq. Mark H. Burnett, Esq.
Peter B. Tarr, Esq. Kathy A. Fields, Esq.
Hale and Dorr LLP Testa, Hurwitz & Thibeault, LLP
60 State Street 125 High Street
Boston, Massachusetts 02109 Boston, Massachusetts 02110
Telephone: (617) 526-6000 Telephone: (617) 248-7000
Telecopy: (617) 526-5000 Telecopy: (617) 248-7100
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
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,
check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box.[_]
-------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY , 2000
[LOGO OF PRIME RESPONSE]
3,500,000 Shares
Common Stock
Prime Response, Inc. is offering 3,500,000 shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. We have applied for approval for quotation on the Nasdaq National
Market under the symbol "PRME" for the shares we are offering. We have also
applied to list the shares we are offering on EASDAQ under the symbol "PRME."
We anticipate that the initial public offering price will be between $11.00 and
$13.00 per share.
--------------
Investing in the 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 Prime Response, Inc................................. $ $
</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.
Prime Response has granted the underwriters a 30-day option to purchase up to
an additional 525,000 shares of common stock to cover over-allotments.
--------------
Robertson Stephens
Dain Rauscher Wessels
SG Cowen
DLJdirect Inc.
The date of this Prospectus is , 2000.
<PAGE>
[email protected], the name of our principle product, followed by:
[email protected] is a Web-based, multi-channel marketing solution that
integrates Internet channels - such as e-mail and the Web - with traditional
marketing channels like direct mail, call centers, direct sales systems and mass
marketing advertising.
Underneath this description is a two tone wheel the center of which contains the
product name [email protected](TM) and the perimeter of which contains the
following words: Point of Sale; Call Center; Direct Mail; Web; Sales Automation
Systems; Retail/Branch; E-mail; Mass Market and Advertising, each of which is
attached to the center by circular arrows. The perimeter circle is surrounded by
descriptions of the various product functions. These functions are: Compiles
real time customer behavioral data from various media channels; dedicated
support, flexibility and scalability; collects data to create personalized web
pages; automated e-mail marketing; act fast to launch personalized marketing
campaigns in various media.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock. In this prospectus, "Prime
Response," "we," "us" and "our" refer to Prime Response, Inc. together with its
wholly owned subsidiaries Prime Response U.S., Inc., Prime Response Limited,
Prime Response Pty. and Prime Response SARL (unless the context otherwise
requires).
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 5
Note Regarding Forward-Looking Statements................................ 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 19
Selected Consolidated Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 22
Business................................................................. 34
Management............................................................... 47
Certain Transactions..................................................... 56
Principal Stockholders................................................... 59
Description of Capital Stock............................................. 61
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Material United States Federal Tax Consequences for Non-U.S. Holders..... 68
EASDAQ Information....................................................... 70
Legal Matters............................................................ 73
Experts.................................................................. 73
Where You Can Find More Information...................................... 73
Index to Financial Statements............................................ F-1
</TABLE>
---------------------
Prime Response, Prime Vantage, Vantage, Prime-Response.com and Prime-
Vantage.com are trademarks of Prime Response. All other trademarks and trade
names used in the prospectus are the property of their respective owners.
<PAGE>
SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding our company
and the common stock being sold in this offering.
Our Company
Prime Response is a leading provider of integrated eMarketing software
solutions that enable businesses with large customer bases to create, manage
and execute highly targeted internet and traditional marketing campaigns to
build more loyal and profitable customer relationships. Our software solutions
leverage our 12 years of experience in the design, implementation and
management of marketing campaigns to create tailored interactions that draw on
the collective memory of our clients' customers developed through all marketing
touch points. Our products are designed to help our clients more effectively
market and sell to their customers by delivering more personalized marketing
messages over the customers' preferred channel, whether internet or
traditional. Using our products, businesses are able to:
. lower the cost of acquiring and retaining customers;
. focus marketing efforts on their most profitable customers;
. optimize the use of marketing channels around customer preferences;
. increase customer retention and loyalty; and
. maximize lifetime value of customers through cross selling.
Our latest product offerings, Prime@Vantage and [email protected], which
were released in December 1999, provide clients with a web-based, multi-channel
marketing solution. Using [email protected], our clients are able to create and
manage comprehensive marketing campaigns that utilize inbound and outbound e-
mail, customized website content, banner advertising and other internet
advertising, along with more traditional direct and indirect marketing
techniques, to develop and deploy immediate, personalized marketing messages to
existing and potential customers.
We focus on key vertical industries that have a critical need for advanced
marketing management solutions, including communications and media, financial
services and retail and e-commerce. Our clients include Fortune 1000 businesses
as well as leading e-commerce businesses. Today, more than 70 clients use our
products to manage millions of customer relationships. Our clients include
leaders in communications and media, including Air Touch and Media One, in the
financial services industry, such as Deutsche Bank and the Royal Bank of
Scotland, in retail and e-commerce, including Boots and CVS, as well as such
other major enterprises as British Airways and Dell Computer. We utilize our
direct sales force and key industry partners such as Andersen Consulting, NCR
and SAS Institute to sell and market our products.
We were founded in 1987 in the United Kingdom. Prior to 1999, our corporate
headquarters were located in London, and our primary focus was on the European
market. In 1998, we began to increasingly target the United States market, and
in July 1999, moved our corporate headquarters to Cambridge, Massachusetts. Our
strategy is to become a leading supplier of integrated eMarketing solutions by
building on our position in Europe, rapidly expanding our presence in the
United States and other key markets, continuing to grow our direct sales force
and expanding our strategic marketing relationships.
1
<PAGE>
Our Address
Prime Response's principal executive offices are located at 150
CambridgePark Drive, Cambridge, Massachusetts 02140 and our telephone number at
that location is (617) 876-8300. Our website is located at
www.primeresponse.com. Information contained in our website is not part of this
prospectus.
--------------------
The Offering
<TABLE>
<C> <S>
Common stock offered............................ 3,500,000 shares
Common stock outstanding after the offering..... 19,566,530 shares
Use of proceeds................................. An aggregate of approximately
$10.4 million of the net
proceeds will be paid to some
holders of series B preferred
stock upon the closing of
this offering in accordance
with the terms of the
preferred stock,
approximately $4.3 million
will be used to pay a
promissory note to be issued
to one of our stockholders,
and the remaining net
proceeds will be used to
expand our United States
operations and to fund
continued growth and
expansion of our business,
product development,
potential acquisitions and
other general corporate
purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol.......... PRME
Proposed EASDAQ symbol.......................... PRME
</TABLE>
--------------------
Common stock outstanding after the offering is based on the number of
shares outstanding as of December 31, 1999, and except as otherwise noted, all
information in this prospectus:
. reflects the automatic conversion of all of our outstanding shares of
preferred stock into an aggregate of 6,323,867 shares of common stock
upon completion of this offering;
. reflects the conversion of 427,807 shares of redeemable common stock
into common stock upon completion of this offering;
. reflects the issuance of an aggregate of 2,861,350 shares of common
stock to holders of the preferred stock upon completion of this
offering in payment of accrued dividends and as required by other terms
of the preferred stock and assumes the closing of this offering on
February 15, 2000 (includes 19,867 shares of common stock issued for
dividends accrued in the period January 1, 2000 through February 15,
2000);
. reflects the exercise of the option to repurchase 1,249,500 shares of
redeemable common stock from a principal shareholder at $3.42 per share
upon completion of this offering;
. excludes 1,387,473 shares issuable upon the exercise of outstanding
options with a weighted average exercise price of $4.88 per share;
. excludes 1,217,746 shares available for issuance and grant under our
1998 Stock Option/Stock Issuance Plan;
. excludes 1,246,319 shares issuable upon the exercise of outstanding
warrants with a weighted average exercise price of $5.98 per share;
. reflects a three-for-four reverse stock split of all of our outstanding
shares of common stock which was effected on February 2, 2000; and
. assumes no exercise of the underwriters' over-allotment option.
2
<PAGE>
Summary Consolidated Financial Data
(dollars in thousands, except per share data)
Set forth below are summary consolidated statements of operations data for
the years ended December 31, 1997, 1998 and 1999. Also set forth below are
summary consolidated balance sheet data as of December 31, 1999, which were
prepared as follows:
. on an actual basis, without any adjustments to reflect subsequent
events or anticipated events;
. on a pro forma basis to reflect the following:
. automatic conversion of all outstanding shares of preferred stock
into an aggregate of 6,323,867 shares of common stock;
. reflects the conversion of 427,807 shares of redeemable common
stock into common stock upon completion of this offering;
. issuance of an aggregate of 2,841,483 shares of common stock to
holders of the preferred stock in payment of accrued dividends and
participation feature and an aggregate cash payment of $10.3
million to some holders of preferred stock; and
. on a pro forma as adjusted basis to reflect the following:
. sale of the 3,500,000 shares of common stock offered by us in this
offering and our receipt of the estimated net proceeds, after
deducting the estimated underwriting discounts and commissions and
the estimated offering expenses that we expect to pay in connection
with this offering;
. accretion of preferred stock dividends of approximately $331,000
from January 1, 2000 through February 15, 2000 which will be paid
in a cash payment of approximately $93,000 and 19,867 shares of
common stock;
. exercise of option to repurchase 1,249,500 shares of redeemable
common stock from a principal shareholder at $3.42 per share.
3
<PAGE>
This information should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this prospectus. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
------- -------- --------
(in thousands, except per
share data)
<S> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Software licenses................................ $ 2,933 $ 8,495 $ 10,134
Services and support............................. 2,495 4,214 6,519
Applications hosting............................. 4,754 3,827 3,869
------- -------- --------
Total revenues.................................. 10,182 16,536 20,522
Net loss.......................................... (2,245) (14,603) (20,419)
Preferred stock dividends and recognition of
beneficial conversion feature on preferred
stock........................................... (607) (2,015) (5,034)
------- -------- --------
Net loss attributable to common
stockholders.................................... $(2,852) $(16,618) $(25,453)
Net loss per share--basic and diluted............. $ (2.43) $ (2.36) $ (3.44)
Weighted average shares used in computing basic
and diluted net loss per share.................. 1,173 7,035 7,405
Unaudited pro forma net loss per share--basic and
diluted......................................... $ (1.71)
Shares used in computing unaudited pro forma basic
and diluted net loss per share.................. 14,906
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents..................... $ 3,999 $ -- $ 32,657
Working capital............................... (1,280) (11,589) (21,772)
Total assets.................................. 25,515 21,516 53,466
Short-term and long-term debt and capital
lease obligations........................... 2,600 2,600 6,873
Redeemable convertible preferred stock and
redeemable common stock..................... 51,371 4,275 --
Stockholders' equity (deficit)................ (44,496) (7,709) 29,927
</TABLE>
4
<PAGE>
RISK FACTORS
You should carefully consider the following risks before making an
investment decision. The risks described below are not the only ones that we
face. Additional risks that are not yet identified or that we currently think
are immaterial may also impair our business operations. Our business,
operating results and financial condition could be adversely affected by any
of the following risks. The trading price of our common stock could decline
due to any of these risks, and you could lose all or part of your investment.
You should also refer to the other information set forth in this prospectus,
including our financial statements and the related notes.
Risk Related To Our Business
We have incurred substantial operating losses, and we may not be profitable in
the future.
In 1995, we began to transition from a marketing database service bureau
to a software company. Since that time, we have incurred substantial operating
losses. We cannot be certain if or when we will become profitable. Failure to
achieve profitability within the timeframe expected by investors or to
maintain profitability may adversely affect the market price of our common
stock. At December 31, 1999, we had an accumulated deficit of $46.1 million
and negative equity of $44.5 million. In recent periods, we have increased
expenditures in certain areas, particularly in sales and marketing in the
United States and in product development. We expect our sales and marketing
expenses to continue to increase. As a result, we expect to incur net losses
and negative operating cash flow for the foreseeable future. Although we have
experienced revenue growth in recent periods, we cannot be certain that these
growth rates are sustainable, or that we will ever generate revenues at a
level sufficient to cover our anticipated expenses, if at all.
Our independent accountants have included in their report an explanatory
paragraph relating to our ability to continue as a going concern. This
explanatory paragraph includes the following language: "The accompanying
financial statements have been prepared assuming that the Company will
continue as a going concern. The Company has incurred losses and negative cash
flows from operations since its reorganization in 1997, which raise
substantial doubt about the Company's ability to continue as a going concern."
We cannot be certain that we will be able to continue as a going concern. The
report of our independent accountants on our financial statements for the year
ending December 31, 2001 may also contain an explanatory paragraph relating to
our ability to continue as a going concern.
Our quarterly operating results may fluctuate because we depend on a small
number of large orders.
We derive a significant portion of our software license revenues in each
quarter from a small number of relatively large orders. The criteria for a
client's acceptance of a product may delay our ability to recognize revenue
from the products we ship. Our operating results for a particular fiscal
period could be materially adversely affected if we are unable to complete
those transactions, or satisfy our clients' acceptance criteria, on schedule
at anticipated levels.
Disappointing quarterly revenues or operating results could cause the price of
our common stock to fall.
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. Therefore, you should not
rely on period-to-period comparisons of revenues or results of operations as
an indication of future performance. If our quarterly revenues or operating
results fall below the expectations of investors or securities analysts, the
price of our common stock could fall substantially.
Our quarterly license revenues may fluctuate as a result of a variety of
factors, including the following:
. software license revenues in any quarter depend on contracts closed,
orders shipped and the satisfaction of clients' acceptance criteria in
that quarter;
. the market in which we compete is relatively new and rapidly evolving;
. we expect that, for the foreseeable future, revenues will come from
licenses to a small number of clients, so delays, cancellations of
orders, or acceptance of our software by a few clients can
significantly impact revenues within a quarter;
5
<PAGE>
. our sales cycle is relatively long; and
. revenues will be affected by the timing of introduction of new
products or product enhancements by us or our competitors.
Any decline in license revenues could also cause a decline in our services
and support revenues in the same quarter or in subsequent quarters.
Seasonal trends may cause our quarterly operating results to fluctuate, which
may adversely affect the market price of our common stock.
In the future, we may experience seasonality in our business, particularly
because we do a significant percentage of our business in Europe, which
typically experiences a slowdown in business during August, and because our
products typically involve a significant initial investment, the availability
of which is often dependent on a client's fiscal period. Accordingly, we may
generate lower revenues during the summer months and higher revenues during the
calender year-end months. If we do experience these revenue fluctuations,
market analysts and investors may not be able to predict our quarterly or
annual operating results, and if we fail to meet expectations of market
analysts or investors, the price of our common stock could decline.
Our results of operations would be adversely affected if our investments in
personnel and infrastructure do not correspond with the timing of revenue
generated as a result of such investments.
Most of our expenses, such as employee compensation, sales and marketing
expenses, computer equipment costs and rent for properties, are either
relatively fixed in the short term or incurred in advance of sales. Moreover,
our expense levels are based in part on our expectations regarding future
revenues. As a result, if revenues for a particular quarter are below
expectations, we will most likely not be able to proportionately reduce
operating expenses for that quarter. Therefore, a shortfall in revenues would
have a disproportionate effect on our expected operating results for that
quarter and could cause the trading price of our common stock to decline.
We may incur charges against our earnings which could have an adverse impact on
our results of operations.
We have issued warrants which become exercisable upon the attainment of
certain revenue targets and market capitalization levels. Because we cannot
predict if and when these targets will be attained, we cannot predict when
charges to expenses related to these warrants will be incurred. Furthermore,
the amount of these charges will depend on the price of our common stock when
the warrants are earned.
We are releasing a new product family and are dependent on its market
acceptance.
We have released the latest generation of our marketing management
solutions--Prime@Vantage, which introduces a new software architecture, and
[email protected], which introduces new functionality, including the ability to
generate immediate and personalized marketing initiatives over the internet.
Achievement of our overall business goals is dependent upon the sustained
market acceptance at desired pricing levels of these new products. If these
products do not achieve and sustain market acceptance due to bugs, a lack of
functionality considered important in the marketplace, or any other reason, we
will experience a material adverse effect on our business, prospects, operating
results and financial condition.
Our management team may not successfully implement our business strategy
because it has only recently begun to work together.
Only two members of our senior management team in the United States were
employed with us before January 1, 1999. Members of our senior management team
in the United States have worked together, and with members of our senior
management outside the United States, for only a short period of time. They may
not work together successfully and may be unable to implement our growth plans
in the United States or elsewhere.
6
<PAGE>
Our failure to increase our United States revenues and operations would
adversely affect our operating results and financial condition.
Although to date a significant portion of our revenues have been derived
from our international operations, and the growth of such revenues will remain
an important factor to the successful growth of our business, we believe that
we must continue to expand our marketing and sales activities, product and
service offerings and operations in the United States in order to achieve and
maintain profitability. Our failure to effectively manage expansion in the
United States could have a material adverse effect on the delivery of our
products and services, our ability to attract and retain key personnel and our
business operations and prospects.
We may not be able to continue to develop new products or enhance existing
products on a timely basis.
To be competitive, we must continue to develop and introduce on a timely
basis new products and product enhancements. Our failure to develop and
introduce new products and enhancements successfully and on a timely basis, or
the failure of new products to achieve and sustain market acceptance, could
have a material adverse effect on our business, prospects, operating results
and financial condition. We are obligated under a limited number of client
contracts to deliver new products or product enhancements by specified dates,
and failure to do so could result in the loss of one or more of those clients
or expose us to contractual liability. We have in the past encountered
circumstances that made it impractical to provide required enhancements to a
customer, and we may be unable to do so on future occasions.
Our sales cycle is relatively long and difficult to predict.
The decision by a prospective client to purchase our products frequently
involves several functional departments within its business. In addition, the
purchase and implementation of our products typically involve a significant
cost to our clients, including training and integration costs. These
implementations can also include a substantial commitment of resources by our
clients or their consultants over an extended period of time. As a result, our
sales cycle generally ranges from three to nine months, with our average sales
cycle lasting approximately six months. Consequently, the relatively long and
unpredictable nature of our sales cycle makes it difficult to predict our
revenues.
Intense competition may adversely affect our financial condition and operating
results.
The market for internet-based integrated eMarketing solutions is becoming
intensely competitive. If we are unable to compete effectively, our business,
prospects, financial condition and operating results would be materially
adversely affected. Some of our current and potential competitors have greater
name recognition and substantially greater financial, technical, marketing,
management, service, support and other resources than we do. Therefore, they
may be able to respond more quickly than we can to new or changing
opportunities, technologies, standards, or client requirements.
In addition, we expect that new competitors will enter the market with
competing products as the size and visibility of the market opportunity
increases. We also expect that competition will increase as a result of
consolidations and formations of alliances among industry participants.
Increased competition could result in pricing pressures, reduced margins, and
failure of our products to achieve or maintain market acceptance.
We depend on a few industries for most of our sales, and we may not continue to
be successful in those markets and in expanding beyond those limited markets.
A substantial portion of our revenues have been derived from sales to
communications and media businesses, financial institutions, and retail and e-
commerce businesses. In order to reach and maintain profitability, we must
continue to succeed in these markets. We may not be successful in doing so. In
addition, we must expand the number of markets we address in order for our
business to grow as planned, and we may not be successful in doing so.
7
<PAGE>
If we are unable to manage our growth and the related expansion in our
operations effectively, our business may be harmed.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires effective planning and
management. Our growth has placed, and our anticipated future operations will
continue to place, a significant strain on our management, information systems,
network and other resources. To manage future growth effectively, we must
continue to improve our financial and accounting systems and controls, enhance
our reporting systems and procedures, integrate new personnel and manage
expanded operations. We will also need to hire additional personnel and we may
be unable to recruit qualified employees as needed.
We are largely dependent on our international operations.
In addition to our presence in the United States, we have offices in five
other countries and customers in more than 19 other countries. In the year
ended December 31, 1999, 83.0% of our total revenues resulted from sales
outside the United States, reflecting our historical presence in the United
Kingdom and elsewhere in Europe. Although we believe that we must increase our
operations in the United States to reach and maintain profitability, we must
also continue to expand our sales in international markets for our business to
grow as planned. This may require us to establish additional international
operations and hire additional personnel. Our failure to do so in a timely and
effective manner would have a material adverse effect on our business,
prospects, financial condition and operating results. Our operations and our
plans to expand internationally may be affected by a number of risks,
including:
. challenges inherent in managing geographically dispersed operations;
. the need to develop local distribution channels through third parties;
. multiple, conflicting and changing governmental laws and regulations;
and
. foreign currency exchange rate fluctuations.
Our failure to expand our direct sales force would impede our revenue growth
and financial condition.
To increase our revenues, we must increase the size of our direct sales
force. It can take a considerable amount of time to hire, train and integrate
new sales personnel. In addition, there is intense competition for qualified
sales personnel. We may not be successful in attracting, integrating,
motivating or retaining qualified personnel for these positions on a timely
basis or at all. A failure to do so would have a material adverse effect on our
business and operating results.
Failure to expand our relationships with consulting firms and systems
integrators would impede acceptance of our products and growth of our revenues.
Consultants, systems integrators, and service providers who recommend,
install and support our products with their customers are a major source of our
sales. To increase our revenues and implementation capabilities, we must
continue to develop and expand relationships with consultants, systems
integrators, service providers and other potential industry partners. A failure
to do so would have a material adverse effect on our ability to generate
increased revenues. Consultants, systems integrators and service providers may
market or recommend products that compete with ours. Moreover, if these firms
fail to implement our products successfully for their clients, we may not have
the resources to implement our products on the schedule required by the client,
which could have a material adverse effect on our ability to generate increased
revenues.
Our business will be adversely affected if internet solutions are not widely
adopted.
Because one of our new products addresses, among other markets, the
emerging market for internet marketing solutions, our future success depends in
part upon the widespread adoption of the internet as a primary medium for
commerce and business applications. The failure of this market to develop, or a
delay in
8
<PAGE>
the development of this market, would have a material adverse effect on our
business, financial condition and operating results. The internet has
experienced, and is expected to continue to experience, significant user and
traffic growth, which has, at times, caused user frustration with slow access
and download times. The internet infrastructure may not be able to support the
demands placed on it by the continued growth upon which our success in part
depends. Moreover, critical issues concerning the commercial use of the
internet, such as security, reliability, cost, accessibility, taxation of e-
commerce and quality of service, remain unresolved and may negatively affect
the growth of internet use or the attractiveness of commerce and business
communication over the internet. In addition, the internet could suffer
declines in its viability due to delays in the development or adoption of new
standards and protocols to handle increased activity or due to increased
government regulation and taxation of internet commerce.
Our revenues might be harmed by a resistance to adopt our software by internal
information technology departments.
Some businesses may have already made a substantial investment in other
third-party or internally developed software designed to integrate data from
disparate sources and analyze this data or manage marketing campaigns. These
businesses may be reluctant to abandon these investments in favor of our
software. In addition, information technology departments of potential clients
may resist purchasing our software for a variety of other reasons, particularly
the potential displacement of their historical role in creating and running
software and concerns that packaged software products are not sufficiently
customizable for their enterprises. If the demand for our products does not
grow for any of these reasons, our revenues may be harmed.
If our security system is breached, our business and reputation could suffer.
We must securely receive and transmit confidential information over public
networks and maintain that information on internal systems. Our failure to
prevent security breaches could damage our reputation, expose us to risk of
loss or liability, result in a loss of our clients and adversely affect our
ability to obtain new clients. Although we have implemented network security
measures, our servers are vulnerable to computer viruses, which could lead to
interruptions, delays or loss of data. We may be required to expend significant
capital and other resources to license encryption technology and additional
technologies to protect against security breaches or to alleviate problems
caused by any breach.
If the delivery of our e-mails is limited or blocked, then our clients may
discontinue the use of our products thereby reducing demand for our products.
Our business model relies on our ability to deliver e-mails to recipients
over the internet through internet service providers, commonly referred to as
ISPs, and to recipients in major corporations. America Online and other ISPs
are able to block unwanted messages to their users. In addition, certain
currently available internet browsers allow users to modify their browser
settings to return unwanted e-mails. If these companies or individual users
limit or halt the delivery of our e-mails, demand for our products could
decrease which would have a material adverse affect on our business.
Our failure to operate our professional services organization at a profit would
adversely affect our financial condition.
Our failure to operate our professional services organization at a profit
would have a material adverse effect on our operating results and financial
condition. To gain initial acceptance of our products by clients in our
targeted industries, we may elect on occasion to assist customers with the
implementation of our products at a loss. In the past, our cost of services
revenues have been significantly higher than our services revenues. We cannot
be certain that our professional services organization will achieve or sustain
profitability.
9
<PAGE>
Loss of key personnel could adversely affect our business.
Our future success depends to a significant degree on the skills,
experience and efforts of James Carling, our founder and Chief Technology
Officer, Peter J. Boni, our President and Chief Executive Officer, Allen Swann,
our President, International, Paul Lavallee, our President, Americas, and
Frederick Phillips, our Chief Financial Officer. The loss of the services of
any of these individuals could have a material adverse effect on us. We also
depend on the ability of our executive officers and other members of senior
management to work effectively as a team. The loss of one or more of our
executive officers and other members of senior management could have a material
adverse effect on us. Many of our executive officers, members of senior
management or other employees are not subject to an agreement that prohibits
them from competing with us after the termination of their employment with us.
We do not maintain "key man" insurance on any of our executive officers or
senior management personnel.
We may be unable to hire and retain the skilled personnel we need to succeed.
Qualified personnel are in great demand throughout the software industry.
Our success depends in large part upon our ability to attract, train, motivate
and retain highly skilled employees, particularly sales and marketing personnel
and other senior personnel. Our failure to attract and retain the highly-
trained technical personnel that are integral to our product development,
professional services and support teams may limit the rate at which we can
develop new products or product enhancements. This could have a material
adverse effect on our business, prospects, operating results and financial
condition.
We may be unable to protect our proprietary technology rights.
Our success depends to a significant degree upon the protection of our
software and other proprietary technology rights. We rely on trade secret,
copyright and trademark laws and confidentiality agreements with employees and
third parties, all of which offer only limited protection. Moreover, the laws
of the countries in which we develop and market our products may afford little
or no effective protection of our proprietary technology. The reverse
engineering, unauthorized copying or other misappropriation of our proprietary
technology could enable third parties to benefit from our technology without
paying us for it. This could have a material adverse effect on us. Legal
proceedings to enforce our intellectual property rights could divert the time
and attention of management, be expensive and involve uncertainty of success.
Claims by other companies that our products infringe their proprietary rights,
copyrights or patents could adversely affect our financial condition.
If any of our products are alleged to violate third-party proprietary
rights, we may be required to reengineer our products or seek to obtain
licenses from third parties to continue offering our products without
substantial reengineering. Any efforts to reengineer our products or obtain
licenses from third parties may be unsuccessful and, in any case, could
substantially increase our costs and have a material adverse effect on us. We
do not conduct comprehensive patent searches to determine whether the
technology used in our products infringes patents held by third parties. In
addition, product development is inherently uncertain in a rapidly evolving
technological environment in which there may be numerous patent applications
pending, many of which are confidential when filed, with regard to similar
technologies.
Claims by other companies that our names infringe their proprietary rights
could adversely affect our financial condition.
Third parties have claimed, and may in the future claim, that our company
name or our product names violate their trademark or trade name rights. We have
applied for registration of some of our trademarks in the United States, Canada
and the European Community but have not yet received any approvals. Our use of
the names Prime Response, Prime@Vantage and [email protected], as well as the
use of other names, may result in costly litigation, divert management's
attention and resources, cause product shipment delays, or require us to pay
damages or to enter into royalty or license agreements. We may be required to
stop using
10
<PAGE>
certain names currently used for our products. Any of these events could have a
material adverse effect on our business, prospects, operating results and
financial condition.
Our business could be adversely affected if our products fail to perform
properly.
Software products as complex as ours may contain undetected errors, or
bugs, which result in product failures, or otherwise fail to perform in
accordance with client expectations. Our products may be particularly
susceptible to bugs or performance degradation because of the emerging nature
of internet technologies and the stress that may be placed on our products by
the full deployment of our products over the internet. Product performance
problems could result in loss of or delay in revenues, loss of market share,
failure to achieve market acceptance, diversion of development resources, or
injury to our reputation, any of which could have a material adverse effect on
our business, prospects, operating results and financial condition.
We could incur substantial costs as a result of product liability claims
relating to our clients' marketing efforts.
Our products may be critical to our clients' marketing efforts. If one of
our products fails, a client may assert a claim for substantial damages against
us, regardless of our responsibilities for such failure. Although our form of
license agreement contains provisions limiting liability, product liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. There can be no assurance that our product liability,
errors and commissions or general liability insurance will prove sufficient to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim.
We may be affected by Year 2000 technology problems.
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. As a result, many companies' software
and computer systems may need to be upgraded or replaced to become Year 2000
compliant. In addition, despite the fact that many computer systems are
currently processing 21st century dates correctly, these companies, including
us, could experience latent Year 2000 problems.
Changing purchasing patterns of clients impacted by Year 2000 issues or
Year 2000 concerns may result in reduced resources available for purchases of
integrated eMarketing solutions. In addition, there can be no assurance that
Year 2000 errors or defects will not be discovered in our products or in our
internal software systems. If such errors or defects are discovered, the cost
of making such systems Year 2000 compliant could be material.
Year 2000 errors or defects in the internal systems maintained by our
vendors could require us to incur significant unanticipated expenses to remedy
any problems or replace affected vendors. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Readiness
Disclosure."
Acquisitions could cause financial or operational problems.
Our success depends on our ability to continually enhance and broaden our
product offerings in response to changing technologies, customer demands and
competitive pressures. To this end, we may choose to acquire new and
complementary businesses, products, or technologies instead of developing them
ourselves. We may face competition for acquisition targets from larger and more
established companies with greater financial resources, making it more
difficult for us to complete acquisitions. We do not know if we will be able to
complete any acquisitions, or whether we will be able to successfully integrate
any acquired business, operate it profitably or retain its key employees.
Integrating any business, product or technology we acquire could be expensive
and time-consuming, could disrupt our ongoing business and could distract our
management. In addition, in order to finance any acquisitions, we might need to
raise additional funds through public or private equity or debt financings. In
that event, we could be forced to obtain financing on terms that are not
favorable
11
<PAGE>
to us and, ultimately, our stockholders. Specifically, in the case of an equity
financing, the issuance of additional stock would result in dilution to our
stockholders, and in the case of a debt financing, we may be forced to accept
restrictions on our ability to incur additional debt, make prepayments on
certain indebtedness, make acquisitions and other investments, issue additional
capital stock and engage in mergers and consolidations, all of which could
impede our long term plans for expansion and on our ability to pay dividends to
our stockholders. If we are unable to integrate any acquired entities, products
or technologies effectively, our business, financial condition and operating
results will suffer. In addition, any amortization of goodwill or other assets
or charges resulting from the costs of acquisitions could harm our business and
operating results.
Our business is subject to government regulation of the internet and other
legal uncertainties, which could negatively impact our operations.
Laws and regulations directly applicable to communications or commerce over
the internet are becoming more prevalent. The United States Congress recently
enacted internet laws regarding privacy, copyrights, taxation and other
matters. In addition, the European Union recently enacted privacy regulations.
The laws governing the use of the internet, however, remain largely unsettled,
even in areas where there has been some legislative action. It may take years
to determine whether and how existing laws such as those governing intellectual
property, privacy, libel and taxation apply to the internet. In addition, the
growth and development of the market for online commerce may prompt calls for
more stringent consumer protection laws, both in the United States and abroad,
that may impose additional burdens on companies conducting business online. The
adoption or modification of laws or regulations relating to the internet could
adversely affect our business. In particular, new regulations affecting the use
of unsolicited e-mail advertising would impair our clients' marketing efforts
and could reduce the demand for our products.
Privacy concerns and legislation may limit the information our clients can
gather, which could reduce the demand for our products.
Privacy concerns may cause website visitors to resist providing personal
data or avoid websites that track the internet behavioral information necessary
to support online profiling capabilities. Even the perception of security or
privacy concerns, whether or not valid, may have a similar effect. The European
Union recently adopted a directive addressing data privacy that may limit the
collection and use of certain information regarding internet users. This
directive may limit our clients' ability to target advertising or collect and
use information in certain European countries. In addition, legislative or
regulatory requirements may heighten these concerns if businesses must notify
website users that the data captured after visiting their websites may be used
to direct product promotion and advertising to that user. Other countries and
political entities, such as the European Union, have adopted these types of
restrictions. The United States may adopt similar legislation or regulatory
requirements. If privacy legislation is enacted or consumer privacy concerns
are not adequately addressed, our business, prospects, financial condition and
operating results could be harmed.
Websites typically use bits of information keyed to a specific server, file
pathway or directory location, commonly referred to as "cookies," which are
placed on a customer's hard drive, possibly without the customer's knowledge or
consent, to track demographic information and target advertising. Our clients
may use cookies for a variety of reasons, including the collection of data
derived from the customer's internet activity. Most currently available
internet browsers allow our clients' customers to remove cookies at any time or
to prevent cookies from being stored on their hard drives. In addition, some
commentators, privacy advocates and governmental bodies have suggested limiting
or eliminating the use of cookies. Any reduction or limitation in the use of
cookies could limit the effectiveness of our clients' sales and marketing
efforts. The Federal Trade Commission and several states are investigating the
use by internet companies of personal information. New regulations regarding
the use of personal information could adversely impact the demand for our
products.
12
<PAGE>
Risks Associated with This Offering of Our Common Stock
The price of our common stock after this offering may be lower than the price
you pay.
The price of our common stock that will prevail in the market after this
offering may be lower than the price you pay. Prior to this offering, there has
been no public market for our common stock. After this offering, an active
trading market in our stock might not develop or continue. If you purchase
shares of our common stock in this offering, you will pay a price that was not
established in a competitive market. Rather, you will pay a price that we
negotiated with the representatives of the underwriters based upon several
factors. See "Underwriting."
Our common stock is particularly subject to volatility because of our industry.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly internet-related companies, have been extremely
volatile, and have experienced fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. These broad
market fluctuations could adversely affect the market price of our common
stock.
We could be subject to class action litigation due to stock price volatility,
which, if it occurs, will distract our management and could result in
substantial costs or large judgments against us.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market prices of their
securities. We may be the target of similar litigation in the future.
Securities litigation could result in substantial costs and divert our
management's attention and resources, which could cause serious harm to our
business, operating results and financial condition or dilution to our
stockholders.
The significant control over stockholder voting matters that may be exercised
by our executive officers and directors will deprive you of the ability to
influence corporate actions.
After this offering, our executive officers and directors and their
affiliates will together control 15,837,373 shares or approximately 80.1% of
the outstanding common stock. As a result, these stockholders, if they act
together, will be able to control all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may have the effect of delaying,
preventing or deterring a change in control of Prime Response, could deprive
our stockholders of an opportunity to receive a premium for their common stock
as part of a sale of Prime Response and might affect the market price of our
common stock.
We plan to adopt anti-takeover provisions that could affect the market price of
our common stock or our ability to sell our business.
Certain provisions of our amended and restated certificate of incorporation
and our by-laws, which will be in effect upon the closing of this offering,
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. In addition, certain provisions of
Delaware law may also have the effect of discouraging, delaying or preventing a
sale.
Our existing stockholders will receive a substantial benefit from this
offering.
Our preferred stock will convert into common stock and holders of our
preferred stock will receive either common stock or cash in payment of
liquidation preferences and accrued dividends. Pursuant to the terms of our
charter, some holders of our series B preferred stock will receive an aggregate
payment of approximately $10.4 million (including $93,000 in respect of
dividends which accrued during the period from January 1, 2000 to February 15,
2000) from us upon the closing of this offering. Another existing stockholder
will also receive a payment in the principal amount of approximately $4.3
million in satisfaction of a promissory note to be issued to him.
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<PAGE>
Future sales by existing security holders could depress the market price of our
common stock.
If our existing stockholders sell a large number of shares of our common
stock, the market price of the common stock could decline significantly.
Moreover, the perception in the public market that our existing stockholders
might sell shares of common stock could depress the market price of the common
stock. Immediately after this offering, approximately 19,566,530 shares will be
outstanding. Of these shares, 3,500,000 shares will be available for resale in
the public market without restriction immediately following this offering. In
addition, 671,443 shares will be available for resale in the public market
without restriction 90 days after the date of this prospectus. All of which
shares are subject to lock-up agreements restricting their sale for at least
180 days after the date of this prospectus. The remaining 15,395,087 shares
held by existing stockholders become eligible for resale in the public market
at various dates thereafter, all of which shares are subject to lock-up
agreements restricting the sale of common stock for 180 days after the date of
this prospectus.
Some of our existing stockholders have the right to require us to register
their shares of common stock with the Securities and Exchange Commission. If we
register their shares of common stock, they can freely sell those shares in the
public market.
After this offering, we intend to register approximately 3,773,225 shares
of our common stock that we have issued or may issue under our stock plans.
Once we register these shares, they can be freely sold in the public market
upon issuance, subject to the lock-up provisions contained in our 1998 Stock
Option/Stock Issuance Plan.
Our broad discretion in using the proceeds from this offering may negatively
impact our financial condition.
Our decisions regarding the use of the proceeds of this offering could have
a material adverse effect on our business, operating results and financial
condition. We have not identified specific uses for a portion of the proceeds
from this offering, and we will have broad discretion in how we use them. In
addition, we are unable to determine how much of the proceeds will be used for
any identified purpose because circumstances regarding our planned uses of the
unallocated proceeds may change. You will not have the opportunity to evaluate
the economic, financial or other information on which we base our decisions on
how to use these proceeds.
Investors will experience immediate and substantial dilution in the book value
of their investment.
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution, in that the price you pay will
be substantially greater than the net tangible book value per share of the
shares you acquire. This dilution is due in large part to the fact that earlier
investors in Prime Response paid substantially less than the public offering
price when they purchased their shares of common stock. You will experience
additional dilution upon the exercise of outstanding stock options or warrants
to purchase common stock.
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<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute forward-
looking statements. These statements relate to future events or other future
financial performance, and are identified by terminology such as "may," "will,"
"should," "expects," "scheduled," "plans," "intends," "anticipates,"
"believes," "estimates," "potential," or "continue" or the negative of such
terms or other comparable terminology. These statements are only predictions.
Actual events or results may differ materially. In evaluating these statements,
you should specifically consider various factors, including the risks outlined
under "Risk Factors." These factors may cause our actual results to differ
materially from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform such statements to
actual results.
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<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of 3,500,000 shares of
common stock offered by us are estimated to be $37.9 million ($43.7 million if
the underwriters' over-allotment option is exercised in full) after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by us and assuming an initial public offering price of $12.00.
The principal purposes of this offering are:
. to increase our equity capital;
. to create a public market for our common stock;
. to facilitate future access by us to public equity markets;
. to provide increased visibility and credibility in a marketplace in
light of the fact that several of our current and potential
competitors are, or may in the future be, public companies; and
. to enhance our ability to use our common stock as consideration for
acquisitions and as a means of attracting and retaining key employees.
We intend to pay approximately $10.4 million of our net proceeds to General
Atlantic Partners 48, L.P., General Atlantic Partners 52, L.P., GAP
Coinvestment Partners L.P. and GAP Coinvestment Partners II, L.P., which are
each holders of series B preferred stock in accordance with the provisions of
our certificate of incorporation. This amount, which represents accrued but
unpaid dividends and other payments, will be payable as a result of the
completion of this offering. Approximately $4.3 million of the net proceeds
from this offering will be used to pay a promissory note to be issued to Kite
Limited, one of our stockholders. The note will be issued for the purpose of
purchasing 1,249,500 shares from Kite Limited which we will make available for
issuance upon the exercise of options under our 1998 Stock Option/Stock
Issuance Plan. We have an option to acquire such shares for that purpose at an
exercise price of $3.42 per share through September 30, 2000, on which date
Kite Limited has a right to put these shares to us at the same price. The
series B preferred stock, along with our other outstanding series of preferred
stock, will convert into common stock automatically upon the completion of this
offering. We expect to use the remaining net proceeds from this offering for
working capital and other general corporate purposes and capital expenditures,
expansion of our business, product development and potential acquisitions. We
have not identified specific uses for such proceeds and management will have
discretion over their use and investment. Pending such uses, we will invest the
net proceeds from this offering in investment grade, interest-bearing
securities.
We intend to seek acquisitions of businesses, products and technologies
that are complementary to ours, and a portion of the net proceeds may be used
for such acquisitions. While we discuss potential acquisitions from time to
time, we currently have no commitments or agreements for any such acquisitions
and there can be no assurances that any acquisitions will be made.
DIVIDEND POLICY
We have not declared or paid cash dividends on our common stock since our
reorganization in October 1997. Upon closing of this offering, we will be
paying accrued dividends to our preferred stockholders in cash and in shares of
common stock in accordance with the terms of the preferred stock. We currently
intend to retain earnings, if any, to fund the development and growth of our
business and do not anticipate paying cash dividends in the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results, current and anticipated cash needs and plans for
expansion. In addition, our financing agreement with Greyrock Capital prohibits
the payment of cash dividends.
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<PAGE>
CAPITALIZATION
The following table describes our capitalization as of December 31, 1999:
. on an actual basis, without any adjustments to reflect subsequent
events or anticipated events;
. on a pro forma basis to reflect the following:
. automatic conversion of all outstanding shares of preferred stock
into an aggregate of 6,323,867 shares of common stock;
. reflects the conversion of 427,807 shares of redeemable common
stock into common stock upon completion of this offering;
. issuance of an aggregate of 2,841,483 shares of common stock to
holders of the preferred stock in payment of accrued dividends and
participation feature and an aggregate cash payment of $10.3
million to some holders of preferred stock; and
. on a pro forma as adjusted basis to reflect the following:
. sale of 3,500,000 shares of common stock offered by us in this
offering and our receipt of the estimated net proceeds, after
deducting the estimated underwriting discounts and commissions and
the estimated offering expenses that we expect to pay in
connection with this offering;
. accretion of preferred stock dividends of approximately $331,000
from January 1, 2000 through February 15, 2000 which will be paid
in a cash payment of approximately $93,000 and 19,867 shares of
common stock;
. exercise of option to repurchase 1,249,500 shares of redeemable
common stock from a principal shareholder at $3.42 per share.
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<PAGE>
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Pro Forma As
Actual Forma Adjusted
-------- -------- ------------
(unaudited)
(in thousands, except share
data)
<S> <C> <C> <C>
Short-term and long-term debt and capital
lease obligations........................... $ 2,600 $ 2,600 $ 6,873
Redeemable common stock, $0.01 par value,
1,677,307 shares issued and outstanding at
December 31, 1999 and 1,249,500 shares
issued and outstanding on a pro forma basis
and 0 shares issued and outstanding on a pro
forma as adjusted basis..................... 8,295 4,275 --
Series A redeemable convertible preferred
stock, $0.01 par value, 1,155,000 shares
authorized; 1,155,000 shares issued and
outstanding at December 31, 1999 and 0
shares issued and outstanding on a pro forma
basis and a pro forma as adjusted basis..... 27,842 -- --
Series B redeemable convertible preferred
stock, $0.01 par value, 1,700,000 shares
authorized; 1,699,834 shares issued and
outstanding at December 31, 1999, and 0
shares issued and outstanding on a pro forma
basis and a pro forma as adjusted basis..... 10,343 -- --
Series C redeemable convertible preferred
stock, $0.01 par value, 1,000,000 shares
authorized; 1,833,331 shares issued and
outstanding at December 31, 1999, and 0
shares issued and outstanding on a pro forma
basis and a pro forma as adjusted basis..... 4,891 -- --
Common stock, $0.01 par value, 27,750,000
shares authorized (including redeemable
common stock); 6,453,506 shares issued and
outstanding at December 31, 1999;
16,046,663 shares issued and outstanding on
a pro forma basis, and 19,566,530 shares
issued and outstanding on a pro forma as
adjusted basis.............................. 65 161 196
Treasury stock, at cost, 0 and 0 shares issued
and outstanding at
December 31, 1999 and on a pro forma basis,
and 1,249,500 shares issued and outstanding
on a pro forma as adjusted basis............ -- -- (4,275)
Additional paid-in capital.................... 6,520 83,936 125,812
Accumulated other comprehensive income........ (12) (12) (12)
Accumulated deficit........................... (46,127) (86,852) (86,852)
Note receivable from shareholder.............. (2,545) (2,545) (2,545)
Deferred compensation......................... (2,397) (2,397) (2,397)
-------- -------- -------
Total capitalization..................... $ 9,475 $ (834) $36,800
======== ======== =======
</TABLE>
The number of shares of common stock outstanding as of December 31, 1999
does not reflect 1,387,473 shares issuable under options outstanding as of
December 31, 1999 with a weighted-average exercise price of $4.88 per share and
1,217,746 additional shares reserved for issuance under our stock plans or
1,246,319 shares issuable under outstanding warrants as of December 31, 1999
with a weighted-average exercise price of $5.98.
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<PAGE>
DILUTION
The pro forma net tangible book value of our common stock as of December
31, 1999 was $(10,696,000), or $(0.62) per share, after giving effect to the
automatic conversion of all outstanding shares of preferred stock into common
stock, and the issuance and payment of all required shares and amounts, upon
the closing of this offering and recognition of significant events which
occurred subsequent to December 31, 1999. After giving effect to the sale of
3,500,000 shares of common stock pursuant to this offering at an assumed
initial public offering price of $12.00 per share and deducting estimated
underwriting discounts and offering expenses, the pro forma as adjusted net
tangible book value at December 31, 1999 would have been $22,666,000 or $1.16
per share.
Pro forma net tangible book value per share before the offering has been
determined by dividing pro forma net tangible book value (total pro forma
tangible assets less total liabilities) by the pro forma number of shares of
common stock outstanding as of December 31, 1999. This offering will result in
an immediate increase pro forma as adjusted net tangible book value per share
of $1.78 to existing stockholders and dilution in pro forma as adjusted net
tangible book value per share of $10.84 to new investors who purchase shares in
this offering. Dilution is determined by subtracting pro forma as adjusted net
tangible book value per share from an assumed initial public offering price of
$12.00 per share. The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $12.00
Pro forma net tangible book value per share at December 31,
1999....................................................... $(0.62)
Increase attributable to sale of common stock in this
offering................................................... 1.78
------
Pro forma as adjusted net tangible book value per share after
this offering................................................ 1.16
------
Dilution of net tangible book value per share to new investors
who purchase shares in this offering......................... $10.84
======
</TABLE>
If the underwriters exercise their option to purchase additional shares in
this offering, the pro forma as adjusted net tangible book value per share
after the offering would be $1.42 per share, the immediate increase in pro
forma as adjusted net tangible book value per share to existing stockholders
would be $2.04 per share and the dilution to persons who purchase shares in the
offering would be $10.58 per share.
The following table summarizes, on a pro forma as adjusted basis as of
December 31, 1999, the differences between the total consideration paid and the
average price per share paid by the existing stockholders and the new investors
with respect to the number of shares of common stock purchased from us based
upon an assumed initial public offering price of $12.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Shares purchased in this
offering............... 3,500,000 17.9% $42,000,000 47.7% $12.00
Shares owned by existing
stockholders........... 16,066,530 82.1 46,051,000 52.3 2.87
---------- ----- ----------- -----
Total.................. 19,566,530 100.0% $88,051,000 100.0%
========== ===== =========== =====
</TABLE>
These tables assume no exercise of stock options or warrants outstanding as
of December 31, 1999. At December 31, 1999, there were 1,387,473 shares of
common stock issuable upon exercise of outstanding stock options at a weighted
average exercise price of $4.88 per share. As of December 31, 1999, there were
warrants exercisable for 1,246,319 shares of common stock at a weighted-average
exercise price of $5.98 per share. To the extent that outstanding options or
warrants are exercised in the future, there will be further dilution to new
investors.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data at December 31, 1996, 1997, 1998 and
1999 and for the years ended December 31, 1996, 1997, 1998 and 1999 are derived
from the financial statements of Prime Response, Inc., which have been audited
by PricewaterhouseCoopers LLP, independent auditors.
You should refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the more complete financial
information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1996 1997 1998 1999
------- -------- -------- --------
(in thousands, except per share
data)
<S> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Revenues:
Software licenses....................... $ 795 $ 2,933 $ 8,495 $ 10,134
Services and support.................... 1,410 2,495 4,214 6,519
Applications hosting ................... 4,764 4,754 3,827 3,869
------- -------- -------- --------
Total revenues......................... 6,969 10,182 16,536 20,522
------- -------- -------- --------
Cost of revenues:
Software licenses....................... 144 83 152 --
Services and support.................... 1,927 3,052 6,477 4,522
Applications hosting.................... 1,777 1,923 2,477 2,776
Non-cash cost of revenues............... -- -- -- 113
------- -------- -------- --------
Total cost of revenues................. 3,848 5,058 9,106 7,411
------- -------- -------- --------
Gross profit............................. 3,121 5,124 7,430 13,111
------- -------- -------- --------
Operating expenses:
Sales and marketing..................... 1,195 2,788 9,459 13,285
Non-cash sales and marketing............ -- -- -- 266
Research and development................ 1,307 2,947 6,289 10,185
Non-cash research and development....... -- -- -- 63
General and administrative.............. 1,184 1,396 4,843 4,112
Non-cash general and administrative..... -- -- -- 1,732
Amortization of goodwill and other
intangible assets..................... -- -- 1,279 1,245
------- -------- -------- --------
Total operating expenses............... 3,686 7,131 21,870 30,888
------- -------- -------- --------
Loss from operations..................... (565) (2,007) (14,440) (17,777)
Other income (expense):
Interest income......................... 5 155 219 115
Interest expense........................ (64) (227) (294) (184)
Interest expense related to beneficial
conversion feature.................... -- -- -- (2,500)
Loss on foreign exchange................ -- (7) (88) (58)
------- -------- -------- --------
Loss before income taxes................. (624) (2,086) (14,603) (20,404)
Provision for income taxes............... (26) (159) -- (15)
------- -------- -------- --------
Net loss................................. (650) (2,245) (14,603) (20,419)
Preferred stock dividends and recognition
of beneficial conversion feature on
preferred stock ....................... -- (607) (2,015) (5,034)
------- -------- -------- --------
Net loss attributable to common
stockholders........................... $ (650) $ (2,852) $(16,618) $(25,453)
======= ======== ======== ========
Net loss per share--basic and diluted.... $(6,500) $ (2.43) $ (2.36) $ (3.44)
======= ======== ======== ========
Weighted average shares used in computing
basic and diluted net loss per share... -- 1,173 7,035 7,405
======= ======== ======== ========
<CAPTION>
December 31,
-------------------------------------
1996 1997 1998 1999
------- -------- -------- --------
(in thousands)
Consolidated Balance Sheet Data:
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $ 458 $ 22,106 $ 530 $ 3,999
Working capital.......................... (751) 11,482 62 (1,280)
Total assets............................. 3,026 26,722 10,152 25,515
Short-term and long-term debt and capital
lease obligations ..................... 563 1,296 973 2,600
Redeemable convertible preferred stock
and redeemable common stock............ -- 28,328 35,536 51,371
Stockholders' equity (deficit)........... (865) (16,227) (32,860) (44,496)
</TABLE>
20
<PAGE>
Prior to 1996, Prime Response financial statements were prepared under
accounting principles generally accepted in the United Kingdom and reported
results for fiscal years ending on August 31. During that time, Prime Response
earned revenue from applications hosting only, and had no license contracts or
services and support revenue. Prime Response has prepared selected financial
data including revenue and net loss for the year ended December 31, 1995 from
statutory accounts prepared under accounting principles generally accepted in
the United Kingdom for the year ended August 31, 1995 and other available
information. Prime Response has recorded necessary adjustments to report
results for the year ended December 31, 1995 under accounting principles
generally accepted in the United States.
The unaudited selected financial data includes, in the opinion of our
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of the information set forth. The preparation
of the following unaudited selected financial data in conformity with
accounting principles generally accepted in the United States required
management to make estimates and assumptions that affect the reported amounts.
The available unaudited selected financial data for the twelve months ended
December 31, 1995 is as follows (in thousands, except per share data):
<TABLE>
<S> <C>
Revenue......................................................... $4,955
Net loss........................................................ $ (62)
Net loss per share--basic and diluted........................... $ (620)
Cash dividends per share........................................ $2,210
Weighted average shares used in computing basic and diluted net
loss per share................................................ 100
The available unaudited selected financial data as of December 31, 1995 is
as follows:
Total assets.................................................... $2,095
Total long term obligations..................................... $ 201
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Prime
Response's consolidated financial statements, the related notes and the other
financial information appearing elsewhere in this prospectus. In addition to
historical information, the following discussion and other parts of this
prospectus contain forward-looking information that involves risks and
uncertainties. Prime Response's actual results could differ materially from
those anticipated by such forward-looking information due to competitive
factors, risks associated with Prime Response's expansion plans and other
factors discussed under "Risk Factors" and elsewhere in this prospectus.
Overview
Prime Response is a leading provider of integrated eMarketing software
solutions that enable businesses with large customer bases to create, manage
and execute highly targeted internet and traditional marketing campaigns that
build more loyal and profitable customer relationships. We have over 12 years
of experience in the use of technology to plan and manage marketing programs.
We were founded in 1987 in the United Kingdom. Prior to 1999, our corporate
headquarters were in London, England, and our primary focus was on the European
market. In 1998, we began to increasingly target the United States market, and
in July 1999, moved our corporate headquarters to Cambridge, Massachusetts.
Since 1995, we have incurred significant development costs to develop our
technology and new software products, particularly to introduce our latest
generation of internet-based marketing management solutions. With the
introduction of these products, we anticipate that research and development
expenses will stabilize and will decrease as a percentage of total revenues. We
intend to continue to expand our direct sales force and increase marketing
expenditures relating to the introduction of our new product offerings, and as
a result, we expect sales and marketing expenses to continue to grow, in
dollars.
We generate revenues principally from:
. licensing our software products directly to clients;
. providing related professional services, including implementation,
consulting, support and training; and
. providing applications hosting services, including providing marketing
database outsourcing services.
Our license agreements typically require our clients to pay an upfront
license fee for one or more software solutions for a specified number of
customer records in their database. The amount of the license fee varies
principally depending upon the size of the client's database and number of
databases. Clients can subsequently pay additional license fees to allow
additional entities within their corporate structure to access our applications
or to purchase additional solutions.
Revenue Recognition
Prime Response sells software licenses under master license agreements and
recognizes revenue when the agreement has been signed, the software has been
shipped (or software has been electronically delivered), the license fee is
fixed and determinable, and collection of the resulting receivable is probable.
For license agreements which require customer acceptance, license revenues are
recognized only when obligations under the license agreement are completed and
the software has been accepted by the customer. Prime Response provides
professional services to customers under service contracts and recognizes
revenue on a time and materials basis as the services are performed, provided
that amounts due from customers are fixed and determinable and deemed
collectible by management. These services are not essential to the
functionality of the software and are often performed by other parties. Support
revenues, including those bundled with the initial license fee, are deferred
and recognized ratably over the maintenance period. In the event that a
contract contains multiple elements, Prime Response allocates the aggregate of
the contract value to each element based
22
<PAGE>
on relative fair values as established by vendor specific objective evidence.
Vendor specific objective evidence is based on recent sales prices. Prime
Response provides applications hosting services to customers and recognizes
revenue as the services are performed.
Revenues and profits under long-term fixed price contracts are recognized
using percentage completion accounting. These contracts are assessed for
losses and such losses are provided for in total in the period in which the
losses become known.
The following table illustrates our revenues for the years ended December
31, 1997, 1998 and 1999 by geographic region:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1998 1999
------- ------- -------
(in thousands)
<S> <C> <C> <C>
United States........................................ $ 65 $ 4,370 $ 3,487
United Kingdom....................................... 10,117 12,025 15,758
Rest of the world.................................... -- 141 1,277
------- ------- -------
Total.............................................. $10,182 $16,536 $20,522
======= ======= =======
</TABLE>
In January 1998, we acquired certain intellectual property rights and
other intangible assets related to the MIND software product. Amortization of
the $2.8 million of intangible assets related to this investment will be
completed by December 31, 2000.
During the year ended December 31, 1999, Prime Response recorded deferred
compensation of $2.6 million in connection with the granting of options and
the issuance of restricted stock upon the exercise of such options. This
amount represents the difference between the estimated fair market value of
the common stock on measurement date and the exercise price of the option.
Compensation related to options which vest over time will be amortized over
the vesting periods of the related options. Prime Response recognized an
expense of $205,000 during the year ending December 31, 1999 relating to these
options.
We do not believe that we have any material market risk exposure with
respect to derivative or other financial instruments.
As a result of our losses, we do not expect to pay United States income
taxes in the foreseeable future.
Andersen Consulting Relationship
On December 6, 1999, Prime Response and Andersen Consulting entered into a
joint marketing agreement and, along with an affiliate of Andersen Consulting,
a stock and warrant purchase agreement. Pursuant to the stock and warrant
purchase agreement, Andersen Consulting purchased 428,000 shares of common
stock and Andersen Consulting received a warrant to purchase 682,000 shares of
common stock. This warrant has an exercise price of $9.35 per share and vests
upon the earlier to occur of September 9, 2000 or the date of an acquisition
of Prime Response by another person or entity. Andersen Consulting also has a
right of first refusal to participate in any equity issuances by Prime
Response prior to its initial public offering in order to maintain its
percentage ownership interest in Prime Response, subject to specified
exceptions. The aggregate purchase price paid by Andersen Consulting for the
shares of common stock and this warrant was $4.0 million. Andersen Consulting
has no performance obligations under the stock and warrant purchase agreement
or this warrant.
Prime Response issued a performance warrant to purchase 375,000 shares of
common stock to Andersen Consulting. Of this amount, 300,000 shares will vest
in share increments determined by the extent to which $2.0 billion exceeds
Prime Response's market capitalization at the time of its initial public
offering. An additional 75,000 shares will vest in increments of 7,500 shares
for each $100.0 million that Prime Response's market capitalization exceeds
$2.0 billion, up to a maximum market capitalization of $3.0 billion. This
warrant has an exercise price of $9.35 per share. Prime Response also issued a
performance warrant to purchase 375,000 shares of common stock to Andersen
Consulting which will vest in increments of 10,500 shares for each $1.0
million of sales resulting from joint marketing efforts up to $25.0 million
and then in increments of 4,500 shares for each $1.0 million of sales from
$25.0 million to $50.0 million. This warrant also has an exercise price of
$9.35 per share.
23
<PAGE>
All warrants have a seven-year term. In the event that the marketing
agreement is terminated as a result of a breach by Andersen Consulting, no
further vesting under the warrants will occur, but those warrants already
exercisable will remain exercisable during their term to the extent they are
vested at the time of the termination.
In the event that neither an initial public offering nor any other
liquidity event occurs by January 1, 2001, Andersen Consulting or its
affiliate will have the right to require Prime Response to repurchase the
428,000 shares for $4.0 million. The repurchase amount will be payable in
three quarterly installments, plus 8.0% interest on the entire amount
beginning on January 1, 2001, plus additional interest of 7.0% per annum in
the event Prime Response fails to make any payment when due. The put right
will terminate upon an initial public offering or other liquidity event.
Prime Response is obligated to engage Andersen Consulting for consulting
services of at least $1.0 million before December 31, 2001. If designated
sales targets are met, Andersen Consulting is obligated to provide up to $1.0
million in funding for joint marketing efforts, business development
personnel, structure feedback and sales support. The expenditure of these
funds will be controlled by a committee comprised of both Andersen Consulting
and Prime Response personnel.
Results of Operations
The following table sets out selected financial data as a percentage of
revenue for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Revenues:
Software licenses............................... 28.8 % 51.4 % 49.4 %
Services and support............................ 24.5 25.5 31.8
Applications hosting............................ 46.7 23.1 18.8
------- ------- -------
Total revenues................................. 100.0 100.0 100.0
------- ------- -------
Cost of revenues:
Software licenses............................... 0.8 0.9 --
Services and support............................ 30.0 39.2 22.0
Applications hosting............................ 18.9 15.0 13.5
Non-cash cost of revenues....................... -- -- 0.6
------- ------- -------
Total cost of revenues......................... 49.7 55.1 36.1
------- ------- -------
Gross profit..................................... 50.3 44.9 63.9
------- ------- -------
Operating expenses:
Sales and marketing............................. 27.4 57.2 64.8
Non-cash sales and marketing.................... -- -- 1.3
Research and development........................ 28.9 38.0 49.6
Non-cash research and development............... -- -- 0.3
General and administrative...................... 13.7 29.3 20.0
Non-cash general and administrative............. -- -- 8.4
Amortization of goodwill and other intangible
assets........................................ -- 7.7 6.1
------- ------- -------
Total operating expenses....................... 70.0 132.2 150.5
Loss from operations............................. (19.7) (87.3) (86.6)
Other income (expense):
Interest income................................. 1.5 1.3 0.6
Interest expense................................ (2.2) (1.8) (0.9)
Interest expense related to beneficial
conversion feature............................ -- -- (12.2)
Loss on foreign exchange........................ (0.1) (0.5) (0.3)
------- ------- -------
Loss before income taxes......................... (20.5) (88.3) (99.4)
Provision for income taxes....................... (1.6) -- (0.1)
------- ------- -------
Net loss......................................... (22.1)% (88.3)% (99.5)%
======= ======= =======
</TABLE>
24
<PAGE>
Years Ended December 31, 1999 and 1998
Revenues
Total revenues increased by $4.0 million, or 24.2%, to $20.5 million for
the year ended December 31, 1999 from $16.5 million for the year ended December
31, 1998.
Software Licenses. Software license revenues increased by $1.6 million, or
18.8%, to $10.1 million for the year ended December 31, 1999 from $8.5 million
for the year ended December 31, 1998. Software license revenues decreased
slightly to 49.3% of total revenues for the year ended December 31, 1999 from
51.5% of total revenues for the prior year. The dollar increase in software
license revenues was due primarily to growing market acceptance of our Prime
Vantage products.
Services and Support. Revenues from services and support increased by $2.3
million, or 54.8%, to $6.5 million for the year ended December 31, 1999 from
$4.2 million for the year ended December 31, 1998. These revenues increased to
31.7% of total revenues for the year ended December 31, 1999 from 25.5% of
total revenues for the previous year. The increase in service and support
revenues was due primarily to an increase in the number of sales of software
licenses, which resulted in increased demand for services and sales of software
maintenance and technical support.
Applications Hosting. Revenues from applications hosting increased by
$40,000 or 1.0%, to $3.9 million for the years ended December 31, 1999 from
$3.8 million for the year ended December 31, 1998. These revenues represented
19.0% of total revenues for the year ended December 31, 1999 compared to 23.0%
of total revenues for the prior year. We expect the proportion of revenues
attributable to applications hosting to decline as a percentage of total
revenues as we continue to focus on licensing our software products.
Cost of Revenues
Total cost of revenues decreased by $1.7 million, or 18.7%, to $7.4 million
for the year ended December 31, 1999 from $9.1 million for the year ended
December 31, 1998.
Software Licenses. Software license costs consist primarily of expenses
incurred to translate software products and prepare related documents as well
as negligible expenses to manufacture, package and distribute our software
products. Software license costs decreased by $152,000, or 100.0%, to zero in
the year ended December 31, 1999 from $152,000 for the year ended December 31,
1998. Software license costs were zero percent of software license revenues for
the year ended December 31, 1999 compared to 1.8% of such revenues for the
prior year. The decrease in software license costs is primarily due to the fact
that costs associated with the translation of software products and preparation
of related documents occurred during 1997 and 1998.
Services and Support. Services and support costs include salary expense and
other related costs for our professional services, maintenance and telephone
support staffs, as well as third-party contractor expenses. Services and
support costs decreased by $2.0 million, or 30.8%, to $4.5 million in the year
ended December 31, 1999 from $6.5 million in the year ended December 31, 1998.
Services and support costs were 69.2% of services and support revenues for the
year ended December 31, 1999 compared to 154.8% of such revenues for the prior
year. The decrease in services and support costs was primarily due to an
initial overstaffing in this area in 1998 and investment in services and
support infrastructure. We reduced services and support staff in the fourth
quarter of 1998 in order to more closely align expenses with revenues.
Applications Hosting. Costs attributable to applications hosting consist
primarily of personnel-related costs and equipment maintained for the provision
of services to clients. These costs increased by $300,000, or 12.0%, to $2.8
million for the year ended December 31, 1999 from $2.5 million for the year
ended December 31, 1998. These costs were 72.4% of applications hosting
revenues for the year ended December 31, 1999 compared to 65.3% of such
revenues for the prior year. Typically these costs have been relatively fixed.
The non-cash cost of revenues increased to $113,000 for the year ended
December 31, 1999 from none for the year ended December 31, 1998. This expense
represents the amortization of stock compensation
25
<PAGE>
expense in connection with the granting of stock options. The expense results
from the difference between the estimated fair market value of the common stock
on measurement date and the exercise price of the option which is being
recognized over the vesting period.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other related costs for sales and marketing personnel, sales
commissions, travel, public relations and marketing materials and trade shows.
Sales and marketing expenses increased by $3.8 million, or 40.0%, to $13.3
million for the year ended December 31, 1999 from $9.5 million for the year
ended December 31, 1998. Sales and marketing expenses increased to 64.9% of
total revenues for the year ended December 31, 1999, compared to 57.6% for the
prior year. The increase in such expenses was due primarily to increases in
staffing and personnel related costs, as we continued to expand our direct
sales force and expand our presence in North America. We anticipate that sales
and marketing expenses will continue to increase as we further expand our
direct sales force and invest heavily in the marketing and promotion of our new
generation of eMarketing management software products.
The non-cash sales and marketing expense increased to $266,000 for the year
ended December 31, 1999 from none for the year ended December 31, 1998. This
expense represents (i) the amortization of stock compensation expense in
connection with the granting of stock options, which results from the
difference between the estimated fair market value of the common stock on
measurement date and the exercise price of the option which is being recognized
over the vesting period; and (ii) the amortization of the intangible asset
recorded in connection with the Andersen Consulting agreement.
Research and Development. Research and development expenses consist
primarily of personnel and equipment-related costs directly associated with the
development of both our existing and future products. Research and development
expenses increased by $3.9 million, or 61.9%, to $10.2 million for the year
ended December 31, 1999 from $6.3 million for the year ended December 31, 1998.
Research and development expenses increased to 49.8% of total revenues in the
year ended December 31, 1999 from 38.2% for the prior year. The dollar and
percentage increase in costs was primarily due to significant investment in our
new Prime@Vantage and [email protected] products.
The non-cash research and development expense increased to $63,000 for the
year ended December 31, 1999 from none for the year ended December 31, 1998.
This expense represents the amortization of stock compensation expense in
connection with the granting of stock options. The expense results from the
difference between the estimated fair market value of the common stock on
measurement date and the exercise price of the option which is being recognized
over the vesting period.
General and Administrative. General and administrative expenses consist
primarily of employee salaries and related expenses for executive, finance and
administrative personnel as well as external professional fees and certain
centrally-borne costs. General and administrative expenses decreased by
$700,000, or 14.6%, to $4.1 million for the year ended December 31, 1999 from
$4.8 million for the year ended December 31, 1998. These expenses decreased to
20.0% of total revenues for the year ended December 31, 1999 from 29.1% for the
prior year. This decrease was primarily attributable to a period of stability
following the recruitment and development of a professional management team in
1998. After closing a financing in October 1997, we incurred significant costs
in early 1998 creating an infrastructure to manage a larger company and
establishing our North American operations.
The non-cash general and administrative expense increased to $1.7 million
for the year ended December 31, 1999 from none for the year ended December 31,
1998. This expense represents the amortization of stock compensation expense in
connection with the granting of stock options and restricted shares. The
expense results from the difference between the estimated fair market value of
the common stock on measurement date and the exercise price of the option,
primarily resulting from imputed interest on a non-interest bearing loan which
is being recognized over the vesting period.
26
<PAGE>
Amortization of Goodwill and Other Intangible Assets. Amortization expense
decreased by $30,000, or 2.3%, to $1.25 million for the year ended December 31,
1999 from $1.28 million for the year ended December 31, 1998. This expense is
solely attributable to the acquisition of certain intellectual property rights
and other intangible assets related to the MIND software product.
Interest Income. Interest income decreased by $104,000, or 47.5%, to
$115,000 for the year ended December 31, 1999 from $219,000 for the year ended
December 31, 1998.
Interest Expense. Interest expense decreased by $110,000, or 37.4%, to
$184,000 for the year ended December 31, 1999 from $294,000 for the year ended
December 31, 1998.
Interest Expense Related to Beneficial Conversion Feature. Interest expense
related to beneficial conversion feature increased to $2.5 million for the year
ended December 31, 1999 from none for the year ended December 31, 1998.
Interest expense related to beneficial conversion feature for the year ended
December 31, 1999 results from the issuance of promissory notes which were
immediately convertible into series C preferred stock with the conversion
amount determinable by dividing the principal amount of the notes by $3.00,
which represents a discount from the fair value of the common stock on the date
of issuance. The values attributable to the conversion feature on each note
represent an incremental yield, or a beneficial conversion feature, which are
recognized as additional interest on the notes.
Net Loss. As a result of the increases in revenue, operating expenses,
depreciation and amortization, and net interest expense noted above, our net
loss increased by $5.8 million, or 39.7%, to $20.4 million for the year ended
December 31, 1999, compared with a net loss of $14.6 million for the year ended
December 31, 1998.
Years Ended December 31, 1998 and 1997
Revenues
Total revenues increased by $6.3 million, or 61.8%, to $16.5 million for
1998 from $10.2 million for 1997. For 1998, the percent of total revenues
attributable to sales in North America was 26.4% and to sales in Europe was
73.6%, compared with 0.6% and 99.4%, respectively, in 1997, reflecting the
establishment of our North American based operations at the end of 1997 and
increased sales in the United States in 1998.
Software Licenses. Software license revenues increased by $5.6 million, or
193.1%, to $8.5 million in 1998 from $2.9 million in 1997. Software license
revenues increased to 51.5% of total revenues in 1998 from 28.4% of total
revenues in the prior year. The increase in software license fees was primarily
due to growing market acceptance of our Prime Advantage products and the
release of the Windows-based version of our Prime Vantage product.
Services and Support. Services and support revenues increased by $1.7
million, or 68.0%, to $4.2 million in 1998 from $2.5 million in 1997. Services
and support revenues represented 25.5% of total revenues in 1998 and 24.5% of
total revenues in 1997. The dollar increase in services and support revenues
was due primarily to an increase in the number of sales of software licenses,
which resulted in increased demand for services and sales of software
maintenance and technical support.
Applications Hosting. Revenues attributable to applications hosting
decreased by $1.0 million, or 20.8%, to $3.8 million in 1998 from $4.8 million
in 1997. This decrease reflected the loss of a single client for whom we had
provided database outsourcing services. Applications hosting revenues decreased
to 23.0% of total revenues in 1998 from 47.1% of total revenues in the prior
year.
Cost of Revenues
Total cost of revenues increased by $4.0 million, or 78.4%, to $9.1 million
for 1998, from $5.1 million for 1997.
27
<PAGE>
Software Licenses. Software license costs increased by $69,000, or 83.1% to
$152,000 in 1998 from $83,000 in 1997. Software license costs were 1.8% of
software license revenues in 1998 compared to 2.9% of such revenues in 1997.
Services and Support. Services and support costs increased by $3.4 million,
or 109.7%, to $6.5 million for 1998, from $3.1 million for 1997. Services and
support costs were 154.8% of services and support revenues in 1998 compared to
124% of such revenues in 1997. The increase in services and support costs was
primarily due to increased staffing and personnel related costs.
Applications Hosting. Applications hosting costs increased by $600,000, or
31.6%, to $2.5 million for the year ended December 31, 1998, from $1.9 million
for the year ended December 31, 1997. Applications hosting costs were 65.2% of
applications hosting revenues in 1998 compared to 39.6% of such revenues in
1997, reflecting increases in salary costs and investment in the operational
infrastructure for the activities performed.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased by $6.7
million, or 239.3%, to $9.5 million in 1998, from $2.8 million in 1997. The
increase in sales and marketing expenses resulted primarily from the continued
investment in building a direct sales organization, establishing new sales
offices, and building reseller channels, as well as increased marketing
activities. Sales and marketing expenses grew to 57.6% of total revenues in
1998 compared to 27.5% of such revenues in 1997, reflecting our increased
investment in these activities.
Research and Development. Research and development expenses increased by
$3.4 million, or 117.2%, to $6.3 million in 1998, from $2.9 million in 1997.
Research and development expenses represented 38.2% of total revenues in 1998
and 28.4% in 1997. This increase in research and development expenditures
reflected the significant investment we made during the period in developing
the Windows based version of our Prime Vantage product and commencing our new
generation of Prime@Vantage products, including the hiring of additional
development personnel and acquisition of new equipment to support research and
development activities.
General and Administrative. General and administrative expenses increased
by $3.4 million, or 242.9%, to $4.8 million in 1998 from $1.4 million in 1997.
General and administrative expenses were 29.1% of revenues in 1998 and 13.7% of
total revenues in 1997. The increase in general administrative expenditures was
due to staffing and related costs, the establishment of our North American
operations and other investments and expenses necessary to support our
expanding operations.
Amortization of Goodwill and Other Intangible Assets. Amortization costs
increased to $1.3 million in 1998 from none in 1997. The increase is solely
attributable to the acquisition of certain intellectual property rights and
other intangible assets related to the MIND software product.
Interest Income. Interest income increased by $64,000, or 41.3%, to
$219,000 in 1998 from $155,000 in 1997.
Interest Expense. Interest expense increased by $67,000, or 29.5%, to
$294,000 in 1998 from $227,000 in 1997.
Net Loss. Net loss increased by $12.4 million, or 563.6%, to $14.6 million
for 1998, from $2.2 million for 1997.
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<PAGE>
Quarterly Results
The following table sets forth certain unaudited financial data of Prime
Response for each of the quarters in 1998 and 1999. This information has been
derived from unaudited financial statements that, in the opinion of management,
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of this quarterly information. The operating
results for any quarter are not necessarily indicative of results to be
expected for any future period.
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software and licenses.. $ 1,203 $ 348 $ 1,939 $5,005 $ 1,080 $ 2,544 $ 1,654 $ 4,856
Services and support... 771 723 847 1,873 1,711 1,543 1,455 1,810
Applications hosting... 857 761 819 1,390 991 994 1,095 789
------- ------- ------- ------ ------- ------- -------- -------
Total revenues......... 2,831 1,832 3,605 8,268 3,782 5,081 4,204 7,455
------- ------- ------- ------ ------- ------- -------- -------
Cost of revenues:
Software licenses...... -- -- 10 142 -- -- -- --
Services and support... 1,769 1,149 1,498 2,061 850 1,167 1,230 1,275
Applications hosting... 590 606 698 583 775 666 647 688
Non-cash cost of
revenues............. -- -- -- -- -- 5 84 24
------- ------- ------- ------ ------- ------- -------- -------
Total cost of
revenues............. 2,359 1,755 2,206 2,786 1,625 1,838 1,961 1,987
------- ------- ------- ------ ------- ------- -------- -------
Gross profit............ 472 77 1,399 5,482 2,157 3,243 2,243 5,468
Operating expenses:
Sales and marketing.... 1,897 2,085 2,704 2,773 2,811 2,728 2,985 4,761
Non-cash sales and
marketing............ -- -- -- -- 16 3 16 231
Research and
development.......... 1,442 1,842 1,598 1,407 1,950 2,130 2,632 3,473
Non-cash research and
development.......... -- -- -- -- -- -- 34 29
General and
administrative....... 1,326 1,227 1,032 1,258 847 853 959 1,453
Non-cash general and
administrative....... -- -- -- -- -- 1,678 8 46
Amortization of
goodwill and other
intangible assets.... 318 319 318 324 314 309 308 314
------- ------- ------- ------ ------- ------- -------- -------
Total operating
expenses............. 4,983 5,473 5,652 5,762 5,938 7,701 6,942 10,307
------- ------- ------- ------ ------- ------- -------- -------
Loss from operations.... (4,511) (5,396) (4,253) (280) (3,781) (4,458) (4,699) (4,839)
Other income (expense):
Interest income........ 122 79 11 7 1 17 44 53
Interest expense....... (102) (115) (26) (51) (33) (30) (24) (97)
Interest expense
related to beneficial
conversion........... -- -- -- -- -- -- (2,500) --
Loss on foreign
exchange............. (2) (24) (51) (11) (19) (31) 1 (9)
------- ------- ------- ------ ------- ------- -------- -------
Loss before income taxes
...................... (4,493) (5,456) (4,319) (335) (3,832) (4,502) (7,178) (4,892)
Provision for income
taxes ................ -- -- -- -- (1) (1) (7) (6)
------- ------- ------- ------ ------- ------- -------- -------
Net loss................ (4,493) (5,456) (4,319) (335) (3,833) (4,503) (7,185) (4,898)
Preferred stock
dividends and
recognition of
beneficial conversion
feature on preferred
stock ................ (474) (474) (504) (563) (611) (677) (3,068) (678)
------- ------- ------- ------ ------- ------- -------- -------
Net loss attributable to
common stockholders... $(4,967) $(5,930) $(4,823) $ (898) $(4,444) $(5,180) $(10,253) $(5,576)
======= ======= ======= ====== ======= ======= ======== =======
Net loss per share--
basic and diluted..... $ (0.71) $ (0.84) $ (0.68) $(0.13) $ (0.64) $ (0.73) $ (1.35) $ (0.72)
======= ======= ======= ====== ======= ======= ======== =======
Weighted average shares
used in computing
basic and diluted net
loss per share........ 7,035 7,035 7,035 7,035 7,035 7,247 7,671 7,846
======= ======= ======= ====== ======= ======= ======== =======
</TABLE>
29
<PAGE>
The following table sets forth the unaudited quarterly total expenses as a
percentage of unaudited quarterly revenues.
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses...... 42.5% 19.0% 53.8% 60.5% 28.6% 50.1% 39.3% 65.1%
Services and support... 27.2 39.5 23.5 22.7 45.2 30.4 34.6 24.3
Applications hosting... 30.3 41.5 22.7 16.8 26.2 19.5 26.1 10.6
------ ------ ------ ----- ------ ----- ------ -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ----- ------ ----- ------ -----
Cost of revenues:
Software licenses...... -- -- 0.3 1.7 -- -- -- --
Services and support... 62.5 62.7 41.6 24.9 22.5 23.0 29.2 17.1
Applications hosting... 20.8 33.1 19.3 7.1 20.5 13.1 15.4 9.2
Non-cash cost of
revenues............. -- -- -- -- -- 0.1 2.0 0.3
------ ------ ------ ----- ------ ----- ------ -----
Total cost of
revenues............. 83.3 95.8 61.2 33.7 43.0 36.2 46.6 26.6
------ ------ ------ ----- ------ ----- ------ -----
Gross profit............ 16.7 4.2 38.8 66.3 57.0 63.8 53.4 73.4
------ ------ ------ ----- ------ ----- ------ -----
Operating expenses:
Sales and marketing.... 67.0 113.8 74.9 33.6 74.3 53.7 71.0 63.9
Non-cash sales and
marketing............ -- -- -- -- 0.4 0.1 0.4 3.1
Research and
development.......... 51.0 100.5 44.5 17.0 51.6 41.9 62.6 46.6
Non-cash research and
development.......... -- -- -- -- -- -- 0.9 0.4
General and
administrative....... 46.8 67.0 28.6 15.2 22.4 16.8 22.8 19.5
Non-cash general and
administrative....... -- -- -- -- -- 33.0 0.2 0.6
Amortization of
goodwill and other
intangible assets.... 11.2 17.4 8.8 3.9 8.3 6.0 7.3 4.2
------ ------ ------ ----- ------ ----- ------ -----
Total operating
expenses............. 176.0 298.7 156.8 69.7 157.0 151.5 165.2 138.3
------ ------ ------ ----- ------ ----- ------ -----
Loss from operations.... (159.3) (294.5) (118.0) (3.4) (100.0) (87.7) (111.8) (64.9)
Other income (expense):
Interest income........ 4.3 4.3 0.3 0.1 -- 0.3 1.0 0.7
Interest expense....... (3.6) (6.3) (0.7) (0.7) (0.8) (0.6) (0.5) (1.3)
Interest expense
related to beneficial
conversion........... -- -- -- -- -- -- (59.4) --
Loss on foreign
exchange............. (0.1) (1.3) (1.4) (0.1) (0.5) (0.6) -- (0.1)
------ ------ ------ ----- ------ ----- ------ -----
Loss before income taxes
...................... (158.7) (297.8) (119.8) (4.1) (101.3) (88.6) (170.7) (65.6)
Provision for income
taxes ................ -- -- -- -- -- -- (0.2) (0.1)
------ ------ ------ ----- ------ ----- ------ -----
Net loss................ (158.7)% (297.8)% (119.8)% (4.1)% (101.3)% (88.6)% (170.9)% (65.7)%
====== ====== ====== ===== ====== ===== ====== =====
</TABLE>
Our quarterly revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. Therefore, you should not
rely on period-to-period comparisons of results of operations as an indication
of future performance. If our quarterly revenue or operating results fall below
the expectations of investors or securities analysts, the price of our common
stock could fall substantially.
Our quarterly revenue may fluctuate as a result of a variety of factors,
including the following:
. software license revenues in any quarter depend on contracts closed,
orders shipped and the satisfaction of clients' acceptance criteria in
that quarter;
. the market in which we compete is relatively new and evolving;
. we expect that, for the foreseeable future, license revenues will come
from licenses to a small number of clients, so delays, cancellations
of orders, or acceptance of our software by a few clients can
significantly impact revenues within a quarter;
. our sales cycle is relatively long; and
. revenues will be affected by the timing of introduction of new
products or product enhancements by us or our competitors.
Many of the factors that could cause such variations are outside of our
control. We plan our operating expenditures based on revenue forecasts, and a
revenue shortfall below such forecasts in any quarter could adversely affect
our operating results for that quarter.
30
<PAGE>
For the quarter ended December 31, 1998, we recognized revenues from a
disproportionately large number of licensing transactions, including a number
involving significant license fees. We may in the future continue, for the
factors noted above, to experience significant variations in license revenues
from quarter to quarter. There can be no certainty that revenue levels will
cover operating expenses, particularly as we continue to invest in our sales
and marketing organizations and on expansion in the United States. We do,
however, expect research and development expenditures to decrease as a
percentage of total revenues, with the completion of the major investment made
in the development of our Prime@Vantage and [email protected] products.
Liquidity and Capital Resources
Since October 1997, our primary source of funding has been through the
private sale of convertible preferred stock and attached warrants, which
totaled $39.1 million in aggregate net proceeds as of December 31, 1999.
In early November 1999, we entered into a $5.0 million financing
arrangement with Greyrock Capital, a Bank of America company, providing an
upfront term loan of $2.0 million with the balance being funded against our
receivables position within the United States and in the United Kingdom. The
arrangement has a 12 month renewable term. To date, we have borrowed a total of
$2.0 million under this arrangement at an interest rate of 10.5%.
Cash and cash equivalents were $4.0 million at December 31, 1999 compared
to $500,000 at December 31, 1998 and $22.1 million at December 31, 1997. The
increase from December 31, 1998 is primarily attributable to equity financing
provided by General Atlantic Partners, our primary investor and Andersen
Consulting.
Net cash used in operating activities was $11.2 million during 1999, $13.7
million during 1998 and $1.5 million during 1997.
Working capital at December 31, 1999 was $(1.3) million compared to
$(100,000) at December 31, 1998. We currently intend to raise cash through this
offering, the proceeds of which are expected to exceed cash requirements for
the next twelve months. If this offering is not successfully completed, we
intend to obtain alternative financing through the private placement of debt or
equity, and reduce expenditures so as to minimize requirements for additional
financial resources. We believe that, if this offering is not completed, we
will be able to successfully execute alternative plans. There can be no
assurance that this offering will be successful or that additional financing
will be available to us or, if available, that it can be obtained on a timely
basis, on terms acceptable to us, and within the limitations contained in our
commercial lending agreements. Failure to obtain such financing could result in
the delay or abandonment of certain of our development and expansion plans and
could have a material adverse effect on us. Furthermore, there can be
no assurance that actual capital needs and expenditures will not be
significantly higher than our current estimates.
Capital expenditures were $1.4 million during 1999, $1.1 million during
1998 and $600,000 during 1997. We do not expect any major future expenditures
on property, but intend to continue to invest in our systems infrastructure to
better support our clients, improve the ongoing efficiency of our product
development process and facilitate internal communications and virtual team
working.
Our strategic initiatives include the roll-out of our new web-enabled
software products Prime@Vantage and [email protected] and the expansion of our
United States operations. These initiatives will require a substantial amount
of capital as will personnel additions and the funding of operating losses and
working capital.
While we have historically generated a high proportion of our revenues
outside of the United States, the vast majority of these have been earned in
Pounds Sterling, so that any potential foreign exchange exposure would be
limited to movements between the Pound Sterling and the Dollar. Because the
cost profile has also been similarly structured, this has provided a natural
currency hedge. Currently, we do not formally hedge any
31
<PAGE>
of our foreign currency exposure. We will continue to review this position in
light of potential growth in Euro denominated revenues and expenditures.
However, during the fiscal years 1998 and 1999, we incurred net foreign
currency exchange losses due primarily to translation differences from customer
payments.
In November 1999, Prime Response agreed to refund amounts for a software
license fee paid by a customer in 1998. The total amount of the refund is
$500,000, which is payable in the amount of $125,000 per quarter for four
quarters commencing in January 2000.
In the event that neither an initial public offering nor any other
liquidity event occurs by January 1, 2001, Andersen Consulting or its
affiliates will have the right to require Prime Response to repurchase the
428,000 shares for $4.0 million. Such repurchase will be payable in three
quarterly installments, plus 8.0% interest on the entire amount beginning on
January 1, 2001, plus addition interest of 7.0% per annum in the event Prime
Response fails to make any payment when due. The put right will terminate upon
an initial public offering or other liquidity event.
Prime Response is obligated to engage Andersen Consulting for consulting
services of at least $1.0 million during the period from contract execution to
December 31, 2001. If designated sales targets are met, Andersen Consulting is
obligated to provide up to $1.0 million in funding for joint marketing efforts,
business development personnel, structure feedback and sales support. The
expenditure of these funds will be controlled by a committee comprised of both
Andersen Consulting and Prime Response personnel.
As part of the reorganization in 1997, a shareholder issued an option to us
to repurchase 1,249,500 of his shares at an exercise price of $3.42 per share.
This option expires on September 30, 2000, on which date the shareholder has
the right to put these shares to us at the same price.
We do not have any derivative instruments.
Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position No. 98-4 "Deferral of
the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition"
("SOP 98-4"). SOP 98-4 defers, for one year, the application of certain
passages in SOP 97-2 which limit what is considered vendor-specific objective
evidence ("VSOE") necessary to recognize revenue for software licenses on
multiple-element arrangements when undelivered elements exist. In December
1998, the AICPA issued Statement of Position No. 98-9 "Modifications of SOP 97-
2, Software Revenue Recognition, with Respect of Certain Transactions"
("SOP 98-9") which further extends the deferral of certain passages of SOP 97-2
relating to vendor specific objective evidence established in SOP 98-4 and also
defines "residual value." The provisions of SOP 98-9 have been adopted for
transactions entered during the fiscal year beginning January 1, 1999. The
Company does not anticipate that this pronouncement will have a material effect
on its results.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes a new model for accounting for derivatives and
hedging activities and supercedes and amends a number of existing standards.
SFAS 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 19, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS 133. Prime Response does not anticipate that this pronouncement will have
a material effect on its reported results or financial position.
Impact of Year 2000
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in the date code field. These
systems and software products will need to accept four digit
32
<PAGE>
entries to distinguish 21st century dates from 20th century dates. As a result,
computer systems and software used by many companies and governmental agencies
may need to be upgraded to comply with these Year 2000 requirements or risk
system failure or miscalculations causing disruptions of normal business
activities. To date, we have not experienced any material Year 2000 problems in
our computer systems or operations. However, other companies, including us,
could experience latent Year 2000 problems.
State of Readiness
We have assessed the impact that the Year 2000 problem may have on our
information technology (IT) systems, including the hardware and software that
enable us to provide and deliver our integrated eMarketing solutions, and our
non-IT systems. Our assessment plan has consisted of (i) quality assurance
testing of our internally developed proprietary software incorporated in our
products; (ii) contacting third-party vendors and licensors of material
hardware, software and services that are both directly and indirectly related
to the delivery of our solutions to our clients; (iii) contacting vendors of
material non-IT systems used by us; (iv) assessment of repair or replacement
requirements; (v) repair or replacement; (vi) implementation; and (vii)
creation of contingency plans in the event of Year 2000 failures.
Using our Year 2000 Certification methodology we have executed tests which
confirmed the suitability of the Prime Vantage software for Year 2000
operation. We have been informed by many of our vendors of material hardware
and software components of our IT systems that the products used by us are
currently Year 2000 compliant. We have requested that vendors of our other
material hardware and software components of our IT systems provide assurances
of their Year 2000 compliance. We have completed an assessment of the
materiality of our non-IT systems and have obtained assurances of Year 2000
compliance from providers of material non-IT systems. At this time, we do not
believe that any of our IT systems or non-IT systems will need to be revised or
replaced.
Costs
To date, we have not incurred any material expenditures in connection with
identifying or evaluating Year 2000 compliance issues. Most of our expenses
have related to, and are expected to continue to relate to, the operating costs
associated with time spent by employees in the evaluation process and Year 2000
compliance matters generally. At this time, we do not possess the information
necessary to estimate the potential costs of revisions to our proprietary
software should any revisions be required or the replacement of third-party
software, hardware or services that are determined not to be Year 2000
compliant. Although we do not anticipate that these expenses will be material,
such expenses, if higher than anticipated, could have a material adverse effect
on our business, results of operations and financial condition.
Risks
To date, we have not experienced, and we are not currently aware of any
Year 2000 compliance problems relating to our proprietary software or our IT or
non-IT systems that would have a material adverse effect on us without taking
into account our efforts to avoid or fix such problems. There can be no
assurance that we will not discover Year 2000 compliance problems in our
proprietary software that will require substantial revisions. In addition,
there can be no assurance that third-party software, hardware or services
incorporated into our material IT and non-IT systems will not need to be
revised or replaced, all of which could be time consuming and expensive.
Contingency Plan
In the event of any Year-2000 problems, our contingency plan included the
following components:
. Deploying all necessary internal resources to tackle the issues as
swiftly as possible;
. Calling upon our relationships with our commercial partners, to enable
suitable escalation of issues with any third party; and
. Calling upon technical assistance from our technology partners--
including our disaster recovery service provider.
33
<PAGE>
BUSINESS
Prime Response is a leading provider of integrated eMarketing software
solutions that enable businesses with large customer bases to create, manage
and execute highly targeted internet and traditional marketing campaigns that
build more loyal and profitable customer relationships. Our software solutions
leverage our 12 years of experience in the design, implementation and
management of marketing campaigns to create tailored interactions that draw on
the collective memory of our clients' customers developed through all marketing
touch points. Our products are designed to help our clients to more effectively
market and sell to their customers by delivering more personalized marketing
messages over the customers' preferred channel, whether internet or
traditional.
Industry Background
In today's competitive environment, businesses face intense pressure to
improve their overall profitability. In recent years, businesses have addressed
cost reduction and expense containment by adopting enterprise resource planning
and other back-office software applications. Businesses realize that they must
now also focus on ways to increase revenues in a cost effective manner. Today,
businesses with large customer bases invest significant resources to attract,
retain and sell to customers directly through telephone, direct mail and
personal selling efforts and increasingly via the internet, or indirectly
through use of media such as print, radio and television. Implementing and
managing these marketing campaigns--called marketing management--is both a
critical and challenging task because of the proliferation of customer
purchasing options and increased customer sophistication coupled with the high
costs associated with conducting marketing campaigns. Industry sources estimate
that direct marketing expenditures in the United States alone totaled more than
$160.0 billion in 1998 and will be more than $200 billion by 2003.
Traditional Marketing Management Tools
To improve the cost-effectiveness of marketing campaigns, businesses are
focusing on ways to exploit information gathered from their multiple marketing
activities. As part of marketing management, businesses are seeking to:
. automate the planning and implementation of their marketing campaigns;
. tailor interaction with customers based on prior interactions between
customers and businesses;
. identify profitable customer opportunities;
. measure effectiveness of current marketing initiatives to plan more
effective future campaigns; and
. determine future marketing opportunities through consolidation and
analysis of customer data.
Industry sources estimate that the market for marketing management
solutions to perform one or more of these tasks will grow from $2.3 billion in
1998 to $16.8 billion in 2003. Historically, these solutions have included:
. Automated Customer Lists. For many years, businesses have used
proprietary software, often developed by third-party service bureaus,
to access customer information maintained in large external databases.
. Database Mining Software. Database mining software permits businesses
to analyze data generated within an organization to provide a more
complete view of customer relationships.
These traditional solutions do not fully manage the planning and
implementation of marketing campaigns, do not allow for easy access to customer
data, do not support focused one-on-one marketing efforts and are difficult to
integrate across various departments within an organization. Because of these
inherent limitations, traditional marketing management solutions generally do
not enable businesses to achieve their overall goals for cost-effective
marketing and efficient use of available customer data and generally do not
address growing internet marketing needs.
34
<PAGE>
Emergence of eMarketing
The widespread adoption of the internet by consumers and businesses is
fundamentally changing the way businesses interact with their customers and is
dramatically increasing the pressure on businesses to adopt new marketing
management solutions. The number of users who buy and sell goods over the
internet is expected to increase from 142 million worldwide in 1998 to 500
million worldwide by the end of 2003. Industry sources report that the value of
goods bought and sold on the internet is expected to increase from $50.0
billion in 1998 to $1.3 trillion in 2003. The growth of the internet and e-
commerce is stimulating businesses to implement new forms of internet
advertising, such as banner ads, directed e-mail and personalized web pages.
Worldwide spending on internet advertising is expected to grow from $3.3
billion in 1999 to $33.0 billion in 2004.
On the internet, one-to-one, real-time marketing can occur each time a
customer interacts with a business's website. Businesses can observe, record
and analyze customer behavior, such as when and how often they visit a
business's website and what content they view. This information allows
businesses to generate a profile of a customer's preferences and offer a
selection of products and services tailored to each specific customer. New
opportunities exist for real-time, customized sales and marketing initiatives
ranging from targeted e-mail to banner ads to personalized coupons. In addition
to exploiting new opportunities, businesses must develop effective internet
marketing strategies to protect their customer base and retain consumers who
might otherwise decide to change vendors with the click of a button.
Although many businesses have invested in internet infrastructure software
to support their e-commerce initiatives, much of this effort has been limited
to the development of their websites and other related back-office functions,
such as transaction processing and security. Many of these businesses are only
now beginning to focus on automating their internet marketing strategies so
that they can better exploit the internet as a marketing medium in a more cost-
effective fashion. internet marketing products to date have generally been
point solutions, designed to address only one specific aspect of customer
interaction, or touch-point, such as:
. management of inbound e-mail, so that customer inquiries and
complaints are efficiently and promptly handled; or
. management of outbound e-mail, permitting businesses to generate
business through direct e-mail campaigns over the internet; or
. customized website content, with information tailored to specific
dynamic customer profiles; or
. management of internet advertising, designed to generate and manage
the use of banner ads and other internet advertising.
These marketing products typically address only internet marketing channels
and often do not integrate with a business's existing traditional marketing
channels, nor do they leverage cost-effectively a business's existing customer
databases generated from non-internet based marketing activities.
To better leverage their multiple touch-points with their customers,
businesses increasingly realize the need to exploit both internet opportunities
and traditional marketing initiatives. We believe that traditional businesses
are increasingly utilizing the internet as a sales and marketing channel and
internet retailers are increasingly utilizing more traditional media to reach
and communicate with customers. Businesses need solutions that integrate
internet and traditional marketing campaigns, through both direct and indirect
channels, to provide a collective memory of their customers and leverage
information gathered about customers across all touch-points. Drawing on
multiple touch-points, these businesses can learn more about their customers to
develop effective marketing campaigns and build stronger relationships with
their customers. Today, businesses are hampered by the fact that solutions
designed exclusively for the internet generally do not integrate with
traditional marketing solutions, and traditional marketing solutions generally
do not integrate with internet marketing solutions. An integrated solution
would allow businesses to gather accurate and comprehensive information about
their customers and use that information throughout the organization to develop
and implement effective direct and indirect marketing campaigns.
35
<PAGE>
The Prime Response Solution
We offer integrated eMarketing software solutions that enable businesses to
create and manage highly targeted internet and traditional marketing campaigns
to build more loyal and profitable customer relationships. We have drawn on
over 12 years of experience in the design, implementation and management of
marketing campaigns to develop products that draw on all of the business data
regarding its customers, including information generated by its sales,
marketing, service and accounting organizations to formulate highly targeted
marketing campaigns. Using [email protected], our clients will be able to
create and manage comprehensive marketing campaigns that utilize inbound and
outbound e-mail, customized websites, banner advertising and other internet
advertising together with traditional marketing media that utilizes customer
information drawn from various touch-points across the organization.
The Prime Response solution acts as a hub for the marketing organization to
capitalize on three important trends in the marketplace: the expansion of
customer data and tools to mine and understand that data, the continual
evolution of lower cost customer touchpoints (such as the internet and e-mail),
and the decline in marginal return for marketing dollars spent. By providing
marketers with a solution that allows them to interact with customers over
virtually any channel at any time, marketing organizations can take better
advantage of their data and analysis, of the breadth of their marketing
channels and thus gain better returns on their marketing spend.
Our solutions are designed to provide our clients with critical business
advantages in effectively managing the customer lifecycle from acquisition,
through to retention and development, including the ability to:
Lower the cost of acquiring and retaining customers. Our software can
deliver process efficiencies, refined prospect and customer selection and
marketing channel optimization, thereby contributing to reduced customer
acquisition and retention costs.
Target marketing efforts on the most profitable customers. Our software
enables our clients to identify and cost-effectively focus and build on their
relationships with their most profitable customers by:
. quickly understanding and identifying who the most profitable
customers are;
. enabling the marketing professional to create and fine-tune the
appropriate marketing offer; and
. communicating the marketing offer over the most effective marketing
channel.
Optimize the use of marketing channels based on customer
preferences. Because our software solution has been developed to design, plan,
execute and track marketing campaigns over the internet and traditional
channels, it permits clients to tailor and deliver marketing messages over the
channel identified as each customer's preference.
Increase customer retention and loyalty. By maintaining a history of all
customer interactions, both inbound and outbound, and by giving the marketing
professional access to all customer data, our software helps our clients build
loyal and sustainable customer relationships.
Maximize lifetime value of customers through cross-selling. Our software
enables clients to get the most value out of their customers through enhanced
cross-selling efforts to maximize a customer's revenue potential over the
duration of the customer's relationship with a client.
The Prime Response solution is supplemented by comprehensive service and
professional support, so that our clients are able to maximize the benefits
achieved with the use of our software on a turnkey basis.
Strategy
Our strategy is to become the leading supplier of integrated eMarketing
solutions. Key elements of our strategy include:
Leverage expertise to offer leading integrated eMarketing solutions. We
have built on our 12 years of experience in the design, implementation and
management of marketing campaigns to create what we believe is
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the leading marketing solution specifically designed to operate as a web-
enabled multi-channel solution addressing both internet and traditional
campaigns. We intend to continue to apply our expertise to focus on those
potential clients and industries that require an eMarketing solution that
offers complete marketing functionality rather than a combination of disparate
point solutions. We believe that our products' open architecture will allow
them to be integrated with emerging interactive technologies, providing us with
a continued competitive advantage as the market evolves.
Expand operations in the United States. We believe that the United States
market for integrated eMarketing solutions is larger and more rapidly growing
than the European market, and although we plan to increase our international
operations, our primary focus is to further expand in the United States. We
started as a European business and in 1998 we began offering our products in
the United States, and we have continued to aggressively expand our United
States presence since January 1999. We relocated our corporate headquarters to
Cambridge, Massachusetts in July 1999. We intend to continue to make a
significant investment in this geographic expansion and plan to double our
United States sales force over the next 12 months.
Penetrate identified vertical markets. We intend to continue to focus our
marketing and direct sales activities in our key existing vertical markets:
communications and media, financial services, and retail and e-commerce. We
believe these markets provide the greatest opportunity for rapid market
penetration because of their critical need for flexible marketing management
solutions to manage large, consumer-oriented marketing campaigns; their growing
use of e-commerce; and the competitive challenges they face from e-commerce. In
order to further expand our presence in these vertical markets, we have
recently structured our sales and services organizations to provide dedicated
and focused support to each industry that we target. We also intend to leverage
our current success in our targeted industries to gain market share in other
industries with similar characteristics.
Expand direct sales force. We rely on a direct sales model because our
products address critical business needs that require close relationships with
our clients. During 1999, we increased the number of our direct sales personnel
from 14 to 36 and increased the number of our sales offices from 6 to 9. We
intend to continue to expand our direct sales force worldwide.
Build key strategic alliances. We have established strategic relationships
with key industry participants in order to broaden our market presence, reach
new geographic and vertical markets, and increase our sales penetration by
leveraging each partner's expertise in specific markets, industry reputation
and sales and marketing resources. Today we have active marketing relationships
with organizations including consultants, systems integrators and service
providers such as Andersen Consulting, platform providers such as Hewlett
Packard and Sun Microsystems, and complementary software providers such as SAS
Institute and MicroStrategy. We intend to establish additional strategic
alliances, and to continue to enhance our relationship with existing strategic
partners in order to further broaden our market penetration.
Expand and enhance professional services and customer support. We intend to
continue to make a significant investment in our consulting staff and to build
the expertise of the consulting organization along industry lines to facilitate
the rapid adoption by clients of our solutions. We also believe that a high
level of service and support is of critical importance to our clients, who
require a highly reliable, turnkey solution. We intend to sustain our
commitment to service and support through continued investment in those
activities and by leveraging our strategic alliances to add greater depth to
those services.
Products
We began in 1987 as a marketing database service bureau. In 1995, we
introduced our first data analysis and campaign management solution, one of the
first client/server based, enterprise-wide, multi-channel marketing management
software solutions configured to permit the analysis of large amounts of
customer data and the automation of marketing strategies. In 1998, we
introduced a windows-based, three-tier, client/server
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product that works on a client's own database and runs on Windows 95 and
Windows NT. Today, our marketing management solutions are used by more than 70
businesses to manage millions of customer relationships.
Our latest product offerings include Prime@Vantage, a web-based system that
incorporates an advanced user interface and new software architecture to
facilitate integration and product enhancements, and [email protected], which
provides additional functionality, including the ability to generate immediate
personalized marketing initiatives over the internet in response to information
generated across an organization. Beta shipments of Prime@Vantage and
[email protected] commenced in September 1999 and were released in December
1999.
Our solution features software architecture that makes it:
. highly flexible, so that it can be used to implement marketing plans,
regardless of complexity, channel or medium, and so that clients can
respond to rapid developments in market conditions and technology;
. scalable, so that it can continue to support major company-wide
marketing campaigns effectively to target customers and potential
customers, and so that it can handle rapid increases in data volume as
media such as the internet are implemented and exploited;
. comprehensive, to include all functions required by the end-users to
effectively manage and automate major marketing campaigns; and
. intuitive, so that it can be used in real-time, by personnel in
various departments involved in marketing campaigns, without
significant additional training or technical support.
Prime Vantage
Strategy Manager. Strategy Manager allows all departments of an
organization to participate in its marketing campaigns. Our clients' marketing
personnel can plan, execute, track and analyze marketing strategies, while
marketing departments can evaluate and budget campaigns prior to implementation
and measure the resulting return on investment. Strategy Manager also permits
the generation and reporting of campaign results for real-time distribution
throughout a business, allowing timely response to marketing data.
<TABLE>
<CAPTION>
Feature Benefit
- --------------------------------------------------------------------------------
<S> <C>
Channel Selection Allows users to select the most appropriate channel (for
example, direct mail or outbound call center) for a
particular campaign or customer.
- --------------------------------------------------------------------------------
Customer Selection Allows users to target the appropriate audience for a
campaign by analyzing the customer history and related data.
- --------------------------------------------------------------------------------
Product Selection Enables users to select the best product offering for a
customer.
- --------------------------------------------------------------------------------
Calculate Return on Allows users to calculate return on investment based on
Investment specific campaign cost and response rates.
- --------------------------------------------------------------------------------
Results Analysis Allows campaign planners to stage multi-event campaigns and
embed response criteria that are automatically triggered for
follow-up action.
</TABLE>
Campaign Manager. Campaign Manager provides users the functionality for
operational planning and campaign execution. This function allows for
comprehensive automated scheduling, rescheduling, execution and monitoring of
all tasks associated with marketing campaigns. Users can define campaign
targets and parameters, campaign components such as internet or e-mail, more
efficiently than with traditional software solutions, using a variety of
embedded tools and prompts.
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<TABLE>
<CAPTION>
Feature Benefits
- --------------------------------------------------------------------------------
<S> <C>
Campaign Builder Pulls together all components of a campaign. Segmentation
tree structures can be used to build campaigns for targeted
customers from various component menus.
- --------------------------------------------------------------------------------
Query Designer Customer audiences can be targeted based on defined criteria
and system data, such as details on previous communications
and responses. Information can be stored for reuse, further
analysis and integration with other third-party
applications.
- --------------------------------------------------------------------------------
Score Models Provides a capability to score customers' responses based on
user-defined criteria.
- --------------------------------------------------------------------------------
Derived Values Calculates values, including averages and ranks, based on
customer data, which can be used within selection criteria.
- --------------------------------------------------------------------------------
Data Categorization Allows users to personalize how data is displayed.
- --------------------------------------------------------------------------------
Treatments Campaign descriptions and costs can be stored for future use
in planning and budgeting potential campaigns through test
and roll-out strategies.
- --------------------------------------------------------------------------------
Response Models User-definable response models can measure customer
responses to campaigns, including direct responses as well
as responses such as increased transactions over a defined
time period.
- --------------------------------------------------------------------------------
Event-Driven Marketing Multi-stage, multi-channel campaigns can be tailored based
on customer events or behavioral changes.
- --------------------------------------------------------------------------------
Output Templates Data can be integrated with third-party applications through
a variety of output templates.
- --------------------------------------------------------------------------------
Communications History All communications and responses are stored centrally. Users
can include or exclude any campaign or treatment and can
establish communication frequency rules.
</TABLE>
Prime@Vantage and [email protected]
Building on our knowledge and expertise in the customer relationship
management industry, we are introducing Prime@Vantage, which will feature a
complete revision of product architecture to facilitate system flexibility,
integration with customer databases, and integration of new features as
required, without the investment or cost associated with significant code
revisions. Its updated graphical user interface will use icons and cues
typically used in web browsers, facilitating its use in an internet
environment. Prime@Vantage and [email protected] are founded on a comprehensive
published data model that allows for windows or browser-based applications and
a foundation for continued functional enhancements. [email protected] will be
offered as an add-on to our Prime@Vantage product. Prime@Vantage will offer the
functions and features described above as well as additional functionality as
described below:
Segmentation Manager. The Segmentation Manager allows the definition and
execution of a "decision tree," incorporating conditional, dependent and
exclusivity processing. It provides the following functionality:
<TABLE>
<CAPTION>
Feature Benefits
- --------------------------------------------------------------------------------
<S> <C>
Output Processing Provides full support for splitting, sampling (random and
ranked) and applying multilevel criteria.
- --------------------------------------------------------------------------------
Control Allows user defined processing control (static/dynamic and
live/test modes).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Feature Benefits
- --------------------------------------------------------------------------------
<S> <C>
Results Cascading gross and net quantities can be displayed when
decision tree is executed.
- --------------------------------------------------------------------------------
Segmentation Multiple customer segments can be created from a single
process.
- --------------------------------------------------------------------------------
Base Population Base segments (high level inclusion/exclusion criteria)
and/or other criteria can be included or excluded to create
a "base population' against which the segmentation takes
place.
</TABLE>
Wizards and Assistants. The system incorporates a variety of intelligent
wizards and agents that help to guide a user through the various system
functions, such as building a marketing management campaign or defining a
segmentation strategy. Incorporation of these user aids enables non-technical
personnel to effectively utilize the Prime@Vantage solution.
We are also introducing an add-on to our Prime@Vantage product offering,
[email protected], which will offer web-based functions to support and
integrate internet and traditional marketing efforts fully across an
organization. [email protected] will allow our clients to take advantage of the
internet's ability to provide immediate, individualized responses to customer
inquiries. [email protected] will offer our clients a dynamic link to campaign
strategies from the client's home page without requiring continual assistance
from IT resources, enabling interactive, real-time control of web marketing
strategies. [email protected] enables our clients to personalize web-based
marketing in real time based on their customers profiles and allows our clients
to link their operational systems and data warehouses to e-mail, website, or
traditional marketing channels. [email protected] is designed to be a web-
based, multi-channel marketing solution that integrates internet and other
evolving channels--such as e-mail, the web, ATMs and mobile communication
systems--with traditional marketing channels such as direct mail, call centers,
point of sale, direct sales systems and mass market advertising.
The following tables describe some of the additional capabilities of
[email protected].
Web Personalization Engine. The Web Personalization Engine allows clients
instantaneously to personalize the websites that their customers view, based on
the customer's web activity and centralized business and communication
strategies. This allows clients to combine both internet data and feedback from
traditional channels. As a result, marketing efficiency can be improved through
real-time response analysis.
<TABLE>
<CAPTION>
Feature Benefit
- --------------------------------------------------------------------------------
<S> <C>
Collateral Manager Provides a user-definable library structure to view and
manipulate web marketing at the domain level, website level,
web page level, or web page element level.
- --------------------------------------------------------------------------------
Template Designer Using drag-and-drop technology, users can quickly and easily
design personalized websites for target audiences.
- --------------------------------------------------------------------------------
Response Engine Allows response criteria to drive subsequent marketing
communications and evaluate return on investment.
- --------------------------------------------------------------------------------
Logon Personalization Personalization at the logon stage makes use of information
gathered on the internet and off-line to further enhance and
personalize the online experience.
- --------------------------------------------------------------------------------
Session-Variable Permits user to generate real time personalization during,
Personalization and in response to, a customer session.
</TABLE>
E-mail Personalization Engine. With the E-mail Personalization Engine,
relevant, timely and personalized e-mails can be constructed and delivered to
target audiences. Outbound e-mails are distributed and response mail boxes can
be set up for automatic routing of inbound e-mail to the most relevant parts of
an organization. E-mails can include URL's that take the recipient back to a
personalized web page.
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<TABLE>
<CAPTION>
Feature Benefit
- --------------------------------------------------------------------------------
<C> <S>
Collateral Manager Provides a user-definable library structure to view and
manipulate e-mail marketing data.
- --------------------------------------------------------------------------------
Template Using drag-and-drop technology, users can quickly and easily
design e-mails that include personalized content for target
audiences.
- --------------------------------------------------------------------------------
Response Tracking Mail boxes can be created to capture e-mail responses and
track campaign effectiveness.
- --------------------------------------------------------------------------------
E-mail Routing Mail boxes can be created to forward incoming e-mails to
various departments within an organization.
</TABLE>
Services
In addition to our product offerings, we also provide a variety of services
to our customers to enable them to become rapidly self-sufficient and to ensure
rapid implementation and timely return on their investment. Our principal
offerings include:
Consulting Services. We offer comprehensive consulting services to
facilitate implementation and to provide our clients with a complete marketing
management solution. These consulting services cover:
. Assessment Consulting. We offer our clients a full range of assessment
services, which are designed to improve the clients' understanding of
our product and service offerings. Clients can choose their preferred
combination of products and services based on their particular needs.
. Implementation Consulting. We provide implementation services which
includes user, technical and systems administration training along
with business consulting services linked to a client-selected pilot
campaign. The objective of the implementation plan is to allow our
clients to quickly and effectively deploy our products as well as to
establish a customer-specific, repeatable process for end-to-end
management of its marketing campaigns.
. Business Consulting. We offer our clients a full-range of strategic
business consulting services designed to assist them in optimizing
their marketing management initiatives and use of our solutions. These
services include development of their internet marketing strategies,
customer segmentation models, event-driven campaign design, and
effective market testing and measurement techniques.
. eMarketing Consulting. We provide a set of service offerings to
support our customers in effective management of web-based marketing
automation through the lifecycle of analysis, planning, execution and
tracking of marketing campaigns across multiple on and off-line
customer touch points, including the web and e-mail. The focus of
these offerings is to emphasize the importance of the internet as a
new medium for building customer loyalty and the integration of this
medium with traditional channels to enhance overall marketing results.
Support and Maintenance Services. We offer internet and off-line support
and maintenance services to our customers which provides them with hotline
technical support, remote dial-in services for problem identification and
access to maintenance releases.
Applications Hosting Services. We provide outsourcing services to our
clients who choose not to host their own applications, either directly through
our service bureau or through business partners. These services also extend to
customer management solutions including analytics, data management and mining,
and consulting. We also continue to serve as a marketing database service
bureau for customers who feel it cost-effective to outsource those activities.
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Sales and Marketing
We market our products and services through a combination of our direct
sales force and strategic alliance partners. We rely on a direct sales model
because our products address critical client needs that require close
relationships with our clients. Our direct sales force is organized according
to the primary vertical markets we target, including communications and media;
financial services; and retail and e-commerce. As of December 31, 1999, our
direct sales force includes 22 sales representatives based out of our United
States offices in Cambridge, Massachusetts, Chicago, Illinois, Denver, Colorado
and San Francisco, California. We also have, as of December 31, 1999, 11 sales
representatives based out of our international offices in London, England;
Frankfurt and Munich, Germany; Paris, France; Antwerp, Belgium; and Melbourne,
Australia.
We supplement our direct sales force through alliances with industry
leaders, including consultants, systems integrators and service providers. We
also market our products and services through relationships with hardware and
software platform providers and with complementary software providers.
We build market awareness through a variety of programs, including public
relations and leadership activities such as media relations, analyst relations,
and speaking engagements. We attract potential customers through lead
generation activities that include telemarketing, direct mail programs, trade
shows, seminars and conferences, webinars and website marketing. We also
produce materials to help support sales to prospective customers such as
brochures, product sheets, white papers, presentations and product
demonstrations.
Strategic Alliance Partners
We market our products and services through strategic alliances that enable
us to leverage our partners' resources, expertise and customer base. We
currently have strategic alliances with:
. platform providers that provide platforms on which our products run;
. complementary software providers, including both generic and vertical
industry software solutions in the areas of sales and contact
management, call center support, data mining and analysis, decision
support and other solutions that are related to, but not a part of
Prime@Vantage's integrated eMarketing solution; and
. consultants, systems integrators and service providers that implement
and integrate our software for customers developing new comprehensive
marketing solutions.
Some of our strategic partners include:
<TABLE>
<S> <C>
Platform Providers Complementary Software Consultants, Systems
Providers Integrators and Service
Hewlett Packard SAS Institute Providers
Sun Microsystems Metapath Software Andersen Consulting
NCR MicroStrategy Naviant Technology
IBM Sterling Software Solutions
Customer Analytics Tessera Enterprise
(formerly ActionSystems) Systems (acquired by
IXL)
Fair, Isaac and Company
Responsys.com
</TABLE>
Andersen Consulting Relationship
On December 6, 1999, Prime Response and Andersen Consulting entered into a
joint marketing agreement and, along with an affiliate of Andersen Consulting,
a stock and warrant purchase agreement. Pursuant to the stock and warrant
purchase agreement, Andersen Consulting purchased 428,000 shares of common
stock and Andersen Consulting received a warrant to purchase 682,000 shares of
common stock. This warrant has an exercise price of $9.35 per share and vests
upon the earlier to occur of September 9, 2000 or the date of an acquisition of
Prime Response by another person or entity. Andersen Consulting also has a
right of first refusal to participate in any equity issuance by Prime Response
prior to its initial public offering in
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order to maintain its percentage ownership interest in Prime Response, subject
to specified exceptions. The aggregate purchase price paid by Andersen
Consulting for the shares of common stock and this warrant was $4.0 million.
Andersen Consulting has no performance obligations under the stock and warrant
purchase agreement or this warrant.
Prime Response issued a performance warrant to purchase 375,000 shares of
common stock to Andersen Consulting. Of this amount, 300,000 shares will vest
in share increments determined by the extent to which $2.0 billion exceeds
Prime Response's market capitalization at the time of its initial public
offering. An additional 75,000 shares will vest in increments of 7,500 shares
for each $100 million that market capitalization exceeds $2.0 billion, up to a
maximum market capitalization of $3.0 billion. This warrant has an exercise
price of $9.35 per share. Prime Response also issued a performance warrant to
purchase 375,000 shares of common stock to Andersen Consulting which will vest
in increments of 10,500 shares for each $1.0 million of sales resulting from
joint marketing efforts up to $25.0 million and then in increments of 4,500
shares for each $1.0 million of sales from $25.0 million to $50.0 million. This
warrant also has an exercise price of $9.35 per share.
All warrants have a seven-year term. In the event that the marketing
agreement is terminated as a result of a breach by Andersen Consulting, no
further vesting under the warrants will occur, but those warrants already
exercisable will remain exercisable during their term to the extent then
vested.
In the event that neither an initial public offering nor any other
liquidity event occurs by January 1, 2001, Andersen Consulting or its
affiliates will have the right to require Prime Response to repurchase the
428,000 shares for $4.0 million. The repurchase amount will be payable in three
quarterly installments, plus 8.0% interest on the entire amount beginning on
January 1, 2001, plus additional interest of 7.0% in the event Prime Response
fails to make any payment when due. The put right will terminate upon an
initial public offering or other liquidity event.
Prime Response is obligated to engage Andersen Consulting for consulting
services of at least $1.0 million before December 31, 2001. If designated sales
targets are met, Andersen Consulting is obligated to provide up to $1.0 million
in funding for joint marketing efforts, business development personnel,
structure feedback and sales support. The expenditure of these funds will be
controlled by a committee comprised of both Andersen Consulting and Prime
Response personnel.
Clients
We target clients in those vertical markets that we believe have the most
urgent requirements for advanced, integrated customer relationship management
solutions, including financial services, communications and media, and retail
and e-commerce. Within those vertical markets, we target businesses that have
multi-channel requirements and large customer bases.
Today, more than 70 clients use our products to manage millions of customer
relationships. Some of the customers who have purchased licenses and/or
professional services from us include:
<TABLE>
<S> <C>
Financial Communications & Media Retail and e-Commerce
Services Other
Air Touch Boots British
Allianz KPN CVS Pharmacy Airways
Deutsche Bank MediaOne Dell
Computer
Edgars Stores Limited
Provident Rodgers Cantel Yves Rocher
Bank TeleDanmark Scottish
The Royal Bank of Telstra Power
Scotland Trusthouse
Standard Life Forte
United Bank of UPS
Switzerland
</TABLE>
Competition
The market for our products and services is intensely competitive and
rapidly evolving. Our primary competitors include:
. vendors of internet-enabled marketing software, including E.piphany,
Annuncio, Market First and Rubric;
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. vendors of inbound e-mail management systems, including eGain, Kana
and Mustang.com;
. vendors of outbound e-mail management systems, including Click Action,
Exactis and Match Logic;
. traditional marketing automation software companies such as Exchange
Applications and Recognition Systems;
. traditional marketing database vendors and service bureaus that
provide a combination of service bureau capabilities and proprietary
software such as Axciom, Epsilon, Experian and Harte-Hanks;
. enterprise software vendors that are expanding their product lines to
offer campaign management applications such as Oracle and Siebel; and
. in-house development efforts by prospective customers to design their
own systems.
The principal competitive factors affecting the market are:
. depth and breadth of functionality offered;
. variety of marketing channels served;
. scalability and flexibility of use;
. speed and ease of implementation and use;
. price; and
. customer service and support.
We believe that we have competitive advantages that differentiate our
products and services from those of our competitors. We believe that our highly
functional product offerings that serve multiple channels provide us an
advantage over our competitors. We also believe that the features of our
Prime@Vantage and [email protected] offerings will be an important competitive
advantage, permitting clients to integrate personalized internet content and e-
mail with traditional marketing channels.
Despite these advantages, many of our competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do. As a result, they may be able to undertake more extensive
promotional activities, offer more attractive pricing terms, and bundle their
products in a manner that would put us at a competitive disadvantage.
Proprietary Rights and Licensing
We regard our copyrights, service marks, trademarks, trade dress, trade
secrets, proprietary technology and similar intellectual property as critical
to our success, and we rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with its employees,
customers, independent contractors, partners and others to protect its
proprietary rights. Despite our precautions, it may be possible for third
parties to obtain and use our intellectual property without our authorization.
Furthermore, the validity, enforceability and scope of protection of
intellectual property in internet-related industries is uncertain and still
evolving. The laws of some foreign countries do not protect intellectual
property to the same extent as do the laws of the United States.
We pursue the registration of our trademarks in the United States and the
United Kingdom. We may not be able to secure adequate protection of our
trademarks in the United States and other countries. We have registered
trademarks for Prime Response and Vantage in the United Kingdom and Prime
Vantage in the United States. We currently have applied for trademark
registrations in the United States for "Prime Response," "Prime Vantage,"
"Prime Vantage DCV," "Prime-Response.com," and "Prime-Vantage.com." There is no
guarantee that we will be able to maintain our current or obtain additional
trademark registrations in the United States or the United Kingdom, or both,
for one or more of these trademarks, in which case we would be unable to fully
enforce our statutory trademark rights against third parties for these
trademarks, and/or we may decide to replace these trademarks with new
trademarks. This could have a material adverse effect on our business,
financial condition, and results of operations.
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There can be no assurance that the steps that we take to protect our
proprietary rights will be adequate or that third parties will not infringe or
misappropriate our copyrights, trademarks, trade secrets, trade dress and
similar proprietary rights. Effective trademark protection may not be available
in every country in which we conduct business, and policing unauthorized use of
our marks is difficult and expensive. In addition, there can be no assurance
that other parties will not independently develop substantially equivalent
intellectual property.
We have been subject to claims and expect to be subject to legal
proceedings and claims from time to time in the ordinary course of our
business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Such claims, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources. There can be no assurance that such legal proceedings
will not adversely affect our business.
We may be required to obtain licenses from others to refine, develop,
market and deliver new products and services. There can be no assurance that we
will be able to obtain any such license on commercially reasonable terms or at
all or that rights granted pursuant to any licenses will be valid and
enforceable.
Regulatory Environment
A range of existing laws and regulations apply to transactions and other
activities on the internet. However, the precise applicability of these laws
and regulations to the internet is sometimes uncertain. Many were adopted prior
to the advent of the internet and, as a result, do not contemplate or address
the unique issues of the internet or electronic commerce. Nevertheless,
numerous federal and state government agencies have already been successful in
promoting consumer protection and enforcing other regulatory and disclosure
statutes on the internet. Additionally, due to the increasing use of the
internet as a medium for commerce and communication, it is likely that new laws
and regulations may be enacted with respect to the internet and electronic
commerce covering issues such as user privacy, freedom of expression,
advertising, pricing, content and quality of products and services, taxation,
intellectual property rights and information security.
Congress has enacted quite a number of specific laws and regulations
concerning the use of the internet. As directed by Congress in the Children's
Online Privacy Protection Act, also known as COPPA, the Federal Trade
Commission recently adopted regulations, effective April 21, 2000, prohibiting
unfair and deceptive acts and practices in connection with the collection and
use of personal information from children under 13 years old on the internet.
The Child Online Protection Act of 1998, also known as COPA, prohibits harmful
commercial communications over the World Wide Web that are available to any
person under 17 years old. This act, however, was declared unconstitutional by
a federal district court on February 1, 1999, and that decision is currently on
appeal before a federal circuit court. If the district court's decision is
overturned and that ruling is upheld upon further appeal, providing information
to minors over the internet would be greatly limited. However, because our
website is not directed at children and we do not anticipate its widespread use
by children, COPPA and the FTC's regulations, as well as provisions under COPA,
should they be enforceable, should not have a significant effect upon our
business. Nevertheless, the FTC has strongly advocated that even general
audience websites establish privacy policies that include procedures to
disclose and notify users of privacy and security policies, obtain consent from
users for collection and use of information, and provide users with the ability
to access, correct and delete personal information stored by the company. While
we have adopted a privacy policy regarding use of personal user information and
have posted this policy on our website, our policies may not conform with
regulations adopted or policies advocated by the FTC or any other federal or
state governmental entity.
The European Union recently enacted its own privacy regulations. The
European Union Directive on the Protection of Personal Data, which became
effective in October 1998, fosters electronic commerce by establishing a stable
framework to ensure both a high level of protection for private individuals and
the free movement of personal data within the European Union. The European
Union and the U.S. Department of Commerce are currently negotiating an
agreement under which the privacy policies of American businesses may be deemed
to be adequate under the European Union Directive. Until an agreement is
reached, the
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European Union has voluntarily agreed to a moratorium on enforcement of the
European Union Directive against U.S. businesses. The European legislation and
its adoption through any agreement could adversely affect our ability to expand
our sales efforts to Europe by limiting how information about us can be sent
over the internet in the European Union restricting our ability to collect
information from European users.
It is also possible that "cookies" may become subject to laws limiting or
prohibiting their use. Certain currently available internet browsers allow our
clients' customers to modify their browser settings to remove cookies at any
time or prevent cookies from being stored on their hard drives. In addition, a
number of internet commentators, advocates and governmental bodies in the
United States and other countries have urged the passage of laws limiting or
abolishing the use of cookies. Limitations on or elimination of the use of
cookies could restrict the effectiveness of our targeting of advertisements.
We retain on our website personal information about our customers that we
obtain with their consent. We have a stringent privacy policy covering this
information. As a matter of corporate policy, we do not supply customer lists
to third parties. However, if third persons were able to penetrate our network
security and gain access to, or otherwise misappropriate, our users' personal
information, we could be subject to liability and our reputation would be
harmed. Liability could include claims for missuses of personal information,
such as for unauthorized marketing purposes or unauthorized use of credit
cards. These claims could result in litigation, our involvement in which,
regardless of the outcome, could require us to expend significant financial
resources.
Legislative proposals have been made by the federal government that would
afford broader protection to owners of databases of information, such as stock
quotes and sports scores. Such protection already exists in the European Union.
If enacted, this legislation could result in an increase in the price of
services that provide data to websites. In addition, such legislation could
create potential liability for unauthorized use of such data.
Employees
As of December 31, 1999, Prime Response had a total of 178 full-time
employees in the United States and abroad, including 55 primarily engaged in
research and development, 55 in sales and marketing, 46 in client services and
support and 22 in finance and administration. We also had 21 contractors,
primarily engaged in research and development. None of our employees is
represented by a collective bargaining unit and, to date, we have not
experienced a work stoppage. Our future depends on our ability to attract,
retain and motivate highly-skilled employees. Competition for employees in our
industry is intense.
Properties
Our principal offices are located at 150 CambridgePark Drive in Cambridge,
Massachusetts, where we lease approximately 4,705 square feet. Our lease for
this facility expires in June, 2005. We also maintain regional sales offices
and research and development facilities in Chicago, Illinois, Denver, Colorado,
San Francisco, California, Melbourne, Australia, London, England, Frankfurt and
Munich, Germany, Paris, France, and Antwerp, Belgium. Effective December 31,
1999, our office in Dublin, Ireland was closed and consolidated with our office
in London, England.
Legal Proceedings
We are not a party to any material legal proceedings. From time to time, we
may become a party to legal proceedings incidental to the conduct of our
business.
46
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
Our directors, executive officers and other key employees, their ages as of
December 31, 1999 and their positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter J. Boni............. 54 President, Chief Executive Officer and Director
Terence H. Osborne 61 Chairman of the Board
(1)(2)..................
James Carling............. 39 Chief Technology Officer and Director
Richard S. Braddock, Sr. 58 Director
(1)(2)..................
William E. Ford (1)(2).... 38 Director
Frederick H. Phillips..... 51 Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Allen A. A. Swann......... 49 President, International
Paul B. Lavallee.......... 45 President, the Americas
Gary Daniels.............. 45 Vice President, Product Development
James P. Plantan.......... 42 Vice President, Business Development
Richard S. Braddock, Jr... 31 Vice President, Product Marketing
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Mr. Boni has served as Chief Executive Officer, President and Director of
the Company since February, 1999. Prior to joining Prime Response, Mr. Boni
held executive management positions at several companies including President
and Chief Executive Officer of Cayenne Software from August 1993 to January
1998, President of the Software and Information Services Group of Paramount
Communications Inc., from April 1990 to July 1993 and President of On-line
Software International, from March 1989 to March 1990. Mr. Boni had previously
been chief executive officer at Summa Four, Inc., a provider of
telecommunications equipment, and held executive positions at Data General
Corporation.
Mr. Osborne has served as a Director of Prime Response since November 1997,
and as the Chairmanof the Board since February 1999. He also served as our
Chief Executive Officer on an interim basisfrom September 1998 to February
1999. Mr. Osborne previously served as the Chairman of the Board ofDr.
Solomon's Group PLC, a software company, from September 1996 to August 1998.
From September 1994 to October 1996, Mr. Osborne served as President of System
Software Associates Inc. Prior to that time,Mr. Osborne held a variety of
positions with IBM in both the USA and Europe including Vice President General
Systems Division and Vice President Marketing for Europe. Mr. Osborne is a
director of Mapics Inc. and Dendrite International Inc. He also serves on the
advisory boards of other US and European software companies and is a Special
Adviser to General Atlantic Partners, LLC, an affiliate of Prime Response.
Mr. Carling founded Prime Response's predecessor entity in 1990 and
currently serves as the Company's Chief Technical Officer and as a Director.
From 1990 to 1998, Mr. Carling served as the President and Chief Executive
Officer of the Company. Prior to that time, Mr. Carling served as Director,
Computer Services and as General Manager of Mailforce Limited, a direct
marketing company. Mr. Carling has also held various positions as a developer
of information technology with both American Express and the British
Government.
Mr. Braddock, Sr. has served as a Director of Prime Response since October
1997. Since August 1998, Mr. Braddock has served as the Chairman and Chief
Executive Officer of Priceline.com, Inc., a provider of internet pricing
systems. From December 1997 to January 1999, Mr. Braddock served as the non-
executive Chairman of True North Communications Inc., an advertising and
communications holding company. Prior to that time, Mr. Braddock served as
Chief Executive Officer of Medco Containment Services Inc., a managed health
care provider, and as a principal at Clayton Dubilier & Rice, Inc., a private
equity investment firm. From
47
<PAGE>
1973 to 1992, Mr. Braddock held a variety of positions at Citicorp and its
principal subsidiary, Citibank, N.A., including President and Chief Operating
Officer. Mr. Braddock also serves as a director of NewSub Services, Inc.,
Eastman Kodak Company, E*Trade Group, Inc., Cadbury Schweppes PLC, Amtec, Inc.
and Walker Digital.
Mr. Ford has served as a Director of Prime Response since October 1997. Mr.
Ford has served as a managing member of General Atlantic Partners, LLC (or its
predecessor), a private equity firm, and an affiliate of Prime Response, that
invests globally in information technology companies, since 1991. Mr. Ford also
serves as a director of Priceline.com, Inc., E*Trade Group, Inc., Eclipsys
Corporation, LHS Group Inc., Tickets.com, Inc. Quintiles Transnational Corp.
and several private information technology companies.
Mr. Phillips joined Prime Response in October 1999 as Senior Vice
President, Chief Financial Officer, Treasurer and Secretary. Prior to joining
the Company, Mr. Phillips served as Vice President, Finance & Administration
and Chief Financial Officer of Cayenne Software from July 1996 to November
1998. From October 1988 to February 1995, Mr. Phillips served as the Assistant
Treasurer at Lotus Development Corporation. Prior to that time, Mr. Phillips
held various positions, including Vice President, Corporate Development
Division and Vice President, National Banking Department at Mellon Bank.
Mr. Swann joined Prime Response in February 1998 as Senior Vice President,
International Operations and has served as President, International, since
October 1999. Prior to joining Prime Response, Mr. Swann served as the Director
of Sales and the Director of Alliances at Oracle UK Ltd., from April 1986 to
January 1998. Mr. Swann was previously employed at Comshare, a provider of
financial and database modeling solutions, and at British Gas, where he worked
in the operational research division.
Mr. Lavallee joined Prime Response in October 1999 as President, the
Americas. Prior to joining the Company, Mr. Lavallee served as an Executive
Vice President at FirePond, Inc., an e-business, sales and marketing company,
from May 1998 to March 1999. From May 1995 to May 1998, Mr. Lavallee served as
President, Americas at System Software Associates, Inc. From February 1990 to
May 1995. Mr. Lavallee served as the President of Effective Management Systems
Inc., a provider of business management software.
Mr. Daniels joined Prime Response in November 1998 as Vice President,
Product Development. From October 1997 to November 1998, Mr. Daniels served as
Senior Vice President of Product Development at Armature Ltd., a provider of
integrated retail solutions. From December 1986 to October 1997, Mr. Daniels
held various senior management positions at The Santa Cruz Operation Ltd., a
provider of server software, including Vice President of the Platform Products
Division and Vice President of the European Product Development Centre. Mr.
Daniels previously served as Group Director of Logica Software Products Ltd.
Mr. Plantan joined Prime Response in September 1999 as Vice President,
Business Development. Prior to joining the Company, Mr. Plantan served as the
Director of Strategic Alliances and Customer Relationship Management for
Information Advantage, a software company, from July 1996 to August 1999. Mr.
Plantan previously served as the Director of Partnership Marketing at Danmark
International, an information based direct marketing company, from March 1990
to April 1996. Prior to that time, Mr. Plantan was employed as a manager at
Andersen Consulting.
Mr. Braddock, Jr. joined Prime Response in March 1998 as Director of
Business Development and has served as Vice President, Product Marketing since
August 1999. Prior to joining the Company, Mr. Braddock served as a Product
Manager and Program Manager at Intel Corp. from June 1996 to February 1998. Mr.
Braddock previously was employed as a consultant at Booz, Allen & Hamilton, a
management and technology consulting firm, from August 1992 to July 1994.
Mr. Marc McMorris has been designated to become a director of Prime
Response following the closing of the initial public offering. Mr. McMorris is
a Principal with General Atlantic Partners, LLC, an affiliate of
48
<PAGE>
Prime Response, and has been with General Atlantic since July 1999. From May
1998 to August 1999, Mr. McMorris served as a Vice President in the High
Technology Group of Goldman, Sachs & Co. From June 1996 to May 1998,
Mr. McMorris served as an Associate in that same group. From August 1994 to
June 1996, Mr. McMorris served as an Associate in the Mergers, Acquisitions and
Restructuring Department of Morgan Stanley Dean Witter. Prior to that time, Mr.
McMorris worked in the Bank Supervision Group of the Federal Reserve Bank of
New York.
Board Composition
Upon the closing of this offering, our board of directors will be divided
into three staggered classes, each of whose members will serve for a three-year
term. The board will consist of one Class I Director (Mr. Boni), two Class II
Directors (Messrs. Braddock and Ford) and two Class III Directors (Messrs.
Carling and Osborne). Following the closing of the initial public offering, the
Board intends to increase the total number of directors to seven, and to
appoint Marc McMorris as a Class I director. The Board intends to fill the
seventh vacancy with an individual familiar with e-commerce applications and
experience in the United States market as promptly as practicable thereafter.
At each annual meeting of stockholders, a class of directors will be elected
for a three-year term to succeed the directors of the same class whose terms
are then expiring. The terms of the Class I Directors, Class II Directors and
Class III Directors will expire upon the election and qualification of
successor directors at the annual meeting of stockholders to be held during
calendar years 2001, 2002 and 2003, respectively.
Each officer serves at the discretion of the board of directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Richard S. Braddock, Sr. is the father of
Richard S. Braddock, Jr. There are no other family relationships among any of
the directors or executive officers of Prime Response.
Board Committees
The board of directors has a compensation committee composed of Messrs.
Braddock, Ford and Osborne, which makes recommendations concerning salaries and
incentive compensation for our employees and administers and grants stock
options under our stock option plans. The board also has an audit committee
composed of Messrs. Braddock, Ford and Osborne, which reviews the results and
scope of the audit and other services provided by our independent public
auditors.
Director Compensation
We reimburse each director for reasonable out-of-pocket expenses incurred
in attending meetings of the board of directors and any of its committees.
Neither employee nor non-employee directors receive compensation for services
performed in their capacity as directors. Non-employee directors will be
eligible for formula option grants under our 1999 Non-Employee Director Stock
Option Plan.
Compensation Committee Interlocks and Insider Participation
The current members of our compensation committee are Messrs. Braddock,
Ford and Osborne. Mr. Osborne was our President and Chief Executive Officer
from September 1998 to February 1999. No executive officer has served as a
director or member of the compensation committee, or other committee serving an
equivalent function, of any entity whose executive officers served as a member
of the compensation committee of our board of directors. Prior to the formation
of the compensation committee, the board of directors as a whole made decisions
relative to the compensation of executive officers. For a description of
transactions between us and certain entities affiliated with Messrs. Braddock
and Ford, see "Certain Transactions" below.
49
<PAGE>
Executive Compensation
The following table presents the total compensation paid or accrued in 1999
for our chief executive officers and our other most highly compensated
executive officers who were serving as executive officers on December 31, 1999
and whose total annual salary and bonuses were in excess of $100,000 in 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation Awards
---------------------------------- -------------------
Name and Principal Other Annual Securities
Position Salary Bonus Compensation Underlying Options
- ------------------ --------- --------- ------------ -------------------
<S> <C> <C> <C> <C>
Peter J. Boni (1)....... $276,000 $ 72,500 $ 103,019(3) 636,225
President and Chief Ex-
ecutive Officer
James Carling........... $248,543 $ 30,000 -- --
Chief Technical Officer
Allen A. A. Swann....... $231,000 $140,000 -- 82,198
President, Interna-
tional
Gary Daniels............ $231,000 $ 62,500 -- 105,000
Vice President, Product
Development
Richard S. Braddock,
Jr. ................... $112,179 $ 13,000 $ 12,000(4) 16,875
Vice President, Product
Marketing
Terence H. Osborne (2).. -- -- -- 70,995
Chief Executive Officer
</TABLE>
- --------
(1) Mr. Boni became Chief Executive Officer in February 1999.
(2) Mr. Osborne served as Chief Executive Officer on an interim basis from
September 1998 to February 1999.
(3) Consists solely of imputed interest on a non interest bearing loan of
$2,545,000 from the Company.
(4) Consists solely of commission earned on sales during the year ended
December 31, 1999.
50
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options for the year ended
December 31, 1999 to our chief executive officers and to each of our other most
highly compensated executive officers whose salary and bonus for such fiscal
year were in excess of $100,000. We have never granted any stock appreciation
rights. The potential realizable value is calculated based on the term of the
option at its time of grant. It is calculated assuming that the fair market
value of common stock on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price. These numbers are calculated based on the requirements of the Securities
and Exchange Commission and do not reflect our estimate of future stock price
growth. Actual gains, if any, on stock option exercises are dependent on the
future performance of the common stock and overall stock market conditions. The
amounts reflected in the table may not necessarily be achieved. The percentage
of total options granted to employees in the last fiscal year is based on
options to purchase an aggregate of 1,613,144 shares of common stock granted
under our option plans.
<TABLE>
<CAPTION>
Individual Grants(1)
---------------------------------------------
Potential Realizable
Value
at Assumed Annual
Rates
Percent of of Stock Price
Number of Total Options Appreciation for
Securities Granted to Option
Underlying Employees Exercise Term(2)
Options in Fiscal Price Per Expiration ---------------------
Granted(1) Year Share Date 5% 10%
---------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Boni (3)....... 636,225 39.4% $4.00 02/01/09 $1,600,474 $4,055,915
James Carling........... -- -- -- -- --
Allen A. A. Swann....... 18,495 1.1% 4.00 02/11/09 46,525 117,905
15,846 0.9% 6.66 10/07/09 66,369 168,194
47,857 2.9% 10.80 11/17/09 325,047 823,734
Gary Daniels............ 26,250 1.6% 4.00 03/31/09 66,033 167,342
26,250 1.6% 4.00 10/07/09 66,033 167,342
52,500 3.2% 6.66 10/07/09 219,892 557,251
Richard S. Braddock,
Jr. .................. 16,875 1.0% 4.00 10/07/09 42,450 282,655
Terence H. Osborne...... 70,995 4.4% 4.00 02/11/09 178,593 452,591
</TABLE>
- --------
(1) Each option represents the right to purchase one share of common stock. The
options shown in this column were granted pursuant to our 1998 Stock
Option/Stock Issuance Plan. The options shown in this table, except as
otherwise indicated below, become exercisable at a rate of 25.0% annually
over a four year period from the date of grant. The first 25.0% vests on
the first anniversary of the date of grant, and the remainder vests in
equal installments over the next 36 months.
(2) These assumed rates of appreciation are required by the rules of the
Securities and Exchange Commission and do not represent predictions as to
actual stock performance.
(3) Pursuant to the terms of his employment agreement, Mr. Boni's option was
immediately exercisable for shares of restricted common stock. The
restrictions on Mr. Boni's stock lift at a rate of 25.0% annually over a
four year period from the date of the grant of the option. The restrictions
on the first 25.0% of the stock are removed on the first anniversary of the
date of grant, and the remainder of the restrictions are removed in equal
installments over the next 36 months.
51
<PAGE>
Fiscal Year-End Option Values
The following table sets forth information with respect to unexercised
options held as of December 31, 1999 by our chief executive officers and to
each of our other most highly compensated executive officers whose salary and
bonus were in excess of $100,000 in 1999.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Options at Fiscal
Year-End Year-End(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Peter J. Boni........... -- -- -- --
James Carling........... -- -- -- --
Allen A. A. Swann....... 48,125 139,074 $355,483 $611,430
Gary Daniels............ 7,109 97,891 48,341 525,659
Richard S. Braddock,
Jr. .................. 2,734 23,516 9,332 135,167
Terence H. Osborne...... 28,438 95,057 210,062 660,504
</TABLE>
- --------
(1) Calculated by determining the difference between the exercise price and the
deemed fair market value of $10.80 per share of the securities underlying
the options at December 31, 1999.
Stock Incentive Plans
1998 Stock Option/Stock Issuance Plan. Our 1998 Stock Option/Stock Issuance
Plan was adopted by our board of directors on April 22, 1998. As of December
31, 1999, options to purchase an aggregate of 1,387,473 shares of common stock
at a weighted average exercise price of $4.88 per share were outstanding under
the 1998 Plan. As of December 31, 1999, 668,006 shares of common stock had been
issued upon exercise of options outstanding under the 1998 plan.
The 1998 Plan is divided into two separate equity programs:
. The option grant program under which eligible persons may be granted
options intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and non-statutory options; and
. The stock issuance program under which eligible persons may be issued
shares of common stock directly, either through immediate purchase or
as a bonus for services rendered (collectively, any such option or
issuance is referred to herein as an "Award").
Awards may be made to any employee, non-employee member of the board of
either the company, or any subsidiary, or consultants and other independent
advisors to the company or any subsidiary. Under present law, however,
incentive stock options may only be granted to employees. No participant may
receive an Award for more than 1,000,000 shares in any calendar year.
We may grant options at an exercise price less than, equal to or greater
than the fair market value of the common stock on the date of grant. Under
present law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the common
stock on the date of grant (or less than 110.0% of the fair market value in the
case of incentive stock options granted to optionees holding more than 10.0% of
the voting power of our Company). The 1998 plan permits the board of directors
to determine how optionees may pay the exercise price of their options,
including by cash, check or in connection with a "cashless exercise" through a
broker, by surrender of shares of common stock, by delivery of a promissory
note, or by any combination of the permitted forms of payment.
52
<PAGE>
Our board of directors administers the 1998 plan. It has the authority to
adopt, amend and repeal the administrative rules, guidelines and practices
relating to the 1998 plan. It may delegate authority under the 1998 plan to one
or more committees of the board of directors and, subject to certain
limitations, to one or more of our executive officers. The board of directors
has authorized the compensation committee to administer the 1998 plan,
including the granting of options to executive officers. Subject to any
applicable limitations contained in the 1998 plan, the board of directors, the
compensation committee or any other committee or executive officer to whom the
board of directors delegates authority, as the case may be, selects the
recipients of awards and determines:
. the number of shares of common stock covered by options and the dates
upon which such options become exercisable;
. the exercise price of options;
. the duration of options; and
. the number of shares of common stock subject to any restricted stock
or other stock-based awards and the terms and conditions of such
awards, including the conditions for repurchase, issue price and
repurchase price.
In the event of a merger or consolidation in which more than 50.0% of the
combined voting power of our shares are transferred or the sale, transfer or
disposition of all or substantially all of our assets, all Awards will
automatically vest, except for shares subject to an outstanding option if:
. The option is assumed by any successor company in the merger or
consolidation; or
. The option is replaced with a cash incentive program of the successor
company which preserves the value of the spread existing on unvested
options at the time of the transaction.
No Award may be granted under the 1998 plan after April 22, 2008, but the
vesting and effectiveness of Awards previously granted may extend beyond that
date. The board of directors may amend, suspend or terminate the 1998 plan or
any portion thereof at any time.
1999 Outside Director Stock Option Plan. Our 1999 Outside Director Stock
Option Plan was adopted by our Board of Directors in November 1999 and approved
by our stockholders in January 2000. Under the terms of the Director Plan,
directors who are not employees of Prime Response or its subsidiaries receive
nonstatutory options to purchase shares of our common stock. A total of 200,000
shares of our common stock may be issued upon exercise of options granted under
the Director Plan.
The Board of Directors administers the Director Plan. The Board of
Directors has the authority to adopt, amend and repeal the administrative
rules, guidelines and practices relating to the Director Plan. Under the terms
of the Director Plan, each non-employee director continuing as a director
following this offering will receive an option to purchase 20,000 shares of our
common stock on the effective date of this offering at a price per share
equivalent to the public offering price. In addition, each such non-employee
director will receive an option to purchase 10,000 shares of our common stock
on the date of each annual meeting of stockholders commencing with the 2000
annual meeting of stockholders, at an exercise price per share equal to the
closing price of our common stock on the date of grant. In addition,
individuals who become directors after this offering and are not our employees
will receive an option to purchase 20,000 shares of common stock on the date of
his or her initial election to the Board of Directors and an option to purchase
10,000 shares of our common stock on the date of each annual meeting of
stockholders after his or her election. The exercise price per share of such
options will be the closing price per share of our common stock on the date of
the grant. All options granted under the Director Plan will be fully vested
upon grant.
1999 Employee Stock Purchase Plan. Our 1999 Employee Stock Purchase Plan
was adopted by our board of directors in November 1999, and approved by our
stockholders in January 2000. The 1999 plan authorizes the issuance of up to a
total of 300,000 shares of common stock to participating employees.
53
<PAGE>
All of our employees, including our directors who are employees, and all
employees of any participating subsidiaries, other than employees who are
"highly compensated" within the meaning of Section 414(a) of the Code, whose
customary employment is more than 20 hours per week for more than five months
in any calendar year, are eligible to participate in the 1999 plan. Employees
who would immediately after the grant own five percent or more of the total
combined voting power or value of our stock or any subsidiary are not eligible
to participate. As of December 31, 1999, approximately 26 of our employees
would have been eligible to participate in the 1999 plan.
On the first day of a designated payroll deduction period (the "offering
period"), we will grant to each eligible employee who has elected to
participate in the 1999 plan an option to purchase shares of common stock as
follows: the employee may authorize an amount (up to 10.0% of such employee's
base pay) to be deducted from such employee's base pay during the offering
period. On the last day of the offering period, the employee is deemed to have
exercised the option, at the option exercise price, to the extent of
accumulated payroll deductions. Under the terms of the 1999 plan, the option
price is an amount equal to 85% of the average market price (as defined) per
share of the common stock on either the first day or the last day of the
offering period, whichever is lower. In no event may an employee purchase in
any one offering period a number of shares which exceeds the number of shares
determined by dividing the product of (i) $2,083 and (ii) the number of months
in the offering period by the closing market price of a share of common stock
on the commencement date of the offering period or such other number as may be
determined by the board prior to the commencement date of the offering period.
The compensation committee may, in its discretion, choose an offering period of
12 months or less for each offering and may choose a different offering period
for each offering.
An employee who is not a participant on the last day of the offering
period, as a result of voluntary withdrawal or termination of employment or for
any other reason, is not entitled to exercise any option, and the employee's
accumulated payroll deductions will be refunded. However, upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated
payroll deductions in the participant's account would purchase at the date of
death.
Because participation in the 1999 plan is voluntary, we cannot now
determine the number of shares of common stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
401(k) Plan
We offer a 401(k) plan to our United States employees who meet certain
defined requirements. Under the terms of the 401(k) plan, eligible employees
may elect to make tax-deferred contributions, and we may match 25.0% of the
lesser of the contributing employee's elective deferral or 4.0% of the
contributing employee's total salary. During 1998 and 1999, we contributed
approximately $11,000 and $20,000 respectively, to the 401(k) plan. We made no
contributions during 1997.
We offer comparable benefits to certain employees located outside the
United States.
Employment Agreements
On January 13, 1999, we entered into an employment agreement with Mr. Boni.
Under the terms of that agreement, Mr. Boni receives an annual base salary of
$290,000 and is eligible to receive an annual performance bonus of up to 50.0%
of his annual base salary. The agreement also provides that Mr. Boni's
employment may be terminated by either Mr. Boni or us at any time. If Mr.
Boni's employment is terminated without cause, or in the event of an
acquisition Mr. Boni is asked to take a position of lesser responsibility,Mr.
Boni is entitled to receive twelve months of base salary and bonus. In
addition, we granted Mr. Boni an option to purchase 636,225 shares of our
common stock, subject to certain restrictions on its transfer, at a per share
exercise price of $4.00. Mr. Boni also was granted an interest free loan to
exercise his option. In the event of a change in control of Prime Response, all
of the restrictions on Mr. Boni's stock will terminate.
54
<PAGE>
On November 10, 1999, we entered into an employment agreement with Mr.
Carling. Under the terms of that agreement, Mr. Carling receives an annual base
salary of $250,000 and is eligible to receive an annual performance bonus of up
to 30.0% of his annual base salary.
On February 2, 1998, we entered into an employment agreement with Mr.
Swann. Under the terms of that agreement, Mr. Swann receives an annual base
salary of (Pounds)140,000, approximately $231,000 at an exchange rate of $1.65
to (Pounds)1.00, and a discretionary bonus based primarily on sales
performance. Mr. Swann's employment may be terminated by either party upon six
months' notice, although we may elect to pay Mr. Swann in lieu of any notice
period. Moreover, in lieu of any six-month notice period, we may place Mr.
Swann on "gardening leave," during which time Mr. Swann would cease to perform
his job responsibilities, but would nevertheless be prohibited from undertaking
other employment. In addition, we granted Mr. Swann options to purchase up to
1% of our stock on a fully diluted basis as of the date of the closing of this
initial public offering.
On November 30, 1998, we entered into an employment agreement with Mr.
Daniels. Under the terms of that agreement, Mr. Daniels receives an annual base
salary of (Pounds)140,000, approximately $231,000 at an exchange rate of $1.65
to (Pounds)1.00, and a discretionary bonus paid primarily on company earnings.
Mr. Daniels' employment may be terminated by either party upon six months'
notice. We may elect to pay Mr. Daniels in lieu of any notice period or may
place Mr. Daniels on "gardening leave," during which time Mr. Daniels would
cease to perform his job responsibilities, but would nevertheless be prohibited
from undertaking other employment.
On October 22, 1999, we entered into an employment agreement with Mr.
Lavallee. Under the terms of that agreement, Mr. Lavallee receives an annual
base salary of $250,000 and is eligible for incentive compensation equal to
50.0% of his annual base salary. If Mr. Lavallee's employment is terminated
without cause, or if Mr. Lavallee is asked to take a position of lesser
responsibility or is not granted a promotion in the event that a higher
position is created or vacated, he is entitled to receive twelve months of base
salary and bonus, as well as his benefit package. In addition, we granted Mr.
Lavallee an option to purchase 150,000 shares of our common stock at a per
share exercise price of $6.66. Twenty percent of that option (30,000 shares)
vested immediately. The remaining eighty percent of the option (120,000 shares)
will vest in accordance with the terms of our 1998 Stock Option/Stock Issuance
Plan. In the event of a change of control, if Mr. Lavallee's employment is
terminated, or if he is asked to assume a position of lesser responsibility,
Mr. Lavallee's option shall become 100.0% vested.
On October 21, 1999, we entered into an employment with Mr Phillips. Under
the terms of that agreement, Mr. Phillips receives an annual base salary of
$180,000 and is eligible for an incentive bonus equal to 35.0% of his annual
base salary. In the event that Mr. Phillips is terminated without cause, he is
entitled to his base salary and bonus for a period of one year. In addition, we
granted Mr. Phillips an option to purchase 93,750 shares of our common stock at
a per share exercise price of $6.66. Should Mr. Phillips be terminated as a
result of a change in control of Prime Response, his option shall become 100.0%
vested.
On August 5, 1999, we entered into an employment agreement with Mr. Richard
S. Braddock, Jr. Under the terms of that agreement, Mr. Braddock receives an
annual base salary of $125,000 and is eligible to receive an annual performance
bonus of up to 30.0% of his annual base salary. In addition, we granted Mr.
Braddock an option to purchase 16,845 shares of our common stock at a per share
exercise price of $5.33 per share.
On August 11, 1999, we entered into an agreement with Mr. Plantan. Under
the terms of that agreement, Mr. Plantan receives an annual base salary of
$125,000 and is eligible to receive an annual performance bonus of up to 30.0%
of his annual base salary. In the event that Mr. Plantan's employment is
terminated without cause he is entitled to receive severance pay and medical
benefits for a period of six months. In addition, we granted Mr. Plantan
options to purchase 26,250 shares of our common stock at a per share price of
$5.33 per share.
55
<PAGE>
CERTAIN TRANSACTIONS
Sale of Series A Convertible Preferred Stock
In October, 1997, we sold 1,155,000 shares of series A convertible
preferred stock for $20.5169 per share, for an aggregate purchase price of
$23,697,000. General Atlantic Partners 42, L.P. purchased 909,858 shares and
GAP Coinvestment Partners, L.P. purchased 245,142 shares. Upon completion of
this offering, each share of series A convertible preferred stock will
automatically convert into 3.12819225 shares of common stock. Upon completion
of this offering, holders of series A preferred stock will also receive an
additional 0.546 shares of common stock in accordance with the terms of the
series A preferred stock and an additional 0.1 shares of common stock in
payment of accrued but unpaid dividends, for each share of series A preferred
stock.
Sale of Series B Convertible Preferred Stock and Warrants for Common Stock
In September, 1998, we sold 866,500 shares of series B convertible
preferred stock for $6.00 per share, for an aggregate purchase price of
$5,199,000. General Atlantic Partners 48, L.P. purchased 607,131 shares, GAP
Coinvestment Partners, L.P. purchased 145,619 shares, Richard S. Braddock Sr.,
one of our directors, purchased 13,750 shares and Allen A.A. Swann, our
President, Europe, purchased 100,000 shares.
In March, 1999, we sold 833,334 shares of series B convertible preferred
stock for $6.00 per share, for an approximate aggregate purchase price of
$5,001,004. General Atlantic Partners 52, L.P. purchased 680,200 shares and GAP
Coinvestment Partners II, L.P. purchased 153,134 shares.
Upon completion of this offering, each share of series B convertible
preferred stock will automatically convert into 0.78584925 shares of common
stock. Upon completion of this offering, holders of series B preferred stock
will receive either $6.00 or an additional 0.5 shares of common stock in
accordance with the terms of the series B preferred stock and either $0.672 or
an additional 0.056 shares of common stock in payment of accrued but unpaid
dividends, for each share of series B preferred stock.
In March, 1999, we also sold a warrant to General Atlantic Partners 52,
L.P. to purchase 255,075 shares of our common stock at an exercise price of
$3.4133 per share, subject to adjustment, and a warrant to GAP Coinvestment
Partners II, L.P. to purchase 57,425 shares of our common stock at an exercise
price of $3.4133 per share, subject to adjustment.
Sale of Series C Convertible Stock and Warrants for Common Stock
In July, 1999, we sold 1,000,000 shares of series C preferred convertible
stock for $3.00 per share for an aggregate price of $3,000,000. General
Atlantic Partners 52, L.P. purchased 814,285 shares and GAP Coinvestment
Partners II, L.P. purchased 185,715 shares. In July, 1999 we also sold a
warrant to General Atlantic Partners 52, L.P. to purchase 204,824 shares of our
common stock at an exercise price of $0.0133 per share, subject to adjustment,
and a warrant to GAP Coinvestment Partners II, L.P. to purchase 46,714 shares
of our common stock at an exercise price per share of $0.0133, subject to
adjustment.
Upon the completion of this offering, each share of series C convertible
preferred stock will automatically convert into 0.75 shares of common stock.
Upon completion of this offering, holders of series C preferred stock will also
receive 0.333 additional shares of common stock in accordance with the terms of
the series C preferred stock for each share of series C preferred stock.
In each of August 1999 and September 1999 we issued a convertible
promissory note to General Atlantic Service Corporation in the principal
amounts of $1.0 million and $1.5 million, respectively. On October 19, 1999,
these notes were transferred to General Atlantic Partners 57, L.P. and GAP
Coinvestment Partners II, L.P. On October 19, 1999, these notes were converted
and an aggregate of 698,415 shares of series C preferred stock were issued to
General Atlantic Partners 57, L.P. and an aggregate of 134,916 shares were
issued to GAP
56
<PAGE>
Coinvestment Partners II, L.P. On November 5, 1999, General Atlantic Partners
57, L.P. and GAP Coinvestment Partners II, L.P. transferred an aggregate of
25,000 shares of series C preferred stock to Paul Lavallee.
As of December 31, 1999, General Atlantic Partners, LLC and its affiliates
owned approximately 59.6% of our capital stock on a fully diluted basis.
Option to Purchase Shares Owned By Kite Limited
In October 1997, in connection with the sale of our series A convertible
stock, one of our stockholders, Nevin Prakash, granted us an option to purchase
from him 1,249,500 shares of our common stock at a price of approximately $3.42
per share. As of September 13, 1999, Mr. Prakash transferred these shares to a
trust for which Kite Limited acts as trustee. We may exercise this option in
part or in full at any time until September 30, 2000, at which time we are
obligated to purchase any remaining shares that are subject to the option.
Shares of common stock purchased in connection with this option are re-issued
to optionees exercising stock options granted under our 1998 Stock Option/Stock
Issuance Plan.
We intend to exercise this option in full and deliver a promissory note to
Mr. Prakash in the amount of approximately $4.3 million as payment for the
shares and pay the promissory note in full with proceeds we receive from this
offering.
Andersen Consulting
On December 6, 1999, Prime Response and Andersen Consulting entered into a
joint marketing agreement and, along with an affiliate of Andersen Consulting,
a stock and warrant purchase agreement. Pursuant to the stock and warrant
purchase agreement, Andersen Consulting purchased 428,000 shares of common
stock and Andersen Consulting received a warrant to purchase 682,000 shares of
common stock. This warrant has an exercise price of $9.35 per share and vests
upon the earlier to occur of September 9, 2000 or the date of an acquisition of
Prime Response. Andersen Consulting also has a right of first refusal to
participate in any equity issuances by Prime Response prior to its initial
public offering in order to maintain its percentage ownership interest in Prime
Response, subject to specified exceptions. The aggregate purchase price paid by
Andersen Consulting for the shares of common stock and this warrant was $4.0
million. Andersen Consulting has no performance obligations under the stock and
warrant purchase agreement or this warrant.
Prime Response issued a performance warrant to purchase 375,000 shares of
common stock to Andersen Consulting. Of this amount, 300,000 shares will vest
in share increments determined by the extent to which $2.0 billion exceeds
Prime Response's market capitalization at the time of its initial public
offering. An additional 75,000 shares will vest in increments of 7,500 shares
for each $100.0 million that market capitalization exceeds $2.0 billion, up to
a maximum market capitalization of $3.0 billion. This warrant has an exercise
price of $9.35 per share. Prime Response also issued a performance warrant to
purchase 375,000 shares of common stock to Andersen Consulting which will vest
in increments of 10,500 shares for each $1.0 million of sales resulting from
joint marketing efforts up to $25.0 million and then in increments of 4,500
shares for each $1.0 million of sales from $25.0 million to $50.0 million. This
warrant also has an exercise price of $9.35 per share.
All warrants have a seven-year term. In the event that the marketing
agreement is terminated as a result of a breach by Andersen Consulting, no
further vesting under the warrants will occur, but those warrants already
exercisable will remain exercisable during their term to the extent then
vested.
In the event that neither an initial public offering nor any other
liquidity event occurs by January 1, 2001, Andersen Consulting or its
affiliates will have the right to require Prime Response to repurchase the
428,000 shares for $4.0 million. The repurchase amount will be payable in three
quarterly installments, plus 8.0% interest on the entire amount beginning on
January 1, 2001, plus additional interest of 7.0% per annum in the event Prime
Response fails to make any payment when due. The put right will terminate upon
an initial public offering or other liquidity event.
57
<PAGE>
Prime Response is obligated to engage Andersen Consulting for consulting
services of at least $1.0 million before December 31, 2001. If designated sales
targets are met, Andersen Consulting is obligated to provide up to $1.0 million
in funding for joint marketing efforts, business development personnel,
structure feedback and sales support. The expenditure of these funds will be
controlled by a committee comprised of both Andersen Consulting and Prime
Response personnel.
Other Relationships
Priceline.com, Inc., a provider of internet pricing systems, is currently
one of our clients. Richard S. Braddock, Sr., one of our directors, is the
Chairman and Chief Executive Officer of Priceline.com, Incorporated and William
E. Ford, another one of our directors, serves as a director of Priceline.com,
Incorporated.
Mr. Ford is also a managing member of General Atlantic Partners, LLC, which
as of December 31, 1999 held approximately 17.4% of the outstanding Common
Stock of Priceline.com, Incorporated.
Loan to Mr. Peter J. Boni
In June 1999, Peter J. Boni, our Chief Executive Officer, purchased 636,225
shares of our common stock at a purchase price of $4.00 per share as part of a
restricted stock award granted under our 1998 Stock Option/Stock Issuance Plan.
In connection with that award, we loaned $2,545,000 to Mr. Boni for 10 years,
interest-free, pursuant to a promissory note secured by the shares of common
stock.
Stock Options Granted to Executive Officers
For additional information regarding the grant of stock options to
executive officers and directors, see "Management--Director Compensation," "--
Management Compensation," and "--1998 Stock Option/Stock Issuance Plan" and
"Principal Stockholders."
58
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999, by:
. each person or entity or group of affiliated persons or entities known
by us to be the beneficial owner of five percent (5%) or more of the
outstanding shares of common stock;
. each director and each executive officer named in the summary
compensation table; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed
below is c/o Prime Response, Inc., 150 CambridgePark Drive, Cambridge,
Massachusetts 02139.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. The information is not necessarily
indicative of beneficial ownership for any other purpose. Except as indicated
by the footnotes below, none of these persons or entities has a relationship
with us or, to our knowledge, any of the underwriters or their respective
affiliates. Unless otherwise indicted, each person or entity named in the table
below has sole voting and investment power (or shares such power with his or
her spouse) with respect to all shares of common stock shown as beneficially
owned by them, subject to applicable community property laws. Percentage of
beneficial ownership is based on 16,066,530 shares of common stock outstanding
as of December 31, 1999, assuming the conversion of the outstanding shares of
our preferred stock, and the payment of additional shares of common stock to
the holders of preferred stock, as a result of this offering, and assuming
completion of this offering on February 15, 2000. In computing the number of
shares of common stock beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options held by
that person that are currently exercisable or exercisable within 60 days of
December 31, 1999 are deemed outstanding. These shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Owned
Prior to Offering After Offering
------------------ ------------------
Name of Beneficial Owner Number Percent Number Percent
- ------------------------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
General Atlantic Partners, LLC (1)...... 9,586,933 59.6% 9,586,933 48.9%
3 Pickwick Plaza
Suite 200
Greenwich, CT 06830
Peter J. Boni........................... 636,225 3.9 636,225 3.2
Terence H. Osborne (2).................. 35,248 * 35,248 *
James Carling........................... 5,260,500 32.7 5,260,500 26.8
Allen A.A. Swann (3).................... 217,557 1.3 184,497 1.1
Richard S. Braddock, Sr. (4)............ 33,762 * 33,762 *
William Ford (1)........................ 9,586,933 59.6 9,586,933 48.9
Richard S. Braddock, Jr. (2)............ 4,491 * 4,491 *
Gary Daniels............................ 7,656 * 7,656 *
Nevin Prakash (5)....................... 1,774,500 11.0 1,774,500 9.1
All directors and executive officers as
a group (11 persons) (6)............... 15,645,981 97.4 15,837,373 80.1
</TABLE>
- --------
* Less than 1%
(1) Includes 4,698,381 shares held by General Atlantic Partners 42, L.P.,
477,113 shares held by General Atlantic Partners 48, L.P., 1,348,818 shares
and warrants to purchase 459,899 shares held by General Atlantic Partners
52, L.P., 677,461 shares held by General Atlantic Partners 57, L.P.,
1,337,887 shares held by GAP Coinvestment Partners, L.P., and 436,923
shares and warrants to purchase 104,139 shares held by GAP Coinvestment
Partners II, L.P. Also includes 15,312 shares subject to stock options held
by
59
<PAGE>
Mr. Ford which are exercisable within 60 days of December 31, 1999. Mr.
Ford is a managing member of General Atlantic Partners, LLC, which is the
general partner of each of General Atlantic Partners 42, L.P.,
General Atlantic Partners 48, L.P. and General Atlantic Partners 52, L.P.
and General Atlantic Partners 57, L.P. Mr. Ford is also a general partner
of GAP Coinvestment Partners, L.P. and GAP Coinvestment Partners II, L.P.
Mr. Ford disclaims beneficial ownership with respect to any of these
shares, except to the extent of any pecuniary interest therein.
(2) Consists solely of shares subject to stock options exercised within 60
days of December 31, 1999.
(3) Includes 83,373 shares subject to stock options exercisable within 60
days of December 31, 1999.
(4) Includes 15,312 shares subject to stock options exercisable within 60
days of December 31, 1999.
(5) Includes 1,249,500 shares which Prime Response has the option to
repurchase. Prime Response intends to exercise this option prior to
completion of this offering.
(6) Includes the shares listed in notes 2 and 3, above and an additional
191,392 shares subject to stock options exercisable within 60 days of
December 31, 1999.
In December, 1999, we sold 427,806 shares of our common stock and issued
warrants to purchase up to an aggregate of 1,432,282 shares of common stock to
Andersen Consulting and one of its affiliates. See "Certain Transactions."
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
After this offering, our authorized capital stock of Prime Response will
consist of 60,000,000 shares of common stock, $.01 par value per share, and
1,000,000 shares of preferred stock, $.01 par value per share.
As of December 31, 1999, there were outstanding (i) 8,130,813 shares of
common stock and redeemable common stock held by 13 stockholders of record,
(ii) 4,688,165 shares of convertible preferred stock held by nine stockholders
of record and (iii) options and warrants to purchase an aggregate of 2,633,792
shares of common stock.
The following summary of certain provisions of our securities and various
provisions of our amended and restated certificate of incorporation and our
amended and restated by-laws, in each case in effect following this offering,
is not intended to be complete and is qualified by reference to the provisions
of applicable law and to our amended and restated certificate of incorporation
and amended and restated by-laws included as exhibits to the Registration
Statement of which this prospectus is a part. See "Additional Information."
Common Stock and Redeemable Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive
proportionately any such dividends declared by the board of directors, subject
to any preferential dividend rights of outstanding preferred stock. Upon our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to receive ratably our net assets available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of redeemable common stock have the right to put
common stock back to Prime Response at certain prices on certain dates. Holders
of common stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of common stock are, and the shares offered by
us in this offering will be, when issued and paid for, fully paid and
nonassessable. The rights, preferences and privileges of holders of common
stock are subject to the rights of the holders of shares of any series of
preferred stock which we may designate and issue in the future. Certain holders
of common stock have the right to require us to register their shares of common
stock under the Securities Act in certain circumstances. See "Shares Eligible
for Future Sale."
Preferred Stock
Under the terms of our amended and restated certificate of incorporation,
our board of directors is authorized to issue shares of preferred stock in one
or more series without stockholder approval. The Board has discretion to
determine the rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could make it more difficult for a third-party to
acquire, or could discourage a third-party from acquiring, a majority of our
outstanding voting stock. We have no present plans to issue any shares of
preferred stock.
Warrants
As of December 31, 1999 we had warrants outstanding to purchase an
aggregate of 1,246,319 shares of our common stock at a weighted average
exercise price of $5.98 per share. Certain holders of warrants are entitled to
registration rights with respect to the shares of common stock issuable upon
exercise of the warrants. See "Shares Eligible for Future Sale Registration
Rights."
61
<PAGE>
Delaware Anti-Takeover Law and Certain Charter and By-law Provisions
We are subject to the provisions of Section 203 of the General Corporation
Law of Delaware. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A business combination
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
interested stockholder is a person who, together with affiliates and
associates, owns, or within three years did own, 15.0% or more of the
corporation's voting stock.
The amended and restated by-laws provide for the division of our board of
directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." Under the by-laws, any vacancy
on the board of directors, including a vacancy resulting from an enlargement
of the board of directors, may only be filled by vote of a majority of the
directors then in office. The classification of the board of directors and the
limitation on and filling of vacancies could make it more difficult for a
third-party to acquire, or discourage a third-party from acquiring, control of
our company.
The amended and restated by-laws also provide that after this offering,
any action required or permitted to be taken by our stockholders at an annual
meeting or special meeting of stockholders may only be taken if it is properly
brought before such meeting and may not be taken by written action in lieu of
a meeting. Our amended and restated by-laws further provide that special
meetings of the stockholders may only be called by our chairman of the board,
the president or our board of directors. In order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice and provide us with certain
information. These provisions could have the effect of delaying until the next
stockholders meeting stockholder actions which are favored by the holders of a
majority of the outstanding voting securities of Prime Response. These
provisions could also discourage a third-party from making a tender offer for
the common stock, because even if it acquired a majority of our outstanding
voting securities, it would be able to take action as a stockholder (such as
electing new directors or approving a merger) only at a duly called
stockholders' meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. Our by-laws require the affirmative
vote of holders of at least 75.0% of the votes which all the stockholders
would be entitled to cast in any annual election of directors or class of
directors to amend or repeal any of the provisions described in the prior two
paragraphs.
Our amended and restated certificate of incorporation contains certain
provisions permitted under the General Corporation Law of Delaware relating to
the liability of directors. The provisions eliminate a director's liability
for monetary damages for a breach of fiduciary duty, except in certain
circumstances involving wrongful acts, such as the breach of a director's duty
of loyalty or acts or omissions which involve intentional misconduct or a
knowing violation of law. Further, our amended and restated certificate of
incorporation contains provisions to indemnify our directors and officers to
the fullest extent permitted by the General Corporation Law of Delaware. We
have also entered into agreements to indemnify its directors and officers, in
addition to the indemnification provided for in our amended and restated by-
laws. We believe that these provisions and agreements will assist us in
attracting and retaining qualified individuals to serve as directors.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. We cannot predict the effect, if any, that sales of shares of common
stock to the public or the availability of shares for sale to the public will
have on the market price of the common stock prevailing from time to time.
Nevertheless, if a significant number of shares of common stock are sold in the
public market, or if people believe that such sales may occur, the prevailing
market price of our common stock could decline and could impair our future
ability to raise capital through the sale of our equity securities.
Upon completion of this offering, we will have an aggregate of 19,566,530
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option. Of the outstanding shares, the 3,500,000 shares sold in
this offering will be freely tradeable, without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), except for any such
shares which may be acquired by an "affiliate" of Prime Response, which shares
will be subject to the volume limitations of Rule 144 under the Securities Act.
As defined in Rule 144, an "affiliate" of an issuer is a person who, directly
or indirectly, through one or more intermediaries, controls or is controlled
by, or is under common control with, such issuer. Substantially all of the
remaining 16,066,530 shares of common stock outstanding will be "restricted
securities" as that phrase is defined in Rule 144 and may not be resold in the
absence of registration under the Securities Act or pursuant to an exemption
from such registration, including the exemption provided by Rule 144 under the
Securities Act.
In connection with this offering, our directors, officers and stockholders,
holding 16,066,530 shares in the aggregate, have agreed that, without the prior
written consent of FleetBoston Robertson Stephens Inc. on behalf of the
underwriters and EASDAQ, during the period ending 180 days after the date of
this prospectus, they will not directly or indirectly offer to sell, contract
to sell, or otherwise sell, dispose of, loan, pledge, or grant any right with
respect to, any shares of common stock or any securities convertible into or
exchangeable for shares of common stock, whether such shares or any such
securities are then owned by such person or are thereafter acquired directly
from us.
Subject to the foregoing and to the lock-up agreements, under Rule 144 as
currently in effect, beginning 180 days after the date of this prospectus,
holders of restricted securities will be entitled to sell a number of shares of
common stock within any three-month period equal to the greater of 1.0% of the
then outstanding shares of the common stock (approximately 195,665 shares
following the offering) or the average weekly reported volume of trading of the
common stock on the Nasdaq National Market during the four calendar weeks
preceding such sale, provided that certain manner of sale and notice
requirements and requirements as to the availability of current public
information concerning Prime Response are satisfied.
Immediately after the offering, based on the number of options outstanding
on December 31, 1999, there will be options to purchase approximately 1,387,473
shares of common stock outstanding. Subject to the provisions of the lock-up
agreements described below, holders of these options may rely on the resale
provisions of Rule 701 under the Securities Act, which permits nonaffiliates to
sell shares without having to comply with the current public information,
holding period, volume limitation or notice provisions of Rule 144 and permits
affiliates to sell their shares without having to comply with the holding
period provision of Rule 144, in each case beginning 90 days after the
consummation of this offering. In addition, immediately after this offering,
Prime Response intends to file a registration statement on Form S-8 covering
all options granted under the 1998 Stock Option/Stock Issuance Plan, 1999
Director Plan and Employee Stock Purchase Plan. Shares of common stock
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
unless such shares are subject to vesting restrictions with Prime Response or
the lock-up agreements described above. See "Management--Stock Plans--1998
Stock Incentive Plan."
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of the prospectus, except we
may issue, and grant options to purchase, shares of common stock under the 1998
Stock Option/Stock Issuance Plan.
63
<PAGE>
Following this offering, under specified conditions and subject to
customary exceptions, holders of shares of common stock will have demand
registration rights with respect to their shares of common stock (subject to
the 180-day lock-up arrangement described above) to require us to register
their shares of common stock under the Securities Act, and they will have
rights to participate in any future registration of securities by us. We are
not required to effect more than two demand registrations on behalf of these
holders.
64
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated, SG Cowen
Securities Corporation, and DLJdirect Inc. have severally agreed with us to
purchase from us the number of shares of common stock set forth opposite their
names below. The underwriters are committed to purchase and pay for all such
shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc.................................
Dain Rauscher Incorporated.........................................
SG Cowen Securities Corporation....................................
DLJdirect Inc. ....................................................
<CAPTION>
International Underwriter
-------------------------
<S> <C>
FleetBoston Robertson Stephens International Limited...............
Dain Rauscher Incorporated.........................................
Societe Generale...................................................
---------
Total............................................................ 3,500,000
=========
</TABLE>
The underwriters' representatives have advised us that the underwriters
propose to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such 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 and the selling stockholders 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.
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.
The underwriters have informed us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
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 525,000 additional shares of common stock at the same price per
share as we will be paid for the 3,500,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise such option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 3,500,000 shares offered hereby. If purchased, these
additional shares will be sold by the underwriters on the same terms as those
on which the shares are being sold. We will be obligated, pursuant to the over-
allotment option, to sell shares to the underwriters to the extent the option
is exercised. The underwriters may exercise such option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered in this offering. If such option is exercised in full, the total public
offering price, underwriting discounts and commissions and proceeds to company
will be $ million, $ million and $ million, respectively.
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
representation and warranties contained in the underwriting agreement.
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Lock-Up Agreements. Each director, officer and stockholder of Prime
Response has agreed, during the period ending 180 days after the date of this
prospectus (the "lock-up period"), 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 exercisable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by such holders or with respect to
which they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. and EASDAQ. The are no existing agreements
between the representatives of the underwriters and any of our stockholders
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. and
EASDAQ, subject to certain exceptions, (i) 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 (ii) issue, sell, contract to sell, or
otherwise dispose of, any shares of common stock, any options 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 common stock upon the exercise of outstanding options
and the issuance of options under existing stock option and incentive plans
provided such options do not vest prior to the expiration of the lock-up
period. See "Shares Eligible for Future Sale."
Listing. Application has been made to have the shares of common stock
approved for quotation on the Nasdaq National Market under the symbol "PRME."
Application has also been made to list the shares on EASDAQ under the symbol
"PRME."
Stabilization. The underwriters have advised us that, pursuant to
Regulation M under the Securities Act, certain 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 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 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 the purchase of the
common stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this 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
this offering if the common stock originally sold by such underwriter or
syndicate member is purchased by the representatives of the underwriters in a
syndicate covering transaction and has therefore not been effectively
placed by such underwriter or syndicate member. The representatives of the
underwriters 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.
The following table summarizes the compensation to be paid to the
underwriters by Prime Response:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable
by Prime Response............................ $ $ $
</TABLE>
Prime Response estimates expenses payable by us in connection with this
offering, other than the underwriting discounts and commissions referred to
above, will be approximately $1.2 million.
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Directed Share Program. At our request, the underwriters have reserved up
to 175,000 shares of common stock to be issued by us and offered hereby for
sale, at the initial public offering price, to directors, officers, employees,
business associates and persons otherwise connected to Prime Response. The
number of shares of common stock available for sale to the general public will
be reduced to the extent such individuals purchase such reserved shares. Any
reserved shares which are not purchased will be offered by the underwriters to
the general public on the same basis as the other shares offered in this
offering.
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MATERIAL UNITED STATES FEDERAL
TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general summary of material United States federal income
and estate tax considerations relating to the ownership and disposition of
common stock by "Non-U.S. Holders" (as defined below). This discussion is based
on existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury regulations promulgated thereunder, judicial decisions and
administrative rulings, all of which are subject to change or alternative
construction, possibly with retroactive effect. This summary does not address
all federal income and estate tax consequences that may be relevant to a Non-
U.S. Holder in light of such holder's particular circumstances, or to certain
Non-U.S. Holders that may be subject to special treatment under U.S. federal
income tax laws, such as life insurance companies, tax-exempt organizations,
banks or other financial institutions or certain expatriates or former long-
term residents of the United States. For purposes of this summary, the term
"Non-U.S. Holder" means a beneficial owner of common stock that for federal
income tax purposes is not (i) a citizen or resident of the United States, (ii)
a corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to United States federal income taxation regardless of its
source and (iv) a trust if either (a) a U.S. court is able to exercise primary
supervision over the trust's administration and one or more U.S. persons have
the authority to control all of the trust's substantial decisions or (b) the
trust was in existence on August 20, 1996 and, in general, would have been
treated as a U.S. Holder under rules applicable prior to such time, provided
the trust elects to continue such treatment thereafter.
EACH PROSPECTIVE NON-U.S. HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISORS WITH RESPECT TO THE UNITED STATES FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES OF OWNING AND DISPOSING OF SHARES OF COMMON STOCK, AS WELL AS ANY
TAX CONSEQUENCES OF OWNING AND DISPOSING OF SHARES OF COMMON STOCK UNDER THE
LAWS OF ANY STATE, LOCAL OR OTHER TAXING JURISDICTION.
Dividends. Dividends paid to a Non-U.S. Holder generally will be subject to
United States federal withholding tax at a 30% rate (or lower rate provided
under an applicable income tax treaty) unless the dividends are taxable as
effectively connected with the conduct of a trade or business in the United
States and the Non-U.S. Holder delivers IRS Form W-8ECI to the payor. If the
dividends are effectively connected with the conduct of a trade or business in
the United States by the Non-U.S. Holder, such dividends will not be subject to
the withholding tax described above and will instead be subject to U.S. federal
income tax on a net income basis as if such Non-U.S. Holder were a U.S.
resident. If such Non-U.S. Holder is a foreign corporation, it may also be
subject to a United States branch profits tax on such effectively connected
income at a 30% rate or such lower rate as may be specified by an applicable
income tax treaty.
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding rules
discussed above and, under the current interpretation of Treasury regulations,
for purposes of determining the applicability of an income tax treaty rate.
However, under recently issued Treasury regulations (the "New Regulations"),
that generally will be effective for distributions after December 31, 2000, a
Non-U.S. Holder of common stock who wishes to claim the benefit of an
applicable treaty rate generally would be required to provide an Internal
Revenue Service Form W-8 (or suitable substitute form) certifying such Non-U.S.
Holder's entitlement to benefits under the treaty. Special procedures are
provided in the New Regulations for payments through qualified intermediaries.
In addition, under the New Regulations, in the case of a Non-U.S. Holder that
is fiscally transparent (e.g., a partnership) for U.S. federal income tax
purposes, the certification requirements generally would be applied to each of
the ultimate beneficial owners of the entity. Non-U.S. Holders are advised to
consult their tax advisors regarding the effect, if any, of the New
Regulations.
Disposition of Common Stock. A Non-U.S. Holder of common stock generally
will not be subject to United States federal income tax withholding tax on any
gain realized on the sale, exchange, retirement or other disposition of common
stock, unless (i) the gain is effectively connected with a United States trade
or business
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of the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is an
individual and who holds the common stock as a capital asset, such holder is
present in the United States for a period or periods aggregating 183 days or
more during the taxable year of the disposition, and either such holder has a
"tax home" in the United States or the disposition is attributable to an office
or other fixed place of business maintained by such holder in the United
States, (iii) the Non-U.S. Holder is subject to tax pursuant to the provisions
of the Code applicable to certain United States expatriates whose loss of U.S.
citizenship had as one of its principal purposes the avoidance of U.S. taxes,
or (iv) Prime Response is then or has been within a specified period a United
States real property holding corporation. Prime Response does not believe that
it is, or is likely to become, a United States real property holding
corporation. To the extent that the amount of cash and the fair market value of
any property received upon the sale or other disposition of common stock is
deemed a dividend distribution, the Non-U.S. Holder may be subject to tax on
such cash or other property as described above under "Dividends."
Federal Estate Tax. An individual Non-U.S. Holder who is treated as the
owner of or has made certain lifetime transfers of an interest in common stock
will be required to include the value thereof in his or her gross estate for
U.S. federal estate tax purposes and may be subject to U.S. federal estate tax
unless an applicable estate tax treaty provides otherwise.
U.S. Information Reporting Requirements and Backup Withholding Tax. The
Company must report annually to the IRS and to each Non-U.S. Holder any
dividend that is subject to withholding, or that is exempt from U.S.
withholding tax (pursuant to a tax treaty or the exceptions described above),
and any tax withheld with respect to such dividends. Copies of the information
returns reporting such dividends and withholding may be made available to the
tax authorities in the country in which the Non-U.S. Holder is a resident under
the provisions of an applicable income tax treaty.
U.S. backup withholding, which is imposed at the rate of 31.0% on certain
payments to persons that fail to furnish information under the U.S. information
reporting requirements, generally will not apply to dividends paid to Non-U.S.
Holders that are subject to the 30.0% withholding tax described above or that
are subject to treaty reduction, or, under current law, to a Non-U.S. Holder at
an address outside the United States.
Under the rules in effect for payments made on or before December 31, 2000,
payment of the proceeds of the sale or other disposition of common stock to or
through a United States office of a broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding at a rate of 31.0% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption (provided the broker does not have actual
knowledge that the holder is a U.S. person or that the conditions of any other
exemption are not, in fact, satisfied). Payment of the proceeds of the sale of
common stock to or through a foreign office of a foreign broker that is not a
"U.S. related person" generally will not be subject to information reporting or
backup withholding tax. For this purpose, a "U.S. related person" is (i) a
"controlled foreign corporation" for United States federal income tax purposes
or (ii) a foreign person 50.0% or more of whose gross income from all sources
for a specified period is derived from activities that are effectively
connected with the conduct of a United States trade or business. In the case of
the payment of proceeds from the disposition of common stock to or through a
foreign office of a broker that is either a United States person or a U.S.
related person, information reporting is required on the payment unless the
broker has documentary evidence in its files that the owner is a Non-U.S.
Holder and the broker has no actual knowledge to the contrary.
With respect to payments made after December 31, 2000, the New Regulations,
subject to certain transition rules, alter the foregoing rules in certain
respects. Those regulations provide presumptions under which a Non-U.S. Holder
is subject to information reporting and backup withholding at a rate of 31.0%
unless Prime Response receives certification from the holder (or the Non-U.S.
Holder satisfies certain documentary evidence requirements) establishing non-
U.S. status. Depending on the circumstances, this certification will need to be
provided (i) directly by the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity,
by the partners, shareholders or other beneficiaries of such entity, or (iii)
certain qualified financial institutions or other qualified entities on behalf
of the Non-U.S. Holder.
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Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's United States federal income tax provided that the required
information is furnished to the IRS. Non-U.S. Holders of Common Stock should
consult their own tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption.
EASDAQ INFORMATION
Belgium Restrictions
Prior to trading on EASDAQ the common stock shall not, whether directly or
indirectly, be offered, sold, transferred or delivered in Belgium to any
individual or entity other than institutional investors referred to in Article
3.2 of the Belgian Royal Decree of January 9, 1991, on the public character of
transactions involving public savings and the qualification of certain
transactions as public offerings, acting on their own account.
Approval by the Banking and Finance Commission
On [ ], the Banking and Finance Commission (Commission bancaire et
financiere/Commissie voor het Bank- en Financiewezen) approved this prospectus
in accordance with article 29 ter, (S) 1 of the royal decree 185 of July 9,
1935 on the supervision of banks and the issue of securities as supplemented by
the law of March 9, 1989. This approval does not imply any judgement as to the
appropriateness or the quality of this initial public offering and the
admission to trading of our common stock on EASDAQ, nor of our situation. The
notice required by article 29 ter, (S) 1 will be published in the press on the
first day of trading on EASDAQ.
Responsibility for the Prospectus
Prime Response takes responsibility for the contents of this prospectus.
Prime Response, having made all reasonable enquiries, accepts
responsibility for, and confirms that this prospectus contains, all information
with regard to us and our common stock that is material in the context of the
offering and sale of our common stock, that the information contained in this
prospectus is true and correct in all material respects and is not misleading,
that the opinions and our intentions expressed herein are honestly held and
that there are no other facts the omission of which makes this prospectus as a
whole or any of such information or the expression of any such opinions or
intentions misleading.
Copies of the Registration Statement will be available for review at the
offices of Robertson Stephens International, 39 Victoria Street, London,
England SW1H OED.
Belgian Taxation
The following generally summarises the Belgian income and stamp tax
consequences of the acquisition, direct ownership and disposition of our common
stock by Belgian residents. It is based on tax law applicable in Belgium as in
effect on the date of this prospectus, and is subject to changes to Belgian
law, including changes that could have retroactive effect. The following
summary does not take into account or discuss tax laws of any country other
than Belgium nor does it take into account the individual circumstances of each
investor.
Prospective Belgian investors are advised to consult their own tax advisers
as to the tax consequences of the acquisition, ownership and disposition of our
common stock.
Belgian withholding tax
Dividends distributed on our common stock (gross of Belgian taxation but
net of any foreign withholding tax deducted) are subject to Belgian dividend
withholding tax at the rate of 25.0%. when paid or attributed through a
financial intermediary in Belgium. However, no Belgian dividend withholding tax
is due if the Belgian resident is a company subject to Belgian corporate income
tax.
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To the extent that dividends on our common stock are attributed or paid
outside Belgium, without the intervention of a paying agent or any other
financial intermediary in Belgium, no Belgian dividend withholding tax is due.
However, Belgian resident entities subject to Belgian legal entities tax (such
as pension funds) must pay the dividend withholding tax to the Belgian
Treasury.
The withholding tax may be subject to exemptions or reductions provided by
Belgian law. For instance, in certain cases the above-mentioned 25.0% rate of
dividend withholding tax will be reduced to 15.0%. The reduced rate applies in
particular to:
1. dividends distributed on shares publicly issued on or after 1 January
1994;
2. dividends distributed on shares that have been privately issued on or
after 1 January 1994 in exchange for cash contributions, provided the
shares are registered, or are bearer shares placed in open custody, to a
financial institution in Belgium as of the date of their issuance.
Income tax for Belgian resident individuals
The Belgian dividend withholding tax is a final tax for Belgian resident
individuals holding our common stock as a private investment, and the dividends
need to be reported in such individuals' annual income tax returns. If no
withholding tax has been levied (for example where payment or attribution is
made outside Belgium), such individuals are required to report the dividends in
their tax returns, and will be taxed at the rate of either 25.0% or 15.0%, in
each case increased by a municipal surcharge (generally varying from 5.0% to
8.0% of the tax due).
Belgian resident individuals whose holdings of our common stock are
connected with a business will be taxed on the dividends at the ordinary rates
for business income, varying from 25.0% to 55.0% and increased by the
appropriate municipal surcharge and a 3.0% crisis contribution. Any Belgian
withholding tax is creditable against the final income tax due, provided the
holder of our common stock has full ownership of that stock at the time of
attribution or payment of the dividends and the dividend distribution does not
entail a reduction in value or capital loss on the shares.
Corporate income tax for companies resident in Belgium
Dividends received by companies resident in Belgium are, in principle,
subject to corporate income tax at the rate of 40.1%, i.e. the standard rate of
39.0%, increased by the additional tax of 3.0% of the corporate income tax due.
Lower rates may be applicable to Belgian resident companies which, among other
conditions, are not 50.0% or more owned by another company and whose taxable
income is below certain thresholds fixed by law.
Belgian resident companies which satisfy the minimum holding requirement of
either a participation of at least 5.0% in Prime Response or an acquisition
value of at least BEF 50 million at the time of attribution or payment of
dividends will be taxed on only 5.0% of the dividends received (so-called
dividends-received deduction or DRD), unless Prime Response falls within one of
the categories expressly excluded from the DRD. DRD entitlement is assessed on
a case by case basis at the time of attribution by reference to the origin of
the Issuer's revenue used to distribute the dividend. If our common stock is
traded on EASDAQ, and we continue to have an active business in the US, it is
highly unlikely that DRD would be denied.
Income tax for Belgium resident entities subject to Belgian legal entities
tax
The Belgian dividend withholding tax is a final tax for Belgium resident
entities subject to the Belgian legal entities tax.
Belgian capital gains taxation
(a) Income tax for individuals resident in Belgium
Individuals holding our common stock as a private investment will not be
subject to Belgian capital gains taxation on the disposal of that stock.
Individuals may, however, be subject to a 33.0% tax (increased by the
appropriate municipal surcharge and the 3.0% crisis contribution) if the
capital gain is deemed to be "speculative" in nature as defined by Belgian case
law.
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(b) Corporate income tax for companies resident in Belgium
Capitals gains realised by companies resident in Belgium on the disposal of
our common stock are exempt from Belgian capital gains taxation if our
dividends qualify for the DRD. It is not necessary to satisfy the minimum
holding requirement for DRD to benefit from this exemption.
Capital losses are only tax-deductible on a liquidation and distribution of
all our assets and liabilities. In that event, capital losses are tax-
deductible to the extent that they represent fully paid-up capital.
(c) Belgium resident entities subject to the Belgian legal entities tax
Entities subject to the Belgian legal entities tax are not subject to
Belgian capital gains taxation on the disposal of our common stock.
Belgian indirect taxes
(a) Stamp tax on securities transactions
In principle, a Belgian stamp tax is levied upon the subscription or
purchase or sale of our common stock in Belgium through a professional
intermediary. The rate applicable to subscriptions for new shares is 0.4%
subject to an upper limit of BEF 10,000 or (Euro) 248 per transaction. The rate
applicable to sales and purchases of existing shares in Belgium through a
professional intermediary is 0.2% subject to an upper limit of BEF 10,000 or
(Euro) 248 per transaction.
An exemption is available to professional intermediaries (such as credit
institutions), insurance companies, pension funds and collective investment
vehicles acting for their own account. Non-Belgian resident holders of our
common stock acting for their own account will also be entitled to an exemption
from this stamp tax if they deliver to the issuer or the professional
intermediary in Belgium, as the case may be, an affidavit confirming non-
Belgian resident status.
(b) Tax on physical delivery of bearer securities
A tax is levied upon the physical delivery of our common stock pursuant to
their subscription or acquisition for consideration in Belgium. This tax is
also due on the delivery of our common stock pursuant to a withdrawal of such
stock from "open custody" in Belgium. An exemption is available if the
acquisition for consideration does not take place through a professional
intermediary.
This tax is due, at the rate of 0.2% on the sums payable by the subscriber
or acquirer on a subscription of acquisition of the sales value of our common
stock, as estimated by the custodian, on a withdrawal form "open custody".
If Belgian residents hold our common stock in book-entry form, such stock
will not be physically delivered and the Belgian tax on the physical delivery
of bearer securities will not apply.
Settlement and Clearance
The following summarizes our understanding of the operation of the clearing
system which will be in place. Persons proposing to trade the common stock on
EASDAQ should inform themselves about the costs of such trading.
Transactions in the common stock executed in the United States generally
will be settled by book-entry through financial institutions that are
participants in DTC.
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations (collectively, "DTC Participants") and to
facilitate the clearance settlements of transactions in such securities between
participants through electronic book-entry changes in accounts of DTC
Participants. DTC Participants include securities brokers and dealers, banks
and trust companies, clearing corporations and certain other organizations,
Access to DTC's system is also available to other entities such as banks,
brokers,
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dealers and trust companies (collectively, "DTC Indirect Participants") that
clear through or maintain a custodial relationships with a DTC Participant,
either directly or indirectly. Persons which are DTC Participants may
beneficially own securities held by or on behalf of DTC only through DTC
Participants or DTC Indirect Participants.
Our common stock is expected to be quoted on EASDAQ in USD. Transactions in
the common stock on EASDAQ will be settled in USD or any other Euroclear of
Cedelbank eligible currency through the Euroclear or Cedelbank Systems.
Investors in the common stock on EASDAQ must have a securities account with a
financial institution which directly or indirectly has access to Euroclear or
Cedelbank. Euroclear and Cedelbank are DTC Indirect Participants.
Euroclear and Cedelbank hold securities and book-entry interests in
securities for their direct participants, which include banks, securities
brokers and dealers, other professional intermediaries and foreign depositories
and facilitate the clearance and settlements of securities transactions between
their respective participants, and between their participants and participants
of certain other securities intermediaries, including DTC, through electronic
book-entry changes in accounts of such participants or other securities
intermediaries.
Euroclear and Cedelbank provide their respective participants, among other
things, with safekeeping, administration, clearance and settlement, securities
lending and borrowing, and related services. Euroclear and Cedelbank
participants are investment banks, securities brokers and dealers, banks
central banks, supranationals, custodians, investment managers, corporations,
trust companies and certain other organizations and include certain of the
underwriters.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for Prime Response by Hale and Dorr LLP, Boston, Massachusetts, and for
the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Prime Response, Inc. as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999 included in this prospectus, have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a Registration Statement on Form S-1.
This prospectus, which is a part of the Registration Statement, does not
contain all of the information included in the Registration Statement. Certain
information is omitted and you should refer to the Registration Statement and
its exhibits. With respect to references made in this prospectus to any
contract, agreement or other document of Prime Response, such references are
not necessarily complete and you should refer to the exhibits attached to the
Registration Statement for copies of the actual contract, agreement or other
document. You may review a copy of the Registration Statement, including
exhibits, at the Commission's public reference room at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 or Seven World Trade Center, 13th
Floor, New York, New York 10048 or Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the Commission at 1-800-SEC-
0330 for further information on the operation of the public reference rooms.
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We will also file annual, quarterly and current reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information on file at the public reference rooms. You can
also request copies of these documents, for a copying fee, by writing to the
Commission.
Our Commission filings and the Registration Statement can also be reviewed
by accessing the Commission's internet site at http://www.sec.gov, which
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
Quarterly and annual earnings releases will be made available to investors
in Europe through the EASDAQ Regulatory Company Reporting System and
international information vendors.
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PRIME RESPONSE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999............. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998 and 1999................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999.................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Prime Response, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in stockholders'
equity (deficit) and of cash flows present fairly, in all material respects,
the financial position of Prime Response, Inc. and its subsidiaries at December
31, 1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred losses and negative cash flows
from operations since its reorganization in 1997, which raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 2000
F-2
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, Pro Forma
------------------ December 31,
1998 1999 1999
-------- -------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 530 $ 3,999 $ --
Accounts receivable, net of allowance for
doubtful accounts of $43 and $147,
respectively............................... 4,815 9,057 9,057
Prepaid and other current assets............. 1,163 2,595 2,595
-------- -------- -------
Total current assets........................ 6,508 15,651 11,652
Property and equipment, net................... 2,111 2,602 2,602
Goodwill and other intangible assets, net..... 1,533 7,262 7,262
-------- -------- -------
Total assets................................ $ 10,152 $ 25,515 $21,516
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................. $ 1,692 $ 3,920 $ 3,920
Short-term debt and capital lease
obligations................................ 443 2,289 2,289
Accrued expenses and other liabilities....... 2,702 4,472 10,782
Accrued interest income...................... -- 176 176
Deferred revenue............................. 1,609 6,074 6,074
-------- -------- -------
Total current liabilities................... 6,446 16,931 23,241
Long-term debt and capital lease obligations.. 530 311 311
Long-term accrued interest income............. -- 1,398 1,398
Other long-term liabilities................... 500 -- --
Commitments and contingencies (Note 6)
Redeemable common stock, $0.01 par value,
1,249,500 shares issued and outstanding at
December 31, 1998; 1,677,307 shares issued
and outstanding at December 31, 1999 and
1,249,500 shares issued and outstanding on a
pro forma basis............................. 4,275 8,295 4,275
Series A redeemable convertible preferred
stock, $0.01 par value, 1,155,000 shares
authorized; 1,155,000 shares issued and
outstanding at December 31, 1998 and 1999,
and 0 shares issued and outstanding on a pro
forma basis (liquidation value:
$51,546,000)................................ 25,946 27,842 --
Series B redeemable convertible preferred
stock, $0.01 par value; 1,700,000 shares
authorized; 866,500 issued and outstanding
at December 31, 1998, 1,699,834 shares
issued and outstanding at December 31, 1999,
and 0 shares issued and outstanding on a pro
forma basis (liquidation value:
$21,263,000)................................ 5,315 10,343 --
Series C redeemable convertible preferred
stock, $0.01 par value, 3,000,000 shares
authorized; 1,833,331 shares issued and
outstanding at December 31, 1999, and 0
shares issued and outstanding on a pro forma
basis (liquidation value: $11,000,000)...... -- 4,891 --
Stockholders' equity (deficit):
Common stock, $0.01 par value: 27,750,000
shares authorized (including redeemable
common stock); 5,785,500 shares issued and
outstanding at December 31, 1998; 6,453,506
issued and outstanding at December 31,
1999, and 16,046,663 shares issued and
outstanding on a pro forma basis........... 58 65 161
Additional paid-in capital................... (12,232) 6,520 83,936
Accumulated other comprehensive income....... (12) (12) (12)
Accumulated deficit.......................... (20,674) (46,127) (86,852)
Note receivable from shareholder............. -- (2,545) (2,545)
Deferred compensation........................ -- (2,397) (2,397)
-------- -------- -------
Total stockholders' equity (deficit)........ (32,860) (44,496) (7,709)
-------- -------- -------
Total liabilities and stockholders' equity
(deficit)................................. $ 10,152 $ 25,515 $21,516
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Software licenses............................. $ 2,933 $ 8,495 $ 10,134
Services and support.......................... 2,495 4,214 6,519
Applications hosting.......................... 4,754 3,827 3,869
---------- ---------- ----------
Total revenues............................. 10,182 16,536 20,522
---------- ---------- ----------
Cost of revenues:
Software licenses............................. 83 152 --
Services and support.......................... 3,052 6,477 4,522
Applications hosting.......................... 1,923 2,477 2,776
Non-cash cost of revenues..................... -- -- 113
---------- ---------- ----------
Total cost of revenues..................... 5,058 9,106 7,411
---------- ---------- ----------
Gross profit.................................... 5,124 7,430 13,111
---------- ---------- ----------
Operating expenses:
Sales and marketing........................... 2,788 9,459 13,285
Non-cash sales and marketing.................. -- -- 266
Research and development...................... 2,947 6,289 10,185
Non-cash research and development............. -- -- 63
General and administrative.................... 1,396 4,843 4,112
Non-cash general and administrative........... -- -- 1,732
Amortization of goodwill and other intangible
assets....................................... -- 1,279 1,245
---------- ---------- ----------
Total operating expenses................... 7,131 21,870 30,888
---------- ---------- ----------
Loss from operations............................ (2,007) (14,440) (17,777)
Other income (expense):
Interest income............................... 155 219 115
Interest expense.............................. (227) (294) (184)
Interest expense related to beneficial
conversion feature........................... -- -- (2,500)
Loss on foreign exchange...................... (7) (88) (58)
---------- ---------- ----------
Loss before income taxes........................ (2,086) (14,603) (20,404)
Provision for income taxes...................... (159) -- (15)
---------- ---------- ----------
Net loss...................................... (2,245) (14,603) (20,419)
Preferred stock dividends and recognition of
beneficial
conversion feature on preferred stock.......... (607) (2,015) (5,034)
---------- ---------- ----------
Net loss attributable to common stockholders.... $ (2,852) $ (16,618) $ (25,453)
========== ========== ==========
Net loss per share-basic and diluted............ $ (2.43) $ (2.36) $ (3.44)
========== ========== ==========
Weighted average shares used in computing basic
and diluted net loss per share................. 1,173,000 7,035,000 7,405,000
========== ========== ==========
Unaudited pro forma net loss per share-basic and
diluted........................................ $ (1.71)
==========
Weighted average shares used in computing
unaudited pro forma basic and diluted net loss
per share...................................... 14,906,000
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
<TABLE>
<CAPTION>
Accumulated Retained Total
Ordinary Shares Common Stock Additional Other Earnings Stockholders'
----------------- ---------------- Paid-in Comprehensive (Accumulated Note Deferred Equity
Shares Amount Shares Amount Capital Income Deficit) Receivable Compensation (Deficit)
------- ------- --------- ------ ---------- ------------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December
31, 1996........ 100 -- -- -- -- $(40) $ (825) -- -- $ (865)
Net loss........ -- -- -- -- -- -- (2,245) -- -- (2,245)
Foreign currency
translation
adjustments.... -- -- -- -- -- 46 -- -- -- 46
--------
Total
comprehensive
income......... (2,199)
Dividends
declared....... -- -- -- -- -- -- (385) -- -- (385)
Reorganization.. (100) -- 5,785,500 58 (12,232) -- -- -- -- (12,174)
Accrual of
dividends on
redeemable
convertible
preferred stock
and accretion
to redemption
value.......... -- -- -- -- -- -- (604) -- -- (604)
------- ------- --------- --- ------- ---- -------- ------- ------- --------
Balance, December
31, 1997........ -- -- 5,785,500 58 (12,232) 6 (4,059) -- -- (16,227)
Net loss........ -- -- -- -- -- -- (14,603) -- -- (14,603)
Foreign currency
translation
adjustments.... -- -- -- -- -- (18) -- -- -- (18)
--------
Total
comprehensive
income......... (14,621)
Accrual of
dividends on
redeemable
convertible
preferred stock
and accretion
to redemption
value.......... -- -- -- -- -- -- (2,012) -- -- (2,012)
------- ------- --------- --- ------- ---- -------- ------- ------- --------
Balance, December
31, 1998........ -- -- 5,785,500 58 (12,232) (12) (20,674) -- -- (32,860)
Net loss and
total
comprehensive
income......... -- -- -- -- -- -- (20,419) -- -- (20,419)
Issuance of
common stock
and warrants... -- -- -- -- 8,467 -- -- -- -- 8,467
Recognition of
beneficial
conversion
feature on
preferred
stock.......... -- -- -- -- 2,391 -- (2,391) -- -- --
Recognition of
beneficial
conversion
feature on
convertible
debt........... -- -- -- -- 2,500 -- -- -- -- 2,500
Accrual of
dividends on
redeemable
convertible
preferred stock
and accretion
to redemption
value.......... -- -- -- -- -- -- (2,643) -- -- (2,643)
Exercise of
stock options.. -- -- 31,781 1 109 -- -- -- -- 110
Exercise of
stock options
in exchange for
notes
receivable..... -- -- 636,225 6 2,539 -- -- (2,545) -- --
Compensation
related to
grants of stock
options........ -- -- -- -- 2,746 -- -- -- (2,602) 144
Amortization of
deferred
compensation... -- -- -- -- -- -- -- -- 205 205
------- ------- --------- --- ------- ---- -------- ------- ------- --------
Balance, December
31, 1999........ -- $ -- 6,453,506 $65 $ 6,520 $(12) $(46,127) $(2,545) $(2,397) $(44,496)
======= ======= ========= === ======= ==== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PRIME RESPONSE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1998 1999
-------- --------- --------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss....................................... $ (2,245) $ (14,603) $(20,419)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and
equipment................................... 304 654 1,032
Amortization of goodwill and intangibles...... -- 1,279 1,394
Gain on sale of fixed assets.................. -- (12) --
Compensation expense related to stock
options..................................... -- -- 2,025
Interest expense related to beneficial
conversion feature.......................... -- -- 2,500
Changes in assets and liabilities:
Accounts receivable.......................... (1,106) (1,739) (4,313)
Prepaid and other current assets............. (442) (560) (1,448)
Accounts payable............................. 1,098 (98) 2,258
Accrued expenses and other liabilities....... 877 1,426 1,329
Deferred revenue............................. (34) (94) 4,492
-------- --------- --------
Net cash used in operating activities...... (1,548) (13,747) (11,150)
-------- --------- --------
Cash flows used in investing activities:
Purchase of property and equipment............. (575) (1,086) (1,428)
Proceeds from sale of fixed assets............. -- 20 --
Payment for acquired business.................. -- (2,812) --
-------- --------- --------
Net cash used in investing activities...... (575) (3,878) (1,428)
-------- --------- --------
Cash flows provided by (used in) financing
activities:
Proceeds from issuance of redeemable common
stock and warrants........................... 4,275 -- 4,000
Proceeds from issuance of preferred stock
(Series A, B and C) and warrants, net of
issuance costs............................... 19,171 5,199 8,001
Proceeds from credit facility.................. -- -- 2,000
Repayment of bank loans........................ (110) (275) (162)
Proceeds from shareholder loans................ -- -- 2,500
Repayment of capital lease..................... (112) (197) (329)
Repayment of directors' loans.................. -- (8,113) --
Increase (decrease) in line of credit.......... 728 (561) --
Dividends paid................................. (227) -- --
Proceeds from exercise of stock options........ -- -- 110
-------- --------- --------
Net cash provided by (used in) financing
activities............................... 23,725 (3,947) 16,120
-------- --------- --------
Effect of exchange rate on cash................. 46 (4) (73)
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents................................... 21,648 (21,576) 3,469
Cash and cash equivalents, beginning of year.... 458 22,106 530
-------- --------- --------
Cash and cash equivalents, end of year.......... $ 22,106 $ 530 $ 3,999
======== ========= ========
Supplemental disclosure of non-cash
transactions:
Assets acquired under capital leases........... $ 229 $ 710 $ 132
======== ========= ========
Promissory note issued for directors'
shareholdings in connection with group
reorganization............................... $ 7,899 -- --
======== ========= ========
Issuance of restricted common stock in exchange
for note receivable from shareholder......... -- -- $ 2,545
======== ========= ========
Conversion of shareholder loan to Series C
preferred stock.............................. -- -- $ 2,500
======== ========= ========
Supplemental cash flow disclosure:
Interest paid.................................. $ 227 $ 294 $ 147
======== ========= ========
Income taxes paid.............................. $ 256 -- $ 15
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
The Company
Prime Response, Inc. ("PRI") together with its consolidated subsidiaries
("Prime Response") is a leading provider of integrated eMarketing software
solutions that enable businesses with large customer bases to create, manage
and execute highly targeted internet and traditional marketing campaigns to
build more loyal and profitable customer relationships. Prime Response's
customers consist primarily of Fortune 1000 businesses as well leading e-
commerce businesses primarily based in the United States and Europe. Prime
Response sells its products through multiple distribution channels including
direct sales and resellers.
Basis of Presentation
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States.
These financial statements represent the consolidated results of PRI and
its predecessor, Prime Response Limited ("PRL"). PRI was formed as a holding
company on September 26, 1997 and acquired 100% of the outstanding ordinary
shares of PRL (a company incorporated in the United Kingdom in 1987) on October
23, 1997. Refer to Note 5 for discussion of the reorganization and exchange of
common stock of Prime Response for ordinary shares in PRL.
Prime Response is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological developments,
reliance on continued development and acceptance of the internet, intense
competition and a limited operating history. Prime Response has sustained
losses and negative cash flows from its operations since its reorganization in
October 1997 (see Note 5). These matters raise substantial doubt about Prime
Response's ability to continue as a going concern for at least the next twelve
months. Management currently intends to raise cash through a firm commitment
underwritten initial public offering, the proceeds of which are expected to
exceed cash requirements for the next twelve months. If the initial public
offering is not successfully completed, management intends to obtain
alternative financing through the private placement of debt or equity, and
reduce expenditures so as to minimize requirements for additional financial
resources. Management believes that, if this offering is not completed, Prime
Response will be able to successfully execute its alternative plans. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Prime Response declared a 0.75 for 1 reverse common stock split on February
2, 2000. All share and per share amounts presented relating to common stock
have been restated to reflect the common stock split.
Principles of Consolidation
The consolidated financial statements include the accounts of PRI and its
wholly-owned domestic and foreign subsidiaries. All intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of the consolidated 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 amount of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Concentration of Credit Risk
Prime Response's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash, cash equivalents, and accounts
receivable. Prime Response's accounts receivable result primarily from
operations and reflect a broad customer base both in the United States and
Europe. Prime Response does not require collateral for its receivables.
Fair Value of Financial Instruments
Prime Response's financial instruments consist of cash, cash equivalents
and debt and redeemable instruments. The carrying amounts of these instruments
at December 31, 1999 approximate their fair values.
Cash and Cash Equivalents
Prime Response considers all highly liquid investments which have an
original maturity of three months or less when acquired to be cash equivalents.
Software Development Costs
Software development costs are included in research and development
expenses and are expensed as incurred. Statement of Financial Accounting
Standards No. 86, "Accounting for the Cost of Computer Software to be Sold,
Leased, or Otherwise Marketed" (SFAS 86) requires the capitalization of certain
software development costs once technological feasibility is established. The
capitalized cost is then amortized on a straight-line basis over the estimated
product life, or on the ratio of current revenues to total projected product
revenues, whichever is greater. To date, the period between achieving
technological feasibility, which Prime Response has defined as the
establishment of a working model, and the general availability of such software
has been short and software development costs qualifying for capitalization
have not been material. Accordingly, Prime Response has not capitalized any
software development costs.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided using
the straight line method over the assets' estimated useful lives, based on the
following asset lives:
<TABLE>
<S> <C>
Motor vehicles.................................................... 4 years
Computer equipment................................................ 3 years
Furniture and equipment........................................... 6 years
</TABLE>
The cost of significant additions and improvements is capitalized and
depreciated while expenditures for maintenance and repairs are charged to
expense as incurred. Upon retirement or sale, the cost and related accumulated
depreciation of the assets are removed from the accounts and any resulting gain
or loss is reflected in the determination of net income or loss.
Goodwill and Other Intangible Assets
Prime Response amortizes goodwill and related intangible assets over
estimated useful lives. Prime Response performs impairment reviews whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. In performing the review for recoverability Prime
Response estimates the future cash flows expected to result from the use of the
asset. If the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset, an impairment
loss is recognized.
F-8
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Prime Response sells software licenses under master license agreements and
recognizes revenue when the agreement has been signed, the software has been
shipped (or software has been electronically delivered), the license fee is
fixed and determinable, and collection of the resulting receivable is probable.
For license agreements which require customer acceptance, license revenues are
recognized only when obligations under the license agreement are completed and
the software has been accepted by the customer. Prime Response provides
professional services to customers under service contracts and recognizes
revenue on a time and materials basis as the services are performed, provided
that amounts due from customers are fixed and determinable and deemed
collectible by management. These services are not essential to the
functionality of the software and are often performed by other parties. Support
revenues, including those bundled with the initial license fee, are deferred
and recognized ratably over the support period. In the event that a contract
contains multiple elements, Prime Response allocates the aggregate of the
contract value to each element based on relative fair values as established by
vendor specific objective evidence. Vendor specific objective evidence is based
on recent sales prices. Prime Response provides applications hosting services
to customers and recognizes revenue as the services are performed.
Revenues and profits under long-term fixed price contracts are recognized
using percentage completion accounting. These contracts are assessed for losses
and such losses are provided for in total in the period in which the losses
become known.
Prime Response typically does not grant to its customers a contractual
right to return software products. When approved by management, however, Prime
Response has accepted returns of certain software products and has provided an
allowance for those specific products. Prime Response also provides reserves
for customer receivable balances which are considered potentially
uncollectible. Prime Response's allowances amounted to $112,000, $43,000 and
$147,000 as of December 31, 1997, 1998 and 1999, respectively. The provision
charged to the statement of operations was $92,000, $147,000 and $104,000 in
1997, 1998 and 1999, respectively, and write-offs against the allowances were
$0, $216,000, and $0 in 1997, 1998 and 1999 respectively.
Cost of Revenues
All costs associated with software license production and distribution,
primarily preparation and translation of user manuals, are recorded as cost of
revenues for license fees. All costs associated with the services and support,
comprising mainly labor and overhead costs, are recorded as cost of revenues
for services and support. Services and support cost of revenues include any
unbillable time related to the personnel associated with the professional
services group. All costs associated with applications hosting, comprising
mainly labor, equipment and overhead costs, are recorded as cost of revenues
for applications hosting.
Foreign Currency Translation
Prime Response has determined that the functional currency of each foreign
operation is the respective local currency. Transactions in a foreign currency
are recorded at the rate of exchange on the date of the transaction. Assets and
liabilities at year end are translated at the rate of exchange in effect at the
period end. Translation gains or losses are included as a component of
accumulated other comprehensive income in stockholders' equity.
Income Taxes
Prime Response recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Deferred tax liabilities
F-9
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
and assets are determined on the basis of the difference between the income tax
basis of assets and liabilities and their respective financial reporting
amounts at tax rates in effect for the periods in which the differences are
expected to reverse. Prime Response provides a valuation allowance for deferred
tax assets when it is more likely than not, based on available evidence, that
some portion or all of the deferred tax assets will not be realized.
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 does not differ from basic net loss per
share since potential common shares from conversion of preferred stock and
exercise of stock options and warrants are antidilutive for all periods
presented. For the year ended December 31, 1996, basic and diluted net loss per
share is computed by dividing the net loss for the period by the weighted
average number of ordinary shares outstanding during the period.
Pro forma net loss per share for the years ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of Prime Response's
Series A, B and C convertible preferred stock into shares of common stock
effective upon the closing of Prime Response's initial public offering as if
such conversion occurred at the date of the original issuance. The number of
shares to be issued for the participation payment is calculated based on $12.00
per share market value.
Options to purchase 737,000 and 1,387,000 shares of common stock at
exercise prices ranging from $3.41 to $10.80 per share, respectively, and
warrants to purchase none and 1,246,000 shares of common stock at exercise
prices ranging from $0.01 to $9.35 per share, respectively, have been excluded
from the computation of diluted net loss per share for the years ended December
31, 1998 and 1999, respectively.
Pro Forma Balance Sheet (Unaudited)
Upon the closing of Prime Response's initial public offering, all shares of
Series A, B and C convertible preferred stock outstanding at December 31, 1999
will automatically convert into 6,324,000 shares of Prime Response's common
stock, 428,000 shares of redeemable common stock will convert into 428,000
shares of common stock, 2,841,000 shares of common stock will be issued to
holders of the preferred stock in payment of accrued dividends and
participation feature and an aggregate cash payment of $10.3 million will be
made to some holders of preferred stock. The unaudited pro forma presentation
of the balance sheet has been prepared assuming the conversion of the preferred
stock into common stock and issuance of common stock for the participation and
dividend payments as of December 31, 1999.
Stock Based Compensation
Prime Response accounts for stock-based employee compensation arrangements
in accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation."
Segment Information
Prime Response has adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information,"
which requires companies to report selected information about operating
segments, as well as enterprise-wide disclosures about products, services,
geographic areas, and major customers. Operating segments are determined based
on the way management organizes its business for
F-10
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
making operating decisions and assessing performance. Prime Response has
determined that it conducts its operations in three business segments, software
licenses, applications hosting and services and support.
Comprehensive Income
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS 130").
Prime Response adopted SFAS 130 on January 1, 1998. SFAS 130, established
standards for reporting comprehensive income and its components, and is
presented in the consolidated statements of stockholders' equity. The
measurement and presentation of net income did not change. Comprehensive income
is comprised of net income and other comprehensive income. Other comprehensive
income includes certain changes in equity that are excluded from net income,
such as translation adjustments.
Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position No. 98-4 "Deferral of
the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition"
("SOP 98-4"). SOP 98-4 defers, for one year, the application of certain
passages in SOP 97-2 which limit what is considered vendor-specific objective
evidence ("VSOE") necessary to recognize revenue for software licenses on
multiple-element arrangements when undelivered elements exist. In December
1998, the AICPA issued Statement of Position No. 98-9 "Modifications of SOP 97-
2, Software Revenue Recognition, with Respect of Certain Transactions" ("SOP
98-9") which further extends the deferral of certain passages of SOP 97-2
relating to vendor specific objective evidence established in SOP 98-4 and also
defines "residual value." The provisions of SOP 98-9 have been adopted for
transactions entered during the fiscal year beginning January 1, 1999. Prime
Response does not anticipate that this pronouncement will have a material
effect on its results.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
SFAS 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarter
subsequent to June 19, 1998. Upon initial application, all derivatives are
required to be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be reassessed and documented pursuant to the provisions of
SFAS 133. Prime Response does not anticipate that this pronouncement will have
a material effect on its reported results or financial position.
2. Balance Sheet Components
<TABLE>
<CAPTION>
December 31,
--------------
1998 1999
------ ------
<S> <C> <C>
Property and equipment (in thousands):
Furniture and equipment................................... $ 561 $ 621
Furniture and equipment under capital lease............... 504 560
Computer equipment........................................ 2,668 3,698
Computer equipment under capital lease.................... 438 760
Motor vehicles under capital lease........................ 96 94
------ ------
4,267 5,733
Accumulated depreciation on owned assets.................... (1,879) (2,561)
Accumulated amortization on assets under capital lease...... (277) (570)
------ ------
$2,111 $2,602
====== ======
</TABLE>
F-11
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Depreciation expense for the years ended December 31, 1997, 1998 and 1999
was $250,000, $439,000, and $724,000, respectively.
Amortization expense for the years ended December 31, 1997, 1998 and 1999
was $55,000, $215,000, and $308,000, respectively.
<TABLE>
<CAPTION>
December 31,
-------------
1998 1999
------ ------
<S> <C> <C>
Accrued expenses and other liabilities (in thousands):
Accrued compensation and related payroll taxes.............. $1,263 $1,917
Dividends payable........................................... -- --
Accrued reseller commissions................................ 466 --
VAT payable................................................. -- 276
Amounts due to customer* ................................... -- 500
Other creditors and accruals................................ 973 1,779
------ ------
$2,702 $4,472
====== ======
</TABLE>
* In November 1999 Prime Response agreed to refund amounts for a software
license fee paid by a customer in 1998. This amount is payable in the
amount of $125,000 per quarter for four quarters commencing in January
2000. No revenue was recognized in relation to this sale.
3. Debt
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December
31,
------------
1998 1999
---- ------
<S> <C> <C>
Bank line of credit......................................... $167 $ --
Term loans.................................................. -- 2,000
---- ------
Total debt.................................................. 167 2,000
---- ------
Less: short-term debt and current maturities of
long-term debt........................................... (167) (2,000)
---- ------
Long-term debt.............................................. $ -- $ --
==== ======
</TABLE>
Bank Line of Credit
The Line of Credit expired on December 1, 1999. At December 31, 1998,
borrowings under the Line of Credit bore interest, payable quarterly, at the
lender's base rate plus 2.75% (9.00% at December 31, 1998). Borrowings under
the Line of Credit were collateralized by a security interest in substantially
all of the assets of Prime Response. The Line of Credit also required Prime
Response to comply with certain affirmative and negative covenants, including
the maintenance of specified financial ratios.
Term Loans
On October 28, 1999, Prime Response entered into an agreement with Greyrock
Capital which provided for a term loan of $2,000,000 which was received by
Prime Response upon execution of the agreement. This term loan is payable in
quarterly installments for one year beginning on February 28, 2000. Interest
accrues at
F-12
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
prime plus 2.00% (10.50% at December 31, 1999) and is payable monthly. The
agreement also will allow Prime Response to borrow against outstanding
receivable balances up to $3,000,000. This agreement will automatically renew
on November 30, 2000 and each year thereafter unless terminated by either
party.
4. Redeemable Convertible Preferred Stock
Issuance
The following table sets forth the redeemable convertible preferred stock
("preferred stock") activity (in thousands):
<TABLE>
<CAPTION>
Series A Series B Series C Total
--------------- --------------- --------------- ---------------
Carrying Carrying Carrying Carrying
Shares Value Shares Value Shares Value Shares Value
------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance October 1997 1,155 $23,446 -- $ -- -- $ -- 1,155 $23,446
Accrual of cumulative
dividends and
accretion to
redemption value -- 604 -- -- -- -- -- 604
----- ------- ----- ------- ----- ------ ----- -------
Balance December 31,
1997 1,155 24,050 -- -- -- -- 1,155 24,050
Issuance September 1998 -- -- 867 5,199 -- -- 867 5,199
Accrual of cumulative
dividends and
accretion to
redemption value -- 1,896 -- 116 -- -- -- 2,012
----- ------- ----- ------- ----- ------ ----- -------
Balance December 31,
1998 1,155 25,946 867 5,315 -- -- 2,022 31,261
Issuance March 1999 -- -- 833 4,281 -- -- 833 4,281
Issuance July 1999 -- -- -- -- 1,000 2,391 1,000 2,391
Issuance October 1999 -- -- -- -- 833 2,500 833 2,500
Accrual of cumulative
dividends and
accretion to
redemption value -- 1,896 -- 747 -- -- -- 2,643
----- ------- ----- ------- ----- ------ ----- -------
Balance December 31,
1999 1,155 $27,842 1,700 $10,343 1,833 $4,891 4,688 $43,076
===== ======= ===== ======= ===== ====== ===== =======
</TABLE>
Redemption
The holders of Series A, B and C preferred stock are entitled to receive a
payment of $20.52, $6.00 and $3.00, respectively, to be paid in cash or, at the
option of Prime Response or the surviving entity, in securities of Prime
Response or the surviving entity or other consideration received by the holders
of shares of common stock in the event of a merger.
Prime Response is required to reserve and keep available for issuance upon
the conversion of the Series A, B and C preferred stock, such number of its
authorized but unissued shares of common stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series A, B
and C preferred stock, and is required to take all action to increase the
authorized number of share of common stock if at anytime there shall be
insufficient authorized but unissued share of common stock to permit such
reservation or to permit the conversion of all outstanding share of Series A, B
and C preferred stock.
These contractual terms make the Series A, B and C preferred stock
redeemable.
When issued, each share of Series C preferred stock in the July 1999
issuance was convertible into 0.75 shares of common stock, which represents a
discount from the fair value of common stock on the date of the
F-13
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Series C issuance. The value attributable to this conversion feature represents
an incremental yield, or a beneficial conversion feature, which will be
recognized as a return to the preferred stockholders. This amount, equal to the
net proceeds from the Series C offering of approximately $2,391,000, has been
recorded as accretion of preferred stock to redemption value in the
consolidated statement of operations in the year ended December 31, 1999, and
represents a non-cash charge in the determination of net loss attributable to
common stockholders.
In August and September 1999, Prime Response obtained loans of $1,000,000
and $1,500,000, respectively, from a shareholder which were converted into
833,000 shares of Series C preferred stock in October 1999. When issued, both
the August and September loans were immediately convertible into Series C
preferred stock at the option of the holder. The number of shares of Series C
preferred stock to be issued is calculated by dividing the principal amount of
the notes by $3.00, which represents a discount from the fair value of common
stock on the date of issuance. The values attributable to the conversion
feature on each loan represent an incremental yield, or a beneficial conversion
feature, which are recognized as additional interest on the loans. These
amounts, equal to the proceeds from each loan of $1,000,000 and $1,500,000,
respectively, have been charged to interest expense in the consolidated
statement of operations in the year ended December 31, 1999, reflecting a non-
cash expense.
Conversion
Each share of Series A, B and C are convertible into 3.1282, 0.7858 and
0.75 shares, respectively, of common stock ("common stock") at the option of
the holders of the preferred stock or automatically upon closing of an initial
public offering.
At December 31, 1999, the Series A, B and C preferred shares were
convertible into a total of 6,324,000 shares of common stock. Prime Response
has reserved 3,613,000, 1,336,000 and 1,375,000 shares for the conversion of
Series A, B and C preferred stock, respectively.
Liquidation
In the event of any liquidation of Prime Response, the holders of Series A,
B and C preferred stock are entitled to receive, in preference to common
stockholders and all others, on a pro-rata basis, $20.52, $6.00 and $3.00 per
share, respectively, plus all accrued and unpaid dividends whether or not
declared.
Dividends
The holders of Series A and B preferred stock are entitled to receive
cumulative dividends in the amount of $3.59 and $0.51 per share, respectively,
accruing daily, whether or not declared by the Board of Directors. These
dividends are payable upon initial public offering, liquidation or merger of
Prime Response. Cumulative
and unpaid dividends on the Series A and B preferred stock at December 31, 1999
were $4,145,000 and $863,000, respectively. The holders of Series C preferred
stock are not entitled to dividends. Dividends awarded to holders of Series A
preferred stock are payable in shares of common stock. Dividends awarded to
holders of Series B preferred stock are payable in cash or in shares of common
stock, at the option of the preferred stock holder.
Participation Payment
In the event of an initial public offering the holders of Series A and C
preferred stock are entitled to receive, in addition to accrued dividends and
the common stock conversion feature, $20.52 and $3.00 per share,
F-14
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
respectively, to be paid in shares of common stock. The number of shares of
common stock to be issued will be calculated based on the valuation of the
initial public offering. In the event of an initial public offering, the
holders of Series B preferred stock are entitled to receive, in addition to
accrued dividends and the conversion payment, $6.00 per share to be paid in
shares of common stock or cash, as elected by the holder. If payment in common
stock is elected, the number of shares of common stock to be issued will be
calculated based on the valuation of the initial public offering.
In the event of a merger or sale prior to an initial public offering, the
holders of Series A, B and C preferred stock are entitled to receive, in
addition to accrued dividends and the liquidation payment, a cash payment of
$20.52, $6.00 and $3.00 per share, respectively.
Voting
The holders of preferred stock shares are entitled to vote, together with
holders of common stock on all matters submitted to stockholders for vote. Each
preferred stock holder is entitled to a number of votes equal to the number of
shares of common stock into which each preferred stock share is convertible at
the time of such vote.
5. Common Stock
Reorganization
Prime Response Group Inc. was incorporated on September 26, 1997. In
October 1997 Prime Response Group Inc. affected a reorganization involving an
exchange of common stock in Prime Response Group Inc. and a Promissory Note
("Note") for all of the outstanding ordinary shares of PRL. Additionally
certain subsidiary companies of PRL became direct subsidiaries of Prime
Response Group Inc. Prior to this reorganization, Prime Response Group Inc. had
no operating activities of its own, all operations were conducted by PRL and
its subsidiaries.
In order to effect this reorganization, on October 23, 1997 Prime Response
Group Inc. issued 7,035,000 shares of common stock and a Note for $7,899,000 to
the former shareholders of PRL, a company incorporated in the United Kingdom in
1987 and PRI's principal operating subsidiary. The Note was repaid in July
1998. In exchange, the former shareholders of PRL transferred their shares in
that company to Prime Response Group Inc. and issued an option to Prime
Response Group Inc. to repurchase 1,249,500 of these shares at an exercise
price of $3.42 per share and expires on September 30, 2000 on which date the
shareholder has the right to put these shares to Prime Response at the same
price. Prime Response has recorded the 1,249,500 as redeemable common stock and
the remaining 5,785,500 as common stock.
The shares in PRL are held by Prime Response Group Inc. as an investment in
that subsidiary and are eliminated in consolidation. The exchange of shares in
PRL for those in Prime Response Group Inc. represents a transaction between
companies under common control and therefore no change in accounting basis was
recorded.
Holders of PRI's common stock are entitled to one vote per share.
Employee Stock Option Plan
In April 1998 Prime Response's Board of Directors adopted, and the
stockholders subsequently approved the 1998 Stock Option/Stock Issuances Plan
(the "1998 Plan"). The 1998 Plan serves as the successor equity incentive
program to the Company's 1997 Employee Stock Option Plan under which no options
were issued.
F-15
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The 1998 Plan is divided into two separate components: (i) the
Discretionary Option Grant Program; and (ii) the Stock Issuance Program. The
1998 Plan will terminate on April 21, 2008 unless terminated earlier by the
Board. The number of shares authorized in the 1998 Plan document of 1,250,000
was increased to 1,512,000 on September 30, 1998 and further increased to
2,148,000 on July 10, 1999. In October, 1999, Prime Response's Board of
Directors authorized an increase in the number of shares authorized for grant
to 2,898,000 and in November 1999, the Board of Directors further increased
the number of shares authorized to 3,273,000.
Options for common stock granted under the 1998 Plan are for exercise
within periods not to exceed ten years and must be issued at prices not less
than 100% and 85%, for incentive and non-qualified stock options,
respectively, of the fair value of the stock on the date of grant, unless a
lower value is approved by the Board of Directors. Incentive stock options
granted to stockholders who own greater than 10% of the outstanding stock are
for periods not to exceed five years and must be issued at prices not less
than 110% of the fair market value of the stock on the date of grant.
Options granted under the 1998 Plan vest in steps over a four-year period,
from commencement date, with the first 25% vesting after one year, and the
remainder vesting in 36 equal monthly installments.
Prime Response accounts for stock options granted to employees in
accordance with the provisions of Accounting Principles Board Opinion No. 25.
In connection with the grant of certain stock options to employees during the
period from commencement of the 1998 Plan (April 1998) to December 31, 1998
and during the year ended December 31, 1999, Prime Response recorded deferred
stock compensation of none and $2,602,000, respectively, representing the
difference between the estimated fair market value of the common stock on
measurement date and the exercise price. Compensation related to options which
vest over time was recorded as a component of stockholders' deficit and is
being amortized over the vesting periods of the related options. Prime
Response recorded compensation expense of none, none and $205,000 in 1997,
1998 and 1999, respectively in relation to these options. Compensation expense
related to restricted shares was recorded on grant date. Prime Response
recorded compensation expense of none, none and $1,677,000 in 1997, 1998 and
1999, respectively, in relation to these options. Compensation expense related
to remeasurement of stock options due to extensions of exercise periods was
recognized on the remeasurement date. Prime Response recorded compensation
expense of none, none and $143,000 in 1997, 1998 and 1999, respectively, in
relation to these options. Compensation expense is disclosed as a non-cash
expense in the related Statement of Operations line items.
Valuation of Stock Options
Had compensation expense for the Plans been determined based upon the
estimated grant date fair value pursuant to SFAS 123, Prime Response's net
loss for years ended December 31, 1998 and 1999 would have been as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1999
----------------- -----------------
<S> <C> <C>
Net loss (in thousands):
As reported......................... $(14,603) $(20,419)
Pro forma........................... $(14,710) $(20,574)
Net loss per share attributable to
common stockholders--basic and
diluted:
As reported......................... $ (2.36) $ (3.44)
Pro forma........................... $ (2.38) $ (3.46)
</TABLE>
F-16
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The fair value of these stock awards at the date of grant was estimated
using the minimum value method with the following assumptions:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1999
----------------- -----------------
<S> <C> <C>
Risk free interest rate................ 5.24% 5.43%
Dividend yield......................... 0% 0%
Expected volatility.................... 0% 0%
Expected life.......................... 10 years 10 years
</TABLE>
The determination of the fair value of all options granted should Prime
Response become a public entity will include an expected volatility factor,
additional option grants are expected to be made subsequent to December 31,
1999, and most options vest over several years, the above pro forma effects are
not necessarily indicative of the pro forma effects on future years.
Summary of Stock Options
A summary of the status of Prime Response's options as of December 31,
1998 and 1999 and changes during the periods then ended are presented
below.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1999
------------------- ---------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of period... -- -- 736,538 $3.41
Granted............................ 783,600 $3.41 1,613,144 4.92
Exercised.......................... -- -- (668,006) 3.97
Cancelled.......................... (47,062) 3.41 (294,203) 3.49
-------- ----- ---------- -----
Outstanding at end of period......... 736,538 $3.41 1,387,473 $4.88
======== ===== ========== =====
Options available for grant at end of
period............................. 775,462 1,217,746
======== ==========
Options granted at fair value:
Weighted average exercise price.... $ 3.41 $ 4.31
======== ==========
Weighted average fair value........ $ 1.42 $ 1.72
======== ==========
Options granted below fair value:
Weighted average exercise price.... $ 3.41 $ 6.09
======== ==========
Weighted average fair value........ $ 1.82 $ 7.45
======== ==========
</TABLE>
F-17
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Vested and Exercisable
------------------------
Weighted-
Average
Remaining
Contractual Number
Number Life (in of Weighted-Average
Exercise Price Outstanding Years) Shares Exercise Price
-------------- ----------- ----------- ------- ----------------
<S> <C> <C> <C> <C>
$3.41 452,593 7.53 251,382 $ 3.41
4.00 450,052 8.82 87,828 4.00
6.67 436,970 9.82 -- 6.67
10.80 47,858 9.92 -- 10.80
--------- ---- ------- ------
1,387,473 8.75 339,210 $ 3.56
========= ==== ======= ======
</TABLE>
Issuance of Warrants
During 1999, Prime Response issued warrants to purchase up to 313,000 and
251,000 shares of Prime Response's Common Stock at an exercise price of $3.41
and $.01 per share, respectively, in conjunction with the Series B and Series C
preferred stock issuance, respectively. The warrants have terms of five years
and seven years, respectively. The fair value of these warrants was determined
to be $2.69 and $11.84 per share, respectively, using the Black-Scholes option
pricing model, based on the following assumptions: 85.00% volatility, a term of
five and seven years, respectively, and interest rates of 5.87% and 6.07%,
respectively. The value of the warrants have been recorded as $720,000 and
$609,000, respectively, and have been included in additional paid in capital.
Also during 1999, Prime Response issued 682,000 warrants to Andersen
Consulting. See details of this warrant issuance in Note 6.
Shareholder Note Receivable and Restricted Stock
At December 31, 1999, Prime Response held a note receivable in the amount
of $2,545,000 from an employee shareholder in consideration for the issuance of
restricted stock. The note is non-interest bearing and is due on January 31,
2009. Imputed interest of $1,678,000 has been recognized for this note and will
be amortized as income over the life of the loan. Compensation expense of
$1,678,000 for the discount from fair value due to imputed interest was
recognized at the time the shares were issued. Shares vest and restrictions
lapse in accordance with the terms of the 1998 Stock Option/Stock Issuance
Plan. In the event employment is terminated, Prime Response can elect to
repurchase, and the employee is obligated to sell, any of the vested shares for
fair market value and any unvested shares for the original purchase price.
During 1999, 636,000 shares of common stock were issued subject to such time-
based restrictions and all remain unvested at December 31, 1999.
6. Andersen Consulting Relationship
On December 6, 1999, Prime Response and Andersen Consulting entered into a
joint marketing agreement and, along with an affiliate of Andersen Consulting,
a stock and warrant purchase agreement. Pursuant to the stock and warrant
purchase agreement, Andersen Consulting purchased 428,000 shares of common
stock and Andersen Consulting received a warrant to purchase 682,000 shares of
common stock. This warrant has an exercise price of $9.35 per share and vests
upon the earlier to occur of September 9, 2000 or the date of an acquisition of
Prime Response. Andersen Consulting also has a right of first refusal to
participate in any equity issuances by Prime Response prior to its initial
public offering in order to maintain its percentage
F-18
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ownership interest in Prime Response, subject to specified exceptions. The
aggregate purchase price paid by Andersen Consulting for the common stock and
this warrant was $4,000,000. Andersen Consulting has no performance obligations
under the stock and warrant purchase agreement or this warrant.
Prime Response has recorded the stock at fair value and based on a value
equal to 90% of the estimated mid-point of the initial public offering range.
The fair value of the stock is $4,622,400. Prime Response calculated the fair
value of the warrants on date of grant using Black Scholes model with the
following assumptions: 7 year useful life (life of warrant), 6.07% risk-free
interest rate, zero dividends and 85.19% volatility. Based on this calculation,
the extended fair value of the warrants is $6,536,080. Prime Response has
recorded an intangible asset of $7,010,000 which is equal to the excess of the
aggregate fair values of the common stock and warrants over the purchase price.
This asset is being amortized as a non-cash sales and marketing expense over
its estimated useful life of four years, which reflects the term of the
marketing agreement.
Prime Response issued a performance warrant to purchase 375,000 shares of
common stock to Andersen Consulting. Of this amount, 300,000 shares will vest
in share increments determined by the extent to which $2.0 billion exceeds
Prime Response's market capitalization at the time of its initial public
offering. An additional 75,000 shares will vest in increments of 7,500 shares
for each $100.0 million that market capitalization exceeds $2.0 billion, up to
a maximum market capitalization of $3.0 billion. This warrant has an exercise
price of $9.35 per share. Prime Response will measure the fair value of the
warrants when achievement of the market capitalization targets is probable. No
subsequent remeasurement will be necessary. Achievement of these targets was
not considered probable at December 31, 1999.
Prime Response also issued a performance warrant to purchase 375,000 shares
of common stock to Andersen Consulting which will vest in increments of 10,500
shares for each $1.0 million of sales resulting from joint marketing efforts up
to $25 million and then in increments of 4,500 shares for each $1.0 million of
sales from $25 million to $50 million. This warrant also has an exercise price
of $9.35 per share. Prime Response will measure the value of these warrants at
the time such targets are probable and will record an expense for the value of
the warrant at that time. This charge will be adjusted to the final value of
the warrant at the time the sales targets are met. Achievement of these targets
was not considered probable at December 31, 1999.
All warrants have a seven-year term. In the event that the marketing
agreement is terminated as a result of a breach by Andersen Consulting, no
further vesting under the warrants will occur, but those warrants already
exercisable will remain exercisable during their term to the extent then
vested.
In the event that neither an initial public offering nor any other
liquidity event occurs by January 1, 2001, Andersen Consulting or its
affiliates will have the right to require Prime Response to repurchase the
428,000 shares of common stock for $4,000,000. The repurchase amount will be
payable in three quarterly installments, plus 8% interest on the entire amount
beginning on January 1, 2001, plus additional interest of 7% per annum in the
event Prime Response fails to make any payment when due. This put right will
terminate upon an initial public offering or other liquidity event. As a result
of this put right, the common stock recorded in relation to this transaction
was classified as mandatorily redeemable common stock.
Prime Response is obligated to engage Andersen Consulting for consulting
services of at least $1.0 million before December 31, 2001. Services under this
agreement will be expensed as incurred; any short-fall from the $1.0 million
obligation will be expensed when considered probable.
F-19
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
If designated sales targets are met, Andersen Consulting is obligated to
provide up to $1.0 million in funding for joint marketing efforts, business
development personnel, structure feedback and sales support. The expenditure of
these funds will be controlled by a committee comprised of both Andersen
Consulting and Prime Response personnel. This obligation has not been recorded,
as the probability of achieving the designated sales targets is uncertain as of
December 31, 1999.
7. Commitments and Contingencies
Leases
Prime Response has several operating lease agreements primarily involving
real estate and computers and equipment. These leases are noncancelable and
expire on various dates through 2013. Rent expense for operating leases totaled
$897,000, $2,291,000, and $2,465,000 for the years ended December 31, 1997,
1998, and 1999, respectively. Future minimum rental payments under leases with
initial or remaining terms of one year or more are as follows:
<TABLE>
<CAPTION>
Operating Capital
--------- -------
(in thousands)
Year ending December 31,
<S> <C> <C>
2000....................................................... $1,847 $347
2001....................................................... 1,149 213
2002....................................................... 653 116
2003....................................................... 564 --
2004....................................................... 321 --
Thereafter................................................. 1,468 --
------ ----
Total future minimum lease payments........................ $6,002 $676
------ ----
Less: portion representing interest........................ (76)
----
$600
====
</TABLE>
8. Income Taxes
Prime Response, Inc.'s statutory and effective tax rates were 34% and 0%,
respectively, for each of the years ended December 31, 1998 and 1999. The
effective tax rate was 0% due to net operating losses ("NOL") and
nonrecognition of any deferred tax asset. For December 31, 1997 there was a
provision for income taxes relating to non-U.S. operations of $159,000
resulting in an effective tax rate of 7.6%.
Deferred tax assets (liabilities) are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
----------------------
1998 1999
------- --------
<S> <C> <C> <C>
Net operating loss carryforwards...................... $ 4,049 $ 8,708
Other deferred tax assets............................. 768 1,412
------- --------
Gross deferred tax asset.............................. 4,817 10,120
Valuation allowance................................... (4,817) (10,120)
------- --------
Net deferred taxes.................................... $ -- $ --
======= ========
</TABLE>
F-20
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Prime Response, Inc. has provided a full valuation allowance for the
deferred tax assets since it is more likely than not that these future benefits
will not be realized. If Prime Response, Inc. achieves profitability, a
significant portion of these deferred tax assets could be available to offset
future income taxes.
At December 31, 1999, Prime Response, Inc. has federal and state net
operating loss carryforwards of approximately $9,000,000 available to reduce
future federal and state income taxes payable. These net operating loss
carryforwards begin to expire in 2017 for federal purposes and 2003 for state
purposes. Prime Response, Inc. also has non-US net operating loss carryforwards
of $16,000,000, some of which begin to expire in 2003.
Under the Internal Revenue Code, certain substantial changes in Prime
Response, Inc.'s ownership could result in an annual limitation on the amount
of net operating loss and tax credit carryforwards which can be utilized in
future years.
Ownership changes, as defined in the Internal Revenue Code, including those
resulting from the issuance of common stock in connection with an initial
public offering, may limit the amount of net operating loss and tax credit
carryforwards that can be utilized to offset future taxable income or tax
liability. The amount of the annual limitation is determined in accordance with
Section 382 of the Internal Revenue Code.
9. Segment Analysis
Prime Response earned all of its revenue from external customers. Prime
Response is organized into three segments, software licenses, services and
support and applications hosting, to reflect the key sales lines. The
distribution of revenues and total assets by geographic location is as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, 1999
------------------------------------------------------------------------------------------------
1997 1998 1999
------------------------------ -------------------------------- ------------------------------
Rest Rest Rest
of of of
US UK World Total US UK World Total US UK World Total
------- ------- ----- ------- ------ ------- ------ ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses..... $ 65 $ 2,868 $-- $ 2,933 $3,295 $ 5,094 $ 106 $ 8,495 $ 1,462 $ 7,797 $ 875 $10,134
Services and support.. -- 2,495 -- 2,495 1,075 3,104 35 4,214 2,025 4,092 402 6,519
Applications hosting.. -- 4,754 -- 4,754 -- 3,827 -- 3,827 -- 3,869 -- 3,869
------- ------- --- ------- ------ ------- ------ ------- ------- ------- ------ -------
Total revenues....... $ 65 $10,117 $-- $10,182 $4,370 $12,025 $ 141 $16,536 $ 3,487 $15,758 $1,277 $20,522
======= ======= === ======= ====== ======= ====== ======= ======= ======= ====== =======
Gross profit:
Software licenses..... $ 59 $ 2,791 $-- $ 2,850 $3,290 $ 4,947 $ 106 $ 8,343 $ 1,462 $ 7,797 $ 875 $10,134
Services and support.. -- (557) -- (557) (631) (1,597) (35) (2,263) 118 1,745 21 1,884
Applications hosting.. -- 2,831 -- 2,831 -- 1,350 -- 1,350 -- 1,093 -- 1,093
------- ------- --- ------- ------ ------- ------ ------- ------- ------- ------ -------
Total gross profit... $ 59 $ 5,065 $-- $ 5,124 $2,659 $ 4,700 $ 71 $ 7,430 $ 1,580 $10,635 $ 896 $13,111
======= ======= === ======= ====== ======= ====== ======= ======= ======= ====== =======
Total assets......... $21,573 $ 5,149 $-- $26,722 $3,847 $ 3,555 $2,750 $10,152 $13,481 $11,392 $ 643 $25,516
======= ======= === ======= ====== ======= ====== ======= ======= ======= ====== =======
</TABLE>
10. Acquisitions
On January 19, 1998, Prime Response acquired certain intellectual property
rights and other intangible assets related to the MIND software business from
an Irish company, Admiral IT Services Limited, for consideration of $2,812,000.
The acquisition was accounted for under the purchase method of accounting. The
purchase price has been allocated to the assets acquired based upon the fair
market values as determined by Prime Response at the date of acquisition and
will be amortized on a straight-line basis over the estimated economic lives of
two years, principally for goodwill.
F-21
<PAGE>
PRIME RESPONSE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, Prime Response had accumulated amortization relating
to this intangible asset of $2,560,000.
11. Related Party Transactions
During the year ended December 31, 1999, Prime Response made sales
totaling $540,000 to a company which is partly owned by a significant
shareholder of Prime Response. At December 31, 1999, $110,000 remained
outstanding from this related party.
During the year ended December 31, 1999, Prime Response made sales
totaling $27,000 to a company which is partly owned by a significant
shareholder and which two of our Directors hold management and directorship
positions, respectively. At December 31, 1999, $27,000 remained outstanding
from this related party.
There were no material related party transactions during the years ended
December 31, 1997 and 1998.
12. Employee Benefit Plan
Prime Response offers a 401(k) plan to its our United States employees who
meet certain defined requirements. Under the terms of the 401(k) plan,
eligible employees may elect to make tax-deferred contributions, and Prime
Response may match 25% of the lesser of the contributing employee's elective
deferral or 4% of the contributing employee's total salary. During 1998 and
the year ended December 31, 1999, Prime Response contributed approximately
$11,000 and $20,000, respectively, to the 401(k) plan. Prime Response made no
contributions during 1997.
Prime Response offers comparable benefits to certain employees located
outside the United States.
F-22
<PAGE>
[email protected](TM), the name of our principle product, followed by:
[email protected](TM) can help our clients to build more profitable and
loyal customer relationships by developing and deploying immediate,
personalized marketing messages to existing and potential customers.
Underneath this description is a picture of a computer screen shot depicting
other carrier's marketing campaign and offering links to descriptions of the
Company's Marketing Strategies.
Below the screen shot is the following description:
This Event Logic Tree visually illustrates a multi-stage, multi-channel
marketing campaign aimed to help reduce customer "churn" for a fictitious
telcom company. The campaign segments the audience, allowing consistent
marketing messages to be delivered through various channels.
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee....................................... $ 13,813.80
NASD filing fee............................................ 57,325.50
Nasdaq National Market listing fee......................... 95,000.00
Blue Sky fees and expenses................................. 10,000.00
Transfer Agent and Registrar fees.......................... 30,000.00
Accounting fees and expenses............................... 500,000.00
Legal fees and expenses.................................... 200,000.00
Director and Officer Liability Insurance................... 143,860.70
Printing and mailing expenses.............................. 150,000.00
-------------
Total.................................................... $1,200,000.00
=============
</TABLE>
Item 14. Indemnification of Directors and Officers
Article EIGHTH of the Registrant's Third Amended and Restated Certificate
of Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount
advanced if it is ultimately determined that he is not entitled to
indemnification for such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that
II-1
<PAGE>
the director or officer did not meet the applicable standard of conduct
required for indemnification, or if the Registrant fails to make an
indemnification payment within 60 days after such payment is claimed by such
person, such person is permitted to petition the court to make an independent
determination as to whether such person is entitled to indemnification. As a
condition precedent to the right of indemnification, the director or officer
must give the Registrant notice of the action for which indemnity is sought and
the Registrant has the right to participate in such action or assume the
defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive,
and provides that in the event that the Delaware General Corporation Law is
amended to expand the indemnification permitted to directors or officers the
Registrant must indemnify those persons to the fullest extent permitted by such
law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent
of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his conduct was unlawful; provided
that, in the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such
person shall have been adjudged to be liable to the corporation unless and only
to the extent that the adjudicating court determines that such indemnification
is proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed
as Exhibit 1 hereto.
Item 15. Recent Sales of Unregistered Securities
Set forth in chronological order is information regarding shares of common
stock issued and options granted by the Registrant since November 1, 1996.
Further included is the consideration, if any, received by the Registrant for
such shares, warrants and options and information relating to the section of
the Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
(a) Issuances of Capital Stock.
In October, 1997, we issued and sold an aggregate of 1,155,000 shares of
Series A convertible preferred stock in a private financing for an aggregate
price of $23,697,000.
On September 21, 1998, we issued and sold an aggregate of 866,500 shares of
Series B convertible preferred stock in a private financing for an aggregate
purchase price of $5,199,000.
On March 2, 1999, we issued and sold an aggregate of 833,334 shares of
Series B convertible preferred stock in a private financing for an aggregate
purchase price of $5,001,004.
In March, 1999, we issued two warrants to purchase an aggregate of 312,500
shares of common stock at an exercise price of $3.4133 per share.
In June, 1999, we issued 636,225 shares our common stock to our chief
executive officer, Peter Boni, at a purchase price of $4.00 per share.
II-2
<PAGE>
On July 15, 1999, we issued and sold 1,000,000 shares of Series C
convertible preferred stock in a private financing for an aggregate purchase
price of $3,000,000.
On July 15, 1999, we issued two warrants to purchase an aggregate of
251,539 shares of common stock at an exercise price of $0.01 per share.
On October 19, 1999, we issued 833,331 shares of Series C convertible
preferred stock to two of our investors upon conversion of promissory notes
totaling $2,500,000.
On December 9, 1999, we issued warrants to purchase up to 1,432,282 shares
of common stock to Andersen Consulting. Of these, a warrant to purchase 682,233
shares of common stock was immediately exercisable, a warrant to purchase up to
375,000 shares of common stock vests upon market valuation on certain dates,
and a warrant to acquire 375,000 shares of common stock vests upon the
achievement of certain marketing goals. The exercise price of all such warrants
is $9.346 per share.
On December 9, 1999, we issued 427,806 shares of common stock to an
affiliate of Andersen Consulting for $4,000,000.
(b) Certain Grants and Exercises of Stock Options. As of December 31, 1999,
options to purchase 668,006 shares of common stock had been exercised for a
consideration of $2,655,000 under the Registrant's 1998 Stock Option/Stock
Issuance Plan and options to purchase 1,387,473 shares of common stock were
outstanding under the Registrant's 1998 Stock Option/Stock Issuance Plan. No
options to purchase shares of common stock are outstanding under the
Registrant's 1999 Non-Employee Director Stock Option Plan.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from Securities Act registration set forth
in Sections 3(b) and 4(2) of the Securities Act, or any regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering,
or (ii) in the case of certain options to purchase shares of common stock and
shares of common stock issued upon the exercise of such options, such offers
and sales were made in reliance upon an exemption from registration under Rule
701 of the Securities Act. No underwriters were involved in the foregoing sales
of securities.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
+3.1 Amended and Restated Certificate of Incorporation of Prime
Response, as amended
3.2 Second Amended and Restated Certificate of Incorporation of Prime
Response, to be filed with the Secretary of State of the State of
Delaware on February 2, 2000
3.3 Form of Third Amended and Restated Certificate of Incorporation of
Prime Response to be filed with the Secretary of State of the
State of Delaware and effective upon the closing of the offering
+3.4 By-laws of Prime Response, as amended, as currently in effect
3.5 Form of Amended and Restated By-laws of Prime Response to be
effective upon the effectiveness of the offering
4.1 Specimen Certificate for shares of Common Stock of Prime Response
5.1 Opinion of Hale and Dorr LLP
+10.1 1998 Stock Option/Stock Issuance Plan, with United Kingdom
Addendum
+10.2 Amendment No. 1 to 1998 Stock Option/Stock Issuance Plan
+10.3 Amendment No. 2 to 1998 Stock Option/Stock Issuance Plan
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
+10.4 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Notice of Grant of Stock Option
+10.5 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Stock Option Agreement, with Addendum
+10.6 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Stock Purchase Agreement
+10.7 1998 Stock Option/Stock Issuance Plan (United States) Form of
Notice of Grant of Stock Option
+10.8 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Option Agreement, with Addendum
+10.9 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Purchase Agreement, with Addendum
+10.10 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Issuance Agreement, with Addendum
+10.11 1999 Outside Director Stock Option Plan
+10.12 1999 Employee Stock Purchase Plan
+10.13 Stock Purchase Agreement dated as of October 1, 1997 by and among
Prime Response, General Atlantic Partners 42, L.P. and GAP
Coinvestment Partners, L.P.
+10.14 Amendment No. 1 to Stock Purchase Agreement dated as of October
23, 1997
+10.15 Stock Purchase Agreement dated as of September 21, 1998 by and
among Prime Response and certain other stockholders
+10.16 Stock and Warrant Purchase Agreement dated as of March 2, 1999
among Prime Response, General Atlantic Partners 52, L.P. and GAP
Coinvestment Partners II, L.P.
+10.17 Stock and Warrant Purchase Agreement dated as of July 15, 1999
among Prime Response, General Atlantic Partners 52, L.P. and GAP
Coinvestment Partners II, L.P.
+10.18 Common Stock Purchase Warrant of Prime Response issued to General
Atlantic Partners 52, L.P. dated February 28, 1999
+10.19 Common Stock Purchase Warrant of Prime Response issued to GAP
Coinvestment Partners II, L.P. dated February 28, 1999
+10.20 Common Stock Purchase Warrant of Prime Response issued to General
Atlantic Partners 52, L.P. dated July 15, 1999
+10.21 Common Stock Purchase Warrant of Prime Response issued to GAP
Coinvestment II, L.P. dated July 15, 1999
+10.22 Amended and Restated Registration Rights Agreement among Prime
Response, General Atlantic Partners 42, L.P., GAP Coinvestment
Partners, L.P. and the Stockholders named therein dated December
6, 1999
+10.23 Common Stock and Warrant Purchase Agreement dated as of December
6, 1999 by and among Prime Response, Andersen Consulting LLP and
AC Ventures B.V.
+10.24 Warrant Purchase Agreement dated as of December 6, 1999 by and
between Prime Response and Andersen Consulting LLP
+10.25 Common Stock Purchase Warrant No. AC-1 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
+10.26 Common Stock Purchase Warrant No. AC-2 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
+10.27 Common Stock Purchase Warrant No. AC-3 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
+10.28 Marketing Agreement dated December 6, 1999 between Prime Response
and Andersen Consulting LLP
+10.29 Consulting Services Agreement dated as of December 6, 1999 between
Prime Response and Andersen Consulting LLP
+10.30 Loan and Security Agreement, with schedule, dated October 28, 1999
between Greyrock Capital and Prime Response U.S., Inc. (formerly,
Prime Response Inc.)
+10.31 Security Agreement dated October 28, 1999 between Prime Response
U.S., Inc. (formerly, Prime Response Inc.) and Greyrock Capital
+10.32 Continuing Guaranty dated October 28, 1999 by Prime Response U.S.,
Inc. (formerly, Prime Response Inc.) in favor of Greyrock Capital
+10.33 Streamlined Facility Agreement dated October 28, 1999 between
Greyrock Capital and Prime Response U.S., Inc. (formerly, Prime
Response, Inc.)
+10.34 Letter of Credit Agreement dated November 24, 1999 between
Greyrock Capital and Prime Response U.S., Inc.
+10.35 Employment Agreement between Prime Response and Peter Boni dated
January 13, 1999
10.36 Employment Agreement between Prime Response and James Carling
dated November 10, 1999
10.37 Employment Agreement between Prime Response Limited and Allen
Swann dated February 2, 1998
10.38 Employment Agreement between Prime Response and Gary Daniels dated
November 30, 1998
10.39 Employment Agreement between Prime Response and Paul Lavallee
dated October 22, 1999
10.40 Employment Agreement between Prime Response and Frederick H.
Phillips dated October 21, 1999
10.41 Employment Agreement between Prime Response and James P. Plantan
dated August 10, 1999
10.42 Employment Agreement between Prime Response and Brad Braddock
dated August 5, 1999
10.43 Office Lease and License Agreements for Denver Place Plaza Tower
between Prime Response U.S., Inc. (formerly, Prime Response Inc.)
and Denver-Stellar Associated Limited Partnership dated January
20, 1999
10.44 Office Lease, Subordination Agreement and Subsequent Amendments
for China Basin Landing Premises between Prime Response U.S., Inc.
(formerly, Prime Response Inc.) and BRE/CBL, LLC dated March 25,
1999
10.45 Office Lease for Goat Wharf Premises between Prime Response
Limited and PDFM Limited dated December 29, 1995
10.46 Office Lease for Cambridge Park Drive premises between Prime
Response and Spaulding and Slye Services Limited Partnership
commencing June 1, 1999
10.47 Lease Agreement for Collins Street Business Centre between Prime
Response Pty. Ltd. and Merdene Pty. Ltd. dated November 24, 1999
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1)
+24.1 Powers of Attorney (included on the signature page of the
registration statement)
27.1 Financial Data Schedule
+99.1 Consent of Marc McMorris
</TABLE>
- --------
+ Previously filed
II-5
<PAGE>
(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's Financial
Statements or Notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted form the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Boston,
Massachusetts, on this 4th day of February, 2000.
Prime Response, Inc.
/s/ Peter J. Boni
By: _________________________________
Peter J. Boni
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Prime Response, Inc., hereby
severally constitute and appoint Peter J. Boni and John A. Burgess, and each of
them singly, our true and lawful attorneys with full power to them, and each of
them singly, to sign for us and in our names in the capacities indicated below,
the Registration Statement on Form S-1 filed herewith and any and all pre-
effective and post-effective amendments to said Registration Statement, and any
subsequent Registration Statement for the same offering which may be filed
under Rule 462(b), and generally to do all such things in our names and on our
behalf in our capacities as officers and directors to enable Prime Response,
Inc. to comply with the provisions of the Securities Act of 1933, as amended,
and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto or to any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Peter J. Boni President, Chief Executive February 4, 2000
______________________________________ Officer and Director
Peter J. Boni (principal executive
officer)
* Chief Financial Officer February 4, 2000
______________________________________ (principal accounting
Frederick H. Phillips officer)
* Director February 4, 2000
______________________________________
Richard S. Braddock
* Director February 4, 2000
______________________________________
James Carling
* Director February 4, 2000
______________________________________
William E. Ford
</TABLE>
<TABLE>
<S> <C> <C>
* Director February 4, 2000
______________________________________
Terry Osborne
*By: /s/ Peter J. Boni
______________________________________
Peter J. Boni
As Attorney-In-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
+3.1 Amended and Restated Certificate of Incorporation of Prime
Response, as amended
3.2 Second Amended and Restated Certificate of Incorporation of Prime
Response, to be filed with the Secretary of State of the State of
Delaware on February 2, 2000
3.3 Form of Third Amended and Restated Certificate of Incorporation of
Prime Response to be filed with the Secretary of State of the
State of Delaware and effective upon the closing of the offering
+3.4 By-laws of Prime Response, as amended, as currently in effect
3.5 Form of Amended and Restated By-laws of Prime Response to be
effective upon the effectiveness of the offering
4.1 Specimen Certificate for shares of Common Stock of Prime Response
5.1 Opinion of Hale and Dorr LLP
+10.1 1998 Stock Option/Stock Issuance Plan, with United Kingdom
Addendum
+10.2 Amendment No. 1 to 1998 Stock Option/Stock Issuance Plan
+10.3 Amendment No. 2 to 1998 Stock Option/Stock Issuance Plan
+10.4 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Notice of Grant of Stock Option
+10.5 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Stock Option Agreement, with Addendum
+10.6 1998 Stock Option/Stock Issuance Plan (United Kingdom) Form of
Stock Purchase Agreement
+10.7 1998 Stock Option/Stock Issuance Plan (United States) Form of
Notice of Grant of Stock Option
+10.8 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Option Agreement, with Addendum
+10.9 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Purchase Agreement, with Addendum
+10.10 1998 Stock Option/Stock Issuance Plan (United States) Form of
Stock Issuance Agreement, with Addendum
+10.11 1999 Outside Director Stock Option Plan
+10.12 1999 Employee Stock Purchase Plan
+10.13 Stock Purchase Agreement dated as of October 1, 1997 by and among
Prime Response, General Atlantic Partners 42, L.P. and GAP
Coinvestment Partners, L.P.
+10.14 Amendment No. 1 to Stock Purchase Agreement dated as of October
23, 1997
+10.15 Stock Purchase Agreement dated as of September 21, 1998 by and
among Prime Response and certain other stockholders
+10.16 Stock and Warrant Purchase Agreement dated as of March 2, 1999
among Prime Response, General Atlantic Partners 52, L.P. and GAP
Coinvestment Partners II, L.P.
+10.17 Stock and Warrant Purchase Agreement dated as of July 15, 1999
among Prime Response, General Atlantic Partners 52, L.P. and GAP
Coinvestment Partners II, L.P.
+10.18 Common Stock Purchase Warrant of Prime Response issued to General
Atlantic Partners 52, L.P. dated February 28, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
+10.19 Common Stock Purchase Warrant of Prime Response issued to GAP
Coinvestment Partners II, L.P. dated February 28, 1999
+10.20 Common Stock Purchase Warrant of Prime Response issued to General
Atlantic Partners 52, L.P. dated July 15, 1999
+10.21 Common Stock Purchase Warrant of Prime Response issued to GAP
Coinvestment II, L.P. dated July 15, 1999
+10.22 Amended and Restated Registration Rights Agreement among Prime
Response, General Atlantic Partners 42, L.P., GAP Coinvestment
Partners, L.P. and the Stockholders named therein dated December
6, 1999
+10.23 Common Stock and Warrant Purchase Agreement dated as of December
6, 1999 by and among Prime Response, Andersen Consulting LLP and
AC Ventures B.V.
+10.24 Warrant Purchase Agreement dated as of December 6, 1999 by and
between Prime Response and Andersen Consulting LLP
+10.25 Common Stock Purchase Warrant No. AC-1 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
+10.26 Common Stock Purchase Warrant No. AC-2 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
+10.27 Common Stock Purchase Warrant No. AC-3 of Prime Response issued to
Andersen Consulting LLP dated December 9, 1999
+10.28 Marketing Agreement dated December 6, 1999 between Prime Response
and Andersen Consulting LLP
+10.29 Consulting Services Agreement dated as of December 6, 1999 between
Prime Response and Andersen Consulting LLP
+10.30 Loan and Security Agreement, with schedule, dated October 28, 1999
between Greyrock Capital and Prime Response U.S., Inc. (formerly,
Prime Response Inc.)
+10.31 Security Agreement dated October 28, 1999 between Prime Response
U.S., Inc. (formerly, Prime Response Inc.) and Greyrock Capital
+10.32 Continuing Guaranty dated October 28, 1999 by Prime Response U.S.,
Inc. (formerly, Prime Response Inc.) in favor of Greyrock Capital
+10.33 Streamlined Facility Agreement dated October 28, 1999 between
Greyrock Capital and Prime Response U.S., Inc. (formerly, Prime
Response, Inc.)
+10.34 Letter of Credit Agreement dated November 24, 1999 between
Greyrock Capital and Prime Response U.S., Inc.
+10.35 Employment Agreement between Prime Response and Peter Boni dated
January 13, 1999
10.36 Employment Agreement between Prime Response and James Carling
dated November 10, 1999
10.37 Employment Agreement between Prime Response Limited and Allen
Swann dated February 2, 1998
10.38 Employment Agreement between Prime Response and Gary Daniels dated
November 30, 1998
10.39 Employment Agreement between Prime Response and Paul Lavallee
dated October 22, 1999
10.40 Employment Agreement between Prime Response and Frederick H.
Phillips dated October 21, 1999
10.41 Employment Agreement between Prime Response and James P. Plantan
dated August 10, 1999
10.42 Employment Agreement between Prime Response and Brad Braddock
dated August 5, 1999
10.43 Office Lease and License Agreements for Denver Place Plaza Tower
between Prime Response U.S., Inc. (formerly, Prime Response Inc.)
and Denver-Stellar Associated Limited Partnership dated January
20, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.44 Office Lease, Subordination Agreement and Subsequent Amendments
for China Basin Landing Premises between Prime Response U.S., Inc.
(formerly, Prime Response Inc.) and BRE/CBL, LLC dated March 25,
1999
10.45 Office Lease for Goat Wharf Premises between Prime Response
Limited and PDFM Limited dated December 29, 1995
10.46 Office Lease for Cambridge Park Drive premises between Prime
Response and Spaulding and Slye Services Limited Partnership
commencing June 1, 1999
10.47 Lease Agreement for Collins Street Business Centre between Prime
Response Pty. Ltd. and Merdene Pty. Ltd. dated November 24, 1999
21.1 List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1)
+24.1 Powers of Attorney (included on the signature page of the
registration statement)
27.1 Financial Data Schedule
+99.1 Consent of Marc McMorris
</TABLE>
- --------
+ Previously filed
<PAGE>
Exhibit 1.1
Underwriting Agreement
[Date]
FleetBoston Robertson Stephens Inc.
Dain Rauscher Incorporated
SG Cowen Securities Corporation
DLJdirect, Inc.As Representatives of the several Underwriters
c/o FleetBoston Robertson Stephens Inc.
555 California Street, Suite 2600
San Francisco, CA 94104
Ladies and Gentlemen:
Introductory. Prime Response, Inc., a Delaware corporation (the "Company),
proposes to issue and sell to the several underwriters named in Schedule A (the
----------
"Underwriters") an aggregate of 3,500,000 shares (the "Firm Shares") of its
Common Stock, par value $.01 per share (the "Common Shares"). In addition, the
Company has granted to the Underwriters an option to purchase up to an
additional 525,000 Common Shares (the "Option Shares") as provided in Section 2.
The Firm Shares and, if and to the extent such option is exercised, the Option
Shares are collectively called the "Shares". FleetBoston Robertson Stephens
Inc., Dain Rauscher Incorporated, SG Cowen Securities Corporation, and
DLJdirect, Inc. have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-92461), which contains a form of prospectus to be used in connection with
the public offering and sale of the Shares. Such registration statement, as
amended, including the financial statements, exhibits and schedules thereto, in
the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Shares, is called the "Prospectus"; provided, however, if
the Company has, with the consent of
<PAGE>
FleetBoston Robertson Stephens Inc., elected to rely upon Rule 434 under the
Securities Act, the term "Prospectus" shall mean the Company's prospectus
subject to completion (each, a "preliminary prospectus") dated [___] (such
preliminary prospectus is called the "Rule 434 preliminary prospectus"),
together with the applicable term sheet (the "Term Sheet") prepared and filed by
the Company with the Commission under Rules 434 and 424(b) under the Securities
Act and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or the Term Sheet, or any amendments or supplements
to any of the foregoing, shall include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
Section 1. Representations and Warranties.
The Company hereby represents and warrants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective by the
Commission under the Securities Act. The Company has complied to the
Commission's satisfaction with all requests of the Commission for additional or
supplemental information. No stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement is in effect
and no proceedings for such purpose have been instituted or are pending or, to
the best knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Shares. Each
of the Registration Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. Each preliminary
prospectus, as of its date, and the Prospectus, as amended or supplemented, as
of its date and at all subsequent times, did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The representations and warranties set forth in
the two immediately preceding sentences do not apply to statements in or
omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, or the Prospectus, or any
amendments or supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
the Representatives expressly for use therein. There are no contracts or
2
<PAGE>
other documents required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement which have not been described or filed as
required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives four complete conformed copies of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second Closing
Date (as defined below) and the completion of the Underwriters' distribution of
the Shares, any offering material in connection with the offering and sale of
the Shares other than a preliminary prospectus, the Prospectus or the
Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) Authorization of the Shares. The Shares to be purchased by the
Underwriters from the Company have been duly authorized for issuance and sale
pursuant to this Agreement and, when issued and delivered by the Company
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Subsequent to the respective dates as of
which information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to result
in a material adverse change, in the condition, financial or otherwise, or in
the earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change or effect, where the
context so requires, is called a "Material Adverse Change" or a "Material
Adverse Effect"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or obligation, indirect, direct
or contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of business; and
(iii) there has been no dividend or distribution of any kind declared, paid or
made by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of any class
of capital stock.
3
<PAGE>
(h) Independent Accountants. PricewaterhouseCoopers LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. The supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. Such financial statements and supporting
schedules have been prepared in conformity with generally accepted accounting
principles as applied in the United States applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial data set
forth in the Prospectus under the captions "Prospectus Summary--Summary Selected
Consolidated Financial Data", "Selected Consolidated Financial Data" and
"Capitalization" (i) are in accordance with the books and records of the
Company; (ii) fairly present the information set forth therein on a basis
consistent with that of the audited financial statements contained in the
Registration Statement and (iii) have been prepared in conformity with generally
accepted accounting principles as applied in the United States applied on a
consistent basis throughout the periods involved (subject, in the case of
unaudited statements, to the absence of footnote disclosure and in the case of
unaudited interim statements to year-end adjustments, which will not be material
either individually or in the aggregate).
(j) Company's Accounting System. The Company and each of its subsidiaries
maintain a system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) Subsidiaries of the Company. The Company does not own or control,
directly or indirectly, any corporation, association or other entity other than
the subsidiaries listed in Exhibit 21 to the Registration Statement.
(l) Incorporation and Good Standing of the Company and its Subsidiaries.
Each of the Company and its subsidiaries has been duly organized and is validly
existing as a corporation or limited liability company, as the case may be, in
good standing under the laws of the jurisdiction in which it is organized with
full corporate power and authority to own its properties and conduct its
business as described in the prospectus, and is duly qualified to do business as
a foreign corporation and is in good standing under the laws of each
jurisdiction which requires such qualification except where the failure to be so
qualified would not have a Material Adverse Effect.
4
<PAGE>
(m) Capitalization of the Subsidiaries. All the outstanding shares of
capital stock of each subsidiary have been duly and validly authorized and
issued and are fully paid and nonassessable, and, except as otherwise set forth
in the Prospectus, all outstanding shares of capital stock of the subsidiaries
are owned by the Company either directly or through wholly owned subsidiaries
free and clear of any security interests, claims, liens or encumbrances.
(n) No Prohibition on Subsidiaries from Paying Dividends or Making Other
Distributions. No subsidiary of the Company is currently prohibited, directly or
indirectly, from paying any dividends to the Company, from making any other
distribution on such subsidiary's capital stock, from repaying to the Company
any loans or advances to such subsidiary from the Company or from transferring
any of such subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated by the
Prospectus.
(o) Capitalization and Other Capital Stock Matters. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Prospectus
under the caption "Capitalization" (other than for subsequent issuances, if any,
pursuant to employee benefit plans described in the Prospectus or upon exercise
of outstanding options or warrants described in the Prospectus). The Common
Shares (including the Shares) conform in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding Common Shares have been duly authorized and validly issued, are
fully paid and nonassessable and have been issued in compliance with federal and
state securities laws. None of the outstanding Common Shares were issued in
violation of any preemptive rights, rights of first refusal or other similar
rights to subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities convertible
into or exchangeable or exercisable for, any capital stock of the Company or any
of its subsidiaries other than those accurately described in the Prospectus. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(p) Stock Exchange Listing. The Shares have been approved for inclusion on
the Nasdaq National Market, subject only to official notice of issuance.
(q) No Consents, Approvals or Authorizations Required. No consent,
approval, authorization, filing with or order of any court or governmental
agency or regulatory body is required in connection with the transactions
contemplated herein, except such as have been obtained or made under the
Securities Act and such as may be required (i) under the blue sky laws of any
jurisdiction in connection with the purchase and distribution of the Shares by
the Underwriters in the manner contemplated here and in the Prospectus, (ii) by
the National Association of Securities Dealers, LLC and (iii) by the federal and
provincial laws of Canada.
(r) Non-Contravention of Existing Instruments Agreements. Neither the
issue and sale of the Shares nor the consummation of any other of the
transactions
5
<PAGE>
herein contemplated nor the fulfillment of the terms hereof will conflict with,
result in a breach or violation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries pursuant
to, (i) the charter or by-laws of the Company or any of its subsidiaries, (ii)
the terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which the Company or any of its subsidiaries is a party or bound
or to which its or their property is subject or (iii) any statute, law, rule,
regulation, judgment, order or decree applicable to the Company or any of its
subsidiaries of any court, regulatory body, administrative agency, governmental
body, arbitrator or other authority having jurisdiction over the Company or any
of its subsidiaries or any of its or their properties.
(s) No Defaults or Violations. Neither the Company nor any subsidiary is
in violation or default of (i) any provision of its charter or by-laws, (ii) the
terms of any indenture, contract, lease, mortgage, deed of trust, note
agreement, loan agreement or other agreement, obligation, condition, covenant or
instrument to which it is a party or bound or to which its property is subject
or (iii) any statute, law, rule, regulation, judgment, order or decree of any
court, regulatory body, administrative agency, governmental body, arbitrator or
other authority having jurisdiction over the Company or such subsidiary or any
of its properties, as applicable, except any such violation or default which
would not, singly or in the aggregate, result in a Material Adverse Change
except as otherwise disclosed in the Prospectus.
(t) No Actions, Suits or Proceedings. No action, suit or proceeding by or
before any court or governmental agency, authority or body or any arbitrator
involving the Company or any of its subsidiaries or its or their property is
pending or, to the best knowledge of the Company, threatened that (i) could
reasonably be expected to have a Material Adverse Effect on the performance of
this Agreement or the consummation of any of the transactions contemplated
hereby or (ii) could reasonably be expected to result in a Material Adverse
Effect.
(u) All Necessary Permits, Etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies necessary to
conduct their respective businesses, and neither the Company nor any subsidiary
has received any notice of proceedings relating to the revocation or
modification of, or non-compliance with, any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(v) Title to Properties. The Company and each of its subsidiaries has good
and marketable title to all the properties and assets reflected as owned in the
financial statements referred to in Section 1(h) above, in each case free and
clear of any security interests, mortgages, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company or such subsidiary. The real
property, improvements, equipment and personal property held under lease by the
Company or any subsidiary are held under valid and enforceable leases, with such
exceptions as are not material and do not
6
<PAGE>
materially interfere with the use made or proposed to be made of such real
property, improvements, equipment or personal property by the Company or such
subsidiary.
(w) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns [or have
properly requested extensions thereof and have paid all taxes required to be
paid by any of them and, if due and payable, any related or similar assessment,
fine or penalty levied against any of them except as may be being contested in
good faith and by appropriate proceedings. The Company has made adequate
charges, accruals and reserves in the applicable financial statements referred
to in Section 1(h) above in respect of all federal, state and foreign income and
franchise taxes for all periods as to which the tax liability of the Company or
any of its consolidated subsidiaries has not been finally determined. The
Company is not aware of any tax deficiency that has been or might be asserted or
threatened against the Company that could result in a Material Adverse Change.
(x) Intellectual Property Rights. Each of the Company and its subsidiaries
owns or possesses adequate rights to use all patents, patent rights or licenses,
inventions, collaborative research agreements, trade secrets, know-how,
trademarks, service marks, trade names and copyrights which are necessary to
conduct its businesses as described in the Registration Statement and
Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not result in a
Material Adverse Change that is not otherwise disclosed in the Prospectus; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights; and the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names or
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could reasonably be expected to have a Material
Adverse Change. There is no claim being made against the Company regarding
patents, patent rights or licenses, inventions, collaborative research, trade
secrets, know-how, trademarks, service marks, trade names or copyrights. The
Company and its subsidiaries do not in the conduct of their business as now or
proposed to be conducted as described in the Prospectus infringe or conflict
with any right or patent of any third party, or any discovery, invention,
product or process which is the subject of a patent application filed by any
third party and is known to the Company or any of its subsidiaries, which such
infringement or conflict could reasonably be expected to result in a Material
Adverse Change.
(y) Year 2000 Preparedness. There are no issues related to the Company's,
or any of its subsidiaries', preparedness for the Year 2000 that (i) are of a
character required to be described or referred to in the Registration Statement
or Prospectus by the Securities Act or the rules and regulations of the
Commission thereunder which have not been accurately described in the
Registration Statement or Prospectus or (ii) might reasonably be expected to
result in any Material Adverse Change or that might materially affect their
properties, assets or rights. The Company has inquired of material vendors as to
their preparedness for the Year 2000 and has disclosed in the
7
<PAGE>
Registration Statement or Prospectus any issues that might reasonably be
expected to result in any Material Adverse Change.
(z) No Transfer Taxes or Other Fees. There are no transfer taxes or other
similar fees or charges under Federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the shares.
(aa) Company Not an "Investment Company". The Company has been advised of
the rules and requirements under the Investment Company Act of 1940, as amended
(the "Investment Company Act"). The Company is not, and after receipt of payment
for the Shares will not be, an "investment company" or an entity "controlled" by
an "investment company" within the meaning of the Investment Company Act and
will conduct its business in a manner so that it will not become subject to the
Investment Company Act.
(bb) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies in such
amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and Directors and Officers liability. The Company
has no reason to believe that it or any subsidiary will not be able (i) to renew
its existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that would
not result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought or for
which it has applied.
(cc) Labor Matters. To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers that might be
expected to result in a Material Adverse Change.
(dd) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that might be
reasonably expected to cause or result in stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(ee) Lock-Up Agreements. Each officer and director of the Company and
beneficial owner of share capital of the Company has agreed to sign an agreement
substantially in the form attached hereto as Exhibit A (the "Lock-up
---------
Agreements"). The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company and the number
and type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
Lock-up Agreements presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements,
8
<PAGE>
including, without limitation, any restrictions on transfer imposed under
purchase or issuance agreements relating to the Company's 1998 Stock
Option/Stock Issuance Plan, currently existing or hereafter effected without the
prior written consent of FleetBoston Robertson Stephens Inc.
(ff) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or any other
person required to be described in the Prospectus which have not been described
as required.
(gg) No Unlawful Contributions or Other Payments. Neither the Company nor
any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(hh) ERISA Compliance. The Company and its subsidiaries and any "employee
benefit plan" (as defined under the Employee Retirement Income Security Act of
1974, as amended, and the regulations and published interpretations thereunder
(collectively, "ERISA")) established or maintained by the Company, its
subsidiaries or their "ERISA Affiliates" (as defined below) are in compliance in
all material respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or a subsidiary, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as amended,
and the regulations and published interpretations thereunder (the "Code") of
which the Company or such subsidiary is a member. No "reportable event" (as
defined under ERISA) has occurred or is reasonably expected to occur with
respect to any "employee benefit plan" established or maintained by the Company,
its subsidiaries or any of their ERISA Affiliates. No "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates, if such "employee benefit plan" were terminated, would have any
"amount of unfounded benefit liabilities" (as defined under ERISA). Neither the
Company, its subsidiaries nor any of their ERISA Affiliates has incurred or
reasonably expects to incur any liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any material "employee benefit
plan" or (ii) Sections 412, 4971, 4975 or 4980B of the Code. Each "employee
benefit plan" established or maintained by the Company, its subsidiaries or any
of their ERISA Affiliates that is intended to be qualified under Section 401(a)
of the Code is so qualified and nothing has occurred, whether by action or
failure to act, which would cause the loss of such qualification, which failure
to maintain such qualification would not have a Material Adverse Effect.
(ii) Consents Required in Connection with the Directed Share Program. No
consent, approval, authorization or order of, or qualification with, any
governmental body or agency, other than those obtained, is required in
connection with the offering of the Directed Shares in any jurisdiction where
the Directed Shares are being offered.
(jj) No Improper Influence in Connection with the Directed Share Program.
The Company has not offered, or caused FleetBoston Robertson Stephens Inc. or
Societe General to offer, Shares to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type of
business with the Company or (ii) a
9
<PAGE>
trade journalist or publication to write or publish favorable information about
the Company or its products.
Any certificate signed by an officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
Section 2. Purchase, Sale and Delivery of the Shares.
(a) The Firm Shares. The Company agrees to issue and sell to the several
Underwriters the Firm Shares upon the terms herein set forth. On the basis of
the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company the respective number of
Firm Shares set forth opposite their names on Schedule A. The purchase price per
----------
Firm Share to be paid by the several Underwriters to the Company shall be $[___]
per share.
(b) The First Closing Date. Delivery of the Firm Shares to be purchased by
the Underwriters and payment therefor shall be made by the Company and the
Representatives at 6:00 a.m. San Francisco time, at the offices of Hale and Dorr
LLP, 60 State Street, Boston, Massachusetts 02109 (or at such other place as may
be agreed upon among the Representatives and the Company), (i) on the third
(3rd) full business day following the first day that Shares are traded, (ii) if
this Agreement is executed and delivered after 1:30 P.M., San Francisco time,
the fourth (4th) full business day following the day that this Agreement is
executed and delivered or (iii) at such other time and date not later that seven
(7) full business days following the first day that Shares are traded as the
Representatives and the Company may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 8 hereof),
such time and date of payment and delivery being herein called the "Closing
Date;" provided, however, that if the Company has not made available to the
Representatives copies of the Prospectus within the time provided in Section
4(d) hereof, the Representatives may, in its sole discretion, postpone the
Closing Date until no later that two (2) full business days following delivery
of copies of the Prospectus to the Representatives.
(c) The Option Shares; the Second Closing Date. In addition, on the basis
of the representations, warranties and agreements herein contained, and upon the
terms but subject to the conditions herein set forth, the Company hereby grants
an option to the several Underwriters to purchase, severally and not jointly, up
to an aggregate of 600,000 Option Shares from the Company at the purchase price
per share to be paid by the Underwriters for the Firm Shares. The option granted
hereunder is for use by the Underwriters solely in covering any over-allotments
in connection with the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised at any time upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. The time and date of delivery of the
Option Shares, if subsequent to the First Closing Date, is called the "Second
Closing Date" and shall be determined by the Representatives and shall not be
earlier than three nor later than five full business days after delivery of such
notice of exercise.
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If any Option Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Option Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Option Shares to be
purchased as the number of Firm Shares set forth on Schedule A opposite the name
----------
of such Underwriter bears to the total number of Firm Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
(d) Public Offering of the Shares. The Representatives hereby advise the
Company that the Underwriters intend to offer for sale to the public, as
described in the Prospectus, their respective portions of the Shares as soon
after this Agreement has been executed and the Registration Statement has been
declared effective as the Representatives, in their sole judgment, have
determined is advisable and practicable.
(e) Payment for the Shares. Payment for the Shares shall be made at the
First Closing Date (and, if applicable, at the Second Closing Date) by wire
transfer in immediately available-funds to the order of the Company.
It is understood that the Representatives have been authorized, for
their own accounts and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Shares and any Option Shares the Underwriters have agreed to purchase.
FleetBoston Robertson Stephens Inc., individually and not as a Representative of
the Underwriters, may (but shall not be obligated to) make payment for any
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations under
this Agreement.
(f) Delivery of the Shares. The Company shall deliver, or cause to be
delivered, a credit representing the Firm Shares to an account or accounts at
The Depository Trust Company, as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the First
Closing Date, against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. The Company shall
also deliver, or cause to be delivered a credit representing the Option Shares
the Underwriters have agreed to purchase at the First Closing Date (or the
Second Closing Date, as the case may be), to an account or accounts at The
Depository Trust Company as designated by the Representatives for the accounts
of the Representatives and the several Underwriters, against the irrevocable
release of a wire transfer of immediately available funds for the amount of the
purchase price therefor. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 noon
on the second business day following the date the Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Representatives shall request.
Section 3. Covenants of the Company.
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The Company further covenants and agrees with each Underwriter as follows:
(a) Registration Statement Matters. The Company will (i) use its best
efforts to cause a registration statement on Form 8-A (the "Form 8-A
Registration Statement") as required by the Securities Exchange Act of 1934 (the
"Exchange Act") to become effective simultaneously with the Registration
Statement, (ii) use its best efforts to cause the Registration Statement to
become effective or, if the procedure in Rule 430A of the Securities Act is
followed, to prepare and timely file with the Commission under Rule 424(b) under
the Securities Act a Prospectus in a form approved by the Representatives
containing information previously omitted at the time of effectiveness of the
Registration Statement in reliance on Rule 430A of the Securities Act and (iii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representatives shall not previously have been advised
and furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Securities Act. If
the Company elects to rely on Rule 462(b) under the Securities Act, the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) under the Securities Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the
Securities Act, and shall pay the applicable fees in accordance with Rule 111
under the Securities Act.
(b) Securities Act Compliance. The Company will advise the Representatives
promptly (i) when the Registration Statement or any post-effective amendment
thereto shall have become effective, (ii) of receipt of any comments from the
Commission, (iii) of any request of the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any additional
information and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(c) Blue Sky Compliance. The Company will cooperate with the
Representatives and counsel for the Underwriters in endeavoring to qualify the
Shares for sale under the securities laws of such jurisdictions (both national
and foreign) as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(d) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. The Company will comply with the Securities Act and the Exchange Act,
and the rules and regulations of the Commission thereunder, so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and the Prospectus. If during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer, any event shall occur as a
result of which, in the judgment
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of the Company or in the reasonable opinion of the Representatives or counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not misleading,
or, if it is necessary at any time to amend or supplement the Prospectus to
comply with any law, the Company promptly will prepare and file with the
Commission, and furnish at its own expense to the Underwriters and to dealers,
an appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with the law.
(e) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the period
beginning on the date hereof and ending on the later of the First Closing Date
or such date, as in the opinion of counsel for the Underwriters, the Prospectus
is no longer required by law to be delivered in connection with sales by an
Underwriter or dealer (the "Prospectus Delivery Period"), as many copies of the
Prospectus and any amendments and supplements thereto as the Representatives may
request.
(f) Insurance. The Company shall (i) obtain Directors and Officers
liability insurance in the minimum amount of $10 million which shall apply to
the offering contemplated hereby, (ii) cause FleetBoston Robertson Stephens Inc.
to be added to such policy such that up to $500,000 of its expenses pursuant to
Section 7(a) shall be paid directly by such insurer and (iii) cause FleetBoston
Robertson Stephens Inc. to be added as an additional insured to such policy in
respect of the offering contemplated hereby.
(g) Notice of Subsequent Events. If at any time during the ninety (90) day
period after the Registration Statement becomes effective, any rumor,
publication or event relating to or affecting the Company shall occur as a
result of which in your opinion the market price of the Company Shares has been
or is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, forthwith prepare, consult with you
concerning the substance of and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting on such
rumor, publication or event.
(h) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Shares sold by it in the manner described under the caption "Use of
Proceeds" in the Prospectus.
(i) Transfer Agent. The Company shall engage and maintain, at its expense,
a registrar and transfer agent for the Company Shares.
(j) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering a period of at least 12
months beginning after the effective date of the Registration Statement that
satisfies the provisions of Section 11(a) of the Securities Act.
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(k) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(l) Agreement Not to Offer or Sell Additional Securities. The Company
will not, without the prior written consent of FleetBoston Robertson Stephens
Inc., for a period of 180 days following the date of the Prospectus, offer, sell
or contract to sell, or otherwise dispose of or enter into any transaction which
is designed to, or could be expected to, result in the disposition (whether by
actual disposition or effective economic disposition due to cash settlement or
otherwise by the Company or any affiliate of the Company or any person in
privity with the Company or any affiliate of the Company) directly or
indirectly, or announce the offering of, any other Common Shares or any
securities convertible into, or exchangeable for, Common Shares; provided,
however, that the Company may (i) issue and sell Common Shares pursuant to any
director or employee stock option plan, stock ownership plan or dividend
reinvestment plan of the Company in effect at the date of the Prospectus and
described in the Prospectus so long as none of those shares may be transferred
during the period of 180 days from the date that the Registration Statement is
declared effective (the "Lock-Up Period") and the Company shall enter stop
transfer instructions with its transfer agent and registrar against the transfer
of any such Common Shares and (ii) the Company may issue Common Shares issuable
upon the conversion of securities or the exercise of warrants outstanding at the
date of the Prospectus and described in the Prospectus. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other stockholders from any Lock-up Agreements, including, without
limitation, any restrictions on transfer imposed under purchase or issuance
agreements relating to the Company's 1998 Stock Option/Stock Issuance Plan,
currently existing or hereafter effected without the prior written consent of
FleetBoston Robertson Stephens Inc.
(m) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the National Association of Securities Dealers, LLC
or any securities exchange; and (iii) as soon as available, copies of any report
or communication of the Company mailed generally to holders of its capital
stock.
(n) Directed Share Program. The Company (i) will indemnify FleetBoston
Robertson Stephens Inc. for any losses incurred in connection with the Directed
Share Program, (ii) will comply with all applicable securities and other
applicable laws, rules and regulations in each jurisdiction in which the
Directed Shares are offered in connection with the Directed Share Program and
(iii) will pay all reasonable fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed
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<PAGE>
Share Program and any stamp duties, similar taxes or duties or other taxes, if
any, incurred by the underwriters in connection with the Directed Share Program.
Section 4. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Shares as
provided herein on the First Closing Date and, with respect to the Option
Shares, the Second Closing Date, shall be subject to the accuracy of the
representations and warranties on the part of the Company set forth in Section 1
hereof as of the date hereof and as of the First Closing Date as though then
made and, with respect to the Option Shares, as of the Second Closing Date as
though then made, to the timely performance by the Company of its covenants and
other obligations hereunder, and to each of the following additional conditions:
(a) Compliance with Registration Requirements; No Stop Order; No Objection
from the National Association of Securities Dealers, LLC The Registration
Statement shall have become effective prior to the execution of this Agreement,
or at such later date as shall be consented to in writing by you; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings for that purpose shall have been initiated or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been complied with to the
satisfaction of Underwriters' Counsel; and the National Association of
Securities Dealers, LLC shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(b) Corporate Proceedings. All corporate proceedings and other legal
matters in connection with this Agreement, the form of Registration Statement
and the Prospectus, and the registration, authorization, issue, sale and
delivery of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section.
(c) No Material Adverse Change. Subsequent to the execution and delivery
of this Agreement and prior to the First Closing Date, or the Second Closing
Date, as the case may be, there shall not have been any Material Adverse Change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise from that set forth in the Registration Statement or Prospectus,
which, in you're the Representatives' sole judgment, is material and adverse and
that makes it, in the Representatives' sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus.
(d) Opinion of Counsel for the Company. You shall have received on the
First Closing Date, or the Second Closing Date, as the case may be, an opinion
of Hale and Dorr LLP counsel for the Company as to the matters identified on
Exhibit B attached hereto, dated the First Closing Date, or the Second Closing
- ---------
Date, addressed to the Underwriters and with reproduced copies or signed
counterparts thereof for each of the Underwriters.
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Counsel rendering the opinion contained in Exhibit B may rely as to
---------
questions of law not involving the laws of the United States or the State of
Delaware and the Commonwealth of Massachusetts upon opinions of local counsel,
and as to questions of fact upon representations or certificates of officers of
the Company, and of government officials, in which case their opinion is to
state that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to the Representatives of the Underwriters, and to Underwriters'
Counsel.
(e) Opinion of Foreign Counsel for the Company and its Subsidiaries. You
shall have received on the First Closing Date, or the Second Closing Date, as
the case may be, an opinion of English counsel for the Company and its
subsidiary as to the matters identified in Exhibit C attached hereto.
---------
(f) Opinion of Counsel for the Underwriters. You shall have received on
the First Closing Date or the Second Closing Date, as the case may be, an
opinion of Testa, Hurwitz & Thibeault, LLP, as to the matters identified in
Exhibit D hereto. The Company shall have furnished to such counsel such
- ---------
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(g) Accountants' Comfort Letter. You shall have received on the First
Closing Date and on the Second Closing Date, as the case may be, a letter from
PricewaterhouseCoopers LLP addressed to the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, confirming that
they are independent certified public accountants with respect to the Company
within the meaning of the Act and the applicable published Rules and Regulations
and based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (herein called the "Original
Letter"), but carried out to a date not more than four (4) business days prior
to the First Closing Date or the Second Closing Date, as the case may be, (i)
confirming, to the extent true, that the statements and conclusions set forth in
the Original Letter are accurate as of the First Closing Date or the Second
Closing Date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
which are necessary to reflect any changes in the facts described in the
Original Letter since the date of such letter, or to reflect the availability of
more recent financial statements, data or information. The letter shall not
disclose any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse and that
makes it, in your sole judgment, impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. The
Original Letter from PricewaterhouseCoopers LLP shall be addressed to or for the
use of the Underwriters in form and substance satisfactory to the Underwriters
and shall (i) represent, to the extent true, that they are independent certified
public accountants with respect to the Company within the meaning of the Act and
the applicable published Rules and Regulations, (ii) set forth their opinion
with respect to their examination of the consolidated balance sheet of the
Company as of December 31, 1999 and related consolidated statements of
operations, shareholders' equity, and cash flows for the twelve (12) months
ended December 31, 1999, (iii) state that PricewaterhouseCoopers LLP has
performed the procedures set out in Statement on
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Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of PricewaterhouseCoopers LLP as described
in SAS 71 on the financial statements for each of the quarters in the nine-
quarter period ended September 30, 1999 (the "Quarterly Financial Statements"),
(iv) state that in the course of such review, nothing came to their attention
that leads them to believe that any material modifications need to be made to
any of the Quarterly Financial Statements in order for them to be in compliance
with generally accepted accounting principles consistently applied across the
periods presented, and address other matters agreed upon by
PricewaterhouseCoopers LLP and you. In addition, you shall have received from
PricewaterhouseCoopers LLP a letter addressed to the Company and made available
to you for the use of the Underwriters stating that their review of the
Company's system of internal accounting controls, to the extent they deemed
necessary in establishing the scope of their examination of the Company's
consolidated financial statements as of December 31, 1999, did not disclose any
weaknesses in internal controls that they considered to be material weaknesses.
(h) Officers' Certificate. You shall have received on the First Closing
Date and the Second Closing Date, as the case may be, a certificate of the
Company, dated the First Closing Date or the Second Closing Date, as the case
may be, signed by the Chief Executive Officer and Chief Financial Officer of the
Company, to the effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company in this Agreement
are true and correct, as if made on and as of the First Closing Date or the
Second Closing Date, as the case may be, and the Company has complied with
all the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the First Closing Date or the Second
Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or, to the Company's knowledge, threatened under
the Act;
(iii) When the Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
contained all material information required to be included therein by the
Securities Act and in all material respects conformed to the requirements of
the Securities Act, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, did not and does not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
and, since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been (a) any
Material Adverse Change, (b) any transaction that is material to the Company
and its subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any obligation, direct
or contingent, that is material to the Company and its subsidiaries
considered as one enterprise, incurred by the
17
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Company or its subsidiaries, except obligations incurred in the ordinary
course of business, (d) any change in the capital stock or outstanding
indebtedness of the Company or any of its subsidiaries that is material to
the Company and its subsidiaries considered as one enterprise, (e) any
dividend or distribution of any kind declared, paid or made on the capital
stock of the Company or any of its subsidiaries, or (f) any loss or damage
(whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has
a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(i) Lock-up Agreement from Certain Stockholders of the Company. The
Company shall have obtained and delivered to you an agreement substantially in
the form of Exhibit A attached hereto from each officer and director of the
---------
Company and each beneficial owner of share capital of the Company.
(j) Stock Exchange Listing. The Shares shall have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(k) Compliance with Prospectus Delivery Requirements. The Company shall
have complied with the provisions of Sections 2(g) and 3(e) hereof with respect
to the furnishing of Prospectuses.
(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, as the case may be, the Representatives and counsel
for the Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling them to
pass upon the issuance and sale of the Shares as contemplated herein, or in
order to evidence the accuracy of any of the representations and warranties, or
the satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 4 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Option Shares, at any time prior to the
Second Closing Date, which termination shall be without liability on the part of
any party to any other party, except that Section 5 (Payment of Expenses),
Section 6 (Reimbursement of Underwriters' Expenses), Section 7 (Indemnification
and Contribution) and Section 10 (Representations and Indemnities to Survive
Delivery) shall at all times be effective and shall survive such termination.
Section 5. Payment of Expenses. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Shares to the Underwriters, (iv) all fees and expenses of the
Company's counsel, independent public or certified public accountants and other
advisors, (v) all costs and expenses incurred in connection with
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the preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Shares for offer and
sale under the state securities or blue sky laws or the provincial securities
laws of Canada or any other country, and, if requested by the Representatives,
preparing and printing a "Blue Sky Survey", an "International Blue Sky Survey"
or other memorandum, and any supplements thereto, advising the Underwriters of
such qualifications, registrations and exemptions, (vii) the filing fees
incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the National Association of Securities Dealers,
LLC review and approval of the Underwriters' participation in the offering and
distribution of the Common Shares, (viii) the fees and expenses associated with
including the Common Shares on the Nasdaq National Market, (ix) all costs and
expenses incident to the travel and accommodation of the Company's employees on
the "road show" , and (x) all other fees, costs and expenses referred to in Item
13 of Part II of the Registration Statement. Except as provided in this Section
5, Section 6, and Section 7 hereof, the Underwriters shall pay their own
expenses, including the fees and disbursements of their counsel.
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by the Representatives pursuant to Section 4, Section 8 or Section 9,
or if the sale to the Underwriters of the Shares on the First Closing Date is
not consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Representatives and the other Underwriters
(or such Underwriters as have terminated this Agreement with respect to
themselves), severally, upon demand for all out-of-pocket expenses that shall
have been reasonably incurred by the Representatives and the Underwriters in
connection with the proposed purchase and the offering and sale of the Shares,
including but not limited to fees and disbursements of counsel, printing
expenses, travel expenses, postage, facsimile and telephone charges.
Section 7. Indemnification and Contribution.
(a) Indemnification of the Underwriters.
The Company agrees to indemnify and hold harmless each Underwriter,
its officers and employees, and each person, if any, who controls any
Underwriter within the meaning of the Securities Act and the Exchange Act
against any loss, claim, damage, liability or expense, as incurred, to which
such Underwriter or such controlling person may become subject, under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld), insofar as such
loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereto, including any information deemed to be a
part thereof pursuant to Rule 430A or
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Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials provided by the Company
or based upon written information furnished by or on behalf of the Company
including, without limitation, slides, videos, films or tape recordings, used in
connection with the marketing of the Shares, including without limitation,
statements communicated to securities analysts employed by the Underwriters; or
(vi) any act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the Shares or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon any
matter covered by clause (i), (ii), (iii), (iv) or (v) above, provided that the
Company shall not be liable under this clause (vi) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by FleetBoston Robertson Stephens Inc.) as such
expenses are reasonably incurred by such Underwriter or such controlling person
in connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss, claim,
damage, liability or expense to the extent, but only to the extent, arising out
of or based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representative expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto); and provided, further, that with respect to
any preliminary prospectus, the foregoing indemnity agreement shall not inure to
the benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 7(a) shall be in addition to any liabilities that the
Company may otherwise have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration
20
<PAGE>
Statement and each person, if any, who controls the Company within the meaning
of the Securities Act or the Exchange Act, against any loss, claim, damage,
liability or expense, as incurred, to which the Company, or any such director,
officer or controlling person may become subject, under the Securities Act, the
Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The indemnity
agreement set forth in this Section 7(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(c) Information Provided by the Underwriters. The Company hereby
acknowledges that the only information that the Underwriters have furnished to
the Company expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) are the
statements set forth in the table in the first paragraph and the second, fourth,
tenth and thirteenth paragraphs under the caption "Underwriting" in the
Prospectus; and the Underwriters confirm that such statements are correct.
(d) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 7 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 7, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 7 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses
21
<PAGE>
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with local counsel), approved by the indemnifying
party (FleetBoston Robertson Stephens Inc. in the case of Section 7(b) and
Section 8), representing the indemnified parties who are parties to such
action), (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(e) Settlements. The indemnifying party under this Section 7 shall not
be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld, but if settled with
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 7(d) hereof, the indemnifying party agrees
that it shall be liable for any settlement of any proceeding effected without
its written consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(f) Contribution. If the indemnification provided for in this Section 7
is unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) then each
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand
22
<PAGE>
and the Underwriters on the other from the offering of the Shares. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one hand or
the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and Underwriters agree that it would not be just and equitable
if contributions pursuant to this Section 7(f) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7(f). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 7(f) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (f), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this Section 7(f) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(g) Timing of Any Payments of Indemnification. Any losses, claims,
damages, liabilities or expenses for which an indemnified party is entitled to
indemnification or contribution under this Section 7 shall be paid by the
indemnifying party to the indemnified party as such losses, claims, damages,
liabilities or expenses are incurred, but in all cases, no later than thirty
(30) days of invoice to the indemnifying party.
(h) Survival. The indemnity and contribution agreements contained in
this Section 7 and the representation and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor to
any Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 7.
23
<PAGE>
(i) Acknowledgements of Parties. The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented by
counsel during the negotiations regarding the provisions hereof including,
without limitation, the provisions of this Section 7, and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 fairly allocate the risks in light of the ability of the parties to
investigate the Company and its business in order to assure that adequate
disclosure is made in the Registration Statement and Prospectus as required by
the Securities Act and the Exchange Act.
(j) Indemnification for Directed Share Program. The Company agrees to
indemnify and hold harmless FleetBoston Robertson Stephens Inc. and its
affiliates and each person, if any, who controls FleetBoston Robertson Stephens
Inc. or its affiliates within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act ("Robertson Stephens Entities") and
Societe General and its affiliates and each person, if any, who controls Societe
General or its affiliates within the meaning of either Section 15 of the
Securities Act of Section 20 of the Exchange Act (Societe General Entities),
from and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i) caused
by any untrue statement or alleged untrue statement of a material fact contained
in any material prepared by or with the consent of the Company for distribution
to participants in connection with the Directed Share Program, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; (ii)
the failure of any participant to pay for and accept delivery of Directed Shares
that the participant has agreed to purchase; or (iii) related to, arising out
of, or in connection with the Directed Share Program other than losses, claims,
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross negligence of
either the Robertson Stephens Entities or the Societe General Entities, as the
case may be.
Section 8. Default of One or More of the Several Underwriters. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Common Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase does not exceed 10% of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated,
severally, in the proportions that the number of Firm Common Shares set forth
opposite their respective names on Schedule A bears to the aggregate number of
----------
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as may be specified by the
Representatives with the consent of the non-defaulting Underwriters, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but failed
or refused to purchase on such date. If, on the First Closing Date or the Second
Closing Date, as the case may be, any one or more of the Underwriters shall fail
or refuse to purchase Shares and the aggregate number of Shares with respect to
which such default occurs exceeds 10% of the aggregate number of Shares to be
purchased on such date, and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party to
any other party except that the
24
<PAGE>
provisions of Section 5, and Section 7 shall at all times be effective and shall
survive such termination. In any such case either the Representatives or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
8. Any action taken under this Section 8 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 9. Termination of this Agreement. Prior to the First Closing Date,
this Agreement may be terminated by the Representatives by notice given to the
Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the National Association of
Securities Dealers, LLC; (ii) a general banking moratorium shall have been
declared by any of federal, New York , Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective change in United States' or international
political, financial or economic conditions, as in the judgment of the
Representative is material and adverse and makes it impracticable or inadvisable
to market the Common Shares in the manner and on the terms described in the
Prospectus or to enforce contracts for the sale of securities; (iv) in the
judgment of the Representative there shall have occurred any Material Adverse
Change; or (v) the Company shall have sustained a loss by strike, fire, flood,
earthquake, accident or other calamity of such character as in the judgment of
the Representative may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured. Any termination pursuant to this Section 9 shall be without liability
on the part of (a) the Company to any Underwriter, except that the Company shall
be obligated to reimburse the expenses of the Representatives and the
Underwriters pursuant to Sections 5 and 6 hereof, (b) any Underwriter to the
Company, or (c) of any party hereto to any other party except that the
provisions of Section 7 shall at all times be effective and shall survive such
termination.
Section 10. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and
payment for the Shares sold hereunder and any termination of this Agreement.
25
<PAGE>
Section 11. Notices. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representative:
FLEETBOSTON ROBERTSON STEPHENS INC.
555 California Street
San Francisco, California 94104
Facsimile: (415) 676-2696
Attention: General Counsel
If to the Company:
Prime Response, Inc.
150 Cambridge Park Drive
Cambridge, MA 02140
Facsimile: (617) 876-8383
Attention: Chief Executive Officer
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto, including any substitute Underwriters pursuant
to Section 9 hereof, and to the benefit of the employees, officers and directors
and controlling persons referred to in Section 7, and to their respective
successors, and personal representatives, and no other person will have any
right or obligation hereunder. The term "successors" shall not include any
purchaser of the Shares as such from any of the Underwriters merely by reason of
such purchase.
Section 13. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Section 14. Governing Law Provisions.
(a) Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of New York applicable to
agreements made and to be performed in such state.
26
<PAGE>
(b) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts of the
United States of America or the courts of the Commonwealth of Massachusetts in
each case located in the City of Boston (collectively, the "Specified Courts"),
and each party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of
such courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally waive
any objection to the laying of venue of any suit, action or other proceeding in
the Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding
brought in any such court has been brought in an inconvenient forum. Each party
not located in the United States irrevocably appoints CT Corporation System,
which currently maintains a San Francisco office at 2 Oliver Street, Boston,
Massachusetts 02109, United States of America, as its agent to receive service
of process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City of
Boston.
(c) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the Specified
Courts or any other court of competent jurisdiction, and will not raise or claim
or cause to be pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as
amended.
Section 15. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
27
<PAGE>
[The remainder of this page has been intentionally left blank.]
28
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
PRIME RESPONSE, INC.
By:__________________________
[Title]
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
Representatives as of the date first above written.
FLEETBOSTON ROBERTSON STEPHENS INC.
DAIN RAUSCHER INCORPORATED
SG COWEN SECURITIES CORPORATION
DLJdirect, INC.On their behalf and on behalf of each of the several underwriters
named in Schedule A hereto.
----------
By FLEETBOSTON ROBERTSON STEPHENS INC.
By:_________________________________
Authorized Signatory
29
<PAGE>
SCHEDULE A
Number of
Firm Common Shares
Underwriters To be Purchased
FLEETBOSTON ROBERTSON STEPHENS INC. AND
FLEETBOSTON ROBERTSON STEPHENS INTERNATIONAL
LIMITED ....................................... [___]
DAIN RAUSCHER INCORPORATED ..................... [___]
SG COWEN SECURITIES CORPORATION ................ [___]
SOCIETE GENERALE
DLJdirect, INC.
[___] .......................................... [___]
[___] .......................................... [___]
[___] .......................................... [___]
Total........................................ 3,500,000
S-B
<PAGE>
Exhibit A
A-1
<PAGE>
Exhibit B
Matters to be Covered in the Opinion of Company Counsel
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Company is duly qualified to do business as a foreign corporation
and is in good standing in [list jurisdictions]. To such counsel's
knowledge, the Company does not own or control, directly or indirectly, any
corporation, association or other entity other than [list subsidiaries];
(iv) The authorized, issued and outstanding capital stock of the Company
is as set forth in the Prospectus under the caption "Capitalization" as of
the dates stated therein. The issued and outstanding shares of capital stock
of the Company outstanding prior to the issuance of the Shares have been
duly and validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or subject to
any preemptive right arising under the certificate of incorporation or
Delaware General Corporation Law, co-sale right, right of first refusal or
other similar right other than any registration rights described in
paragraph (xviii) below and any rights that have been duly waived;
(v) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully
paid and nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right of
first refusal or other similar right except for such rights that have been
duly waived.
(vi) The Company has the corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares to
be issued and sold by it hereunder;
(vii) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered
by the Company and, assuming (i) due authorization, execution and delivery
by you and (ii) compliance by all parties with applicable federal and state
securities laws, is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except that a
court may refuse to enforce or limit the application of this Agreement or
certain provisions hereof as unconscionable or contrary to public policy,
and as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights
<PAGE>
generally or by general equitable principles (whether relief is sought in a
proceeding at law or in equity);
(viii) The Registration Statement has become effective under the Act and,
to such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or threatened under the
Securities Act;
(ix) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(x) The Registration Statement and the Prospectus, and each amendment or
supplement thereto (other than the financial statements (including
supporting schedules) and financial data derived therefrom as to which such
counsel need express no opinion), as of the effective date of the
Registration Statement, complied as to form in all material respects with
the requirements of the Act and the applicable Rules and Regulations;
(xi) The information in the Prospectus under the caption "Description of
Capital Stock," to the extent that it constitutes matters of law or legal
conclusions, has been reviewed by such counsel and is a fair summary of such
matters and conclusions; and the forms of certificates evidencing the Common
Stock and filed as exhibits to the Registration Statement comply with
Delaware law;
(xii) The description in the Registration Statement and the Prospectus of
the charter and bylaws of the Company and of statutes are accurate and
fairly present the information required to be presented by the Securities
Act;
(xiii) To such counsel's knowledge, there are no agreements, contracts,
leases or documents to which the Company is a party of a character required
to be described or referred to in the Registration Statement or Prospectus
or to be filed as an exhibit to the Registration Statement which are not
described or referred to therein or filed as required;
(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default
under, any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which the
Company is a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge,
B-2
<PAGE>
any order, writ or decree specifically naming the Company of any
court, government or governmental agency or body having jurisdiction over
the Company , or over any of its properties or operations;
(xv) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction
over the Company, or over any of its properties or operations is necessary
in connection with the consummation by the Company of the transactions
herein contemplated, except (i) such as have been obtained under the
Securities Act and the Exchange Act, (ii) such as may be required under
state or other securities or Blue Sky laws in connection with the purchase
and the distribution of the Shares by the Underwriters, (iii) such as may be
required by the National Association of Securities Dealers, LLC and (iv)
such as may be required under the federal or provincial laws of Canada;
(xvi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Company that are required to
be disclosed in the Registration Statement or the Prospectus by the
Securities Act, other than those described therein;
(xvii) To such counsel's knowledge, the Company is not presently (a) in
material violation of its charter or bylaws, or (b) in material breach of
any applicable statute, rule or regulation known to such counsel or any
order, writ or decree of any court or governmental agency or body having
jurisdiction over the Company , or over any of its properties or operations;
(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Company Shares or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Company
Shares or other securities, because of the filing of the Registration
Statement by the Company have, with respect to the offering contemplated
thereby, waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file the
Registration Statement or have included securities in the Registration
Statement pursuant to the exercise of and in full satisfaction of such
rights; and
(xix) The Company is not and, after giving effect to the offering and the
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
Such counsel's opinion shall also include a statement to the following
effect: In connection with the preparation of the Registration Statement and
the Prospectus, such counsel has participated in conferences with officers and
representatives of the Company, counsel for the Underwriters and the independent
accountants of the Company, at which conferences such counsel has made inquiries
of such persons and others and discussed the contents of the Registration
Statement and the Prospectus. While the limitations
B-3
<PAGE>
inherent in the independent verification of factual matters and the character of
determinations involved in the registration process are such that counsel does
not pass upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus, subject to the foregoing and based on such
participation, inquiries and discussions, no facts have come to the attention of
such counsel which have caused such counsel to believe that the Registration
Statement, as of the effective date of the Registration Statement and at all
times subsequent thereto up to and on the date of such opinion (but after giving
effect to changes incorporated pursuant to Rule 430A under the Securities Act),
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading (except that such counsel need not express any
such view with respect to the financial statements, including the notes and
schedules thereto, or any other financial or accounting information) or that the
Prospectus, as of the date it was filed with the Commission and at all times
subsequent thereto up to and on the date of such opinion, contained any untrue
statement of a material fact or omitted to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading (except that such counsel need not express any
such view with respect to the financial statements, including the notes and
schedules thereto or any other financial or accounting information.)
B-4
<PAGE>
Exhibit C
Matters to be Covered in the Opinion of UK Counsel
(i) The Subsidiary has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation;
(ii) The Subsidiary has the corporate power and authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectus;
(iii) The Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in [list jurisdictions]. To such
counsel's knowledge, the Subsidiary does not own or control, directly or
indirectly, any corporation, association or other entity;
(iv) All issued and outstanding shares of capital stock of the Subsidiary
have been duly authorized and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, have not been issued in
violation of or subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right except for such rights
that have been duly waived and are owned by the Company free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable
interest;
(v) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not (a) result in any violation of the Subsidiary's charter
or bylaws or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default
under, any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which the
Subsidiary is a party or by which its properties are bound, or any
applicable statute, rule or regulation known to such counsel or, to such
counsel's knowledge, any order, writ or decree specifically naming the
Subsidiary of any court, government or governmental agency or body having
jurisdiction over the Subsidiary, or over any of its properties or
operations;
(vi) No consent, approval, authorization or order of or qualification with
any court, government or governmental agency or body having jurisdiction
over the Subsidiary, or over any of its properties or operations is
necessary in connection with the consummation by the Company of the
transactions herein contemplated, except ___________________;
(vii) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened against the Subsidiary; and
C-1
<PAGE>
(viii) To such counsel's knowledge, the Subsidiary is not presently (a) in
material violation of its charter or bylaws, or (b) in material breach of
any applicable statute, rule or regulation or any order, writ or decree of
any court or governmental agency or body having jurisdiction over the
Subsidiary, or over any of its properties or operations.
C-2
<PAGE>
Exhibit D
Matters to be Covered in the Opinion of Underwriters' Counsel
(i) The [Firm Shares] [Option Shares] have been duly authorized and, upon
issuance and delivery and payment therefor in accordance with the terms of
the Underwriting Agreement, will be validly issued, fully paid and non-
assessable.
(ii) The Registration Statement complied as to form in all material
respects with the requirements of the Act; the Registration Statement has
become effective under the Act and, to such counsel's knowledge, no stop
order proceedings with respect thereto have been instituted or threatened or
are pending under the Act.
(iii) The 8-A Registration Statement complied as to form in all material
respects with the requirements of the Exchange Act; the 8-A Registration
Statement has become effective under the Exchange Act; and the Firm Shares
or the Option Shares have been validly registered under the Securities Act
and the Rules and Regulations of the Exchange Act and the applicable rules
and regulations of the Commission thereunder;
(iv) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company.
Such counsel shall state that such counsel has reviewed the opinions
addressed to the Representatives fromHale and Dorr, LLP and
__________________________, each dated the date hereof, and furnished to you in
accordance with the provisions of the Underwriting Agreement. Such opinions
appear on their face to be appropriately responsive to the requirements of the
Underwriting Agreement.
In addition, such counsel shall state that such counsel has participated in
conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the First Closing Date or Second Closing Date, as the case may be, the
Registration Statement and any amendment or supplement thereto (other than the
financial statements including supporting schedules and other financial and
statistical information derived therefrom, as to which such counsel need express
no comment) contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the First Closing Date or the Second
Closing Date, as the case may be, the Registration Statement, the Prospectus and
any amendment or supplement thereto (except as aforesaid) contained any untrue
statement of a material fact or omitted to state
<PAGE>
a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE>
EXHIBIT 10.34
PRIME
RESPONSE
April 29th/ 1999
Dear Jamie,
Following the Prime Response Group Inc. Board Meeting yesterday, April 28th,
in New York City, I am pleased to inform you that the Board would like to extend
to you the offer of becoming the Company's Chief Financial Officer effective
immediately, reporting to myself.
This position will be based in the USA, at the soon to be established Company
Headquarters in Boston (Cambridge), Massachusetts. The exact timing of your
move will clearly be dependent on acquiring, the appropriate Visa, and the
Company will naturally sponsor your application, but it is expected that you
will be able to complete the move sometime between mid-June 1999 and mid-July.
Your salary will be $180,000, the exact translation of your existing Sterling
salary. Your 1999 Bonus Scheme, already confirmed by the Compensation
Committee, will move with you, under the same terms and conditions, paying out
$65,000 for 1999 if the conditions set for awarding the bonus are achieved.
I will be shortly reviewing the appropriateness of your current Stock Option
situation with the Compensation Committee and will notify you of its findings in
due course.
Your move to the U.S., being sponsored by the Company, will be eligible for
financial support under the terms of the Company, a Retention policy, which has
been approved by the Compensation Committee. Other than as noted above all
other aspects of your employment are continuous and the terms and conditions
under which you are employed by the company are unaltered.
While the company is sponsoring your Visa application, clearly much of the
practical work needed to make this transfer will be largely down to yourself to
manage, as the Company does not as yet have the resources to provide specialist
support. However, do not hesitate to ask me for whatever practical or official
support I may need to provide.
Jamie, the rest of the Board and myself wish you every success in this new role
and if you are happy to accept the position on the terms stated above please
sign below as indicated and return to me.
Sincerely,
/s/ Peter Boni
Peter Boni
(Chief Executive Officer, Prime Response Group Inc.)
Accepted:
Jamie Gunn /s/ Jamie Gunn
-----------------
<PAGE>
Exhibit 3.3
To be effective upon closing
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PRIME RESPONSE, INC.
Prime Response, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The Corporation filed its original Certificate of Incorporation with the
Secretary of the State of Delaware on September 26, 1997, which was subsequently
amended on October 23, 1997, December 18, 1997, September 18, 1998, February 25,
1999, July 1, 1999, July 13, 1999, July 15, 1999, amended and restated on
October 1, 1999, further amended on November 19, 1999 and amended and restated
on 1999.
---------
2. The Board of Directors of the Corporation duly adopted a resolution,
pursuant to Sections 141, 242 and 245 of the General Corporation Law of the
State of Delaware, setting forth this Third Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Third Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation
duly approved said proposed Third Amended and Restated Certificate of
Incorporation by written consent in accordance with Sections 228, 242 and 245 of
the General Corporation Law of the State of Delaware, and written notice of such
consent is being promptly given to all stockholders who have not consented in
writing to said Third Amended and Restated Certificate of Incorporation. The
resolution setting forth the Third Amended and Restated Certificate of
Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be and
- -------- hereby is amended and restated in its entirety so that the same
shall read as follows:
FIRST. The name of the Corporation is:
Prime Response, Inc.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 61,000,000 shares, consisting of
(i) 60,000,000 shares of Common
<PAGE>
Stock, $.01 par value per share ("Common Stock"), and (ii) 1,000,000 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock").
The following is a statement of the designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation (and
written actions in lieu of meetings).
A. COMMON STOCK.
------------
1. General. The voting, dividend and liquidation rights of the holders of
-------
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
------
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
---------
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
-----------
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such
-2-
<PAGE>
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot, except as and
to the extent provided in the By-Laws of the Corporation.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation, except as and to the extent provided in
the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
-3-
<PAGE>
NINTH. 1. Actions, Suits and Proceedings Other than by or in the Right of
--------------------------------------------------------------
the Corporation. The Corporation shall indemnify each person who was or is a
- ---------------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. Notwithstanding
anything to the contrary in this Article, except as set forth in Section 7
below, the Corporation shall not indemnify an Indemnitee seeking indemnification
in connection with a proceeding (or part thereof) initiated by the Indemnitee
unless the initiation thereof was approved by the Board of Directors of the
Corporation. Notwithstanding anything to the contrary in this Article, the
Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Corporation
makes any indemnification payments to an Indemnitee and such Indemnitee is
subsequently reimbursed from the proceeds of insurance, such Indemnitee shall
promptly refund such indemnification payments to the Corporation to the extent
of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The
------------------------------------------------------
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
-4-
<PAGE>
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding the
------------------------------------------------
other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an
adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of
guilty or nolo contendere by the Indemnitee, (iv) an adjudication that the
---------------
Indemnitee did not act in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his
---------------------------------
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below, in
-------------------
the event that the Corporation does not assume the defense pursuant to Section 4
of this Article of any action, suit, proceeding or investigation of which the
Corporation receives notice under this Article, any expenses (including
attorneys' fees) incurred by an Indemnitee in defending a civil or criminal
action, suit, proceeding or investigation or any appeal therefrom shall be paid
by the Corporation in advance of the final disposition of such matter; provided,
--------
however, that the
- -------
-5-
<PAGE>
payment of such expenses incurred by an Indemnitee in advance
of the final disposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article.
Such undertaking shall be accepted without reference to the financial ability of
the Indemnitee to make such repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
-----------------------------
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority
vote of the directors of the Corporation consisting of persons who are not at
that time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by this
--------
Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the
Corporation to have made a determination prior to the commencement of such
action that indemnification is proper in the circumstances because the
Indemnitee has met the applicable standard of conduct, nor an actual
determination by the Corporation pursuant to Section 6 that the Indemnitee has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct. The Indemnitee's expenses (including attorneys' fees) incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the Corporation.
8. Subsequent Amendment. No amendment, termination or repeal of this
--------------------
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of
-6-
<PAGE>
or relating to any actions, transactions or facts occurring prior to the final
adoption of such amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses provided
------------
by this Article shall not be deemed exclusive of any other rights to which an
Indemnitee seeking indemnification or advancement of expenses may be entitled
under any law (common or statutory), agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in any other capacity while holding office for the Corporation,
and shall continue as to an Indemnitee who has ceased to be a director or
officer, and shall inure to the benefit of the estate, heirs, executors and
administrators of the Indemnitee. Nothing contained in this Article shall be
deemed to prohibit, and the Corporation is specifically authorized to enter
into, agreements with officers and directors providing indemnification rights
and procedures different from those set forth in this Article. In addition, the
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
-----------------------
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
---------
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
-----------------------
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
-7-
<PAGE>
14. Definitions. Terms used herein and defined in Section 145(h) and
-----------
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware is
----------------------
amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. Except as otherwise provided herein, 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 this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business and
for the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the Corporation shall
-------------------
not be less than three. The exact number of directors within the limitations
specified in the preceding sentence shall be fixed from time to time by, or in
the manner provided in, the Corporation's By-laws.
2. Classes of Directors. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the extra directors shall be a member of Class
II, unless otherwise provided from time to time by resolution adopted by the
Board of Directors.
3. Election of Directors. Elections of directors need not be by written
---------------------
ballot except as and to the extent provided in the By-laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 2001; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 2002; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in the year 2003; and provided further,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any
-8-
<PAGE>
other class. To the extent possible, consistent with the foregoing rule, any
newly created directorships shall be added to those classes whose terms of
office are to expire at the latest dates following such allocation, and any
newly eliminated directorships shall be subtracted from those classes whose
terms of offices are to expire at the earliest dates following such allocation,
unless otherwise provided from time to time by resolution adopted by the Board
of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time in
-------------------------
office shall constitute a quorum for the transaction of business. In the event
one or more of the directors shall be disqualified to vote at any meeting, then
the required quorum shall be reduced by one for each director so disqualified,
provided that in no case shall less than one-third of the number of directors
fixed pursuant to Section 1 above constitute a quorum. If at any meeting of the
Board of Directors there shall be less than such a quorum, a majority of those
present may adjourn the meeting from time to time. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which a
quorum is present shall be regarded as the act of the Board of Directors unless
a greater number is required by law, by the By-laws of the Corporation or by
this Certificate of Incorporation.
7. Removal. Directors of the Corporation may be removed only for cause by
-------
the affirmative vote of the holders of at least two-thirds of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the size of the Board of
Directors, shall be filled only by a vote of a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected to hold office until the
next election of the class for which such director shall have been chosen,
subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance
---------------------------------------------------------
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of law,
---------------------
this Certificate of Incorporation or the By-laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast in any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article TWELFTH.
-9-
<PAGE>
THIRTEENTH. Special meetings of stockholders may be called at any time by
only the Chairman of the Board of Directors, the Chief Executive Officer,
President or the Board of Directors. Business transacted at any special meeting
of stockholders shall be limited to matters relating to the purpose or purposes
stated in the notice of meeting. Notwithstanding any other provision of law,
this Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
votes which all the stockholders would be entitled to cast in any annual
election of directors or class of directors shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article THIRTEENTH.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Third Amended and Restated Certificate of Incorporation
to be signed by its President this day of 1999.
----- --------,
PRIME RESPONSE, INC.
By:
-------------------
Peter J. Boni
President
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<PAGE>
Exhibit 3.5
AMENDED AND RESTATED BY-LAWS
OF
PRIME RESPONSE, INC.
ARTICLE 1 - Stockholders
------------------------
1.1 Place of Meetings. All meetings of stockholders shall be held at such
-----------------
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
--------------
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
----------------
any time by the Chairman of the Board of Directors, the President or the Board
of Directors. Business transacted at any special meeting of stockholders shall
be limited to matters relating to the purpose or purposes stated in the notice
of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
------------------
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
<PAGE>
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at the stockholder's address as it
appears on the records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
-----------
corporation shall prepare, at least 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
10 days prior to the meeting, at a place within the city 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 of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
------
Incorporation or these By-laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
------------
other time and to any other place at which a meeting of stockholders may be held
under these By-laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
------------------
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-laws. Each stockholder of record entitled to vote at
a meeting of stockholders, or to express consent or dissent to corporate action
in writing without a meeting, may vote or express such consent or dissent in
person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such
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<PAGE>
proxy shall be voted or acted upon after three years from the date of its
execution, unless the proxy expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
-----------------
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-laws. Any election by stockholders shall be
determined by a plurality of the votes cast by the stockholders entitled to vote
at the election.
1.10 Nomination of Directors. Only persons who are nominated in
------------------------
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve 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 and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
-3-
<PAGE>
The chairman of the meeting may, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
1.11 Notice of Business at Annual Meetings. 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) 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 an annual meeting by a
stockholder. For business to be properly brought before an annual meeting by a
stockholder, if such business relates to the election of directors of the
corporation, the procedures in Section 1.10 must be complied with. If such
business relates to any other matter, the stockholder must have given timely
notice thereof in writing to the Secretary. 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 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 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 10th day following the date on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever occurs first. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting (a) 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, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder, and (d) any
material interest of the stockholder in such business. Notwithstanding anything
in these By-laws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this Section 1.11
and except that any stockholder proposal which complies with Rule 14a-8 of the
proxy rules (or any successor provision) promulgated under the Securities
Exchange Act of 1934, as amended, and is to be included in the corporation's
proxy statement for an annual meeting of stockholders shall be deemed to comply
with the requirements of this Section 1.11.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that business was not properly brought before the meeting in
accordance with the provisions of this
-4-
<PAGE>
Section 1.11, and if he should so determine, the chairman shall so declare to
the meeting that any such business not properly brought before the meeting shall
not be transacted.
1.12 Action without Meeting. Stockholders may not take any action by
----------------------
written consent in lieu of a meeting.
1.13 Organization. The Chairman of the Board, or in his absence the Vice
-------------
Chairman of the Board designated by the Chairman of the Board, or the President,
in the order named, shall call meetings of the stockholders to order, and shall
act as chairman of such meeting; provided, however, that the Board of Directors
may appoint any stockholder to act as chairman of any meeting in the absence of
the Chairman of the Board. The Secretary of the corporation shall act as
secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
ARTICLE 2 - Directors
---------------------
2.1 General Powers. The business and affairs of the corporation shall be
--------------
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
----------------------------------
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be and is divided
--------------------
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated
-5-
<PAGE>
number of directors by three, then, if such fraction is one-third, the extra
director shall be a member of Class I, and if such fraction is two-thirds, one
of the extra directors shall be a member of Class I and one of the extra
directors shall be a member of Class II, unless otherwise provided from time to
time by resolution adopted by the Board of Directors.
2.4 Terms of Office. Each director shall serve for a term ending on the
---------------
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
2000; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 2001; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2002; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 Allocation of Directors Among Classes in the Event of Increases or
------------------------------------------------------------------
Decreases in the Number of Directors. In the event of any increase or decrease
- ------------------------------------
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.6 Vacancies. Any vacancy in the Board of Directors, however occurring,
---------
including a vacancy resulting from an enlargement of the size of the Board,
shall be filled only by vote of a majority of the directors then in office,
although less than a quorum, or by a sole remaining director. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next election
of the class for which such director shall have been chosen, subject to the
election and qualification of his successor and to his earlier death,
resignation or removal.
2.7 Resignation. Any director may resign by delivering his written
-----------
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be
-6-
<PAGE>
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
2.8 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of Directors may be
----------------
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 Notice of Special Meetings. Notice of any special meeting of
---------------------------
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
telex or electronic mail message, or delivering written notice by hand, to his
last known business or home address at least 24 hours in advance of the meeting,
or (iii) by mailing written notice to his last known business or home address at
least 72 hours in advance of the meeting. A notice or waiver of notice of a
meeting of the Board of Directors need not specify the purposes of the meeting.
2.11 Meetings by Telephone Conference Calls. Directors or any members of
---------------------------------------
any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 Quorum. A majority of the total number of the whole Board of
-------
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any
-7-
<PAGE>
such meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 Action at Meeting. At any meeting of the Board of Directors at which
------------------
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-laws.
2.14 Action by Consent. Any action required or permitted to be taken at
------------------
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.15 Removal. Directors of the corporation may be removed only for cause
--------
by the affirmative vote of the holders of two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote.
2.16 Committees. The Board of Directors may designate one or more
-----------
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, 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. Each such committee shall keep minutes and make such reports as
the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-laws for the Board of Directors.
2.17 Compensation of Directors. Directors may be paid such compensation
--------------------------
for their services and such reimbursement for expenses of attendance at meetings
as the Board of
-8-
<PAGE>
Directors may from time to time determine. No such payment shall preclude any
director from serving the corporation or any of its parent or subsidiary
corporations in any other capacity and receiving compensation for such service.
ARTICLE 3 - Officers
--------------------
3.1 Enumeration. The officers of the corporation shall consist of a
-----------
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
--------
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
-------------
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
------
Incorporation or by these By-laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
-----------------------
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote of a
majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer who resigns
or is removed shall have any right to any compensation as an officer for any
period following his resignation or removal, or any right to damages on account
of such removal, whether his compensation be by
-9-
<PAGE>
the month or by the year or otherwise, unless such compensation is expressly
provided in a duly authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
---------
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
----------------------------------------------------
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 President. The President shall, subject to the direction of the Board
---------
of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has
designated the Chairman of the Board or another officer as Chief Executive
Officer, the President shall be the Chief Executive Officer of the corporation.
The President shall perform such other duties and shall have such other powers
as the Board of Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
---------------
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
------------------------------------
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are
-10-
<PAGE>
incident to the office of the secretary, including without limitation the duty
and power to give notices of all meetings of stockholders and special meetings
of the Board of Directors, to attend all meetings of stockholders and the Board
of Directors and keep a record of the proceedings, to maintain a stock ledger
and prepare lists of stockholders and their addresses as required, to be
custodian of corporate records and the corporate seal and to affix and attest to
the same on documents.
Any Assistant Secretary shall perform such duties and possess such powers as the
Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any meeting of
stockholders or directors, the person presiding at the meeting shall designate a
temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform such
----------------------------------
duties and shall have such powers as may from time to time be assigned to him by
the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such powers as
the Board of Directors, the President or the Treasurer may from time to time
prescribe. In the event of the absence, inability or refusal to act of the
Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
---------
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
-11-
<PAGE>
ARTICLE 4 - Capital Stock
-------------------------
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
-----------------
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation shall
---------------------
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the corporation. Each such certificate shall be signed by, or in the
name of the corporation by, the Chairman or Vice Chairman, if any, of the Board
of Directors, or the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a
facsimile.
Each certificate for shares of stock which are subject to any restriction on
transfer pursuant to the Certificate of Incorporation, the By-laws, applicable
securities laws or any agreement among any number of stockholders or among such
holders and the corporation shall have conspicuously noted on the face or back
of the certificate either the full text of the restriction or a statement of the
existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
---------
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-laws.
-12-
<PAGE>
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
--------------------------------------
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
-----------
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
the meeting is held. The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE 5 - General Provisions
------------------------------
5.1 Fiscal Year. Except as from time to time otherwise designated by the
-----------
Board of Directors, the fiscal year of the corporation shall begin on the first
day of January in each year and end on the last day of December in each year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall be
--------------
approved by the Board of Directors.
-13-
<PAGE>
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
----------------
given by law, by the Certificate of Incorporation or by these By-laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
--------------------
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
---------------------
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-laws to the
----------------------------
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
------------------------------------
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
-14-
<PAGE>
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
5.8 Severability. Any determination that any provision of these By-laws
------------
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-laws.
5.9 Pronouns. All pronouns used in these By-laws shall be deemed to refer
--------
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 6 - Amendments
----------------------
6.1 By the Board of Directors. These By-laws may be altered, amended or
-------------------------
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. Except as otherwise provided in Section 6.3,
-------------------
these By-laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any regular or special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such regular or special meeting.
6.3 Certain Provisions. Notwithstanding any other provision of law, the
------------------
Certificate of Incorporation or these By-laws, and notwithstanding the fact that
a lesser percentage may be
-15-
<PAGE>
specified by law, the affirmative vote of the holders of at least seventy-five
percent (75%) of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with Section 1.3, Section 1.10, Section 1.11,
Section 1.12, Section 1.13, Article 2 or Article 6 of these By-laws.
-16-
<PAGE>
EXHIBIT 4.1
[Prime Response Logo]
[ ] Number Prime Response, Inc. [ ] Shares
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
================================================================================
CUSIP 74158B 10 0
THIS CERTIFIES THAT
is the owner of
================================================================================
fully-paid and non-assessable shares of the COMMON STOCK, $.01 par value, of
===============================PRIME RESPONSE, INC.=============================
transferable only on the books of the Corporation by the holder hereof in person
or by duly authorized attorney upon surrender of this certificate properly
endorsed.
This certificate and the shares of Common Stock represented hereby are received
and held subject to the laws of the State of Delaware and to the Certificate of
Incorporation and the By-laws of the Corporation, all as from time to time
amended, and the owner of this certificate by accepting the same expressly
assents thereto. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed
by the facsimile signatures of its duly authorized officers and a facsimile of
its corporate seal to be hereunto affixed.
Dated:
/s/ Frederick H. Phillips /s/ Peter J. Boni
Senior Vice President President
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY:
------------------------------
Authorized Signature
[PRIME RESPONSE, INC., 1997, DELAWARE]
<PAGE>
PRIME RESPONSE, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OR SERIES OF
STOCK. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- _________Custodian_________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ________________________
in common (State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________________________________
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
_______________________________________________________________________Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated________________
_______________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
________________________________________________________________________________
AMERICAN BANK NOTE COMPANY
55TH STREET AND SANSOM STREET
PHILADELPHIA, PA 19139
(215) 764-8600
________________________________________________________________________________
SALES: D. BURNS: 617-786-7600
________________________________________________________________________________
/NET/BANKNOTE/HOME 15/PRIME/H64836
________________________________________________________________________________
PRODUCTION COORDINATOR: LISA MARTIN: 215-764-8625
PROOF OF JANUARY 13, 2000
PRIME
H 64836 BACK
________________________________________________________________________________
OPERATOR: eg
________________________________________________________________________________
NEW
________________________________________________________________________________
<PAGE>
Exhibit 5.1
[HALE AND DORR LLP LETTERHEAD]
February 3, 2000
Prime Response, Inc.
150 CambridgePark Drive
Cambridge, Massachusetts 02140
Re: Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-92461) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of 3,500,000 shares of Common Stock, $0.01 par value per share (the "Shares"),
of Prime Response, Inc., a Delaware corporation (the "Company"), including
525,000 Shares issuable upon exercise of an over-allotment option granted by the
Company.
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated and
SG Cowen Securities Corporation, as representatives of the several underwriters
named in the Underwriting Agreement, the form of which has been filed as
Exhibit 1 to the Registration Statement.
We are acting as counsel for the Company in connection with the issue and
sale by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the Underwriting Agreement, minutes of meetings of the stockholders
and the Board of Directors of the Company as provided to us by the Company,
stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Underwriting Agreement, to register
and qualify the Shares for sale under all applicable state securities or "blue
sky" laws.
We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of the Commonwealth of Massachusetts, the General
Corporation Law of the State of Delaware and the federal laws of the United
States of America.
<PAGE>
Page 2
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and paid for in accordance with the terms and conditions of the Underwriting
Agreement, the Shares will be validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Validity of Common
Stock." In giving such consent, we do not hereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act or the rules and regulations of the Commission.
Very truly yours,
HALE AND DORR LLP
<PAGE>
Exhibit 10.36
[PRIME RESPONSE LETTERHEAD APPEARS HERE]
Prime Response, Inc.
150 CambridgePark Drive
Cambridge, MA 02140
ph: 617-876-8300
fax: 617-876-8383
www.primeresponse.com
November 10, 1999
Mr. James Carling
291 Nahanton Street
Newton, MA 02459
- --------------------------------------------------------------------------------
Re: Chief Technology Officer Compensation in U.S. Dollars
-----------------------------------------------------
Dear James:
Now that you have relocated to the United States, based in our new
corporate headquarters in Cambridge, Massachusetts, your compensation as Chief
Technology Officer will be paid in U.S. dollars and all medical and other
benefits and holidays received will be those given to United States employees.
To summarize:
Base Salary: $250,000 per year
Bonus Opportunity: Up to 30% of base salary ($75,000)
Auto allowance: $10,000 per year
Benefits: Health and life insurance
401k Retirement Plan
Four weeks vacation
It is exciting to have the primary visionary of Prime Response relocated to
the United States. I am looking forward to our continued partnership.
Sincerely,
/s/ Peter J. Boni
Peter J. Boni
President and Chief Executive Officer
PJB:jc
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
Exhibit 10.37
PRINCIPAL STATEMENT OF TERMS AND CONDITIONS OF
EMPLOYMENT BETWEEN
PRIME RESPONSE LIMITED
AND
ALLEN SWANN
COMMENCEMENT DATE: February 2, 1998
JOB TITLE: General Manager
DEPARTMENT: Administration
REPORTING TO: James Carling
ANNUAL SALARY: (Pounds) 140,000
I am pleased to confirm Prime Response Limited's offer on the following terms
and conditions. In this document, "Company" shall refer to Prime Response
Limited:
1. COMMENCEMENT DATE:
------------------
Your commencing date of employment is as set out above, and is the first
day of your period of continuous employment with the Company.
2. LOCATION:
---------
You will be based at the Company's offices at Goat Wharf, Brentford
travelling to other locations as reasonably required in the performance of
your duties. The Company expects you to be flexible, and may during the
course of your employment require you to work at such other locations as
may be reasonable, given the nature and status of your job.
3. SALARY:
-------
3.1 Your salary is set out above, and is payable monthly in arrears in 12 equal
instalments on the 28th of each month.
3.2 The Company may withhold the payment of any money owed or due to be paid to
you if you are in breach of the terms of this contract and may withhold or
deduct any money owing or due to be paid by it to you under this contract
or otherwise from any money owing or due to be paid to you.
3.3 The Company operates a discretionary bonus scheme, based on company
results, and revenue recognisable under the US Generally Accepted
Accounting Principles.
3.4 Any sales targets, and commission scheme for which you may be eligible, are
detailed in a separate attachment to this letter.
1
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
3.5 Any petrol expenses incurred, whether business or private, will be
reimbursed in accordance with the Company's expense policy, and will be
taxed in accordance with current Inland Revenue guidelines.
3.6 The Company's expenses policy, benefits package and stock option scheme are
described in the Company Handbook, which is attached to this Agreement.
4. HOURS OF WORK:
--------------
Your normal hours of work will be 37.5 hours per week from 9.00 a.m. to
5.30 p.m. on each day from Monday to Friday with one hour for lunch each
day to be taken between 12 noon and 2 p.m., except where agreed with your
departmental head. Overtime is only paid in exceptional circumstances and
at the sole discretion of a director or your departmental head, who has
approved such overtime in advance.
5. HOLIDAY:
--------
5.1 Your entitlement to paid holiday is 25 working days each calendar year of
which not more than two weeks and two days may be taken consecutively
unless by prior arrangement in writing from the Company. If you join the
Company during the year, your holiday entitlement is calculated on a pro
rata basis. No more than five days entitlement to holiday not taken in a
given calendar year may be carried forward into the next calendar year
without the prior permission in writing of the Company and no additional
payment will be made in respect of holidays not taken. All holidays carried
over must be taken by 31st March of the following year.
5.2 In addition to the above, you are entitled to all statutory holidays with
pay. A compensatory day's holiday will be given when any of these days fall
on a Saturday or Sunday.
5.3 In the event of you leaving the Company, you will be paid in lieu of any
outstanding holiday entitlement on a pro-rata basis.
5.4 One day's pay (whether for the purposes of holiday or where you work for
part of a month) will be calculated at the rate of annual salary.
-------------
252
5.5 In the event that at your date of termination, you have already taken more
holiday than you are entitled to, the Company will have the right to
recover from you payment in respect for the excess.
6. TERMS AND CONDITIONS RELATING TO INABILITY TO WORK DUE TO ILLNESS:
------------------------------------------------------------------
6.1 If you are unable to attend the office through illness, you must telephone
(or have someone telephone on your behalf) before 10.00 a.m. on the morning
of your illness. Appropriate medical certificates must be received by the
Company to cover all periods of illness in excess of five working days or
the Company reserves the right to
<PAGE>
withhold payment of salary in respect of those days. Any payments of salary
for periods of sickness will always be at the discretion of the Board of
Directors. If payment of salary is withheld during periods of sickness and
providing you are appropriately qualified and have complied with this
clause, then statutory sick pay will be paid.
6.2 In the event that you are absent from work for more than five working days,
you may be requested to submit yourself to a medical examination at the
Company's expense by a suitably qualified person of the Company's choice if
you are unable to perform your duties for the Company as a result of ill
health or injury. If that person is unable to confirm that you are fit to
perform your duties, you will co-operate in ensuring the prompt delivery of
all relevant medical reports to the Company and will allow the Company
access to any relevant medical report which has been prepared by a medical
practitioner responsible for your care.
7. TERMINATION OF EMPLOYMENT:
--------------------------
7.1 Your employment is subject to notice on either side of six months. The
Company may elect to pay you in lieu of any notice period.
7.2 No accrued holiday entitlement calculated in accordance with Clause 5 above
may be treated as counting towards the period of notice which you are
required to give to the Company.
7.3 Notwithstanding any other provision to the contrary in this Agreement, the
Company may, during your notice period, place you on "gardening leave",
whereby you will be required to not perform any duties on behalf of the
Company, and you will be required to not attend the Company's premises, or
those of its customers, except as required by the Company. During this
period, you will remain an employee of the Company, and therefore you may
not undertake any other employment or engagement, and you remain bound by
this contract of employment.
8. GRIEVANCE PROCEDURE:
-------------------
8.1 If you have any grievance relating to your employment, you should raise it
with your line manager either orally or in writing. If in your view the
grievance remains unresolved, you should raise it with your departmental
head. If in your view the grievance remains unresolved, you should raise
it with the General Manager for EMEA, who will make the final decision
together with the Personnel Officer. In the event that you departmental
head is the General Manager for EMEA, the final decision shall be taken by
the Chairman of the Company.
8.2 The Company's grievance procedure is set out more fully in the Company
Handbook
9. PENSION SCHEME:
---------------
The Company does not operate a Pension Scheme.
<PAGE>
10. SECURITY OF CONFIDENTIAL INFORMATION:
-------------------------------------
10.1 During your employment you will have access to and will be entrusted with
confidential information and trade secrets relating to the business of the
Company, which may include information entrusted to the Company by its
clients. You may not during your employment, otherwise than in the proper
performance of your duties (and then only to those who need to know such
information or secrets) or afterwards (otherwise than with the prior
written consent of the your department head or a director or as required by
law) use or disclose any confidential information or trade secrets
concerning the business of the Company or in respect of which the Company
may be bound by an obligation of confidence to a third party and you should
also use your best endeavors to prevent the publication or disclosure of
such information or secrets. All notes, memoranda and other records
(including those stored on computer software) made during your employment
and relating to the business of the Company belong to the Company and
should promptly be handed over to the Company on request, or on termination
of your employment for whatever reason.
10.2 Any documents or equipment provided for you by the Company remain the
property of the Company and must be returned when your employment ceases.
10.3 Any discovery, invention, secret process or improvement in procedure
discovered, invented, developed or devised by you during your employment
with the Company (and whether or not in conjunction with a third party) and
in the course of your duties affecting or relating to the business of the
Company or capable of being used or adapted for use in it, should
immediately be disclosed to the Company and subject to such rights as you
may have under the Patents Act 1977 will belong to the Company.
10.4 Any other works created by you in the course of your employment, or using
Company property or equipment, shall belong to the Company, and you will,
where necessary, assign all rights in such works to the Company on request.
You may not use such works, other than in the course of your employment.
10.5 Any breach of security will be treated as in accordance with the Company's
disciplinary procedure, and may, result in instant dismissal and could make
you liable to prosecution.
11. DISCIPLINE:
-----------
The Company's disciplinary procedure is set out in the Company Handbook, a
copy of which is supplied with this contract.
12. JOB DESCRIPTION & DUTIES
- --- ------------------------
Your detailed job description will be separately notified to you by your
line manager, who will also have responsibility for determining your
duties.
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
13. COMPANY HANDBOOK
----------------
The Company Handbook, which is supplied with these terms and conditions and
as the same shall be amended from time to time, forms part of your contract
of employment.
14. DATA PROTECTION
- --- ---------------
From time to time the Company will gather personal data from you which may
be subject to the Data Protection Act 1984, and any successor legislation.
By signing this contract, you authorize the Company to disclose this data
to certain third parties for the purposes of, inter alia, assessing you
eligibility to health and other benefits the Company may from time to time
consider. In the event that you do not wish any personal data to be
disclosed, you may notify your line manager at any time.
This agreement supersedes any previous agreement between the parties whether
written, oral or implied.
If you accept the above terms and conditions, please sign and return one copy of
this form.
<TABLE>
<CAPTION>
PRIME RESPONSE LIMITED EMPLOYEE
<S> <C> <C>
Signed by: /s/ Michelle Rose
------------------ --------------------
Name (in Capitals): MICHELLE ROSE
------------------ --------------------
Date: 1 July 98
------------------ --------------------
Title: Personnel
------------------
</TABLE>
<PAGE>
Company Copy
PRIME RESPONSE GROUP, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Prime Response Group, Inc. (the
"Corporation"):
Optionee: Allen Swann
--------
Grant Date: 26th October 1998
----------
Vesting Commencement Date: February 1, 1998
-------------------------
Exercise Price: $2.56 per share
--------------
Number of Option Shares: 140,000 shares of Common Stock
-----------------------
Expiration Date: 25th October 2008
---------------
Type of Option: Incentive Stock Option
-------------- -----
X Non-Statutory Stock Option
---
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall initially be unvested and
----------------
subject to repurchase by the Corporation at the Exercise Price paid
per share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall accordingly lapse with respect
to, (i) twenty-five percent (25%) of the Option Shares upon Optionee's
completion of 1 year of Service measured from the Vesting Commencement
Date and (ii) the balance of the Option Shares in a series of thirty-
six (36) successive equal monthly installments upon Optionee's
completion of each additional month of Service over the thirty-six
(36)-month period measured from the first anniversary of the Vesting
Commencement Date. In no event shall any additional Option Shares
vest after Optionee's cessation of Service.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the terms of the Prime Response Group, Inc. 1998 Stock
Option/Stock Issuance Plan (the "Plan"). Optionee further agrees to be bound by
the terms of the Plan and the terms of the Option as set forth in the Stock
Option Agreement attached hereto as Exhibit A.
<PAGE>
Optionee understands that any Option Shares purchased under the Option will
be subject to the terms set forth in the Stock Purchase Agreement attached
hereto as Exhibit B. Optionee hereby acknowledges receipt of a copy of the Plan
in the form attached hereto as Exhibit C.
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
-----------------
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE
RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS
ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE ATTACHED STOCK PURCHASE
AGREEMENT.
No Employment or Service Contract. Nothing in this Notice or in the
---------------------------------
attached Stock Option Agreement or Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have the meaning
-----------
assigned to them in this Notice or in the attached Stock Option Agreement.
DATED: 26TH OCTOBER, 1998
PRIME RESPONSE GROUP, INC.
By: /s/ Peter J. Boni
--------------------------------
Title: President
/s/ Allen Swann
________________________________
ALLEN SWANN
ATTACHMENTS:
- ------------
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - STOCK PURCHASE AGREEMENT
EXHIBIT C - 1998 STOCK OPTION/STOCK ISSUANCE PLAN
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
Prime Response Inc.
1099 18th Street
Suite 500
Denver, CO 80202-1908
ph: 303-382-4380
fax: 303-296-7726
www.prime-response.com
CONFIDENTIAL LETTER TO:
ALLEN SWANN
SENIOR VICE PRESIDENT OF INTERNATIONAL OPERATIONS
Dear Allen,
As we discussed, the following represents your 1999 compensation plan as Senior
Vice President of International Operations.
BASE SALARY (Pounds) 140,000.00
-----------
INCENTIVE POTENTIAL (Pounds) 100,000.00
-------------------
<TABLE>
<CAPTION>
This incentive potential has three components:
<S> <C>
1. REVENUE (Pounds) 40,000 for the year, paid
quarterly against budgeted targets.
2. CONTRIBUTION MARGIN (Pounds)35,000 for the year, paid quarterly
against budgeted targets.
3. OVERALL COMPANY (Pounds)25,000 for the year, paid annually
against budgeted targets.
</TABLE>
Budgeted targets are as follows:
1. REVENUE
<TABLE>
<CAPTION>
($ MILLIONS)
QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 1999
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SOFTWARE
LICENSE 3.0 4.0 4.0 2.0 13.0
MAINTENANCE .5 .7 .9 1.1 3.2
PROFESSIONAL
SERVICES
(CONSULTING &
EDUCATION) .5 .8 1.2 1.3 3.8
OUTSOURCING .9 1.0 1.0 1.1 4.0
TOTAL
REVENUE 4.9 6.5 7.1 5.5 24.0
</TABLE>
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
CONFIDENTIAL LETTER TO:
ALLEN SWANN
SENIOR VICE PRESIDENT, INTERNATIONAL OPERATIONS
PAGE 2
<TABLE>
<CAPTION>
($ MILLIONS)
QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 1999
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SERVICES &
SUPPORT .47 .41 .40 .40 1.68
OUTSOURCING .64 .74 .72 .74 2.84
MAINTENANCE .11 .13 .12 .12 .48
SALES &
MARKETING 1.61 1.90 2.2 2.1 7.81
TOTAL COSTS 3.03 3.21 3.01 2.99 12.24
- --------------------------------------------------------------------
CONTRIBUTION
MARGIN 1.87 3.29 4.09 2.51 11.76
</TABLE>
3. OVERALL COMPANY PERFORMANCE:
<TABLE>
<CAPTION>
($ MILLIONS)
QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4 1999
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUE 8.0 9.8 11.7 8.5 38.0
EXPENSE 7.5 8.2 8.3 8.0 32.0
PROFIT .5 1.6 3.4 .5 6.0
</TABLE>
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
CONFIDENTIAL LETTER TO:
ALLEN SWANN
<TABLE>
<CAPTION>
SENIOR VICE PRESIDENT, INTERNATIONAL OPERATIONS
PAGE 3
PAYMENT PLANS ARE AS FOLLOWS: (PERCENTAGE OF OVERRIDE X $ MILLIONS = POUNDS OF
INCENTIVE PAYMENTS).
<S> <C>
1. REVENUE:
--------
SOFTWARE LICENSE & .075 % to $ 10 million
MAINTENANCE.
. .125 % $10 million to $16 million
.25 % $16 million to $20 million
.5 % over $20 million
SERVICES & OUTSOURCING:
.1% to $5 million
.15% to $8 million
.3% to $10 million
.4% over $10 million
OVERALL REVENUE:
(Pounds) 4,000 for each quarter that
overall revenue targets are achieved.
2. CONTRIBUTION MARGINS:
---------------------
.25% to $7 million
.4% to $12 million
.8% to $15 million
1.0% over $15 million
</TABLE>
3. OVERALL COMPANY PERFORMANCE:
---------------------------
(Pounds) 25,000 paid at the year-end audit, based upon achievement vs. budget.
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
CONFIDENTIAL LETTER TO:
ALLEN SWANN
SENIOR VICE PRESIDENT, INTERNATIONAL OPERATIONS
PAGE 4
Above and beyond this compensation plan, you will be granted a one-time bonus of
$50,000.00 for achieving Q1 revenue targets.
I look forward to working with you towards a rewarding and successful 1999.
Sincerely,
Peter J. Boni
President & CEO
Prime Response Group, Inc.
Accepted: /s/ Allen Swann
------------------------
Allen Swann
<PAGE>
Exhibit 10.38
[PRIME RESPONSE LOGO APPEARS HERE]
PRINCIPAL STATEMENT OF TERMS AND CONDITIONS OF
EMPLOYMENT BETWEEN
PRIME RESPONSE LIMITED
AND
GARY DANIELS
COMMENCEMENT DATE: 30 November, 1998
JOB TITLE: VP Product Development
DEPARTMENT: Development
REPORTING TO: Terry Osborne, CEO - Group
ANNUAL SALARY: (Pounds)140,000
I am pleased to confirm Prime Response Limited's offer on the following terms
and conditions. In this document, "Company" shall refer to Prime Response
Limited:
1. COMMENCEMENT DATE:
-----------------
Your commencing date of employment is as set out above, and is the first
day of your period of continuous employment with the Company.
2. LOCATION:
--------
You will be based at the Company's offices at Goat Wharf, Brentford
travelling to other locations as reasonably required in the performance of
your duties. The Company expects you to be flexible, and may during the
course of your employment require you to work at such other locations as
may be reasonable, given the nature and status of your job.
3. SALARY:
------
3.1 Your salary is set out above, and is payable monthly in arrears in 12 equal
instalments on the 28th of each month.
3.2 The Company may withhold the payment of any money owed or due to be paid to
you if you are in breach of the terms of this contract and may withhold or
deduct any money owing or due to be paid by it to you under this contract
or otherwise from any money owing or due to be paid to you.
3.3 The Company operates a discretionary bonus scheme, based on company
results, and revenue recognisable under the US Generally Accepted
Accounting Principles.
3.4 Any sales targets, and commission scheme for which you may be eligible, are
detailed in a separate attachment to this letter.
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
3.5 Any petrol expenses incurred, whether business or private, will be
reimbursed in accordance with the Company's expense policy, and will be
taxed in accordance with current Inland Revenue guidelines.
3.6 The Company's expenses policy, benefits package and stock option scheme are
described in the Company Handbook, which is attached to this Agreement.
4. HOURS OF WORK:
-------------
Your normal hours of work will be 37.5 hours per week from 9:00 a.m. to
5:30 p.m. on each day from Monday to Friday with one hour for lunch each
day to be taken between 12 noon and 2 p.m., except where agreed with your
departmental head. Overtime is only paid in exceptional circumstances and
at the sole discretion of a director or your departmental head, who has
approved such overtime in advance.
5. HOLIDAY:
-------
5.1 Your entitlement to paid holiday is 25 working days each calendar year of
which not more than two weeks and two days may be taken consecutively
unless by prior arrangement in writing from the Company. If you join the
Company during the year, your holiday entitlement is calculated on a pro
rata basis. No more than five days entitlement to holiday not taken in a
given calendar year may be carried forward into the next calendar year
without the prior permission in writing of the Company and no additional
payment will be made in respect of holidays not taken. All holidays carried
over must be taken by 31st March of the following year.
5.2 In addition to the above, you are entitled to all statutory holidays with
pay. A compensatory day's holiday will be given when any of these days fall
on a Saturday or Sunday.
5.3 In the event of you leaving the Company, you will be paid in lieu of any
outstanding holiday entitlement on a pro rata basis.
5.4 One day's pay (whether for the purposes of holiday or where you work for
part of a month) will be calculated at the rate of annual salary.
-------------
5.5 In the event that at your date of termination, you have already taken more
holiday than you are entitled to, the Company will have the right to
recover from you payment in respect for the excess.
6. TERMS AND CONDITIONS RELATING TO INABILITY TO WORK DUE TO ILLNESS:
-----------------------------------------------------------------
6.1 If you are unable to attend the office through illness, you must telephone
(or have someone telephone on your behalf) before 10.00 a.m. on the morning
of your illness. Appropriate medical certificates must be received by the
Company to cover all periods of illness in excess of five working days or
the Company reserves the right to
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
withhold payment of salary in respect of those days. Any payments of salary
for periods of sickness will always be at the discretion of the Board of
Directors. If payment of salary is withheld during periods of sickness and
providing you are appropriately qualified and have complied with this
clause, then statutory sick pay will be paid.
6.2 In the event that you are absent from work for more than five working days,
you may be requested to submit yourself to a medical examination at the
Company's expense by a suitably qualified person of the Company's choice if
you are unable to perform your duties for the Company as a result of ill
health or injury. If that person is unable to confirm that you are fit to
perform your duties, you will co-operate in ensuring the prompt delivery of
all relevant medical reports to the Company and will allow the Company
access to any relevant medical report which has been prepared by a medical
practitioner responsible for your care.
7. TERMINATION OF EMPLOYMENT:
-------------------------
7.1 Your employment is subject to a notice period of six months on either side
after a three months probationary period, but in the event of a hostile
take-over bid this will be increased to 12 months. The Company may elect to
pay you in lieu of any notice period.
7.2 No accrued holiday entitlement calculated in accordance with Clause 5 above
may be treated as counting towards the period of notice which you are
required to give to the Company.
7.3 Notwithstanding any other provision to the contrary in this Agreement, the
Company may, during your notice period, place you on "gardening leave",
whereby you will be required to not perform any duties on behalf of the
Company, and you will be required to not attend the Company's premises, or
those of its customers, except as required by the Company. During this
period, you will remain an employee of the Company, and therefore you may
not undertake any other employment or engagement, and you remain bound by
this contract of employment.
8. GRIEVANCE PROCEDURE:
-------------------
8.1 If you have any grievance relating to your employment, you should raise it
with your line manager either orally or in writing. If in your view the
grievance remains unresolved, you should raise it with your departmental
head. If in your view the grievance remains unresolved, you should raise it
with the General Manager for EMEA, who will make the final decision
together with the Personnel Officer. In the event that you departmental
head is the General Manager for EMEA, the final decision shall be taken by
the Chairman of the Company.
8.2 The Company's grievance procedure is set out more fully in the Company
Handbook.
9. PENSION SCHEME:
--------------
The Company does not operate a Pension Scheme.
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
10. SECURITY OF CONFIDENTIAL INFORMATION:
------------------------------------
10.1 During your employment you will have access to and will be entrusted with
confidential information and trade secrets relating to the business of the
Company, which may include information entrusted to the Company by its
clients. You may not during your employment, otherwise than in the proper
performance of your duties (and then only to those who need to know such
information or secrets) or afterwards (otherwise than with the prior
written consent of the your department head or a director or as required by
law) use or disclose any confidential information or trade secrets
concerning the business of the Company or in respect of which the Company
may be bound by an obligation of confidence to a third party and you should
also use your best endeavors to prevent the publication or disclosure of
such information or secrets. All notes, memoranda and other records
(including those stored on computer software) made during your employment
and relating to the business of the Company belong to the Company and
should promptly be handed over to the Company on request, or on termination
of your employment for whatever reason..
10.2 Any documents or equipment provided for you by the Company remain the
property of the Company and must be returned when your employment ceases.
10.3 Any discovery, invention, secret process or improvement in procedure
discovered, invented, developed or devised by you during your employment
with the Company (and whether or not in conjunction with a third party) and
in the course of your duties affecting or relating to the business of the
Company or capable of being used or adapted for use in it, should
immediately be disclosed to the Company and subject to such rights as you
may have under the Patents Act 1977 will belong to the Company.
10.4 Any other works created by you in the course of your employment, or using
Company property or equipment, shall belong to the Company, and you will,
where necessary, assign all rights in such works to the Company on request.
You may not use such works, other than in the course of your employment.
10.5 Any breach of security will be treated as in accordance with the Company's
disciplinary procedure, and may, result in instant dismissal and could make
you liable to prosecution.
11. DISCIPLINE:
----------
The Company's disciplinary procedure is set out in the Company Handbook, a
copy of which is supplied with this contract.
12. JOB DESCRIPTION & DUTIES:
------------------------
Your detailed job description will be separately notified to you by your
line manager, who will also have responsibility for determining your
duties.
<PAGE>
[PRIME RESPONSE LOGO APPEARS HERE]
13. COMPANY HANDBOOK:
----------------
The Company Handbook, which is supplied with these terms and conditions and
as the same shall be amended from time to time, forms part of your contract
of employment.
14. DATA PROTECTION:
---------------
From time to time the Company will gather personal data from you which may
be subject to the Data Protection Act 1984, and any successor legislation.
By signing this contract, you authorise the Company to disclose this data
to certain third parties for the purposes of, inter alia, assessing you
eligibility to health and other benefits the Company may from time to time
consider. In the event that you do not wish any personal data to be
disclosed, you may notify your line manager at any time.
This agreement supersedes any previous agreement between the parties whether
written, oral or implied.
If you accept the above terms and conditions, please sign and return one copy of
this form.
PRIME RESPONSE LIMITED EMPLOYEE
Signed by: /s/ Michelle Rose /s/ Gary Daniels
----------------------- --------------------------
Name (in Capitals): MICHELLE ROSE GARY DANIELS
----------------------- --------------------------
Date: 30/11/98 17/th/ October 98
----------------------- --------------------------
Title: PERSONNEL
-----------------------
<PAGE>
[PRIME RESPONSE BRENTFORD, U.K. LETTERHEAD APPEARS HERE]
Prime Response Ltd.
Gary Daniels
Garden Cottage
Holmbury Hill Road
Holmbury St. Mary
Near Dorking
Surrey RH5 6NR
6/th/ October 98
Dear Gary,
I am delighted to offer you the position of Vice President Product Development
reporting to the CEO based in Brentford. Your responsibilities will include
bringing together existing product maintenance and support into a single code
stream, developing now product versions with a variety of front end
architectures including NT and web. You will also be responsible for porting the
product to different architectures maintaining version control and consistency
and improving the productivity and quality within the development function
through the implementation of control, quality and testing processes.
Your remuneration will consist of a basic salary of (Pounds)140,000 which
includes car allowance, plus a performance bonus of 50% or (Pounds)70,000.
As discussed we will jointly agree the components of the bonus.
In addition you will be granted on joining 35,000 options of pre flotation
stock. It is our intent to float the Company in the US during the next 24 month
period. The full details of the stock grant scheme are currently being produced
and you will receive information at the appropriate time. As discussed in the
event of a take-over either pre or post IPO, all shares will be accelerated.
Your notice period will be 6 months on either side after a three month
probationary period, but in the event of a hostile take-over it will be
increased to 12 months. You will be entitled to 25 days holiday per annum, with
pro rata entitlement.
This offer is subject to satisfactory references, which are currently being
sought and assumes a start date to be agreed. I know that you will be discussing
notice period, we would obviously want you on board as soon as possible in 1998.
This is a very exciting opportunity to join an organization in its formative
stages that has a great product and a very desirable blue chip client base.
We can build a formidable team that will lead this company to great success and
I know you will play a major role. I very much look forward to your joining.
Best Regards,
/s/ James Carling
James Carling
Chairman
I accept the terms of this offer.
Signed /s/ Gary Daniels Date: 6/th/ October 98
<PAGE>
Exhibit 10.39
October 22, 1999
Paul Lavallee
442 Carpenter Road
Whitinsville, MA 01588
Dear Paul:
I am pleased to offer you the position of President of the Americas for Prime
Response, Inc. (the "Company"), reporting directly to me. In that role, you
will have complete revenue and P&L responsibility for all sales, professional
services and customer support activities throughout the United States, Canada
and Latin America.
Compensation for the position includes a base salary of $250,000 per year and an
annual incentive compensation equal to 50% of your base salary ($125,000). You
will be eligible to earn one fourth of that incentive for the remainder of 1999
($31,250). Half of that ($15,620) will be guaranteed. Over achievement of $2
million in license revenue for the fourth quarter of 1999 will result in
additional earnings.
In addition, a stock option to purchase 200,000 shares of the Company's common
stock at $5.00 per share will be granted. As we reviewed, since Prime Response
is legally considered to be in registration, pricing on stock options is to be
calculated at a 10% discount to the low end of the filing range. The Company is
expected to file for a public listing during the week of November 1. Final IPO
pricing has yet to be determined and trading pricing is unknown. With regard to
the pricing difference that we have discussed, we are prepared to price your
stock options at $5.00 per share.
Twenty percent of these stock options (40,000 shares) will be vested
immediately. The remaining shares (160,000) will be vested according to the
Company stock option standards over a four-year period of time.
General Atlantic Partners, a principal investor and holder of a company board
seat, has agreed to allow your purchase of up to $150,000 of Prime Response
common stock owned by them for $3.00 per share. This transaction must be
concluded with General Atlantic not later than October 31, 1999.
Furthermore, you will have the opportunity to participate in Prime Response
benefits which include 3 weeks of vacation annually, health and life insurance
and a 401K retirement plan, which includes Company contribution.
<PAGE>
Paul Lavallee
October 22, 1999
Page 2
Should you be terminated without cause, your cash compensation of base salary
and incentive potential (not less than $375,000 as described above) shall
continue for one year. In addition, the Company will allow you to become vested
in an additional year's worth of stock options to be exercised within one year
of termination. The same terms shall apply if you elect to terminate in the
event that your position is eliminated, you are offered a position of lesser
responsibility, or if you are not selected for a promotion should a higher
position be created or vacated.
Should you be terminated without cause at a change of control or should you be
offered a position at a change of control that is of lesser responsibility than
the position being offered in this letter, these stock options shall be 100%
vested. In that event, you will be offered a severance program that continues
your cash compensation of base salary band incentive potential (not less than
$375,000 as described above), as well as all Company paid health and life
insurance for one year.
For purposes of this offer, "cause" condition only occurs if the Company
terminates you after you: (a) shall have been convicted of any felony
including, but not limited to, a felony involving fraud, theft,
misappropriation, dishonesty, or embezzlement; (b) shall have committed
intentional acts of gross misconduct that materially impairs the goodwill or
business of the Company or cause material damage to its property, goodwill, or
business; or (c) shall have refused to, or willfully failed to, perform his
material duties, provided, however, that no termination under this subparagraph
shall be effective unless you do not cure such refusal or failure to the
Company's satisfaction as soon as practicable after the Company gives you
written notice identifying such refusal or failure (and, in any event, within
thirty (30) calendar days after receipt of such written notice). No act or
failure to act on the part of you shall be considered "willful" unless it is
done, or omitted to be done, by you in bad faith or without reasonable belief
that this action or omission was in the best interests of the Company.
Should your termination result from your death or disability, you or your estate
can exercise the vested portion of your stock options within the life of the
stock option.
The Company will promptly reimburse you for all reasonable business expenses
incurred by you in connection with and commensurate with the performance of your
duties for the Company, upon substantiation of such business expenses in
accordance with the policies of the Company in effect from time to time.
In recognition of your large physical stature, airline travel one step up from
coach will be provided for all flights over one hour in duration. Should there
be the opportunity to purchase full fare coach tickets and then participate in
airline upgrade programs in order to secure that step up from coach, you agree
to take every opportunity to do so.
It is recognized that you currently participate in a variety of outside boards
and advisory boards and receive compensation from these activities. This may
continue providing that it does not interfere with your duties in the Company
and is not considered to be in conflict with the
<PAGE>
Paul Lavallee
October 22, 1999
Page 3
Company's interests. It is understood that this may include one to two days per
month. Should the Company believe there is material interference, you will be
notified in writing and shall have 60 days to cure that interference in an
appropriate manner.
Your entrance to Prime Response comes at a very exciting time for the Company
and the industry at large. Your background, experience and achievements to date
will be put to invaluable use as we work together to build a world class
Company. I'm excited by the opportunity to work with you toward that end as you
continue to build your career with Prime Response.
It is anticipated that you will begin your employment with Prime Response on
Monday, October 25th. Among our first initiatives will be travel to Toronto to
participate in the DMA show.
Sincerely,
/s/ Peter J. Boni
Peter J. Boni
President and Chief Executive Officer
Accepted and agreed to:
/s/ Paul B. Lavallee
- ----------------------------
Paul B. Lavallee
This Agreement shall be governed by and construed, interpreted and enforced in
accordance with the laws of the Commonwealth of Massachusetts. This Agreement's
terms will prevail, in favor of Paul B. Lavallee, with respect to any conflict
arising between terms of this Agreement and others he may sign with the Company
(including, but not limited to, the Stock Option Agreement and/or any Employment
Agreement).
<PAGE>
Exhibit 10.40
October 21, 1999
Frederick H. Phillips
7 Fox Run
Middleton, MA 01949
Dear Fred:
I am pleased to offer you the position of Senior Vice President and Chief
Financial Officer of Prime Response, Inc. (the "Company"), reporting directly to
me. In that role you will have responsibility for all control, treasury,
management information and administrative activities of the Company.
Compensation for that position includes a base salary of $180,000 per year
and an annual incentive bonus of 35% of that base salary ($63,000). You will be
eligible to earn one fourth of that incentive ($15,750), based upon achievement
of the Company's fourth quarter goals (revenue of over $8.5 million).
In addition, you will receive a stock option grant to purchase 125,000
shares of the Company's stock at $5.00 per share. Since the Company is now
considered to be legally in registration, pricing on stock options is to be
calculated at a 10% discount to the low end of the filing range. The Company is
expected to file for a public listing during the week of November 1. Final IPO
pricing has yet to be determined and trading pricing is unknown. However, the
Company is prepared to price your stock options at $5.00 per share.
These shares will be vested according to the Company stock option standards
over a four-year period of time.
Furthermore, you will have the opportunity to participate in Prime Response
benefits which include 3 weeks of vacation annually, health and life insurance
and a 401K retirement plan, which includes Company contribution.
In the event that your employment is terminated without cause, you will
receive a severance that includes the continuation of all base salary and
benefits programs for one year. Should you be terminated without cause
resulting from a change of control, all stock options granted will be 100%
vested.
<PAGE>
Frederick H. Phillips
October 21, 1999
Page Two
This offer and compensation plan is dependent on your execution of the
standard Prime Response Employment Agreement. Also, your employment with Prime
Response is contingent on the successful completion of the Company's standard
employment practices, including background investigation.
Your background, experience and achievements to date will be put to
invaluable use as we work together to build a world class company. I'm excited
by the opportunity to work with you toward that end as you continue to build
your career with Prime Response.
It is anticipated that you will begin your employment with Prime Response
on Monday, October 25. Among our first initiatives will be the recruitment of
an equally world class corporate controller.
Sincerely,
/s/ Peter J. Boni
Peter J. Boni
President and Chief Executive Officer
Accepted and agreed to:
/s/ Frederick H. Phillips
- -------------------------
Frederick H. Phillips
<PAGE>
Exhibit 10.41
August 10, 1999
Mr. James P. Plantan
9511 Oxborough Curve
Bloomington, MN 55437
Dear Jim,
I am pleased to offer you the position of Vice President, Business Development,
reporting directly to me. In that role, you will have revenue responsibility
while directing, developing and coordinating the company's global partnerships,
alliances and alternate channels of distribution, to include all web related and
services firms, systems integrators and other industry vendors. Seeing to the
direction and training of the company's global direct sales organization to use
these resources to their fullest will also be in your charge. In addition, as
my direct report, you will participate in all corporate management activities as
a member of the company's executive staff.
Compensation for the position includes a base salary of $125,000 per year and an
incentive bonus of 30% of that base salary ($37,500). You will be eligible to
earn one half of that for the remainder of 1999 ($18,750), based upon the
achievement of company goals. $10,000 of that will be guaranteed for 1999. Over
achievement of goals will result in additional earnings.
In addition, a stock option to purchase 35,000 shares of common stock at the
prevailing price per share (currently $3.00 per share) will be recommended for
approval and submitted to the board of directors' compensation committee upon
their next scheduled meeting.
As discussed, your office will be located at your home site. In addition, Prime
Response will provide you with administrative support at any Prime Response
field office as well as the corporate office located in Cambridge, MA.
Furthermore, you will have the opportunity to participate in Prime Response
benefits, which includes 3 weeks of vacation annually. Please note that due to
your start date, your vacation allotment for the balance of 1999 will be (1
week) of the annual benefit.
In the event your employment is terminated without cause, Prime Response will
pay you six months severance as well as continue your medical benefits for the
six-month period.
- -----
The offer letter and compensation plans are dependent upon your execution of the
standard Prime Response Inc. Employment Agreement. Also, your employment with
Prime Response is contingent on the successful completion of the company's
standard employment practices, including background investigation.
<PAGE>
This offer shall supercede any other offer of employment on behalf of Prime
Response Inc., either verbal or written, and will expire on August 12, 1999.
Your background, experience and achievements to date will be put to invaluable
use as we work together to build a world class company. I'm excited for the
opportunity to work with you to that end as you continue to build your career
with Prime Response.
Sincerely,
Peter J. Boni
President & CEO
Accepted:
/s/ James P. Plantan
- --------------------
James P. Plantan
Date: 8/11/99
-------
<PAGE>
Exhibit 10.42
August 5, 1999
Mr. Brad Braddock
927 San Antonio Avenue
Alameda, CA 94501
Dear Brad:
Confirming our discussions, I am pleased to offer you the position of Vice
President, Product Marketing, reporting directly to me. Your compensation in
this new role is at a base salary of $125,000, effective August 1, plus an
incentive bonus of 30% of that base pay ($37,500). Any special incentive bonus
that you were offered for your role as Director of Business Development will
remain in effect through December 31, 1999.
In addition, at the next meeting of the Compensation Committee, a stock
option package of 22,500 shares will be submitted and recommended for approval.
This will allot you a grant total of 35,000 shares, to include those that you
already hold.
Among your responsibilities as Vice President of Product marketing are the
following:
. Competitive analysis, positioning and strategy
. Vertical marketing and penetration strategy for old and new products
and services alike
. Analyst relations
. White paper content, construction and distribution
. Pricing and discounts
. Sales tools, presentation and training aids
. Web marketing Liaison and coordination with others both inside and
outside the company, regarding product-related issues to insure the
company has maximized its market penetration opportunities
. Branding, market awareness, lead flow in coordination with and
direction of the global marketing communications
Marketing Communication will be expected to deliver the company's advertising,
public relations and promotional events, to include trade shows, conferences,
seminars and "webinars," and partner events. In addition, it will develop
consistent customer and sales collateral and enhance/update the company web site
and customer/prospect database. With a successful
<PAGE>
branding effort should come a cost effective and qualified lead flow, which will
lead to increased sales and market penetration.
In addition, you will be expected to work closely with the Business
Development effort in support of expanding the company's partnerships and
alternate channels of distribution.
Your background and experience, plus your performance to date have given you
a great deal of organizational support as you embark upon your new role. I am
excited for you to continue your achievements with Prime Response and am looking
forward to working with you to build a world class company.
Sincerely,
/s/ Peter J. Boni
Peter J. Boni
President and CEO
PJB:jc
Accepted by: /s/ Brad Braddock
-----------------
Brad Braddock
Dated: 8/10/99
-------
<PAGE>
Exhibit 10.43
DENVER PLACE PLAZA TOWER
AGREEMENT OF LEASE
BETWEEN
DENVER-STELLAR ASSOCIATES LIMITED PARTNERSHIP, LANDLORD
AND
PRIME RESPONSE, INC., TENANT
<PAGE>
DENVER PLACE PLAZA TOWER
AGREEMENT OF LEASE
BETWEEN
DENVER-STELLAR ASSOCIATES LIMITED PARTNERSHIP, LANDLORD
PRIME RESPONSE, INC., TENANT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Term................................................................. 1
2. Base Rent............................................................ 1
3. Completion of Improvements........................................... 2
4. Additional Rent...................................................... 2
(a) Definitions..................................................... 2
(b) Expense Adjustment.............................................. 4
(c) Adjustment for Services Not Rendered............................ 4
(d) Tax Adjustment.................................................. 4
(e) Partial Year.................................................... 5
(f) Disputes........................................................ 5
(g) Place of Payment................................................ 5
(h) Tenant Taxes.................................................... 5
(i) Delay in Computation............................................ 6
5. Use of Premises...................................................... 6
6. Condition of Premises................................................ 6
7. Services............................................................. 7
(a) List of Services................................................ 7
(b) Billing for Electricity......................................... 9
(i) Landlord's Payment for Normal Service..................... 9
(ii) Measured Usage............................................ 9
(iii) Estimated Usage........................................... 9
(c) Interruption of Services........................................ 9
8. Alterations.......................................................... 10
9. Liens................................................................ 11
10. Insurance and Waiver of Subrogation.................................. 11
11. Fire or Casualty..................................................... 12
12. Waiver of Claims - Indemnification................................... 12
13. Nonwaiver............................................................ 13
14. Condemnation......................................................... 14
15. Assignment and Subletting............................................ 14
16. Holdover............................................................. 16
17. Estoppel Certificate................................................. 17
18. Subordination........................................................ 17
19. Certain Rights Reserved By Landlord.................................. 18
20. Rules and Regulations................................................ 19
21. Remedies............................................................. 19
22. Expenses of Enforcement.............................................. 21
23. Covenant of Quiet Enjoyment.......................................... 21
24. Security Deposit..................................................... 22
25. Real Estate Broker................................................... 22
26. Miscellaneous........................................................ 23
(a) Rights Cumulative............................................... 23
(b) Captions and Usage.............................................. 23
(c) Binding Effect.................................................. 23
(d) Lease Contains All Terms........................................ 23
(e) Submission of Lease............................................. 23
(f) No Air Rights................................................... 23
(g) Modification of Lease........................................... 23
(h) Substitution of Other Premises.................................. 23
(i) Transfer of Landlord's Interest................................. 24
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(j) Recording; Short Form Memo...................................... 24
(k) Covenants and Conditions........................................ 24
(l) Application of Payments......................................... 25
(m) Security Interest and Tenant's Deposit.......................... 25
(n) Governing Law; Partial Invalidity............................... 25
(o) Hazardous Materials............................................. 25
27. Telephone and Telecommunications Service............................. 26
28. Notices.............................................................. 28
29. Time is of the Essence............................................... 28
</TABLE>
Addendum
Exhibit A - Plan
Exhibit B - Rules and Regulations
Exhibit C - Lease Term Agreement
Exhibit D - Parking Agreement
Exhibit E - Workletter
ii
<PAGE>
OFFICE LEASE
------------
DENVER PLACE PLAZA TOWER
DENVER, COLORADO
AGREEMENT OF LEASE made as of the 20th day of January, 1998 (hereinafter
referred to as the "Lease") between DENVER-STELLAR ASSOCIATES LIMITED
PARTNERSHIP, a Delaware limited partnership (hereinafter referred to as
"Landlord") and PRIME RESPONSE, INC., a Delaware corporation whose present
address is 1065 East Hillsdale Boulevard, Suite 310, Foster City, California
94404 (hereinafter referred to as "Tenant").
W I T N E S S E T H:
Landlord hereby leases to Tenant, and Tenant hereby accepts from Landlord,
the premises (hereinafter referred to as the "Premises") containing
approximately 8,264 square feet of rentable area and designated on the plan
attached hereto as Exhibit "A" and further described as Suite 500 in the
building known as Denver Place Plaza Tower (hereinafter referred to as the
"Building") located at 1099 18th Street, Denver, Colorado, 80202, subject to the
covenants, terms, provisions and conditions of this Lease. The Building, the
land upon which it is situated, all surrounding improvements, any garage or
other related improvements and all common areas appurtenant to, associated with
or servicing the Building are hereinafter called the "Real Property" or the
"Property".
In consideration thereof, Landlord and Tenant covenant and agree as
follows:
1. Term. The term of this Lease (the "Term") shall commence on that date
(the "Commencement Date") which is the later of (i) June 1, 1998 (the "Scheduled
Commencement Date") and (ii) three (3) months from the date that portion of the
Premises consisting of approximately 6,437 square feet of rentable area and
depicted as Phase One (the "Phase One Premises") are Ready for Occupancy
(hereinafter defined) and, unless sooner terminated as provided herein, shall
end, absolutely and without the need for notice from either party to the other,
on November 30, 2003 (the "Termination Date") subject to extension pursuant to
the provision of Paragraph 30 below.
2. Base Rent. Subject to adjustment as herein provided, the Base Rent to
be paid hereunder shall be as follows:
(a) June 1, 1998 through May 31, 2000 (months 1 through 24):
Phase One Premises $102,992.04 per annum/$8,582.67 per month
Phase Two Premises $29,232.00 per annum/$2,436.00 per month
TOTAL $132,224.04 per annum/$11,018.67 per month
(b) June 1, 2000 through May 31, 2001 (months 25 through 36):
Phase One Premises $109,428.36 per annum/$9,119.03 per month
Phase Two Premises $31,059.00 per annum/$2,588.25 per month
TOTAL $140,487.36 per annum/$11,707.28 per month
(c) June 1, 2001 through November 30, 2003 (months 37 through 66):
Phase One Premises $115,866.00 per annum/$9,655.50 per month
Phase Two Premises $32,886.00 per annum/$2,740.50 per month
TOTAL $148,752.00 per annum/$12,396.00 per month
which shall be paid in advance on or before the first day of each calendar month
during the Term, in equal monthly installments, provided, however, that Tenant
shall pay the first full monthly installment at the time of execution of this
Lease. If the Term commences other than on the first day of a month
<PAGE>
or ends other than on the last day of a month, the Base Rent for such month
shall be prorated. The Base Rent for the portion of the month in which the Term
commences shall be paid on the first day of the first full month of the Term.
3. Completion of Improvements. INTENTIONALLY DELETED.
4. Additional Rent. In addition to paying the Base Rent specified in
Paragraph 2 hereof, Tenant shall pay as "additional rent", the amounts
determined as hereinafter set forth in this Paragraph 4. The Base Rent and
additional rent are sometimes herein collectively referred to as the "rent".
All amounts due under this Lease as additional rent shall be payable in the
sarne manner and at the same place as the Base Rent.
(a) Definitions. As used in this Paragraph 4, the terms:
-----------
i. "Operating Expense Base Amount" shall mean $5.54 per rentable
square foot per annum.
ii. "Tax Base Amount" shall mean $1.11 per rentable square foot
per annum.
iii "Calendar Year" shall mean each calendar year in which any
part of the Term falls, through and including the year in which the
Term expires.
iv. "Tenant's Proportionate Share" shall mean [A] 1.25% during
that portion of the Term that the Premises consists only of the Phase
One Premises being the percentage calculated by dividing 6,437 square
feet (being the rentable area of the Phase One Premises) by 512,995
square feet (being 95% of the rentable area of the office space in the
Building) and [B] 1.611% during that portion of the Term that the
Premises consists of the Phase One Premises and that portion of the
Premises consisting of approximately 1,827 square feet of rentable
area and depicted as the Phase Two Premises on Exhibit A hereto (the
---------
"Phase Two Premises") being the percentage calculated by dividing
8,264 square feet (being the rentable area of the Premises including
the Phase One Premises and Phase Two Premises) by 512,995 square feet.
The rentable area of the Premises has been calculated according to a
method pursuant to which a portion of the common areas has been deemed
included in the Premises.
v. "Taxes" for any Calendar Year shall mean the Building's
Proportionate Tax Share of all real estate taxes and assessments,
special or otherwise, levied or assessed upon that parcel of land
known as Lots 1 through 32 inclusive and adjacent vacated alley, block
95, East Denver Subdivision (the "Land") and/or the building during
such Calendar Year; provided, however, that if Landlord subdivides the
Land so that the Building is located on its own tax lot (i.e., there
are no other buildings on such tax lot), then (1) such separate tax
lot shall be referred to as the "Building Tax Lot", and (2) for each
year that the Building Tax Lot is taxed separately from the remainder
of the Land, the term "Taxes" shall mean all real estate taxes and
assessments, special or otherwise, levied or assessed upon the
Building Tax Lot and/or the Building during such Calendar Year. For
purposes of this subparagraph "Buildings Proportionate Tax Share" for
any Calendar Year shall mean the fraction the numerator of which is
equal to the assessed valuation for the Building only for such
Calendar Year and the denominator of which is equal to the sum of the
assessed valuations for all buildings and improvements on the Land
(including the Building) for such Calendar Year. Should the State of
Colorado, or any political subdivision thereof, or any other
governmental authority, impose a tax, assessment, charge or fee, which
Landlord shall be required to pay, wholly or partially in substitution
of any of the above Taxes, all such taxes, assessments fees or
charges shall be deemed to constitute Taxes hereunder but shall be
computed as if the Real Property and any other shared use real
property referred to in this subparagraph was the only real property
of Landlord. "Taxes" shall also include all fees and costs, including
2
<PAGE>
reasonable attorneys' fees, appraisals and consultants' fees, incurred
by Landlord in seeking to obtain a reduction of, or a limit on, any
increase in any Taxes (regardless of whether any reduction or
limitation is obtained). In the event that the Real Property shall be
for any taxes or assessments assessed under the same assessment as
other real property, the amount of such taxes or assessment to be
included within Taxes shall be such portion thereof as Landlord fairly
and equitably shall deem attributable thereto. Notwithstanding
anything in this paragraph to the contrary, Taxes shall specifically
exclude inheritance taxes, gift taxes, transfer taxes, franchise
taxes, excise taxes, income taxes, and profit taxes.
vi. "Operating Expenses" shall mean all expenses, costs and
disbursements (other than Taxes) of every kind and nature paid or
incurred by or on behalf of Landlord in connection with the ownership,
management, operation, maintenance and repair of the Property (and, as
allocated by Landlord, those paid or incurred in connection with the
ownership, operation, maintenance, management and repair of any garage
or other improvements the use of which is shared by the Building and
one or more other buildings) except the following:
[A] Costs of alterations of any tenant's premises;
[B] Principal or interest payments on loans secured by
mortgages or trust deeds on the Real Property;
[C] Costs of capital improvements, except that Operating
Expenses shall include the costs as amortized over such number of
years as Landlord may reasonably determine, with interest at the
rate of 12% per annum on the unamortized amount, of any capital
improvements which, (1) in Landlord's reasonable opinion, will
have the effect of reducing any component cost included within
Operating Expenses, (2) are made or installed to assure
compliance with all governmental rules and regulations applicable
from time to time, or (3) under generally applied real estate
accounting practices may be expensed or treated as deferred
expenses (and the amortization and interest so determined for
each Calendar Year shall be included in Operating Expenses for
that Calendar Year);
[D] Leasing commissions for space in the Building;
[E] Advertising and promotional expenses except the
reasonable costs incurred (x) for distributing a newsletter to
tenants and occupants of the Complex (as hereinafter defined),
(y) for one (1) holiday party per calendar year that is held for
all of the tenants and occupants of the Complex and (z) for one
(1) health fair per calendar year that is held for all tenants
and occupants of the Complex;
[F] Expenses for correcting structural defects except that
condition resulting from ordinary wear and tear shall not be
deemed defects for purposes of this subparagraph;
[G] Costs and expenses incurred by Landlord in the
enforcement of the terms of any other tenant lease;
[H] Depreciation of the Building;
[I] Costs for which Landlord receives reimbursement from
others;
[J] Any expense, other than property management fees,
representing an amount paid to a related corporation, entity, or
person which is in excess of the amount which would be paid in
the absence of such relationship (provided, however, that Tenant
acknowledges that Operating Expenses for
3
<PAGE>
any calendar year may include a management fee equal to five
percent (5%) of the gross revenue collected during such calendar
year for the Building and the Parking Garage (as hereinafter
defined), even though such fee may exceed the management fee
which would be incurred on a fair market basis if Landlord and
the managing agent were not affiliated); and
[K] Property management fees in excess of the greater of
(y) five percent (5%) of the gross revenue collected during any
calendar year for the Building and the Parking Garage and (z) the
then prevailing fair market management fees payable in the
central business district of Denver, Colorado for first class
office buildings similar in age and quality to the Building
("Comparable Buildings") under management contracts similar to
the then current management contract for the Building.
(b) Expense Adjustment.
------------------
(i) Tenant shall pay as additional rent for each Calendar Year,
that amount ("Expense Adjustment Amount") which is Tenant's
Proportionate Share of the amount by which the Operating Expenses
incurred with respect to such Calendar Year exceed the Operating
Expense Base Amount; provided, however, that in determining the amount
of Operating Expenses for each Calendar Year, if less than 95% of the
rentable office area of the Building shall have been occupied at any
time during such Calendar Year, Operating Expenses shall be deemed for
such Calendar Year to be in the amount reasonably determined by
Landlord to be equal to that amount of like expenses which normally
would be expected to be incurred had such occupancy been 95%
throughout such Calendar Year.
(ii) The Expense Adjustment Amount with respect to each Calendar
Year shall be paid in monthly installments, in advance on the first
day of each calendar month during the course of such year, in amounts
estimated from time to time by Landlord and communicated by written
notice to Tenant. Landlord shall cause to be kept books and records
showing Operating Expenses in accordance with generally accepted
accounting principles. Following the close of each Calendar Year,
Landlord shall cause the amount of the Expense Adjustment Amount for
such Calendar Year to be computed based on Operating Expenses for such
Calendar Year, and Landlord shall deliver to Tenant a statement of
such amount; thereupon Tenant shall pay any deficiency as shown by
such statement to Landlord within 30 days after receipt of such
statement. If the total of the estimated monthly installments paid by
Tenant during any Calendar Year exceed the actual Expense Adjustment
Amount due from Tenant for such Calendar Year, then, at Landlord's
option, such excess shall be either credited against payments next due
hereunder or refunded by Landlord, provided Tenant is not then in
default hereunder.
(c) Adjustment for Services Not Rendered. If Landlord shall not be
------------------------------------
furnishing any particular work or service (the cost of which, if furnished by
Landlord would be included in Operating Expenses) to a tenant who undertakes to
itself perform or obtain such work or service in lieu of the furnishing thereof
by Landlord, Operating Expenses shall be deemed for purposes of this Paragraph 4
to be increased by an amount equal to the additional Operating Expenses, as
reasonably determined by Landlord, which would have been incurred during such
period if Landlord had at its own expense furnished such work or service to such
tenant.
(d) Tax Adjustment. Tenant shall pay as additional rent for each
--------------
Calendar Year that amount (the "Tax Adjustment Amount") which is Tenant's
Proportionate Share of the amount by which the Taxes incurred with respect to
such Calendar Year exceed the Tax Base Amount. The Tax Adjustment Amount with
respect to each Calendar Year shall be paid in monthly installments, in an
amount estimated from time to time by Landlord and communicated by written
notice to Tenant. Following the close of each Calendar Year, Landlord shall
cause the amount of the Tax Adjustment Amount for such Calendar Year to be
computed based on Taxes for such Calendar Year and Landlord shall deliver to
Tenant a
4
<PAGE>
statement of such amount and Tenant shall pay any deficiency as shown by such
statement to Landlord within 30 days after receipt of such statement. If the
total of the estimated monthly installments paid by Tenant during any Calendar
Year exceeds the actual Tax Adjustment Amount due from Tenant for such Calendar
Year, then, at Landlord's option such excess shall be either credited against
payments next due hereunder or refunded by Landlord, provided Tenant is not then
in default hereunder. The amount of any refund of Taxes received by Landlord
shall be credited against Taxes for the year in which such refund is received.
In determining the amount of Taxes for any year, the amount of special
assessments to be included shall be limited to the amount of the installment
(plus any interest payable thereon) of such special assessment required to be
paid during such year as if the Landlord had elected to have such special
assessment paid over the maximum period of time permitted by law; if the
authority to whom such assessment is to be paid shall not permit such assessment
to be paid in installments, the amount of such assessment shall be treated as
being amortized over such number of calendar years, beginning with the Calendar
Year in which the assessment is payable, as Landlord shall reasonably determine,
with interest at the rate of 15% per annum on the unamortized amount, and such
amortization and interest for each Calendar Year shall be included in Taxes for
that Calendar Year.
(e) Partial Year. If only part of any Calendar Year shall fall
------------
within the Term, the amounts computed as additional rent, with respect to such
Calendar Year under the foregoing provisions of this Paragraph 4 shall be
prorated in proportion to the portion of such Calendar Year falling within the
Term, but the expiration or termination of this Lease prior to the end of such
Calendar Year shall not impair the Tenant's obligation hereunder to pay such
prorated portion of such additional rent with respect to that portion of such
year falling within the Term.
(f) Disputes. Any statement furnished to Tenant by Landlord under
--------
the provisions of this Paragraph 4 shall constitute a final determination as
between Landlord and Tenant as to the rent set forth therein due from Tenant for
the period represented thereby, unless Tenant, within 60 days after such
statement is furnished, shall give a notice to Landlord that it disputes the
correctness thereof, specifying in detail the basis for such assertion. Pending
resolution of such dispute, Tenant shall pay all disputed amounts in accordance
with the statement furnished by Landlord. Landlord agrees, upon prior written
request during normal business hours to make available for Tenant's inspection
and audit, at Landlord's offices, Landlord's books and records which are
relevant to any items in dispute, provided Tenant has paid all amounts billed
to Tenant on account of the Expense Adjustment Amount and the Tax Adjustment
Amount and all installments thereof and all other rents and sums then and
previously due under this Lease. If the audit of such records shows that as to
such operating period, Landlord has overstated the amount of the Expense
Adjustment Amount or Tax Adjustment Amount payable by Tenant, Landlord shall
promptly credit to Tenant the amount of such overpayment(s). If Tenant's audit
of the books and records shows that Landlord overstated the actual Operating
Expenses and Taxes by an amount equal to 3% or more, then Landlord shall
reimburse Tenant for all reasonable out-of-pocket costs incurred by Tenant in
conducting the audit.
(g) Place of Payment. Tenant shall, without any demand therefore and
----------------
without set-off, pay to DENVER-STELLAR ASSOCIATES LTD. PARTNERSHIP, A/R
DEPARTMENT, DENVER, COLORADO 80256-0170, or to such other person and/or at such
other place as Landlord may from time to time direct by notice given to Tenant,
the Base Rent as well as all other sums which may become due by Tenant under
this Lease. All such other sums shall be payable as additional rent.
(h) Tenant Taxes.
------------
(i) Any provision hereof to the contrary notwithstanding, Tenant
shall, upon demand from time to time, as additional rent, pay to Agent
or, as Landlord may direct, to Landlord or to the tax collecting
authority, the full amount of all taxes, levies, charges and
assessments legally required or authorized to be collected by Landlord
from Tenant or any subtenant or occupant of the Premises and all
taxes,
5
<PAGE>
levies, charges and assessments required to be paid by Landlord
(or imposed upon the Property) if not paid by or collected from Tenant
or a subtenant or occupant of the Premises. Tenant hereby agrees to
defend, indemnify and hold harmless Landlord from and against all
loss, cost, liability and expenses (including counsel fees and costs
of litigation) which Landlord may suffer, incur or be exposed to as a
result of any assertion against Landlord of liability for any of the
taxes referred to in this subparagraph (h), and from and against any
penalties or interest relating thereto, which Tenant fails to pay
pursuant hereto.
(ii) Tenant shall timely pay when due all taxes, levies, charges
and assessments which are required to be paid by Tenant with respect
to Tenant's use or occupancy of the Premises or which are or could
become a lien upon the personal property, trade fixtures, furniture or
facilities of Tenant on the Premises. Tenant hereby agrees to defend,
indemnify and hold harmless Landlord from and against all loss, cost,
liability and expense (including, without limitation, counsel fees and
costs of litigation) which Landlord may suffer or incur, or to which
Landlord may be exposed, as a result of Tenant's failure to pay any of
the foregoing.
(iii) Within 15 days after Tenant's receipt of written request
from Landlord or an authorized taxing entity having jurisdiction,
Tenant shall deliver to Landlord official receipts for the payment of
all taxes due with respect to the personal property, trade fixtures,
furniture or facilities of Tenant on the Premises. In addition, within
15 days after written notice from Landlord to do so, Tenant shall
deliver to Landlord official receipts for the payment of all other
taxes, levies, charges and assessments within the scope of
subparagraph (ii) above that were due and payable in the calendar year
in which such notice is given and in the preceding calendar year. If
Tenant shall fail to present any of the receipts referred to in this
subparagraph within the times set forth herein, Landlord shall have
the right to pay the amounts of the taxes which Landlord reasonably
determines would have been covered thereby, together with the full
interest and penalties chargeable thereon in accordance with law, and
Landlord shall, upon demand, be entitled to reimbursement for all of
such payments together with interest at the "Lease Interest Rate"
(defined in Paragraph 21 hereof).
(iv) Tenant shall cause all of the personal property, trade
fixtures, furniture and facilities of Tenant on the Premises, and all
alterations, additions and improvements made by Tenant to the Premises
which for purposes of personal property taxes are treated as personal
property (such as built-in cabinets, counters and partitions) to be
assessed separately from Landlord's property, and, if they are not so
separately assessed, Landlord shall be entitled to reimbursement,
within 10 days after demand made from time to time, for any tax
payable by Landlord which is attributable to any of such items taxable
as personal property.
(i) Delay in Computation. Delay in computation of the Expense
--------------------
Adjustment Amount or Tax Adjustment Amount shall not be deemed a default
hereunder or a waiver of Landlord's right to collect any of such amounts.
5. Use of Premises. Tenant shall use and occupy the Premises solely as a
general business office for the purpose of developing computer software
(including, but not limited to research, development and training) and any other
legally permitted uses related thereto and for no other purpose.
6. Condition of Premises. The Tenant's taking possession of the Premises
or any portion thereof shall be conclusive evidence that the Premises or any
such portion was in good order and satisfactory condition when the Tenant took
possession. At the expiration or other termination of this Lease or of Tenant's
right of possession, Tenant shall leave the Premises, and during the Term will
keep the same, in good order and condition, ordinary wear and tear, damage by
fire or other casualty (which fire or other casualty has not occurred through
the negligence of Tenant or those claiming under Tenant or their employees or
invitees respectively) alone excepted; and for that purpose, Tenant shall make
all necessary repairs and replacements. Tenant shall give Landlord
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prompt notice of any damage to or accident upon the Premises and of any breakage
or defects in the window glass, wiring or plumbing, heating, ventilating or
cooling or electrical apparatus or systems on or serving the Premises. Tenant
shall at the expiration or termination of this Lease or of Tenant's right of
possession, also have had removed from the Premises all furniture, trade
fixtures, office equipment and all other items of Tenant's property (including,
without limitation, the items Tenant is required to remove pursuant to Paragraph
8(b) hereof) so that Landlord may again have and repossess the Premises. All
such items not removed from the Premises at such expiration or termination,
shall conclusively be deemed to have been abandoned and may be appropriated,
sold, stored, destroyed or otherwise disposed of by Landlord without notice to
Tenant or any other party with an interest in such property and without any
obligation to account therefore. Tenant shall pay Landlord all expenses incurred
in connection with the disposition of such property, and if Landlord shall
choose to store any such items, Landlord shall have no liability for the
safekeeping thereof and such items may not be retrieved by Tenant or any other
person except upon payment of such charges as may be imposed for the removal and
storage. Tenant shall comply with all laws, rules, orders, ordinances and
regulations at any time issued or in force by any lawful authority, applicable
to Tenant or any other occupant of the Premises, or to the Premises, or to the
use or occupancy of the Premises; provided, however, that Tenant shall not be
required to make structural changes to the Building. Tenant shall, upon demand,
pay to Landlord the amount of any damages suffered or incurred by Landlord as a
result of any injury to any part of the Property other than the Premises, done
by Tenant or any subtenant or any agent, employee, contractor or invitee of
Tenant, including, without limitation, damage done by the bringing or removal of
furniture and other property. Tenant shall forthwith repair all damage done to
the Premises by installation or removal of furniture and property by Tenant or
any subtenant or by any agent, employee, contractor or invitee of Tenant or of
any subtenant or, if Landlord shall so request, pay to Landlord the cost of such
repair. Tenant shall not do or commit, or suffer or permit to be done or
committed, any act or thing as a result of which any policy of insurance of any
kind on or in connection with the Property shall become void or suspended, or
any insurance risk on or in connection with the Building or any other portion of
the Property shall (in the opinion of the insurer or any insurance organization)
be rendered more hazardous or require payment of a greater premium; without
limitation of any other rights and remedies of Landlord, Tenant shall pay as
additional rent the amount of any increase of premiums for such insurance,
resulting from any breach of this provision. Tenant shall leave the Premises in
a reasonably tidy condition on all days upon which janitorial services are to be
provided by Landlord. Landlord shall, at Landlord's expense, replace any glass
broken in the Premises windows in the exterior walls of the Building, unless
such glass is broken by Tenant, its servants, employees, agents, invitees,
licensees or contractors, in which case Tenant shall, upon demand, pay the cost
of replacement by Landlord. Tenant shall replace and pay for any other glass
broken in or about the Premises.
7. Services.
(a) List of Services. Landlord shall provide the following services
----------------
on all days during the Term, except Sundays and holidays, unless otherwise
stated:
(i) Heating, ventilation and air conditioning (collectively
"HVAC"), as deemed appropriate by Landlord (which shall be comparable
with that provided in the Comparable Buildings), from Monday through
Friday within the period from 6:00 a.m. to 6:00 p.m. and on Saturday
within the period from 8:00 a.m. to 1:00 p.m., holidays excepted.
Landlord shall furnish HVAC service to the Premises at other times
upon written request of Tenant (which, at Tenant's election, may be
delivered to Landlord by facsimile transmission at (303) (312-394 1),
or such other number that Landlord notifies Tenant of from time to
time during the Term, made no later than 3:00 p.m. on the business day
on which after hours HVAC service is required or 3:00 p.m. on the next
preceding business day for after hours HVAC service required on any
non-business day. Tenant, within ten days after its receive of each
bill therefore, will pay for all HVAC service requested and furnished
at other times, at rates to be established from time to time by
Landlord. At the time of the execution of this Lease the Tenant
acknowledges that the charge for such after hours services is $65.00
per hour. Landlord shall not be responsible for the failure of the
HVAC system to provide normal comfort if such failure results from
occupancy of the Premises by more than an average of one person for
each 200 square feet of floor area or if Tenant
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uses heat-producing equipment or equipment the electrical load of
which, when combined with the load of all lighting fixtures, exceeds
2.5 watts per square foot of floor area in any one room or area.
Unless otherwise consented to by Landlord, window coverings shall be
uniform in the Building and shall be closed when exterior office
windows are exposed to the sun without regard to Tenant's specific use
of the space or to the installation of any computers or data
processing equipment. In addition, if the Premises are used in a
manner exceeding the aforementioned occupancy and electric load
criteria or if such window covering requirement shall not be observed
or if heat-producing or controlled climate equipment is used, Tenant
shall pay to Landlord, promptly upon billing, Landlord's additional
costs of supplying air conditioning resulting from such causes, at
such rates as Landlord shall establish therefore. If due to use of the
Premises in a manner exceeding the aforementioned occupancy and
electrical load criteria, or due to the arrangement of partitioning,
or the use of heat-producing or controlled climate equipment, or the
distribution system within the Premises, impairment of normal
operation of the HVAC system in the Premises results, necessitating
changes in HVAC distribution system within the Premises, such changes
may be made by Landlord upon request by Tenant at Tenant's sole cost
and expense, provided that they can be accommodated by Landlord's
systems. Tenant agrees at all times to cooperate fully with Landlord
and to abide by all the regulations and requirements which Landlord
may prescribe for the proper functioning and protection of the HVAC
system. After Landlord has balanced the air-conditioning system for
Tenant, if Tenant installs partitions, equipment, or fixtures
requiring re-balancing of the system, Landlord, at Tenant's request
and at Tenant's expense (which shall be charged as additional rent
payable upon demand) shall endeavor to do such re-balancing. Landlord
shall not charge Tenant for the initial balancing of the HVAC system.
(ii) Subject to subparagraph 7(b) hereof, electrical energy for
standard building lighting fixtures provided by Landlord and for the
operation of desk-top office equipment, provided that (A) the
connected electrical load of such equipment does not exceed an average
of 1.5 watts per square foot of the Premises and (B) the electricity
so furnished for equipment uses will be at a nominal 120 volts and no
electrical circuit for the supply of such use need have a current
capacity exceeding 20 amperes. If Tenant's requirements for
electricity are in excess of those set forth in the preceding
sentence, and if, in Landlord's sole judgment, Landlord's facilities
are inadequate for such additional requirements and if electrical
energy for such additional requirements is available to Landlord,
Landlord upon written request and at the sole cost and expense of
Tenant, will furnish and install, or, at Landlord's sole discretion,
permit Tenant to furnish and install, such additional wires, risers,
conduits, feeders and switchboards as reasonably may be required to
supply such additional requirements of Tenant provided (1) that the
same shall be permitted by applicable laws and insurance regulations,
(2) that, in Landlord's sole judgment, the same are necessary and will
not cause permanent damage or injury to the Building or the Premises
or cause or create a dangerous or hazardous condition or entail
excessive or unreasonable alterations or repairs or interfere with or
disturb other tenants or occupants of the Building, (3) that, in
Landlord's sole judgment, the same will not in any way diminish or
adversely affect the electricity which Landlord deems should remain
available for other tenants, and (4) that Tenant, at Tenant's expense,
shall, concurrently with the making of such written request, execute
and deliver to Landlord, Tenant's written undertaking, in form and
substance satisfactory to Landlord, obligating Tenant to fully and
promptly pay the entire cost and expense of so furnishing and
installing any additional wires, risers, conduits, feeders and/or
switchboards.
(iii) Ordinary water from the regular Building outlets for
drinking, lavatory and toilet purposes.
(iv) Janitorial services Monday through Friday in and about the
Premises (except holidays). If any material use made of the Premises
after 6:00 p.m. shall by
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reason of work force scheduling or security, overtime, union rules or
otherwise cause any increase in Landlord's cost for providing
janitorial services, Tenant shall, as additional rent, pay all bills
for reimbursement of Landlord for such increase attributable to
Tenant's use of the Premises, within ten days after Tenant's receipt
of such bill. All janitorial services shall be performed solely at
Landlord's direction without interference from Tenant.
(v) Automatic passenger elevator service at all times.
(vi) Freight elevator services subject to reasonable scheduling
by Landlord.
(b) Billing for Electricity.
-----------------------
i. Landlord's Payment for Normal Service. Landlord shall
provide electric service on a twenty-four (24) hour basis and pay for
electric service as described in the first sentence of subparagraph
7(a)(ii) during the period from 6:00 a.m. to 6:00 p.m. from Monday
through Friday, and during the period from 8:00 a.m. to 1:00 p.m. on
Saturday, holidays excepted. In the event that Landlord, in Landlord's
sole discretion, determines that Tenant's use of electricity exceeds
the service to be provided under the first sentence of subparagraph
7(a)(ii) above or goes materially beyond the hours specified in this
subparagraph 7(b)(i), Tenant shall pay, as additional rent, such
amounts for such excess and/or other hours use as shall be required
under subparagraph 7(b)(ii) and (iii) below.
(ii) Measured Usage. In the event that Tenant's use of the
Premises includes the use of computers or other electrical equipment
or fixtures causing, in Landlord's reasonable determination, Tenant's
use of electric service to exceed the service to be provided under the
first sentence of subparagraph 7(a)(ii) above, or if there shall be at
the Premises any other hours (i.e. outside the hours specified in
subparagraph 7(b)(i)) use of electricity which Landlord believes may
be material, Landlord shall install in the Premises or elsewhere, if
Landlord shall so elect, or, if Tenant shall so request and if
feasible in Landlord's reasonable judgment, one or more meters or
other devices to measure the electricity used by such computers or
other equipment or fixtures and/or such other hours use; and Tenant
shall pay Landlord for such electricity within ten days after
submission of each bill by Landlord therefore, at such rates as shall
be from time to time determined by Landlord, provided that the rates
charged by Landlord shall not exceed Landlord's cost (including,
without limitation, taxes, fuel adjustment charges, and other like
charges regularly passed on to customers by public utility companies
and transformer costs) of supplying such electricity as determined by
Landlord using reasonable accounting methods; and the cost of
obtaining and installing such meters or other devices shall be paid by
Tenant to Landlord within ten days after submission of each bill by
Landlord to Tenant therefore.
(iii) Estimated Usage. For any other hours use of electricity
determined by Landlord to be material, and for any use of electricity
which is determined by Landlord to be in excess of the service to be
provided under the first sentence of subparagraph 7(a)(ii) above, and
which is not actually measured, Tenant shall pay to Landlord, in
monthly installments at the times prescribed for the monthly
installments of the Base Rent, amounts, as reasonably estimated by
Landlord from time to time, which Tenant would be required to pay for
such excess and/or other hours electrical service if the same were
actually measured as provided in subparagraph (b)(ii) above.
(c) Interruption of Services. Tenant agrees that Landlord shall not
------------------------
be liable for damages (by abatement of rent or otherwise, except for abatement
of Base Rent specifically provided for under this Paragraph 7(c)) for failure to
furnish or delay in furnishing any service, or for any diminution in the quality
or quantity thereof, when such failure or delay or diminution is occasioned, in
whole or in part, by repairs, renewals, or improvements, by any strike, lockout
or other labor trouble, by inability to secure fuel, by governmental laws,
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regulations or orders by Landlord's compliance, in whole or in part with any
government promulgated program (whether voluntary or mandatory), for
conservation of energy by any accident or casualty whatsoever, by act or default
of Tenant or other parties, or by any cause beyond Landlord's reasonable
control; and such failures or delays or diminution shall never be deemed to
constitute an eviction or disturbance of the Tenant's use and possession of the
Premises or relieve the Tenant from paying rent or performing any of its
obligations under this Lease. Landlord's obligation to furnish services shall
also be further conditioned upon the availability of adequate energy sources
from the public utility companies then servicing the downtown Denver area.
Notwithstanding the foregoing provisions of this Paragraph 7(c), Base Rent shall
be abated in the event of the disruption of services in accordance with the
following provisions: (i) in the case of interruption of electrical power to the
Premises resulting in a shutdown of Tenant's computers, antennas, telephones, or
other office equipment, if such interruption continues for seven consecutive
days and as a result Tenant is not using the Premises (or the affected portion),
then the Base Rent for the Premises (or, if only a portion of the Premises is
affected, prorated for such portion) shall be abated commencing on the first day
following the seventh continuous day of such disruption until the service in
question has been restored; (ii) in the case of the substantial failure of the
water supply to the restroom or substantial failure of the HVAC system to the
Premises or of any portion of the life safety system, and if such interruption
continues for seven consecutive days without Landlord having provided reasonable
substitute temporary services, and as a result Tenant is not using the Premises
(or portion affected) then Base Rent for the Premises (or, if only a portion of
the Premises is affected, for such portion) shall be abated commencing on the
first day following the seventh consecutive day of such disruption until the
service in question has been restored.
8. Alterations.
(a) Tenant shall not, without the prior written consent of Landlord
(which consent shall not be unreasonably withheld, conditioned or delayed), make
any alterations, improvements or additions to the Premises; provided, however,
Tenant shall be permitted to replace carpeting and repaint walls within the
Premises on the condition that Tenant notifies Landlord in writing not less than
three (3) days prior to the commencement of such work and Tenant otherwise
complies with the provisions of this Paragraph 8. If Landlord consents to any
alterations, improvements or additions, it may impose such conditions with
respect thereto as Landlord reasonably deems appropriate, including, without
limitation, Landlord's approval of plans and specifications for the work (but
Tenant shall not be entitled to rely upon such approval as evidencing that the
plans and specifications are proper in any respect), use of Landlord's approved
contractors to perform the work, insurance against liabilities which may arise
out of such work, permits necessary for such work and as-built drawings upon
completion of such work and the furnishing to Landlord of such security as is
determined by Landlord to be appropriate for the proper completion of such work
and its completion free of mechanics', materialmen's and similar liens or claims
thereof. Landlord shall concurrently with the granting of a consent to Tenant
under this Paragraph 8(a) notify Tenant of whether or not such alterations,
improvements or additions are required to be removed by Tenant upon the
expiration of this Lease and in the absence of the delivery of such notification
it shall be presumed that Landlord has elected not to require the removal of
such alterations, improvements or additions upon the expiration of this Lease.
All work done by Tenant or its contractors shall be done in a first-class
workmanlike manner, using only good grades of materials and without disturbing
other tenants and shall comply with all insurance requirements and all
applicable laws or ordinances and rules and regulations of governmental
departments or agencies. Before proceeding with any such work, Tenant shall
reimburse Landlord for Landlord's costs of Landlord's architects' review of
Tenant's plans and specifications. Any work performed by or for Tenant shall be
performed by competent workmen whose labor union affiliations are compatible
with those of the workmen who may be employed in the Building by Landlord, its
contractors or subcontractors, and Landlord shall have the right, at its option,
to directly supervise the work, which supervision shall be for the protection of
Landlord's interest only.
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(b) All alterations, additions or improvements made by Tenant and all
fixtures attached to the Premises (other than Tenant's trade fixtures)
shall become the property of Landlord and remain at the Premises or, at
Landlord's option (as shall be indicated to Tenant at the time of the
installation of such alterations, improvements or fixtures), any or all of
the foregoing shall be removed at the cost of Tenant before the expiration
or sooner termination of this Lease and in such event Tenant shall repair
all damage to the Premises caused by the installation and/or removal
thereof. Tenant shall not permit or suffer any signs advertisements or
notices to be displayed, inscribed upon or affixed on any part of the
outside or inside of the Premises, or in the Building, except on the
entrance doors of the Premises, and then only of such size, color and style
as Landlord may approve. Landlord shall have the right to remove
unauthorized signs at Tenant's expense.
9. Liens.
(a) Tenant shall not permit there to be filed against the Property or
Landlord's interest therein or any part of either, and shall within ten
days after Tenant has notice of the claim or lien, remove or have removed,
any mechanics', or materialmen's or other lien, or claim thereof, filed by
reason of work, labor, services or materials provided for or at the request
of Tenant (other than work, labor, services or materials provided by the
Landlord) or any subtenant or occupant or for any contractor or
subcontractor employed by Tenant or any subtenant or occupant, and shall
exonerate, protect, defend and hold free and harmless Landlord against and
from any and all such claims or liens. Without limitation of the
foregoing, if any such claim or lien be filed, Landlord may, but shall not
be obligated to, discharge it either by paying the amount claimed to be due
in the claim or lien or by procuring the discharge of such lien or claim by
deposit or by bonding proceedings. Any amount so paid by Landlord and all
costs and expenses, including, without limitation, reasonable attorney's
fees, in connection therewith, together with interest thereon at the Lease
Interest Rate (hereinafter defined) from the respective dates of Landlord's
making of the payments and incurring of the costs and expenses, shall
constitute additional rent payable by Tenant under this Lease and shall be
paid by Tenant to Landlord on demand.
(b) At least ten days before the commencement of any work ordered by
Tenant on the Premises, Tenant shall notify Landlord of the proposed work
and of the names and addresses of the persons supplying labor and materials
for the proposed work so that Landlord may avail itself of the provisions
of statutes such as C.R.S. (S)38-22-105(2). During any such work on the
Premises, Landlord, or its representatives, shall have the right to go upon
and inspect the Leased Premises at all reasonable times, and shall have the
right to post and keep posted thereon notices such as those provided for by
C.R.S. (S)38-22-105(2) or to take any action that Landlord may deem
advisable to protect Landlord's interest in the Premises.
10. Insurance and Waiver of Subrogation.
(a) Tenant, at its sole cost, shall maintain with responsible
insurance companies acceptable to Landlord and qualified to do business in
Colorado, general comprehensive public liability insurance against claims
for personal injury (including death) and property damage, arising from
occurrences in, on and about the Premises, with coverage on an occurrence
basis in all cases of not less than a combined single limit of
$3,000,000.00 per occurrence. Landlord shall be designated a named insured
in the policies for such insurance, which shall contain endorsements
providing that the naming of more than one insured shall not operate to
limit or void the coverage of any named insured relating to claims by
another named insured.
(b) Tenant, at its sole cost, shall maintain with responsible
insurance companies acceptable to Landlord and qualified to do business in
Colorado, "All Risk" or equivalent insurance upon all personal property
upon the Premises and all equipment, fixtures, additions, alterations and
improvements and betterments installed by or for Tenant upon the Premises,
including, without limitation, anything in the nature of a leasehold
improvement, if an amount which is at least 80% of the full replacement
cost thereof, which insurance shall name
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Landlord as a named insured and Landlord's mortgagees as mortgagees under
a standard mortgagee clause. In the event of damage or destruction to any
leasehold improvements, Tenant shall use the proceeds of such insurance to
repair or restore such leasehold improvements. If this Lease shall be
terminated pursuant to Paragraph 11(a) on account of damage by fire or
other casualty to the Building or the Premises, Landlord shall be entitled
to all of the insurance proceeds payable under the aforesaid insurance
relating to the leasehold improvements and the Premises.
(c) Tenant shall, prior to the commencement of the Term, and at least
30 days prior to the expiration date of each policy, furnish to Landlord
certificates evidencing the coverage required hereinabove in this Paragraph
and the renewal thereof, which certificates shall state that such insurance
coverage may not be materially changed or cancelled without at least ten
days prior written notice to Landlord and Landlord's mortgagee.
(d) Notwithstanding anything herein to the contrary, Landlord and
Tenant each hereby release the other, its officers, directors, partners,
agents and employees (and Tenant hereby also releases Agent, its partners,
officers, directors, agents and employees), to the extent of the releasing
party's coverage under its insurance policies, from any and all liability
for any loss or damage which may be inflicted upon the property of such
party, notwithstanding that such loss or damage shall have arisen out of
the negligence of the other party, its partners, officers, directors,
agents or employees; provided, however, that this release shall be
effective only with respect to occurrences occurring during such time as
the appropriate policy of insurance of the party so releasing shall contain
a clause to the effect that such release shall not affect the said policy
or the right of the insured to recover thereunder.
11. Fire or Casualty.
(a) If the Premises or the Building (including machinery or equipment
used in the operation of 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 Building untenantable, then Landlord shall repair and
restore the same with reasonable promptness, subject to reasonable delays
for insurance adjustments and delays caused by matters beyond Landlord's
reasonable control. If any such damage renders all or a substantial
portion of the Premises or Building untenantable, Landlord shall have the
right to terminate this Lease (with appropriate prorations of rent being
made for Tenant's possession subsequent to the date of such damage of those
tenantable portions of the Premises) upon giving written notice to the
Tenant at any time within 120 days after the date of such damage; and if
such notice is given Landlord shall have no obligation to repair or
restore. Landlord shall have no liability to Tenant, and Tenant shall not
be entitled to terminate this Lease by virtue of any delays in completion
of such repairs and restoration. Rent, however, shall abate on those
portions of the Premise as are, from time to time, untenantable as a result
of such damage.
(b) Notwithstanding anything to the contrary herein set forth,
Landlord shall have no duty pursuant to this Paragraph 11 to repair or
restore any portion of any alterations, additions or improvements in the
Premises or the decorations thereto except to the extent that such
alterations, additions, improvements and decorations were provided by
Landlord at the beginning of the Term.
(c) Within 120 days after any casualty to the Premises or the
Building, Landlord shall give written notice to Tenant of the determination
by Landlord's architect of the reasonably estimated period for completion
of repairs. If it is estimated such repairs will take longer than 180 days
and such damage has been to the Premises or to a portion of the Building
which materially interferes with Tenant's access to or use of the Premises,
Tenant shall have the right to terminate this Lease by written notice
delivered to Landlord within 15 days following receipt of Landlord's
notice.
12. Waiver of Claims - Indemnification. To the extent not prohibited by
law, Landlord, Amerimar Realty Management Co.-Colorado (herein "Agent"), Agent
and their respective officers,
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directors, partners, agents, servants and employees shall not be liable for, and
it and they are hereby released by Tenant from all liability for, any damage
either to person or property or resulting from the loss of use thereof or any
other loss, or any death, sustained by Tenant or by other persons claiming
through Tenant due to the Property or any part thereof or any appurtenances
thereof becoming out of repair, or due to the happening of any accident or event
in, on or about the Property or due to any act or neglect of any tenant or
occupant of the Building or of any other person. This provision shall apply
particularly, but not exclusively, to damage caused by gas, electricity, snow,
frost, steam, sewage, sewer gas or odors, fire, water or by the bursting or
leaking of pipes, faucets, sprinklers, plumbing fixtures and windows, and shall
apply without distinction as to the person (whether Landlord, Agent or other)
whose act or neglect was responsible for the damage and whether or not such act
or neglect occurred before, at or after the execution of this Lease, and whether
the damage was due to any of the causes specifically enumerated above or to some
other cause of an entirely different kind. Tenant further agrees that all
personal property of Tenant upon the Premises, or upon loading docks, receiving
and holding areas, or elsewhere in, on or about the Property, shall be at the
risk of Tenant only, and that neither Landlord nor Agent, nor their partners,
directors or officers, shall be liable for any loss or damage thereto or theft
thereof, except to the extent caused by the gross negligence or willful
misconduct of Landlord, Agent and/or their respective partners, directors,
officers or employees. Without limitation of any other provisions hereof, Tenant
agrees to defend, protect, indemnify and save harmless Landlord and Agent, and
their respective partners, officers, directors and employees, from and against
all liability to third parties arising out of the acts or omissions of Tenant
or any subtenant or the servants, agents, employees, contractors, suppliers,
workmen and invitees of Tenant or any subtenant.
Except to the extent caused by the gross negligence or willful misconduct
of Landlord, Agent and/or their respective partners, directors, officers or
employees, Tenant agrees to indemnify and save harmless, and upon request,
defend, Landlord, Agent, and their respective partners, directors, officers and
employees (herein called "indemnitees") against and from any and all claims by
or oil behalf of any person, arising out of or related to:
(a) Tenant's use or occupancy of the Premises or the conduct of its
business, or any activity, work, or thing, permitted or Suffered by Tenant,
in, on or about the Premises or the Property;
(b) any occurrence in, on or about the Premises;
(c) any breach or default on Tenant's part in the performance or
observance of, or compliance with, any term, covenant or condition on
Tenant's part to be performed pursuant to the terms of this Lease; or
(d) any act or negligence of Tenant or any subtenant, or any of their
respective agents, contractors, servants, employees, invitees or licensees,
whether or not the fault or negligence of Landlord, or of any other indemnitee
or of the agents, contractors, servants, employees, invitees or licensees of
Landlord or any indemnitee, (whether or not occurring before or after the
execution of this Lease), contributed thereto or was the cause thereof, and from
and against all costs, counsel fees, expenses, penalties, fines and liabilities
which Landlord or any other indemnitee may suffer or incur in connection with
any such claim and any action or proceeding brought with respect thereto. In
the event that any action or proceeding shall be brought by reason of any such
claim, against any party to be indemnified hereunder, Tenant covenants that
Tenant, upon notice from such party and at Tenant's expense, shall resist and
defend such action or proceeding by counsel reasonably satisfactory to such
party.
13. Nonwaiver. No waiver of any provision of this Lease shall be implied
by any failure of Landlord to enforce any remedy on account of the violation for
such provision, even if such violation be continued or repeated subsequently,
and no express waiver shall affect any provision other than the one specified in
such waiver and that one only for the time and in the manner specifically
stated. No receipt of moneys by Landlord or its agents from tenant after the
termination of this Lease shall in any way alter the length of the Term or of
Tenant's right of possession hereunder or after the giving of any notice shall
reinstate, continue or extend the Term or affect any notice given
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Tenant prior to the receipt of such moneys, it being agreed that after the
service of notice or the commencement of a suit or after final judgment for
possession of the Premises, Landlord may receive and collect any rent due, and
the payment and acceptance of payment of rent shall not waive or affect said
notice, suit or judgment.
14. Condemnation. In the event that the whole event that the whole of the
Premises shall be lawfully condemned or taken for a public or quasi-public use,
this Lease shall terminate as of the date that possession is to be surrendered
to the condemnor or taking authority. In the event that there shall be a lawful
condemnation or taking for any public or quasi-public use of any part of the
Building, without there being condemned or taken all of the Premises, then, at
the option of Landlord, exercisable by notice given to Tenant not later than 90
days after the date upon which Landlord receives notice of the taking or
condemnation, this Lease shall terminate as of the date that possession of the
Premises taken is required to be surrendered to the condemnor or taking
authority. In the event of any such taking or condemnation of all or any part of
the Premises or of all or any part of the Property, Tenant shall have no claim
against Landlord and shall not have any claim or right to any portion of the
amount that may be awarded as damages or paid as a result of such taking or
condemnation; and all rights of Tenant to damages therefore are hereby assigned
by Tenant to Landlord and Tenant shall have no claim against Landlord or the
condemner for the value of the unexpired term of this Lease. However, the
foregoing provisions of this section shall not be construed to deprive Tenant of
the right to claim and receive payment from the condemner or taking authority
for moving and related expenses as long as such claim or the payment thereof
does not reduce the award which Landlord would otherwise be entitled to receive.
In the event of any such taking or condemnation of part of the Premises, the
Base Rent, the Tax Adjustment and the Operating Expense Adjustment shall be
proportionately reduced from the date that possession is required to be
surrendered to the condemnor or taking authority.
15. Assignment and Subletting.
(a) Tenant shall not, without the prior written consent of Landlord
(which shall not be unreasonably withheld, conditioned or delayed in the
case of an assignment or subletting), (i) assign, convey or mortgage this
Lease or any interest hereunder except to an Affiliate (hereinafter
defined) who is not a Prohibited Entity (hereinafter defined); (ii) suffer
to occur or permit to exist any assignment of this Lease to an entity which
is not an Affiliate ("Non-Affiliate"), or any lien upon Tenant's interest
hereunder, whether voluntarily, involuntarily or by operation of law; (iii)
sublet the Premises or any part thereof to a Non-Affiliate, (iv) permit the
use of the Premises by any parties other than Tenant, its Affiliates and
their respective employees. Any such action on the part of Tenant without
Landlord's consent, shall be void and of no effect. Landlord's consent to
any assignment, subletting or transfer or any assignment, subletting or
transfer permitted in this Paragraph 15, or Landlord's election to accept
any assignee, subtenant or transferee as the tenant hereunder and to
collect rent from such assignee, subtenant or transferee shall not release
Tenant or any subsequent tenant from any covenant or obligation under this
Lease. Landlord's consent to any assignment, subletting or other act or
occurrence requiring Landlord's consent shall not constitute a waiver of
Landlord's right to withhold its consent to any future assignment,
subletting or act or occurrence requiring Landlord's consent. Without
limitation of the circumstances in which Landlord's withholding of consent
to an assignment or subletting shall not be unreasonable, it shall not be
unreasonable for Landlord to withhold its consent if the reputation,
financial responsibility, or business of the proposed assignee or subtenant
is unsatisfactory to Landlord, or if Landlord deems such business to be not
consonant with that of other tenants in the Building, or if the intended
use by the proposed assignee or subtenant conflicts with any commitment
made by landlord to any other tenant in the Building, or if in Landlord's
reasonable judgment the assignment or subletting will have financial
consequences adverse to Landlord's interest, or if the proposed assignee or
subtenant is a Prohibited Entity.
(b) At least forty-five (45) days prior to any proposed subletting or
assignment to a Non-Affiliate, Tenant shall submit to Landlord a statement
seeking Landlord's consent and containing the name and address of the
proposed subtenant or assignee, the terms of the proposed sublease or
assignment (including, without limitation, the date upon which the assignee
or subtenant is the take possession) and such financial and other
information with
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respect to the proposed assignee or subtenant as Landlord reasonably may
request. Landlord shall indicate its consent or non-consent within six (6)
business days of its receipt of said statement. Tenant shall notify
Landlord in writing of any subletting or assignment to an Affiliate, Tenant
shall submit to Landlord a statement containing the name, address and
affiliation of the proposed subtenant or assignee to the Tenant, the terms
of the proposed sublease or assignment and financial and other information
with respect to the proposed assignee or subtenant as Landlord may
reasonably request.
(c) Contemporaneously with any request or proposal by tenant to sublet
or assign any part of this Lease, Tenant shall pay all costs, including
reasonable attorneys' fees, incurred by Landlord or anticipated to be
incurred by Landlord, in connection with Landlord's investigation of any
financial or other information of the proposed assignee or subtenant all of
such costs will in no event exceed $750. Landlord may require that all or
a portion of the costs or anticipated costs be paid in advance by Tenant.
The payment of such costs shall not obligate Landlord in any way to consent
to any proposed assignment or subletting nor shall the amount of costs paid
by Tenant be applied or used as a set-off to any amounts due or to become
due by Tenant to Landlord.
(d) In addition to withholding its consent, Landlord shall have the
additional right, exercisable within such 30 day period, to terminate this
Lease in its entirety (where Tenant seeks to assign this Lease or sublet
the entire Premises to a Non-Affiliate) or as to that portion of the
Premises which Tenant seeks to sublet (where Tenant seeks to sublet only a
portion of the Premises to a Non-Affiliate for a term exceeding two (2)
years at a time when the remaining Term of the Lease is three (3) years or
more). Landlord may exercise such right to terminate by giving written
notice to Tenant at any time prior to Landlord's written consent to such
assignment or sublease. In the event that Landlord exercises such right to
terminate, (i) the termination shall be effective as of such date as
Landlord may specify in its notice which shall not be later than the later
of [A] the proposed date for possession by such Non-Affiliate assignee or
subtenant, or [B] ninety (90) days after the date of Landlord's notice of
termination to Tenant and (ii) as of the effective date of such termination
Tenant shall have no further liability under this Lease with respect to
that portion of the Premises which is the subject of such termination:
(e) If Landlord fails to exercise its termination right and its right
to withhold its consent as set forth in the preceding subsections, Tenant
shall pay to Landlord fifty percent (50%) of all profit derived by Tenant
from the assignment or sublease ("Sublease Profit"). The Tenant shall not
be required to pay any Sublease Profit derived by Tenant from an assignment
or sublease with an Affiliate. In determining Sublease Profit the Tenant
shall only be permitted to deduct (i) leasing commissions and brokerage
fees paid by Tenant and (ii) any other reasonable out-of-pocket costs paid
by Tenant and which are directly attributable to such assignment or
sublease. Whenever requested by Landlord, Tenant shall furnish Landlord
with a statement, certified by an authorized officer of Tenant as true,
correct and complete, setting forth in detail the computation of profit
(which computation shall be based upon generally accepted accounting
principles), and Landlord, or its representatives, shall have access to the
books, records and papers of Tenant in relation thereto, and to make copies
thereof. Any rent in excess of that paid by Tenant hereunder realized by
reason of such assignment or sublease less the costs described above shall
be deemed all item of such profit. Such percentage of Tenant's profits
shall be paid to Landlord promptly by Tenant upon Tenant's receipt from
time to time of periodic payments from such assignee or subtenant or at
such other earlier time as Tenant shall realize its profits from such
assignment or sublease.
(f) Landlord and Tenant further agree that Tenant shall not publish or
otherwise disseminate any written advertising material in connection with
any proposed assignment or sublease of all or any portion for the Premises
(the "Advertising") without Landlord's prior written approval for the same,
which approval shall not unreasonably withheld; provided, however, that no
Advertising shall contain any reference to the price to be charged in
connection with any proposed assignment or sublease.
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(g) For the purposes of this Lease, the following terms shall have the
following meanings:
(i) "Affiliate" shall mean [A] any person or entity which,
directly or indirectly, controls Tenant or is controlled by Tenant or
is under common control with Tenant, [B] any successor to Tenant by
merger, consolidation or other operation of law, [C] any person or
entity to whom all or substantially all of the assets of Tenant are
conveyed or [D] any person or entity purchasing the business which
Tenant conducts at the Premises.
(ii) "Prohibited Entity", unless otherwise agreed in writing by
Landlord, shall mean [A] a governmental or a governmental subdivision,
instrumentality or agency, [B] a school, college or university, [C] an
employment, recruitment or temporary help service or agency, [D] a
collection agency, [E] any entity or an affiliate thereof which has
previously defaulted in the performance of its obligations under a
lease concerning any portion of the Building or any building located
within the Denver Place complex known and numbered as 999 - 18th
Street, Denver, Colorado 80202 (collectively the "Complex"), or [F]
any person, entity or affiliate of Landlord, is either currently
negotiating or, within the six month period preceding Tenant's request
for the assignment or sublease, with whom Landlord, or any affiliate
of Landlord, has negotiated to lease space in the Complex. An
insurance agency (other than Alexander & Alexander, Inc.) shall be
deemed to be a Prohibited Entity if such insurance agency (x)
subleases or occupies any floor of the Building leased to or occupied
by Alexander & Alexander Inc., (y) subleases or occupies any portion
of the 29th through 31st floors of the Building or (z) subleases or
occupies more than 12,000 square feet of rentable area in the
Building.
16. Holdover. If the Tenant or any person claiming through the Tenant
shall retain possession of the Premises or any part thereof after the expiration
or earlier termination of the Term and if Landlord shall consent to such
continuation of possession, such possession shall be (unless the parties hereto
shall otherwise have agreed in writing) deemed to be under a month-to-month
tenancy which shall continue until either party shall notify the other in
writing, at least 30 days prior to the end of any calendar month, that the party
giving such notice elects to terminate such tenancy at the end of such calendar
month, in which event such tenancy shall so terminate. Anything contained in the
foregoing provisions of this paragraph to the contrary notwithstanding, the
rental payable with respect to each such monthly period shall be 150% of the
monthly Base Rent and 150% of the monthly Tax Adjustment Amount and of the
monthly Expense Adjustment Amount (both calculated in accordance with the
provisions of Paragraph 4 hereof) which would have been payable had this Lease
been renewed until the end of the calendar year which includes such month on the
terms and conditions in effect immediately prior to the expiration or
termination of the Term for the first three (3) months of Tenant's holdover and
150% of the monthly Base Rent and 200% of the monthly Tax Adjustment Amount and
of the monthly Expense Adjustment Amount (both calculated in accordance with the
provisions of Paragraph 4 hereof) which would have been payable had this Lease
been renewed until the end of the calendar year which includes each month on the
terms and conditions in effect immediately prior to the expiration or
termination of the Term for any period after the first three (3) months of
Tenant's holdover; and such month-to-month tenancy with Landlord's consent shall
be upon the same terms and subject to the same conditions as those which are set
forth in this Lease except as aforesaid. If Tenant or any person claiming
through Tenant shall retain possession of the Premises or any part thereof,
after the expiration or earlier termination of the term or of Tenant's right of
possession, and if such retention shall be without Landlord's consent, Tenant
shall pay Landlord (a) for each month or portion thereof during which such
possession continues, an amount equal to the rental to be paid for each month
pursuant to the foregoing provisions of this Paragraph when such possession is
with Landlord's consent, plus all other sums which would have been payable
hereunder had the term continued during such retention of possession and (b) all
other damages sustained by Landlord, whether direct or consequential, by reason
of such retention of possession. During any such retention of possession
without Landlord's consent, all of Tenant's obligations with respect to the use,
occupancy and maintenance of the Premises shall continue. The provisions of
this paragraph shall not be deemed to limit or constitute a waiver of any other
rights or remedies of Landlord provided herein or at law or in equity and
applicable to unlawful retention of possession or otherwise.
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17. Estoppel Certificate. Tenant shall from time to time, within ten days
after Tenant's receipt of Landlord's written request therefore, execute,
acknowledge and deliver to Landlord a written instrument in recordable form (a)
certifying (i) that this Lease is in full force and effect and has not been
modified, supplemented or amended in any way (or, if there have been
modifications, supplements or amendments thereto, that it is in full force and
effect as modified, supplemented or amended, and stating such modifications,
supplements and amendments) and that this Lease (as modified, supplemented or
amended, as aforesaid) represents the entire agreement among Landlord and Tenant
as to the Premises and the leasehold, (ii) the dates to which the Base Rent,
additional rent and other charges arising hereunder have been paid, (iii) the
amount of any prepaid rents or credits due to Tenant, if any; and (iv) that if
applicable, Tenant has entered into occupancy of the Premises; and (b) stating,
to the best knowledge of Tenant, whether or not all conditions under the Lease
to be performed by Landlord prior to the date of such certificate have been
satisfied and whether or not Landlord is then in default in the performance of
any covenant, agreement or condition contained in this Lease and specifying, if
any, each such unsatisfied condition and each such default; and (c) stating any
other fact or certifying any other condition reasonably requested by Landlord or
by any mortgagee or prospective mortgagee or purchaser of the Property or of any
interest therein.
18. Subordination.
(a) This Lease shall be subject and subordinate at all times to the
lien of any mortgage or deed of trust, heretofore or hereafter placed by
Landlord on the Property or any part thereof and of all renewals,
modifications, consolidations, replacements and extensions thereof (all of
which are hereinafter referred to collectively as a "mortgage"), all
automatically and without the necessity of any further act on the part of
Tenant to effectuate such subordination. Tenant shall, at the request of
the holder of any such mortgage, upon foreclosure thereof attorn to such
holder. Tenant shall also execute, acknowledge and deliver, within 15 days
after Tenant's receipt of demand from Landlord or such holder, such other
instrument or instruments evidencing such subordination of Tenant's right,
title and interest under this Lease to the lien of any such mortgage, and
such other instrument or instruments of attornment, as shall be desired by
such holder. Notwithstanding the foregoing provisions of this Paragraph
18(a) as a condition precedent to Tenant's attornment and subordination to
the lien of any mortgage or deed of trust hereafter placed by Landlord on
the Property or any portion thereof, provided the Premises then consist of
a rentable area of not less than 10,000 square feet, the holder of any such
mortgage or deed of trust shall agree in writing not to disturb Tenant's
rights under this Lease provided Tenant is not in default in the
performance of its obligations hereunder. In the event the Premises
consist of a rentable area of less than 10,000 square feet at the time of a
request for subordination to the lien of any mortgage or deed of trust
hereafter placed by Landlord on the Property or any portion thereof,
Landlord agrees to use reasonable efforts to obtain such holder's agreement
not to disturb Tenant's rights under this Lease provided Tenant is not in
default in the performance of its obligations hereunder on the condition
that Tenant shall be solely responsible for all fees, costs and expenses
charged by such holder(s) for the preparation and negotiation of the terms
and conditions of the nondisturbance.
(b) Anything contained in the foregoing provisions of this Paragraph
to the contrary notwithstanding, any such holder may at any time
subordinate its mortgage to this Lease, without the necessity of obtaining
Tenant's consent, by giving notice of the same in writing to Tenant, and
thereupon this Lease shall be deemed to be prior to such mortgage without
regard to their respective dates or execution, delivery or recordation
and/or the date of commencement of Tenant's possession, and in that event
such holder shall have the same rights with respect to this Lease as though
this Lease shall have been executed, delivered and recorded prior to the
execution and delivery of such mortgage.
(c) If Landlord is or becomes lessee of premises of which the Premises
are a part, Tenant agrees that, automatically and without the necessity of
any further act, Tenant's possession shall be as a subtenant and shall be
subordinate to the interest of Landlord's lessor, its heirs, personal
representatives, successors and assigns (which lessor, its heirs, personal
representatives, successors and assigns, or any of them, is hereinafter
called "Paramount Lessor"), but notwithstanding the foregoing, if
Landlord's tenancy shall terminate by
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expiration, by forfeiture or otherwise, then Tenant hereby agrees, upon
request of Paramount Lessor, to attorn to Paramount Lessor, and to
recognize such lessor as Tenant's landlord for the balance of the term of
this lease and any extensions or renewals hereof. Tenant shall execute,
acknowledge and deliver, upon demand by Landlord or Paramount Lessor, such
other instrument or instruments evidencing such subordination of Tenant's
right, title and interest under this Lease to the interest of such lessor,
and such other instrument or instruments of attornment, as shall be
prescribed by such lessor.
19. Certain Rights Reserved By Landlord. Landlord shall have the
following rights, each of which Landlord may exercise without notice to Tenant
and without liability to Tenant for damage or injury to property, person or
business on account of the exercise thereof, and the exercise of any such
rights shall not be deemed to constitute an eviction or disturbance of Tenant's
use or possession of the Premises and shall not give rise to any claim for set-
off or abatement of rent or any other claim:
(a) to change the Building's name or street address;
(b) to install, affix and maintain any and all signs on the exterior
and on the interior of the Building;
(c) to decorate or to make changes, repairs, alterations, additions,
or improvements, whether structural or otherwise (including alterations in
the configuration of, and elimination of, any common areas), in and about
the Building and Property or any part thereof, and for such purposes to
enter upon the Premises, and during the continuance of any of said work, to
temporarily close doors, entry ways, public space and corridors in the
Building and to interrupt or temporarily suspend services or use of
facilities; but Landlord shall endeavor to perform any such work in or
about the Premises so as to cause the minimum inconvenience to Tenant
practicable under the circumstances;
(d) to designate and approve all window coverings used in the
Building;
(e) to approve, disapprove or restrict the weight, size and location
of safes, vaults and other heavy equipment and articles in and about the
Premises and the Building so as not to exceed the live load per square foot
designated by the structural engineers for the Building, and to require all
such items and furniture and similar items to be moved into or out of the
Building and Premises only at such times and in such manner as Landlord
shall direct in writing. Tenant shall not install or operate machinery or
any mechanical devices of a nature not directly related to Tenant's
ordinary use of the Premises without the prior written consent of Landlord.
Tenant's movements of property into or out of the Building or Premises and
within the Building are entirely at the risk and responsibility of Tenant,
and Landlord reserves the right to require permits before allowing any
property to be moved into or out of the Building or Premises;
(f) to establish controls for the purpose of regulating all property
and packages, both personal and otherwise, to be moved into or out of the
Building and Premises and all persons using the Building after normal
office hours;
(g) to regulate delivery and service of supplies in order to insure
the cleanliness and security of the Premises and to avoid congestion of the
loading docks, receiving areas and freight elevators;
(h) to show the Premises to prospective tenants at reasonable hours
upon reasonable prior oral notice to Tenant during the last twelve months
of the Term and, if vacated or abandoned, to show the Premises at any time
and to prepare the Premises for re-occupancy;
(i) to erect, use and maintain pipes, ducts, wiring and conduits, and
appurtenances thereto, in and through the Premises at reasonable locations,
provided Landlord takes
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reasonable efforts to minimize the interference with Tenant's use and
enjoyment of the Premises; and
(j) to enter the Premises at any reasonable time upon reasonable
prior oral notice (except in an emergency when no notice shall be required)
to inspect the Premises.
20. Rules and Regulations. Tenant shall, and shall cause all of its
subtenants and occupants, its and their agents, employees, invitees and
licensees to, observe faithfully, and comply strictly with, the rules and
regulations attached to this Lease as Exhibit "B", as they may be supplemented
and revised by Landlord from time to time, and such other rules and regulations
promulgated from time to time by Landlord, as in the Landlord's judgment may be
desirable for the safety, care and cleanliness of the Building and the Premises,
or for the preservation of good order therein. Landlord shall not be liable to
Tenant for violation of such rules and regulations by, or for Landlord's failure
to enforce the same against, any other tenant, its subtenants and occupants and
its and their agents, employees, invitees or licensees, nor shall any such
violation or failure constitute, or be treated as contributing to, an eviction,
actual or constructive, or affect Tenant's covenants and obligations hereunder,
or allow Tenant to reduce, abate or offset the payment of any rent under this
Lease.
21. Remedies.
(a) If default shall be made in the payment of any rent or any
installment thereof or in the payment of any other sum required to be paid
by Tenant under this Lease or under the terms of any other agreement
between Landlord and Tenant and such default shall continue for ten days,
or if default shall be made in the observance or performance of any of the
other agreements, covenants or conditions in this Lease (or in any other
agreement between Landlord and Tenant) which Tenant is required to observe
and perform and such default shall continue for fifteen (15) days after
written notice to Tenant unless such default is not reasonably capable of
being cured within such fifteen (15) day period, in which event there shall
be a default if Tenant fails to commence such cure within fifteen (15) days
or thereafter fails to diligently pursue such cure to completion which
shall in no event exceed sixty (60) days, or if the interest of Tenant in
this Lease shall be levied on under execution or other legal process, or
(b) if Tenant becomes the subject of commencement of an involuntary
case under the federal bankruptcy law as now or hereafter constituted, or
there is filed a petition against Tenant seeking reorganization,
arrangement, adjustment or composition of or in respect of Tenant under the
federal bankruptcy law as now or hereafter constituted, or under any other
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law, or seeking the appointment of a receiver, liquidator or
assignee, custodian, trustee, sequestrator (or similar official) of Tenant
or any substantial part of its property, or seeking the winding-up or
liquidation of its affairs and such involuntary case or petition is not
dismissed within 60 days after the filing thereof, or if Tenant commences a
voluntary case or institutes proceedings to be adjudicated a bankrupt or
insolvent, or consents to the institution of bankruptcy or insolvency
proceedings against it, under the Federal bankruptcy laws as now or
hereafter constituted, or any other applicable Federal or state bankruptcy
or insolvency or other similar law, or consents to the appointment of or
taking possession by a receiver or liquidator or assignee, trustee,
custodian, sequestrator (or other similar official) of Tenant or of any
substantial part of its property, or makes any assignment for the benefit
of creditors or admits in writing its inability to pay its debts generally
as they become due or fails to generally pay its debts as they become due
or if Tenant or its stockholders or board of directors or any committee
thereof takes any corporate action in contemplation, preparation or
furtherance of or for any of the occurrences, steps, procedures,
proceedings or other items mentioned in this Paragraph 21(b) or
(c) if Tenant shall vacate and abandon the Premises for a period of
seven consecutive days during the Term, Landlord may treat the occurrence
of any one or more of the foregoing events as a breach of this Lease, and
thereupon at its option may, without notice or demand of any kind to Tenant
or any other person, have any one or more of the
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following described remedies in addition to all other rights and remedies
provided at law or in equity or elsewhere herein:
(i) At the option of Landlord, the whole balance of rent,
charges and all other sums payable hereunder, whether or not payable
as rent, for the entire balance of the Term, and any renewal or
extension thereof, herein reserved or agreed to be paid by Tenant, or
any part of such rent, charges and other sums, and also all or any
costs and sheriffs, marshall's, constable's or other official's fees
and charges, whether chargeable to Landlord or Tenant, shall be taken
to be due and payable from Tenant and in arrears as if by the terms of
this Lease said balance of rent, charges and other sums and expenses
were on that date payable in advance; and/or
(ii) Landlord, by giving written notice to Tenant, may terminate
this Lease and the Term, in which event Landlord may immediately
repossess the premises by legal proceedings, force or otherwise;
and/or
(iii) Landlord, by giving written notice to Tenant, may terminate
Tenant's right of possession and may immediately repossess the
Premises by legal proceedings, force or otherwise, without terminating
this Lease.
(iv) After reentry, retaking, repossessing or recovering of the
Premises, whether or not Landlord has terminated this Lease, Landlord
may, but shall be under no obligation to, relet the same or any
portion thereof for such rent and upon such terms as shall be deemed
advisable by Landlord; and whether or not the Premises are relet,
Tenant shall be liable for any loss of rent for such period as would
be the balance of the term of this Lease and any renewals thereof plus
the costs and expenses of reentry, retaking, repossession and
recovering, and of reletting and of redecorating, remodeling and
making repairs and alterations to the Premises for the purpose of
reletting, the amount of such liability to be computed monthly and
paid by Tenant to Landlord at the end of each month. Landlord shall in
no event have any duty to relet the Premises, nor shall any damages or
other sums to be paid by Tenant to Landlord be reduced by any failure
to relet the Premises or failure to collect the rent from any
reletting. Tenant shall not be entitled to any rents received by
Landlord in excess of the rents provided for in this Lease. Tenant
agrees that Landlord may file suit to recover any sums falling due
under the terms of this Paragraph 21 from time to time and that no
suit or recovery of any portion due Landlord hereunder shall be any
defense to any subsequent action brought for any amount not
theretofore reduced to judgment in favor of Landlord. If Landlord
relets the Premises, such reletting shall not be considered a
termination of this Lease unless Landlord has given Tenant a notice
wherein Landlord expressly states that this Lease is terminated.
(v) If Landlord shall terminate this Lease as provided in
subparagraph (b) above, Landlord, at its option, shall be entitled to
recover as damages the excess, if any, at the time of such
termination, of the amount of the Base Rent payable under this lease
for the balance of the term of this Lease (including, any extension
options which have been exercised) over the then fair rental value of
the Premises for the same period, plus all costs and expenses of
Landlord caused by Tenant's default, including, but not limited to,
reasonable attorney's fees.
(vi) If any payment of rent or any other sum, or any part of any
such payment to be made by Tenant under the terms of this Lease shall
become overdue for a period in excess of five days Tenant shall pay to
Landlord (x) a "late charge" of $.05 for each dollar so overdue, for
the purpose of defraying the expense incident to handling such overdue
or delinquent payment, and (y) interest on the overdue amount at the
Least Interest Rate (defined below) from the date when such payment
was due until the date paid, but in no event more than the amount or
rate which is the maximum amount or rate Landlord may lawfully charge
in respect of Tenant in such circumstances under applicable law. The
"Lease Interest Rate" shall mean the greater of 18% per annum or such
variable rate which is from time to time equal to 3% above
20
<PAGE>
the prime rate as stated by Colorado National Bank, Denver, Colorado
or its successor, or, in the absence of there being a successor to
Colorado National Bank, by such other bank having an office in the
City of Denver, as Landlord may from time to time select. Nothing
herein shall be construed as waiving any rights of Landlord arising
out of any default of Tenant by reason of Landlord's accepting any
such late charge or interest; the right to collect a late charge and
interest is separate and apart from any other rights or remedies of
Landlord after default by Tenant.
(vii) Without limiting the generality of the foregoing, if
Tenant shall be in default in the performance of any of its
obligations hereunder, Landlord may (but shall not be obligated to),
in addition to any other rights it may have in law or in equity, cure
such default on behalf of Tenant, and Tenant shall reimburse Landlord
upon demand for any sums paid or costs incurred by Landlord in curing
such default, including reasonable attorneys' fees and other legal
expenses, together with interest at the Lease Interest Rate from the
dates of Landlord's incurring of costs or expenses.
(viii) All remedies available to Landlord hereunder and
otherwise available at law or in equity shall be cumulative and
concurrent. No termination of this Lease nor taking or recovering
possession of the Premises shall deprive Landlord of any remedies or
actions against Tenant for rent, for charges, or for damages for the
breach of any term, covenant or condition herein contained, nor shall
the bringing of any such action for rent, charges or breach of term,
covenant or condition, nor the resort to any other remedy or right for
the recovery of rent, charges or damages for such breach be construed
as a waiver or release of the right to insist upon the forfeiture and
to obtain possession. The failure of Landlord to insist upon strict
and/or prompt performance of the terms, agreements, covenants and
conditions of this Lease or any of them, and/or the acceptance of such
performance thereafter shall not constitute or be construed as a
waiver of Landlord's right to thereafter enforce the same strictly
according to the tenor thereof in the event of a continuing or
subsequent default.
(ix) Notwithstanding anything in this Paragraph 21 or any other
provision of this Lease to the contrary, this Lease shall not be
terminated by service upon Tenant of a notice from Landlord demanding
payment of rent or possession of the Premises following default by
Tenant, or by any action of Tenant to vacate the Premises following
receipt of such a notice, unless the notice served by Landlord
includes a statement expressly terminating this Lease. Further,
Landlord reserves the right to receive payment of all unaccrued rent
for the balance of the Term originally contemplated under Paragraph 1
of this Lease (and any extensions or renewals thereof to which Tenant
shall have become bound) following service of such a notice for
payment or possession, or a notice terminating this Lease for Tenant's
default.
22. Expenses of Enforcement. Tenant shall pay upon demand all Landlord's
costs, charges and expenses, including the fees and out-of-pocket expenses of
counsel, agents and others retained by Landlord, incurred by Landlord, whether
or not suit is brought, in enforcing Tenant's obligations hereunder or in
collecting any amounts due from Tenant or any subtenant or assignee hereof or in
enforcing any provision of this Lease or in any litigation, negotiation or
transaction in which Tenant causes Landlord without the Landlord's fault to
become involved or concerned or in reletting the Premises or any portion thereof
after default by Tenant. Landlord and Tenant further agree that in the event
any legal action or proceeding is commenced to enforce the obligations set forth
in this Lease, the prevailing party shall be entitled to an award of all
reasonable costs and expenses including, but not limited to, reasonable
attorneys' fees.
23. Covenant of Quiet Enjoyment. Landlord covenants that Tenant, on
paying the rent, charges for services and other payments herein reserved or
required and on keeping, observing and performing all the other terms,
covenants, conditions, provisions and agreements herein contained on the part of
the Tenant to be kept, observed and performed, shall, during the Term, peaceably
and quietly have, hold and enjoy the Premises free from interference by Landlord
or any person claiming by, from or under Landlord, subject, however, to the
terms, covenants, conditions, provisions and agreements hereof.
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<PAGE>
24. Security Deposit. Upon the execution of this Lease, Tenant shall
deposit with Landlord the sum of $11,018.67 (hereinafter referred to as
"Collateral"), as security for the prompt, full and faithful performance by
Tenant of each and every provision of this Lease and of all obligations of
Tenant hereunder. No interest shall be paid to Tenant on the Collateral and
Landlord may commingle the collateral with any other funds of Landlord.
If Tenant fails to perform any of its obligations hereunder, Landlord may
use, apply or retain the whole or any part of the Collateral for the payment of
(a) any rent or other sums of money which Tenant may not have paid when due, (b)
any sum expended by Landlord on Tenant's behalf in accordance with the
provisions of this Lease, and/or (c) any damages which Landlord may sustain or
sums which Landlord may expend or be required to expend by reason of Tenant's
default, including, without limitation, any damage or deficiency in or from the
reletting of the Premises as provided in Paragraph 21. The use, application or
retention of the Collateral, or any portion thereof, by Landlord shall not
prevent Landlord from exercising any other right or remedy provided by this
Lease or by law (it being intended that Landlord shall not first be required to
proceed against the Collateral) and shall not operate as a limitation on any
recovery to which Landlord may otherwise be entitled. If any portion of the
Collateral is used, applied or retained by Landlord for the purposes set forth
above, Tenant agrees, within ten days after the written demand therefore is made
by Landlord, to deposit cash with the Landlord in an amount sufficient to
restore the Collateral to its original amount.
If Tenant shall fully and faithfully comply with all of the provisions of
this Lease, the Collateral, or any balance thereof, shall be returned to Tenant
without interest within 30 days after the expiration of the Term or within 30
days after the date Tenant has vacated the Premises. In the absence of evidence
satisfactory to Landlord of any permitted assignment of the right to receive the
Collateral, 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 Collateral. In such event, upon the return of the
Collateral, or the remaining balance thereof to the original Tenant, Landlord
shall be completely relieved of liability under this Paragraph 24 or otherwise
with respect to the Collateral.
Tenant acknowledges that Landlord has the right to transfer or mortgage its
interest in the Property and in this Lease and Tenant agrees that in the event
of any such transfer or mortgage, Landlord shall have the right to transfer or
assign the Collateral to the transferee or mortgagee. Upon written
acknowledgment of transferee's or mortgagee's receipt of such Collateral,
Landlord shall thereby be released by Tenant from all liability or obligation
for the return of such Collateral and Tenant shall look solely to such
transferee or mortgagee for the return of the Collateral.
The Collateral shall not be mortgaged, assigned or encumbered in any manner
whatsoever by Tenant.
25. Real Estate Broker. Landlord and Tenant acknowledge and agree that:
(i) Landlord has been represented in connection with this Lease by the Agent as
Landlord's agent and by Garth R. D. Tait, Broker, Ltd. ("Tait") as Landlord's
subagent, and (ii) Tenant has been represented in connection with this Lease by
Liberty Partners Inc. (Bruce Johnson and Alex Hammerstein) ("Liberty Partners")
as Tenant's agent. Tenant agrees to indemnify, defend and hold Landlord harmless
from and against any claims, for a commission or other compensation in
connection with this Lease, made by any broker or finder (other than Agent, Tait
and Liberty Partners) who claim to have dealt with or communicated to Tenant in
connection with this Lease provided that Landlord has not in fact retained such
broker or finder. Landlord agrees to pay Agent, Tait and Liberty Partners
pursuant to the terms of separate agreements, for their services rendered in
connection with this Lease, and agrees to indemnify, defend and hold Tenant
harmless from and against any claims, for a commission or other compensation in
connection with this Lease, made by any broker or finder who claim to have dealt
with or communicated to Landlord in connection with this Lease provided that
Tenant has not in fact retained such broker or finder.
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<PAGE>
26. Miscellaneous.
(a) Rights Cumulative. All rights and remedies of Landlord under this
-----------------
Lease shall be cumulative and none shall exclude any other rights or remedies
allowed by law, in equity or otherwise.
(b) Captions and Usage. The titles appearing in connection with the
------------------
various sections and paragraphs of this lease are for convenience only; they are
not intended to indicate all of the subject matter in the text and they are not
to be used in interpreting this Lease nor for any other purpose in the event of
any controversy. As used herein (i) the term "person" shall be deemed to
include a natural person, a trustee, a corporation, a partnership, a
governmental unit and any other form of legal entity; (ii) all usages in the
singular or plural number shall be deemed to have been made, respectively, in
the plural or singular number as well; the use of any gender includes all
genders.
(c) Binding Effect. Each of the provisions of this Lease shall extend
--------------
to and shall, as the case may require, bind or inure to the benefit not only of
the Landlord and of Tenant, but also of their respective successors or assigns,
provided this clause shall not permit any assignment by Tenant contrary to the
provisions of Paragraph 15 hereof.
(d) Lease Contains All Terms. There are no promises, representations,
------------------------
warranties or undertakings by, or binding upon, Landlord with respect to the
Building, the Premises or the Real Property, including, but not limited to, any
with regard to alteration, remodeling, redecorating or installation of equipment
or fixtures in the Premises, except those, if any, that are expressly set forth
in this Lease. No modification, waiver or amendment of this Lease or of any of
its conditions or provisions shall be binding upon the Landlord unless in
writing signed by Landlord or by a duly authorized agent of Landlord empowered
by a written authority signed by Landlord.
(e) Submission of Lease. Submission of this Lease by Landlord for
-------------------
execution by Tenant, or Tenant's execution hereof without Landlord's prior or
simultaneous execution, shall not bind Landlord in any manner, and no binding
Lease or obligation of the Landlord shall arise until Lease is signed by both
Landlord and Tenant and delivery is made to each.
(f) No Air Rights. No rights to any view or to light or air over any
-------------
property whether belonging to Landlord or any other person, are granted to
Tenant by this Lease.
(g) Modification of Lease. If any lender requires, as a condition to
---------------------
its lending funds, the repayment of which is to be secured by a mortgage or
trust deed on the Property or any part thereof, that certain modifications be
made to this Lease, which modifications will not require Tenant to pay any
additional amounts or otherwise change materially the rights or obligations of
Tenant hereunder, Tenant shall, upon Landlord's request, execute appropriate
instruments effecting such modifications.
(h) Substitution of Other Premises.
------------------------------
(i) In the event Tenant exercises the Renewal Option
(hereinafter defined) and Tenant occupies less than all the rentable
area located on the fifth (5th) floor of the Building, Landlord shall
have the right during the Renewal Term to substitute for the premises
then being leased or to be leased hereunder (the "Existing Premises")
other premises within the Building (herein referred to as the "New
Premises") provided that the New Premises shall be of at least
substantially the same size and shall either have substantially the
same perimeter configuration or a perimeter configuration
substantially as usable for the purposes for which the Existing
premises were being used by tenant.
(ii) Tenant shall vacate and surrender the Existing Premises not
later than the later of the 30th day after the date that Landlord
shall notify Tenant of Landlord's intent to make the substitution in
question or the 15th day after landlord shall have
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<PAGE>
substantially completed the work to be done by Landlord in the New
Premises pursuant to this subparagraph (ii). As of the sooner of such
15th day or the date of such surrender and vacation, the New Premises
shall be the Premises leased under this Lease and the Existing
Premises shall cease to be the Premises leased under this Lease.
Landlord shall (A) pay the actual and reasonable out-of-pocket
expenses of Tenant's moving of its property from the Existing Premises
to the New Premises, including but not limited to, Tenant fixtures,
furniture, filing systems, movable partitions, modules, computer and
telephone cabling, and equipment, (B) pay the cost and expense of
reprinting reasonable quantities of stationery, business cards,
advertising and promotional materials, and (C) shall improve the New
Premises so that they are substantially similar to the Existing
Premises and promptly reimburse Tenant for its actual and reasonable
out-of-pocket costs in connection with the relocation of any telephone
or other communications equipment from the Existing Premises to the
New Premises. However, instead of only paying the expenses of Tenant's
moving of its property, Landlord may elect to either move Tenant's
property or provide personnel to do so under Tenant's direction, in
which event such move may not be made except during evenings, weekends
or holidays, so as to incur the least inconvenience to Tenant.
(iv) Tenant shall not be entitled to any compensation for any
inconvenience or interference with Tenant's business, nor to any
abatement or reduction in rent, nor shall Tenant's obligations under
this Lease be otherwise affected, as a result of the substitution
except as otherwise provided in this subparagraph (h). Tenant agrees
to cooperate with Landlord so as to facilitate the prompt completion
by Landlord of, its obligations under this subparagraph (h). Without
limiting the generality of the preceding sentence, Tenant agrees to
provide to Landlord promptly such approvals, instructions, plans,
specifications or other information, as may be reasonably requested by
Landlord.
(i) Transfer of Landlord's Interest. Notwithstanding anything
-------------------------------
contained herein to the contrary, Tenant agrees that neither Landlord nor any
partner in Landlord, nor any other person having any interest, direct or
indirect, immediate or more removed than immediate, in Landlord, shall have any
personal liability with respect to any of the provisions of this Lease and
Tenant shall look solely to the estate and property of Landlord in the Property
for the satisfaction of Tenant's remedies, including without limitation, the
collection of any judgment or the enforcement of other judicial process
requiring the payment or expenditure of money by Landlord, subject, however, to
the prior rights of any holder of any mortgage covering all or part of the
Property, and no other assets of Landlord or its partners, or of any other
aforesaid person having an interest in Landlord, shall be subject to levy,
execution or other judicial process for the satisfaction of Tenant's claims.
Without limitation of the foregoing, upon each transfer of the Building and the
Landlord's interest in this Lease, the transferor shall automatically be
released from all liability and obligations under this Lease.
(j) Recording; Short Form Memo. This Lease shall not be recorded by
--------------------------
Tenant. If it is recorded by Tenant, Landlord shall have the right to terminate
this Lease as of the date of recording or thereafter and Landlord shall have all
rights and remedies provided in the case of default by Tenant hereunder. If
requested by Landlord, Tenant shall execute, in recordable form, a short form
memorandum of lease that may, at Landlord's option, be placed of record. In
addition, if requested by Landlord, Tenant shall execute a memorandum of lease
to be filed with the Colorado Department of Revenue, on such form as may be
prescribed by said Department, within ten days after the execution of this
Lease, or any other such memorandum, so that the Landlord may avail itself of
the provision of statutes such as C.R.S. 1973 39-22-604(7)(c).
(k) Covenants and Conditions. All of the covenants of Tenant
------------------------
hereunder shall be deemed and construed to also be "conditions", if Landlord so
elects, as well as "covenants" as though the words specifically expressing or
importing covenants and conditions were used in each separate instance. Tenant's
covenants to pay rent are independent of any other covenant, agreement, term or
condition of this Lease.
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<PAGE>
(l) Application of Payments. Landlord shall have the right to apply
-----------------------
payments received from Tenant pursuant to this Lease (regardless of Tenant's
designation of such payments) to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord in its sole discretion, may elect.
(m) Security Interest and Tenant's Deposit.
--------------------------------------
(i) As security for the payment of all rent and other sums
becoming due under this Lease and the performance of all of Tenant's
obligations under this Lease, Tenant hereby grants to Landlord a
security interest in all improvements, equipment and other personal
property of Tenant situated on or in the Premises excluding computer
software and Tenant's business records. Such security interest shall
at all times be subordinate to (i) any currently existing or future
purchase money finance relating to such improvements, equipment and
other personal property and (ii) any currently existing or future
security interest granted for the benefit of any lender providing
financing to the Tenant or other entity with an ownership interest in
the equipment. Tenant within 15 days after request therefore made from
time to time by Landlord shall execute such documents as Landlord may
reasonably request in order to evidence and perfect Landlord's
security interest; provided, however, Landlord agrees that no
financing statement shall be filed if prohibited by the holder of a
permitted prior security interest. If Tenant is in default under this
Lease, such improvements, equipment and other personal property shall
not be removed from the Premises without the prior written consent of
Landlord. Upon any default by Tenant under this Lease, Landlord may
exercise any and all rights of a secured party under the Colorado
Uniform Commercial Code.
(ii) Tenant represents that from the expiration of the third
month of the Term of this Lease throughout the Term of this Lease,
Tenant and its parent company, Prime Response Group, Inc. ("Prime
Response Group") shall collectively maintain, at all times during the
Term of this Lease, banking deposits (the "Deposits") in federal or
state chartered United States financial institutions in an aggregate
amount of not less than One Million and No/100 Dollars ($1,000,000.00)
(the "Minimum Deposit"). Provided that Tenant timely performs all of
its obligations under this Lease arising through and including the
eighteenth (18th) month of the Term the amount of the required Minimum
Deposit shall be reduced to an aggregate amount of not less than Five
Hundred Thousand and No/100 Dollars ($500,000.00) Tenant shall provide
Landlord during the Term of the Lease within ten (10) days after
receipt of such request from Landlord, with such documentation
reasonably required by Landlord to evidence that Tenant and Prime
Response Group are maintaining the Deposits required under this
subparagraph. The Deposits shall not be pledged as collateral for
additional security hereunder; provided, however, that notwithstanding
the foregoing, it shall constitute a default under the Lease if the
Deposits fall below the Minimum Deposit at any time during the Term of
this Lease.
(n) Governing Law; Partial Invalidity. This Lease shall be governed
---------------------------------
and construed in accordance with the law of the state in which the Premises is
located. If any term, provision or condition contained in this Lease shall, to
any extent, be invalid or unenforceable, the remainder of this Lease (or the
application of such term, provision or condition to persons or circumstances
other than those in respect of which it is invalid or unenforceable) shall not
be affected thereby, and each and every other term, provision and condition of
this Lease shall be valid and enforceable to the fullest extent possible
permitted by law.
(o) Hazardous Materials. Tenant shall not store highly flammable
-------------------
materials or goods, explosives, perishable foodstuffs, contraband, live animals,
materials or goods which emit odors in or upon the Premises. The Tenant
covenants that it shall not store, use or posses nor permit the storage, use or
possession of any Hazardous Substance (hereinafter defined) upon the Premises,
except of the kind and in the quantities customarily used in commercial office
buildings provided that Tenant complies with all Environmental Laws (hereinafter
defined). Hazardous Substance for purposes of this Lease shall mean, without
25
<PAGE>
limitation, any flammable explosives, radon, radioactive materials,
asbestos, urea-formaldehyde foam insulation, polychlorinated biphenyls,
petroleum and petroleum based products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances or related materials, as
defined in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.), the
------
Hazardous Materials Transportation Act, as amended (49 U. S.C. Section
1801, et seq.), Sections 6901, et seq.), the Toxic Substances Control Act,
------ ------
as amended (15 U.S.C. Sections 2601 et seq. or any other similar law,
------
rules, regulation or statute concerning the protection of the environment
(collectively "Environment Laws"). Tenant hereby covenants and agrees, at
its sole cost and expense, to indemnify, protect and defend and save
harmless the Landlord and any of its partners, employees and agents from
and against any all damages, losses, liabilities, obligations, penalties,
claims, litigation, demands, defenses, judgments, suites, actions,
proceedings, costs, disbursements and/or expenses (including, without
limitation, attorneys' and experts' fees, expenses and disbursements) of
any kind or nature whatsoever which may at any time impose upon, incurred
by or asserted or awarded against the Landlord, its partners, agents or
employees to the extent it relates to, results from or arises out of
Tenant's failure to comply with its obligations under the foregoing
paragraph or Tenant's violation of any Environmental Law with respect to
its use of the Premises. Notwithstanding any provision contained in this
Lease to the contrary, the indemnification provisions set forth in this
paragraph shall survive any expiration and/or termination of this Lease.
27. Telephone and Telecommunications Service.
(a) Tenant acknowledges and agrees that all telephone and
telecommunications services ("Telecommunications Services") desired by
Tenant shall be ordered and utilized at the sole expense of Tenant. Unless
Landlord otherwise requests or consents in writing, all equipment,
apparatus and devices, including without limitation wiring and cables, for
the provisions of Telecommunications Services (the "Telecommunications
Equipment") shall be and remain solely in the Leased Premises. Unless
otherwise specifically agreed in writing, Landlord shall have no
responsibility for the maintenance of Tenant's Telecommunications
Equipment, nor for any wiring or other infrastructure to which Tenant's
Telecommunications Equipment may be connected. Tenant agrees that, to the
extent any Telecommunications Services are interrupted, curtailed or
discontinued, Landlord shall have no obligation or liability with respect
thereto and it shall be the sole obligation of Tenant, at its sole expense,
to obtain substitute service.
(b) Landlord shall have the right, upon such notice as is practicable
in the case of emergencies, and otherwise upon reasonable prior notice to
Tenant, to interrupt or turn off telecommunications facilities in the event
of emergency or as necessary in connection with repairs to the Building or
installation of telecommunications equipment for other tenants of the
Building.
(c) Any and all Telecommunications Equipment installed in the
Premises, or elsewhere in the Building by or on behalf of Tenant, including
wiring and other facilities for the provision of Telecommunications
Services, shall be removed by Tenant upon the expiration or earlier
termination of the Term of this Lease, by Tenant at its sole expense or, at
Landlord's election, by Landlord at Tenant's sole expense, with the cost
thereof to be paid as Additional Rent under this Lease.
(d) If the Telecommunications Equipment is not removed within thirty
(30) days of the termination or expiration of this Lease, the
Telecommunications Equipment shall conclusively be deemed to have been
abandoned and may be removed, appropriated, sold, stored, destroyed,
otherwise disposed of, or retained and used, by landlord without notice to
Tenant, without obligation to account therefor, and without payment to
Tenant or credit against any amount due from Tenant to Landlord pursuant to
this Lease. Tenant shall pay to Landlord upon demand all costs of any such
removal, disposition and storage of the Telecommunications Equipment, as
well as all costs to repair any damage to the Building caused by such
removal.
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<PAGE>
(e) In the event that Tenant wishes at any time to utilize the
services of a telephone or telecommunications provider whose equipment is
not then servicing the Building (a "New Provider"), no such New Provider
shall be permitted to install its lines or other equipment within the
Building without first securing the prior written approval of the Landlord,
which approval may be withheld in Landlord's sole and absolute discretion.
Landlord's approval shall not be deemed any kind of warranty or
representation by Landlord, including, without limitation, any warranty or
representation as to the suitability, competence or financial strength of
the New Provider. Without limitation of Landlord's right to withhold
consent in its sole and absolute discretion, Landlord may refuse to give
its approval unless all of the following conditions are satisfied: (i)
Landlord shall incur no expense whatsoever with respect to any aspect of
the New Provider's provision of its services, including, without
limitation, the costs of installation, materials and services; (ii) prior
to commencement of any work in or about the Building by the New Provider,
the New Provider shall supply Landlord with such written indemnities,
insurance, financial statements, and such other items as Landlord, in its
sole and absolute discretion, determines to be necessary to protect its
financial interests and the interests of the Building related to the
proposed activities of the New Provider; (iii) the New Provider agrees in
writing to abide by such rules and regulations, building and other codes,
job site rules and such other requirements as are determined by Landlord,
in its sole and absolute discretion, to be necessary to protect the
interest of the Building, the tenants in the Building and Landlord; (iv)
Landlord determines, in its sole and absolute discretion, that there is
sufficient space in the Building for the placement of all of the New
Provider's equipment and materials; (v) Landlord receives from the New
Provider such compensation as is determined by the Landlord, in its sole
and absolute discretion, to compensate it for space used in the Building
for the storage and maintenance of the New Provider's equipment, for the
fair market value of the New Provider's access to the Building, and any
costs which may be expected to be incurred by Landlord; and (vi) all of the
foregoing matters are documented in a written agreement between Landlord
and the New Provider, the form and content of which are satisfactory to
Landlord in its sole and absolute discretion.
(f) Notwithstanding any provision of the preceding subsection to the
contrary, the refusal of Landlord to grant its approval to any New Provider
shall not be deemed a default or breach by Landlord of its obligation under
this Lease, and in no event shall Tenant have the right to terminate this
Lease or claim entitlement to rent abatement for Landlord's refusal to
grant Tenant's request for approval of a New Provider. The provisions of
this Section 27 may be enforced solely by Tenant and Landlord and are not
for the benefit of any other party. Specifically, but without limitation,
no telephone or telecommunications provider is intended to be, nor shall be
deemed, a third party beneficiary of this Lease.
(g) Tenant shall not utilize any wireless communications equipment
(other than usual and customary cellular telephones), including antenna and
satellite receiver dishes, within the Leased Premises or the Building,
without Landlord' prior written consent. Such consent shall be granted only
in the sole and absolute discretion of the Landlord, and shall be
conditioned in such a manner, in Landlord's sole and absolute discretion,
so as to protect Landlord's financial interests and the interests of the
Building, and the other tenants therein. Notwithstanding the foregoing
provisions of this paragraph 27(g), Landlord agrees not to unreasonably
withhold its consent to Tenant's use of wireless communications equipment
for the purpose of communicating between Tenant's equipment located within
the Premises provided the use of such wireless communications equipment (i)
does not create a risk to the health and safety of Tenant's employees or
any other occupants of the Building and (ii) does not interfere with any
other tenant's use and enjoyment of their premises within the Building. In
the event Landlord determines that any wireless communications equipment
used by Tenant in the Premises which was previously consented to by
Landlord either (i) poses a risk to the health or safety of Landlord's
employees or any other occupants of the Building or (ii) interferes with
some other tenant's use of its premises. Tenant shall immediately, upon
receipt of notice from Landlord, cease the operation of such wireless
communications equipment and promptly thereafter remove the same from the
Premises.
27
<PAGE>
28. Notices. All notices to be given under this Lease shall be in writing
and delivered personally or deposited in the United States mail, certified or
registered mail with return receipt requested, postage prepaid, addressed as
follows:
If to Landlord:
Amerimar Realty Management Co.-Colorado
999 - 18th Street, Suite 1000
Denver, Colorado 80202
or to such other person or such other address designed by notice sent by
Landlord or Tenant.
If to Tenant:
At the address set forth at the beginning of this Lease,
and after occupancy of the Premises by Tenant, at the Premises, or to such other
address as is designated by Tenant in a notice to Landlord; it being agreed that
if Tenant shall vacate the Premises, notices to Tenant thereafter shall
nevertheless be properly given if addressed to Tenant at the Premises unless and
until another address is designated by Tenant by notice to Landlord.
Notice by mail shall be deemed to have been given when deposited in the
United States mail as aforesaid.
29. Time is of the Essence. Time is of the essence hereof.
IN WITNESS WHEREOF, Landlord and Tenant, intending to be legally bound
hereby, have executed this Agreement of lease as of the day and year first above
written.
LANDLORD:
DENVER-STELLAR ASSOCIATES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Amerimar Realty Management Co.-
Colorado
By: Amerimar Realty Management-
Pennsylvania, its general partner
By: ARC-Management
Company, its general
partner,
By: /s/ David G. Marshall
--------------------------------------
David G. Marshall, President
TENANT:
PRIME RESPONSE, INC., a Delaware
corporation
By: /s/ [ILLEGIBLE] CEO
----------------------------------------
Authorized Signature (Title)
28
<PAGE>
ADDENDUM
THIS ADDENDUM, made as of the 20th day of January, 1998, is between DENVER-
STELLAR ASSOCIATES LIMITED PARTNERSHIP, a Delaware limited partnership
("Landlord") and PRIME RESPONSE, INC., a Delaware corporation ("Tenant").
Landlord and Tenant have executed simultaneously with this Addendum that certain
Denver Place Office Lease (the "Lease") pertaining to certain space in the
building commonly known as Denver Place and located at 1099 Eighteenth Street,
Denver, Colorado. In the event of any conflict between the provisions of this
Addendum and the provisions of the other portions of the lease, the provisions
of this Addendum shall control. The capitalized terms used herein and not
defined herein shall have the same meanings used in the other portions of the
Lease. Landlord and Tenant hereby agree that the Lease is amended and
supplemented as follows:
30. Completion of Premises.
(a) Phase One Premises:
-------------------
(i) Landlord shall, at its own cost and expense, in a good and
workmanlike manner, cause the Phase One Premises to be improved and
completed in accordance with those certain construction drawings
prepared by burkettdesign, inc. dated December 15, 1997 and revised
December 19, 1997 consisting of pages 5AO, 5AI, 5A2, 5A3, 5A4, 5A61,
5A62, E 1.0, E2.0, E3.0, M 1.1, P 1.0 and FP 1.0 (collectively the
"Phase One Final Layout Plans") attached as Exhibit A (such work being
---------
herein called "Phase One Landlord's Work"). Landlord reserves the
right, however: [A] to make substitutions of material or components of
equivalent grade and quality when and if any specified material or
component shall not be readily or reasonably available, and [B] to
make changes necessitated by conditions met in the course
of construction, provided that Tenant's approval of any substantial
change shall first be obtained (which approval shall not be
unreasonably withheld or delayed so long as there shall be general
conformity with the substance and quality contemplated by the Phase
One Final Layout Plans). The provisions of the Workletter attached
hereto as Exhibit E are incorporated herein by this reference.
---------
(ii) If Landlord shall, for any reason (including, without
limitation, failure to complete the work, if any, required to be done
by Landlord under this Lease) fail to make available to Tenant
possession of the Phase One Premises on or before the Scheduled
Commencement Date or any other date, Landlord shall not be subject to
any liability for such failure nor for any failure to timely complete
any work. Under such circumstances, Tenant's obligations to pay Base
Rent, the Expense Adjustment Amount and Tax Adjustment Amount shall
not commence until the date Tenant is permitted to occupy the Phase
One Premises for the operation of its business by the City and County
of Denver ("Ready for Occupancy") and such failure to cause the Phase
One Premises to be made Ready for Occupancy on or before the Scheduled
Commencement Date or any other date or to timely complete any work,
shall not in any other way affect the validity or continuance of this
Lease, nor the Term or the obligations of Tenant hereunder. Such
deferral of rent shall be Tenant's sole and exclusive right and remedy
with respect to any such failure; provided, however, that in the event
the Phase One Premises are not Ready for Occupancy on or before May 1,
1998, Tenant shall have the right to terminate this Lease provided
Tenant delivers written notice to Landlord exercising such right on or
before May 10, 1998 or the date the Phase One Premises are Ready for
Occupancy, whichever occurs first. Notwithstanding the foregoing,
there shall be no deferral of rent and Tenant shall not have the right
to terminate this Lease, however, if any such failure is caused in
whole or part by any act or omission of Tenant, its agency, servants,
employees or contractors, which has the effect of hindering or
delaying Landlords' delivery of possession or the timely completion of
any work to be done by Landlord (hereinafter a "Phase One Tenant
Delay") including, without limitation, [A] any delay which is caused
by changes in the work to be performed by Landlord in readying the
Phase One Premises for Tenant's occupancy, [B] any delay, not caused
by Landlord, in
29
<PAGE>
furnishing materials or procuring labor required to be furnished or
procured for the completion of the Phase One Premises, or [C] any
delay which is caused by any failure by Tenant, without regard to any
grace period applicable thereto, promptly to furnish to Landlord any
required information, approval or consent or caused by any good faith
reluctance on the part of Landlord to approve any information required
to be submitted by Tenant and approved by Landlord, or [D] any delay
which is caused by the performance of any work or activity in the
Phase One Premises by Tenant or any of its employees, agents or
contractors. Tenant also shall pay to Landlord, within 10 days after
receipt of demand made from time to time (accompanied by documentation
evidencing such costs and expenses), a sum equal to any reasonable
additional costs and expenses incurred by Landlord in completing the
Phase One Premises resulting from any Phase One Tenant Delay.
(iii) Landlord shall provide an allowance (the "Phase One
Construction Allowance") for the payment of the costs and expenses of
completing the Phase One Landlord's Work in an amount up to One
Hundred Twenty-Eight Thousand Seven Hundred Forty and No/100 Dollars
($128,740.00). The Phase One Construction Allowance shall include but
not be limited to all architectural and engineering fees, all costs of
Phase One Landlord's Work (from slab to slab), permit fees, Landlord
supervision fee of 3% and contractor overhead costs. Tenant shall be
responsible for the payment of all Phase One Landlord's Work in excess
of the Phase One Construction Allowance (the "Excess Phase One Tenant
Costs") which excess shall be payable within thirty (30) days after
Tenant's receipt of a written request from Landlord which request
shall be accompanied by a calculation of the Phase One Excess Tenant
Costs in reasonable detail. If the cost of completing the Phase One
Landlord's Work is less than Phase One Construction Allowance, the
portion of the Phase One Construction Allowance not used (the "Phase
One Construction Allowance Remainder") shall be paid, at Landlord's
sole discretion, in one of the following manners: [A] the entire Phase
One Construction Allowance Remainder shall be paid directly to Tenant
on or before the last day of the fifteenth (15th) month of the Term of
the Lease, or [B] Tenant shall receive a credit upon the monthly Base
Rent payable by Tenant in accordance with the provisions of Paragraph
2 in an amount equal to the quotient of the amount of the Phase One
Construction Allowance Remainder divided by sixty-six (66) (66 being
the number of months in the Term).
(b) Phase Two Premises:
-------------------
(i) Landlord has heretofore delivered to Tenant for use of
such plans and other information with respect to the Phase Two
Premises and the Building as Tenant may reasonably require for the
proper and expeditious preparation of Tenant's plans and
specifications for the improvement of the Phase Two Premises.
(ii) Tenant shall cause its architect and M-E Engineering to
prepare and, not later than February 6, 1998, shall deliver to
Landlord complete construction drawings of Tenant's desired
improvements to the Phase Two Premises signed and sealed by Tenant's
architect including one mylar and two black line copies (which shall
be 1/8" scale) together with a non-copyrighted CADD disc (collectively
"Phase Two Premises Plans"). Landlord shall have until the expiration
of six (6) business days after its receipt of the Phase Two Premises
Plans to either approve such plans or to make reasonable modifications
thereto, and the Phase Two Premises Plans shall be deemed modified to
take account of any changes timely and reasonably required by
Landlord.
(iii) Landlord shall, at its own cost and expense, in a good and
workmanlike manner, cause the Phase Two Premises Plans to be improved
and completed in accordance with the Phase Two Premise Plans (such
work being herein called "Phase Two Landlord's Work"). Landlord
reserves the right, however: [A] to make substitutions of material or
components of equivalent grade and quality when and if any specified
material or component shall not be readily or reasonably available,
and, [B] to make changes necessitated by conditions met in the course
of construction,
30
<PAGE>
provided that Tenant's approval of any substantial change shall first
be obtained (which approval shall not be unreasonably withheld or
delayed so long as there shall be general conformity with the
substance and quality contemplated by the Phase Two Premises Plans).
Landlord shall use reasonable efforts to cause the Phase Two Premises
to be Ready for Occupancy on or before June 1, 1998 (the "Phase Two
Scheduled Commencement Date").
(iv) If Landlord shall, for any reason (including, without
limitation, failure to complete the Phase Two Landlord's Work) fail to
make available to Tenant possession of the Phase Two Premises on or
before the Phase Two Scheduled Commencement Date or any other date,
Landlord shall not be subject to any liability for such failure nor
for any failure to timely complete any work. Under such circumstances,
Tenant's obligations to pay Base Rent, the Expense Adjustment Amount
and Tax Adjustment Amount with respect to the Phase Two Premises shall
not commence until the date the Phase Two Premises are Ready for
Occupancy and such failure to cause the Phase Two Premises to be made
Ready for Occupancy on or before the Phase Two Scheduled Commencement
Date or any other date or to timely complete any work, shall not in
any other way affect the validity or continuance of this Lease, nor
the Term or the obligations of Tenant hereunder. Such deferral of rent
shall be Tenant's sole and exclusive right and remedy with respect to
any such failure. Notwithstanding the foregoing, there shall be no
deferral of rent and Tenant, however, if any such failure is caused in
whole or part by any act or omission of Tenant, its agents, servants,
employees or contractors, which has the effect of hindering or
delaying Landlord's delivery of possession or the timely completion of
any work to be done by Landlord (hereinafter a "Phase Two Tenant
Delay") including, without limitation, [A] any delay which is caused
by Tenant's failure to deliver the Phase Two Premises Plans to
Landlord on or before February 6, 1998, [B] any delay which is caused
by changes in the work to be performed by Landlord in readying the
Phase Two Premises for Tenant's occupancy, [C] any delay, not caused
by Landlord, in furnishing materials or procuring labor required to be
furnished or procured for the completion of the Phase Two Premises, or
[D] any delay which is caused by any failure by Tenant, without regard
to any grace period applicable thereto, promptly to furnish to
Landlord any required information, approval or consent or caused by
any good faith reluctance on the part of Landlord to approve any
information required to be submitted by Tenant and approved by
Landlord, or [E] any delay which is caused by the performance of any
work or activity in the Phase Two Premises by Tenant or any of its
employees, agents or contractors. Tenant also shall pay to Landlord,
within 10 days after receipt of demand made from time to time
(accompanied by documentation evidencing such costs and expenses), a
sum equal to any reasonable additional costs and expenses incurred by
Landlord in completing the Phase Two Premises resulting from any Phase
Two Tenant Delay.
(v) Landlord shall provide an allowance (the "Phase Two
Construction Allowance") for the payment of the costs and expenses of
completing the Phase Two Landlord's Work in an amount up to Thirty-Two
Thousand Eight Hundred Eighty-Six and No/100 Dollars ($32,886.00). The
Phase Two Construction Allowance shall include but not be limited to
all architectural and engineering fees, all costs of Phase Two
Landlord's Work (from slab to slab), permit fees, Landlord supervision
fee of 3% and contractor overhead costs. Tenant shall be responsible
for the payment of all Phase Two Landlord's Work in excess of the
Phase Two Construction Allowance (the "Excess Phase Two Tenant Costs")
which excess shall be payable within thirty (30) days after Tenant's
receipt of a written request from Landlord which request shall be
accompanied by a calculation of the Phase Two Excess Tenant Costs in
reasonable detail. If the cost of completing the Phase Two Landlord's
Work is less than Phase Two Construction Allowance, the portion of the
Phase Two Construction Allowance not used (the "Phase Two Construction
Allowance Remainder") shall be paid, at Landlord's sole discretion, in
one of the following manners: [A] the entire Phase Two Construction
Allowance Remainder shall be paid directly to Tenant on or before the
last day of the fifteenth (15th) month of the Term of the Lease, or
[B] Tenant shall receive a credit upon the monthly Base Rent payable
by Tenant in accordance with
31
<PAGE>
the provisions of Paragraph 2 in an amount equal to the quotient of
the amount of the Phase Two Construction Allowance Remainder divided
by sixty-six (66) (66 being the number of months in the Term).
31. Renewal Option.
(a) Tenant shall have the option to renew ("Renewal Option") the term
of the Lease for one (1) additional term of five (5) years ("Renewal Term")
on the condition that Tenant is not in default under this Lease at the
time Tenant gives notice of exercise of its renewal option or at the time
of commencement of the renewal term. Such renewal shall be on all of the
terms, covenants and conditions of this Lease, except: (i) Tenant shall not
have any right to further renewal beyond such additional five-year term;
and (ii) the annual Base Rent for the Premises for the Renewal Term shall
be the Fair Market Rental Rate ("FMRR") as defined in paragraph 31 (b)
below; provided, however, in no event shall the Base Rent payable during
the Renewal Term be less than $18.00 per square foot of rentable area
comprising the Premises. Tenant's Renewal Option shall be exercised only
by Tenant giving Landlord six (6) months prior written notice of Tenant's
election to renew, time being of the essence with respect to such notice.
As of the date the Renewal Term begins, this Lease shall be deemed modified
in the manner set forth above, without the necessity of any further
agreement or document; provided, however, that either party to this Lease
shall, upon request of the other party, execute, acknowledge, and deliver
an instrument evidencing such renewal and modification of this Lease.
(b) Fair Market Rental Rate.
------------------------
(i) For the purposes of this Lease, the term "Fair Market
Rental Rate" or "FMRR" shall mean an amount per square foot of the
rentable area of the Premises per annum, reasonably determined by
Landlord by reference to the market for comparable space (including
the extent and condition of the build-out) in the Comparable
Buildings, that a willing landlord would offer and a willing tenant
would accept in an arms length transaction for the lease of such
office space
[A] commencing on the commencement date of the Renewal
Term,
[B] providing for no free rent, a tenant finish allowance
equal to the value of the tenant improvements in place upon the
Premises to a prospective tenant as of the commencement date of
the Renewal Term, and
[C] otherwise on all of the terms and conditions of this
Lease, including the Tenant's obligation to pay the Expense
Adjustment Amount and Tax Adjustment Amount in accordance with
the provisions of Paragraph 4 using an Operating Expense Base
Amount in the amount of $5.54 per rentable square foot per
rentable and a Tax Base Amount of $ 1.11 per rentable square foot
per annum.
(ii) Landlord shall deliver to Tenant its proposed FMRR for the
Renewal Term within thirty (30) days after Landlord's receipt of
notice of Tenant's election to exercise the Renewal Option ("Renewal
Notice"). Landlord and Tenant shall use reasonable good faith efforts
to mutually agree upon the FMRR within sixty (60) days after Tenant's
delivery of the Renewal Notice.
(iii) In the event Landlord and Tenant cannot agree upon the
FMRR for the Renewal Term within the sixty (60) days after Tenant's
delivery of the Renewal Notice the FMRR shall be determined by
appraisal, said appraisal shall be conducted in accordance with the
following procedures:
[A] Within twenty (20) days after receipt of a notice to
appraise given by either party, Landlord and Tenant shall each
select a real estate appraiser, who shall be a member of the
American Institute of Real Estate Appraisers, and who shall have
at least five (5) years appraisal experience with
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respect to commercial and office rental properties in the
central business district of Denver, Colorado . If one of the
parties hereto fails to appoint an appraiser within the time
period prescribed, then the single appraiser appointed shall be
the sole appraiser and shall determine the FMRR at issue. If two
appraisers are appointed, they shall have thirty (30) days from
the date the second appraiser is appointed (the "30-day Appraisal
Period") within which to agree upon the FMMR at issue. The
appraiser(s) shall be advised that the determination of the FMRR
at issue shall be governed by the definitions of same set forth
in this Lease. The determination by the two appraisers of the
FMRR at issue shall be binding on Landlord and Tenant.
[B] the two appraisers appointed by the parties hereto
are unable to agree upon the FMRR at issue within the 30-day
Appraisal Period, then said appraisers shall attempt within ten
(10) days after the expiration of the 30-day Appraisal Period, to
elect a third appraiser (the "Third Appraiser"). If the first two
appraisers are unable to agree on the Third Appraiser within the
ten (10) day period prescribed in the immediately preceding
sentence, either Landlord or Tenant, by giving ten (10) days
notice to the other party hereto, shall request that the
presiding judge of the District Court for the City and County of
Denver, State of Colorado select the Third Appraiser. The Third
Appraiser, however, selected, shall meet the qualifications set
forth in subparagraph 31 (b)(ii)[A] above, and shall be a person
who has not previously acted in any capacity for either Landlord
or Tenant.
[C] On or before the tenth (10th) day after the Third
Appraiser is appointed or selected, the first two appraisers
shall each simultaneously submit in sealed envelopes his/her
opinion of the fair market base rent at issue, together with any
written arguments or data in support of said opinion(s), to the
Third Appraiser. Within thirty (30) days after he/she is
appointed or selected, the Third Appraiser shall determine the
FMRR at issue by selecting one of the opinions submitted by the
first two appraisers. The selection of the Third Appraiser shall
be binding on Landlord and Tenant.
[D] Each party hereto shall pay the fees and expenses of
the appraiser selected by such party, and the fees and expenses
of the Third Appraiser shall be borne equally by Landlord and
Tenant.
32. Expansion Option.
(a) Landlord hereby grants Tenant an option (the "Expansion Option")
to lease approximately 3,301 rentable square feet of office space (the
"Expansion Space") located on the fifth (5/th/) floor of the Building, as
reflected on Exhibit A-1 attached hereto and made a part hereof, subject to
-----------
and upon the terms and provisions of this Paragraph 32. Tenant shall
exercise the Expansion Option if at all, prior to June 30, 1999, by giving
Landlord written notice ("Expansion Notice") of exercise prior to June 30,
1999. If the Expansion Notice is not received by Landlord prior to June
30, 1999, Tenant shall be deemed to have declined to exercise the Expansion
Option and the Expansion Option shall be of no further force or effect.
Tenant's Expansion Notice shall specify the date on which Tenant desires to
occupy the Expansion Space which date shall not be less than one (1) month
nor more than three (3) months from the date of Tenant's notice. If no
date is specified in the Expansion Notice, it shall be deemed that Tenant
desires to occupy the Expansion Space at the earliest date possible.
Notwithstanding the forgoing, the Tenant shall have no right to exercise
the Expansion Option if Tenant is in default under this Lease (after the
expiration of any applicable cure period) at any time when it attempts to
exercise the Expansion Option or at any time thereafter until the Expansion
Space has been added to the Premises.
(b) Upon the notice referred to in paragraph 32(a) above being given
and within such time as Landlord reasonably determines is necessary to
complete the Expansion Space for occupancy by no later than the date
specified in Tenant's notice of exercise, Landlord
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<PAGE>
shall cause the Expansion Space to be improved and completed in a manner
comparable to the original completion of the initial Premises (the
"Landlord's Expansion Space Work").
(c) Landlord shall provide an allowance (the "Expansion Space
Construction Allowance") for the payment of the costs and expenses of
completing the Landlord's Expansion Space Work in an amount up to Sixty
Thousand Six Hundred Eighteen and No/100 Dollars ($60,618.00). The
Expansion Space Construction Allowance shall include but not be limited to
all architectural and engineering fees, all costs of Landlord's Expansion
Space Work (from slab to slab), permit fees, Landlord supervision fee of 3%
and contractor overhead costs. Tenant shall be responsible for the payment
of all Landlord's Expansion Space Work in excess of the Expansion Space
Construction Allowance (the "Excess Expansion Space Tenant Costs") which
excess shall be payable within thirty (30) days after Tenant's receipt of a
written request from Landlord which request shall be accompanied by a
calculation of the Excess Expansion Space Tenant Costs in reasonable
detail. If the cost of completing the Landlord's Expansion Space Work is
less than Expansion Space Construction Allowance, the portion of the
Expansion Space Construction Allowance not used shall be paid by Landlord
to Tenant on or before the later of the (i) last day of the fifteenth
(15/th/) month of the Term of the Lease, and (ii) the ninetieth (90th) day
after the Expansion Space has been added to the Premises.
(d) The Expansion Space shall be added to the Premises, for all
purposes, as of the date such space is completed for Tenant's occupancy,
but not earlier than the date, if any, specified in the Expansion Notice as
the date the Expansion Space is ready for Tenant's occupancy, for the
balance of the Term of this Lease and subject to and upon the following
economic terms and all of the other terms, covenants and conditions of this
Lease, provided that the Base Rent for the Expansion Space shall be as
follows:
Base Rent Per Square
Period Foot of Rentable Area
------ ---------------------
For Months 1-24 of the Term: $52,815.96 per annum/$4,401.33 per
month (based on $16.00 per square
foot of rentable area per annum)
For Months 25-36 of the Term: $56,117.04 per annum/$4,676.42 per
month (based on $17.00 per square
foot of rentable area per annum)
For Months 37-66 of the Term: $59,418.00 per annum/$4,951.50 per
month (based on $18.00 per square
foot of rentable area per annum)
The annual Base Rent shall be payable in equal monthly installments, in
advance, on the first day of each month, without any demand or setoff.
Tenant's Proportionate Share shall be increased to 2.254% calculated by
dividing 11,565 square feet, the rentable area of the Premises (including
the Expansion Space), by 512,995 square feet. Upon addition of the
Expansion Space to the Premises, this Lease shall be deemed modified in the
manner set forth above without the necessity of any further agreement or
document; provided, however, that either party shall, upon request of the
other party, execute, acknowledge and deliver an instrument evidencing such
modification of this Lease.
33. Right of First Offer. Upon and subject to all the terms and
conditions set forth in this Paragraph 33, Landlord hereby grants to Tenant is a
right of first offer (the "Right of First Offer") pertaining to the office space
located upon the fifth (5th) floor of the Building which is not part of the
original Premises, the Expansion Space and which may become available from time
to time for lease during the Term of the Lease (the "Offer Space"). The Right
of First Offer shall be on the following terms and conditions:
(a) If Landlord shall desire to lease all or any portion of the Offer
Space, as evidenced by the initiation of formal negotiations with or the
issuance of a proposal to a third
34
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party by or on behalf of Landlord covering any portion of the Offer Space,
or Landlord's acceptance of a proposal from a third party, Landlord shall
first offer to lease such part of the Offer Space (the "Designated Offer
Space") to Tenant, by giving written notice to Tenant. Such notice shall
specify the date on which the Designated Offer Space is expected to be
available for Tenant's lease (the "Scheduled Designated Offer Space
Commencement Date"). Within five (5) business days after Landlord gives
Tenant such notice, Tenant shall, by written notice to Landlord (the "Offer
Notice"), elect or decline to exercise its Right of First Offer. If Tenant
fails to deliver the Offer Notice to Landlord within such period of five
(5) business days, Tenant shall be deemed to have declined to exercise its
Right of First Offer. If Tenant declines or is deemed to have declined to
exercise its Right of First Offer, Landlord thereafter shall have the right
to lease such Designated Offer Space to any party upon such terms and
conditions and for such period or successive period of time as Landlord, in
its sole discretion, shall determine. Notwithstanding the foregoing, Tenant
shall have no right to exercise the Right of First Offer (and, at
Landlord's option, any previous exercise of the Right of First Offer shall
be null and void) if at the time Tenant first attempts to exercise the
Right of First Offer, or at any time thereafter until the Designated Offer
Space has been added to the Premises, Tenant is in default under this
Lease.
(b) In the event Tenant exercises the Right of First Offer, Tenant
shall deliver to Landlord the Tenant's proposed layout plans and
specifications for such Designated Offer Space within ten (10) business
days after delivery of the Offer Notice. Upon the Offer Notice being given
and within such time as Landlord reasonably determines is necessary to
complete such Designated Offer Space for occupancy, Landlord shall cause
such Designated Offer Space to be improved and completed in a manner
consistent with the Tenant's layout plans and specifications for such
Designated Offer Space (the "Designated Offer Space Improvements"). The
"Commencement Date" with respect to the Designated Offer Space ("Designated
Offer Space Commencement Date") shall be deemed to be that date which is
the later of the Scheduled Designated Offer Space Commencement Date or the
first business day after the substantial completion of the Designated Offer
Space Improvements.
(c) The Designated Offer Space shall be added to the Premises, for
all purposes, as of the Designated Offer Space Commencement Date for the
balance of the Term of this Lease and subject to and upon the following
economic terms and all of the other terms, covenants and conditions of this
Lease, except that:
(i) the annual Base Rent for the Designated Offer Space shall
be at the prevailing market rates for office space in the Building
comparable to the Designated Offer Space at the time of the Designated
Offer Space Commencement Date; provided, however, in no event shall
the Base Rent for the Designated Offer Space be less than the Base
Rent provided for the Expansion Space in paragraph 32(c) above on a
per square foot of rentable area basis.
(ii) Tenant's Proportionate Share shall be increased to a new
percentage, calculated in accordance with the provisions of Paragraph
4 above by increasing the rentable area of the Premises by the number
of square feet comprising the rentable area of the Designated Offer
Space. Tenant's obligation to pay Base Rent, Expense Adjustment Amount
and Tax Adjustment Amounts for the Designated Offer Space shall
commence on the Designated Offer Space Commencement Date. Upon
addition of the Designated Offer Space to the Premises, the Lease
shall be deemed modified in the manner set forth above without the
necessity of any further agreement or document; provided, however,
Landlord and Tenant agree to execute, acknowledge and deliver an
instrument evidencing such modification of the Lease to be prepared by
Landlord.
34. Parking. Tenant shall have the right to rent up to ten (10) parking
spaces in accordance with the provisions of Exhibit D attached hereto and
---------
incorporated herein by this reference.
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<PAGE>
All of the terms and provisions of the Lease, as herein amended and
supplemented, are hereby ratified and confirmed, and shall remain in full force
and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be duly
executed as of the day and year first above written.
LANDLORD:
DENVER-STELLAR ASSOCIATES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Amerimar Realty Management Co.-
Colorado
By: Amerimar Realty Management-
Pennsylvania, its general partner
By: /s/ David G. Marshall
-----------------------------------------
David G. Marshall, President
TENANT:
PRIME RESPONSE, INC., a Delaware
corporation
By: /s/ Robert Fetter CEO
-----------------------------------------
Authorized Signature (Title)
36
<PAGE>
EXHIBIT B
---------
RULES AND REGULATIONS
Rules and Regulations, to Lease between DENVER-STELLAR ASSOCIATES LIMITED
PARTNERSHIP, a Delaware limited partnership, as Landlord ("Landlord") and PRIME
RESPONSE, INC., a Delaware corporation as tenant ("Tenant"), pertaining to
certain space in Denver Place Plaza Tower, 1099 18th Street, Denver, Colorado
80202.
(a) Any sign, lettering, picture, notice, or advertisement installed
within Tenant's Premises which is visible to the public from within the
Building shall be installed at Tenant's cost and in such manner, character
and style as Landlord may approve in writing. No sign, lettering, picture,
notice or advertisement shall be placed on any outside window or in any
position so as to be visible from outside the Building.
(b) The use of the name of the Building or of pictures or
illustrations of the Building in advertising or other publicity, without
prior written consent of Landlord, is prohibited.
(c) Tenant, its subtenants and its and their customers, invitees,
licensees, and guests
(i) shall not obstruct and shall not use for any purpose other
than ingress and egress, the sidewalks, entrances, passages, courts,
corridors, vestibules, halls, elevators and stairways in and about the
Building;
(ii) shall not place objects against glass partitions or doors
or windows or adjacent to any open common space which would be
unsightly from the Building corridors or from the exterior of the
Building, and will promptly remove the same upon notice from Landlord;
(iii) shall not make noises, cause disturbances, create
vibrations, odors or noxious fumes or use or operate any electrical or
electronic devices or other devices that emit sound waves or are
dangerous to other tenants and occupants of the Building or that would
interfere with the operation of any device or equipment or radio or
television broadcasting or reception from or within the Building or
elsewhere, and shall not place or install any projections, antennae,
aerials or similar devices inside or outside of the Premises;
(iv) shall not make any room-to-room canvass to solicit business
from other tenants in the Building, and shall not exhibit, sell or
offer to sell, use, rent or exchange any item or services in or from
the Premises unless ordinarily embraced within the Tenant's use of the
Premises as specified in its lease;
(v) shall refrain from attempting to adjust any controls;
(vi) shall not waste, and shall not suffer or permit to be
wasted, electricity or water and shall cooperate fully with Landlord
to assure the most effective operation of the Building's heating and
air conditioning;
(vii) shall keep public corridor doors closed;
(viii) shall neither install nor operate machinery or any
mechanical devices of a nature not directly related to Tenant's
ordinary use of the Premises without the written permission of the
Landlord;
(ix) shall not use rest rooms or water fixtures for any purpose
other than that for which they are designed;
37
<PAGE>
(x) shall not mark upon, paint, cut, drill into, drive nails or
screws into, or in any way deface the walls, ceiling partitions
or floors of the leased Premises or of the Building;
(xi) shall not unduly obstruct any pipes, conduits and ducts in
the Premises; and
(xii) shall use chair pads, to be furnished by Tenant, under all
rolling and ordinary desk chairs in the carpeted areas.
(d) Tenant assumes full responsibility for protecting its space from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed and secured.
(e) Peddlers, solicitors and beggars shall be reported to the office
of the Building or as Landlord otherwise requests.
(f) No person or contractor not employed by Landlord shall be used to
perform window washing, cleaning, or other work in the Premises.
(g) Unless Landlord so consents, Tenant shall not, and Tenant shall.
not permit or suffer anyone to:
(i) Cook in the premises;
(ii) Place vending or dispensing machines of any kind in the
Premises; or
(iii) At any time sell, purchase or give away, or permit the
sale, purchase or gift of, food in any form.
(iv) Use the Premises for lodging or for any immoral or illegal
purposes.
(v) Use the Premises to engage in the manufacture or sale of,
or permit the use of, any spirituous, fermented, intoxicating or
alcoholic beverages on the Premises.
(vi) Use the Premises to engage in the manufacture or sale of,
or permit the use of, any illegal drugs.
(h) No furniture shall be placed in front of the building or in any
lobby or corridor, without the prior written consent of Landlord. Landlord
shall have the right to remove all non-permitted signs and furniture,
without notice to Tenant, at Tenant's expense.
(i) No animals are allowed in the Building.
(j) No lock or other security device shall be placed by Tenant on any
door in the Building without the Building manager being kept furnished with
two of the keys, cards or other means of access therefore. At the
termination of its tenancy, Tenant shall promptly deliver to Landlord all
keys, entry cards and other means of access to offices, rest rooms and
vaults.
(k) The use of oil, gas or inflammable liquids for heating, lighting,
or any other purpose is expressly prohibited. Explosives or other
hazardous articles shall not be brought into the Building.
(l) Electric floor space heaters, humidifiers or A/C fans are not
permitted.
(m) Landlord shall have the right to approve or disapprove the movers
or moving company employed by Tenant. Tenant shall cause said movers to
use only the loading facilities and elevator designated by Landlord. In
the event Tenant's movers damage the elevator or any part of the Building,
Tenant shall forthwith pay to Landlord the amount required to repair said
damage.
38
<PAGE>
(n) If any Tenant desires telegraphic, telephonic, computer or other
electric connections, Landlord, or its agents, will direct the electricians
as to where and how the wires may be introduced, and without such
directions, no boring or cutting for wires will be permitted. Any such
installation and connection shall be made at Tenant's expenses, and, at
Landlord's option, shall be removed at Tenant's expense at the expiration
or termination of its Lease.
(o) Except for the following smoking areas specifically designated by
Landlord, the outdoor Plaza level of 1099 - 18th Street, the outdoor areas
at the corner of 18th and Champa and 19th and Curtis and the Smoke Haus in
the mall, all common areas of the building, including all sidewalks,
entries, passages, stairways, elevators, restrooms, lobbies and hallways,
shall be non-smoking areas. Tenant shall be responsible to prevent its
employees, agents, visitors, customers and guests from smoking in such
common areas.
(p) During the normal office hours of 6:00 a.m. to 6:00 p.m., Monday
through Friday, Tenant and its employees and agents shall observe the
building dress code, which requires a neat and clean appearance and
prohibits the wearing of cutoffs and ragged, torn, ripped, rent or holey
apparel.
(q) The Landlord reserves the right to modify and make such other and
further reasonable rules and regulations as in its judgment may, from time
to time, be needful and desirable for the safety, security, care and
cleanliness of the Premises and preservation of good order and therein.
39
<PAGE>
EXHIBIT C
---------
LEASE TERM AGREEMENT
THIS AGREEMENT, made as of the 20th day of January, 1998, between DENVER-
STELLAR ASSOCIATES LIMITED PARTNERSHIP, a Delaware limited partnership
(hereinafter referred to as "Landlord") and PRIME RESPONSE, INC., a Delaware
corporation (hereinafter referred to as "Tenant").
WITNESSETH
WHEREAS, by Lease (hereinafter called "Lease") made as of the 20th day of
January, 1 1998, Landlord leased unto Tenant certain premises known as Suite
Number 500, located at 1099 Eighteenth Street, Denver, Colorado, for a term of
five (5) years, three (3) months and zero (0) days commencing on June 1, 1998,
unless sooner terminated or extended as provided therein, and
WHEREAS, Landlord and Tenant now desire to set forth the correct
Commencement Date of the term and to adjust the Expiration Date of the Term to
provide for a full term of the Lease of _________ years, _______ months and
_________ days.
NOW, THEREFORE, Landlord and Tenant do hereby agree as follows:
1. The Term of the Lease commenced __________ 1998, and shall continue
until _____________, 2002 unless sooner terminated or extended as
provided therein.
2. Except as hereby amended, the Lease shall continue in full force and
effect.
3. This Agreement shall be binding on the parties hereto, their heirs,
executors, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LANDLORD:
DENVER-STELLAR ASSOCIATES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Amerimar Realty Management Co.-
Colorado
By: Amerimar Realty Management-
Pennsylvania, its general partner
By: ARC-Management
Company, its general
partner
By: /s/ David G. Marshall
------------------------------------
David G. Marshall, President
TENANT:
PRIME RESPONSE, INC., a Delaware
corporation
By: /s/ Robert Fetter CEO
------------------------------------
Authorized Signature (Title)
40
<PAGE>
EXHIBIT D
---------
PARKING AGREEMENT
DENVER-STELLAR ASSOCIATES LIMITED PARTNERSHIP, a Delaware limited
partnership a Landlord, and PRIME RESPONSE, INC., a Delaware corporation, as
Tenant, have executed simultaneously with this Agreement a Lease (hereinafter
called "Lease") pertaining to certain space at 1099 Eighteenth Street to be
occupied by Tenant. In consideration of die mutual covenants herein contained,
Landlord and Tenant further agree as follows:
The Building in which the Premises are located contains a parking
garage for the benefit of Tenants and the general public (hereinafter called
"Parking Garage"), and Landlord's affiliate owns that commercial office complex
known as Denver Place located at 999 - 18th Street which contains a parking
garage for the benefit of tenants and the general public (the "Complex Parking
Garage"). Landlord and its affiliates do not operate or manage the Parking
Garage and Complex Parking Garage, respectively, but maintain a management
agreement with an independent contractor (hereinafter called "Operator") for the
management and operation of the Parking Garage and Complex Parking Garage. In
order to rent parking spaces in the Parking Garage or Complex Parking Garage,
Tenant must contract separately with the Operator for such rentals. Landlord
shall make available for Tenant and Tenant shall have a non-assignable option to
rent from the Operator up to ten (10) unreserved parking spaces located, at
Landlord's election, in either the Parking Garage or Complex Parking Garage
beginning April 1, 1998 at the monthly rates announced from time to time
throughout the Term of the Lease by the Operator. Tenant must exercise its
option to take such parking spaces by delivery of not less than thirty (30)
days' prior written notice to Landlord on or before May 31, 1998 or Tenant's
right to lease the parking spaces will expire. In the event Tenant does not
exercise its Expansion Option in accordance with Paragraph 32 of the Lease,
Landlord shall have die option to terminate Tenant's right to lease four (4) of
the ten (10) parking spaces at any time thereafter upon thirty (30) days'
written notice to Tenant.
The terms and conditions of Tenant's rental shall be governed and
fixed solely by the rental agreement between Tenant and Operator, however,
Tenant's failure to comply with any term of any such rental agreement shall
constitute a default under the Lease. In the event that Tenant chooses to rent
parking spaces from the Operator as provided for herein, Tenant shall be
responsible for payment to the Operator of a refundable security deposit for
each parking card issued by the Operator in connection with Tenant's rental of
the parking spaces (the "Security Deposit"). The Security Deposit shall be in an
amount to be determined by the Operator in its sole discretion. Notwithstanding
anything in this Agreement or the Lease to the contrary, in no event shall
Landlord be responsible for payment of the Security Deposit to the Operator on
behalf of Tenant. Payment and refund of the Security Deposit shall be governed
and fixed solely by the rental agreement between Tenant and Operator. Landlord's
holding of parking spaces shall not constitute any assumption of and Tenant
hereby releases Landlord from any and all liability with respect to such
rentals, and any and all damage, loss or injury with respect to such rentals
shall be at the sole risk of Tenant unless otherwise provided by Operator under
the rental agreement.
The provisions of this Agreement supplement but are subject to all
provisions of the Lease. Capitalized terms not otherwise defined in this
Agreement have the same meaning as the same terms have in the Lease.
LANDLORD:
DENVER-STELLAR ASSOCIATES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Amerimar Realty Management Co.- Colorado
By: Amerimar Realty Management-
Pennsylvania, its general partner
By: ARC-Management Company,
its general partner
By: /s/ David G. Marshall
-----------------------------------------
David G. Marshall, President
TENANT:
PRIME RESPONSE, INC., a Delaware corporation
By: /s/ Robert Fetter CEO
----------------------------------------
41
<PAGE>
EXHIBIT E
---------
WORKLETTER
1. Tenant Inspection. Tenant shall be permitted to designate a representative
-----------------
to make periodic inspections of the Premise during construction during
reasonable business hours, provided such representative is accompanied by a
representative of Landlord which representative shall be reasonably
available to accompany Tenant's representative.
2. Acceptance of Premises. Upon the Substantial Completion (as hereinafter
----------------------
defined) of the Landlord's Work, Tenant, Landlord, Landlord's architect and
Landlord's contractor shall make an inspection of the Premises to determine
that the construction and installation of the Landlord's Work has been
completed in accordance with Filial Layout Plans and to prepare a "Punch
List" of work requiring correction or completion by Landlord. Subject to
Unavoidable Delays, Landlord shall correct or complete all "Punch List"
items within sixty (60) days after the inspection. The term "Unavoidable
Delays" means delays caused by strikes, acts of God, lockouts, riots,
explosions, sabotage accident governmental restrictions, enemy action,
civil commotion, fire or other casualty or similar causes beyond the
reasonable control of Landlord.
3. Access. It is understood that Landlord and Landlord's contractors will
------
cooperate with Tenant's cabling, phone and moving contractors and other
vendors, including early access before the Commencement Date as long as
such access does not interfere with the completion of Landlord's Work.
4. Substantial Completion. Substantial Completion shall mean (i) except for
----------------------
minor items which shall not prevent Tenant from making use of the Premises
as described under the terms of the Lease, the Premises have been improved
by Landlord in substantial conformity with the Filial Layout Plans, (ii)
any remaining work to be finished as identified in the Punch List can be
completed without significant interference to the conduct of Tenant's
business in the Premises, and (iii) all necessary governmental approvals
and permits required for Tenant's occupancy of the Premises have been
obtained.
42
<PAGE>
COMMENCEMENT AGREEMENT
EXPANSION SPACE
THIS AGREEMENT, made of the 15th day of October, 1998, between Amerimar
Realty Management Co.-Colorado, as agent for DENVER-STELLAR ASSOCIATES LIMITED
PARTNERSHIP, a Delaware limited partnership (hereinafter referred to as
"Landlord") and PRIME RESPONSE, INC., (hereinafter referred to as "Tenant") now
desire to set forth the correct Commencement Date for the 3,301 rentable square
feet of expansion space as follows:
The Term for the 30,301 rentable square feet commenced on September 24,
1998, and shall continue until December 31, 2003, unless sooner terminated
or extended as provided for in the Lease.
Please indicate your acceptance of this agreement by signing two copies of the
Commencement Agreement and returning them to Landlord.
TENANT:
PRIME RESPONSE, INC.
By: /s/ Cathy Lewis
-----------------------------------------
Cathy Lewis
Date; 10/21/98 Vice President of Finance
-----------------------
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is made and entered
into this 22/nd/ day of June, 1998, by and between DENVER-STELLAR ASSOCIATES
LIMITED PARTNERSHIP, a Delaware limited partnership (hereinafter called
"Landlord") and PRIME RESPONSE, INC. a Delaware corporation, (hereinafter called
"Tenant").
R E C I T A L S
A. Landlord and Tenant entered into that certain Denver Place Office
Lease dated January 20, 1998 (the "Original Lease"), pursuant to which Tenant
leased approximately 8,264 square feet of rentable area on the fifth (5/th/) for
(the "Original Premises'), known as Suite 500, of the office building known as
Denver Place Plaza Tower, located at 1099 18th Street, Denver, Colorado (the
"Building").
B. Tenant has requested and Landlord has agreed to lease to Tenant an
additional 3,301 rentable square feet of area on the fifth (5/th/) floor of the
Building.
C. Landlord and Tenant are the sole parties in interest under the Lease.
D. Landlord and Tenant now desire to amend the Lease in the manner and
form set forth herein.
A G R E E M E N T
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, Landlord and Tenant hereby amend the Lease as follows:
1. First Added Premises. Effective September 1, 1998, or the date upon
which the Landlord notifies the Tenant that the expansion space (defined below)
is ready for occupancy, whichever first occurs (the "First Added Premises
Commencement Date") that certain space on the 5th floor of the Plaza Tower of
the Building, containing approximately 3,301 square feet of rentable area and
designated as the first added premises (the "First Added Premises"), as shown on
the floor plan attached as Exhibit A-1, shall be added to the Premises for the
-----------
balance of the Term, upon and subject to all of the terms, covenants and
conditions of the Lease, except as outlined in this First Amendment. Landlord
and Tenant agree that the area of the Original Premises and First Added Premises
is 11,565 rentable square feet.
2. Rent. Effective the First Added Premises Commencement Date, Tenant
shall pay to Landlord the following Base Rent:
(a) From July 1, 1998 through First Added Premises Commencement Date:
Original Premises: $132,224.04 per annum/$11,018.67 per month
(b) From First Added Premises Commencement Date through June 30, 2000:
Original Premises: $132,224.04 per annum/$11,018.67 per month
First Added Premises: $52,815.96 per annum/$4,401.33 per month
<PAGE>
(c) From July 1, 2000 through June 30, 2001:
Original Premises: $140,487.36 per annum/$11,707.28 per month
First Added Premises: $56,117.04 per annum/$4,676.42 per month
(d) From July 1, 2001 through December 31, 2003:
Original Premises: $148,752.00 per annum/$12,396.00 per month
First Added Premises: $59,418.00 per annum/$4,951.50 per month
3. Additional Rent. In addition to paying the Base Rent specified in
Paragraph 2 above, from the First Added Premises Commencement Date through and
including the Expiration Date, Tenant shall pay as additional rent the amounts
determined in accordance with the provisions of Paragraph 4 of the Lease,
provided that Tenant's Proportionate Share shall be 2.25% (being the percentage
calculated by dividing 11,565 square feet, the rentable are of the Original
Premises and the First Added Premises, by 512,995 being 95% of the rentable area
of the Building). The Base Rent and additional rent are sometimes herein
collectively referred to as the "rent". all amounts of additional rent shall by
payable in the same manner and at the same place as the Base Rent.
4. Improvements of First Added Premises.
(a) Landlord shall deliver to Tenant for use by Tenant and Tenant's
architect, such plan or plans and other information with respect to the
First Added Premises and the Building as Tenant may reasonably require for
proper and expeditious preparation of Tenant's layout plans. Landlord shall
upon reasonable prior request by Tenant, allow access to the First Added
Premises for Tenant and Tenant's architect as reasonably necessary in
connection with the preparation of such plans.
(b) Tenant shall, at Tenant's expense, cause to be prepared not later
than July 6, 1998, and delivered to Landlord, one conceptual space plan
("Tenant's Conceptual Space Plan") prepared by an architect, approved by
Landlord, ("Tenant's Architect") which approval shall not be unreasonably
withheld or delayed, for the construction and finishing of the First Added
Premises for Tenant's occupancy. Tenant's Conceptual Space Plan, when
finalized, shall be signed and sealed by Tenant's Architect and shall
conform to all applicable laws and requirements of public authorities.
Tenant's Conceptual Space Plan shall be subject to Landlord's review and
written approval, which approval shall not be unreasonably withheld, and
Tenant shall modify such plans to take account of any changes reasonably
required by Landlord. Landlord shall complete such review and respond to
Tenant within ten (10) business days after Landlord's receipt of such
Conceptual Space Plan. Unless Landlord shall have notified Tenant in
writing to the contrary within such 10-business day period stating
specifically any disapprovals, Tenant's Conceptual Space Plan shall be
deemed to have been approved by Landlord. Tenant's Conceptual Space Plan as
approved by Landlord and with the aforesaid modifications, if any, are
herein called the "First Added Premises Space Plans" with specifications
which shall be provided to Landlord in a hard copy and in electronic format
within seven (7) days of Landlord's approval. Concurrently with the
delivery of Tenant's First Added Premises Space Plans to Landlord, Landlord
and Tenant shall by notice to the other in writing designate a single
individual who shall be available to meet and consult at the Premises as
Landlord's and Tenant's representatives respecting the matters which are
the subject of this Paragraph 4 and who, as between Landlord and Tenant,
shall have the power to make day-to-day decisions on this construction
project.
(c) Landlord, at Tenant's sole cost and expense, shall have its
engineers prepare and not later than fifteen (15) business days after
Landlord's receipt of the First Added Premises Space Plans, shall deliver
to Tenant mechanical, electrical and fire protection engineering drawings
and specifications ("First Added Premises Engineering Plans"), based on the
First Added Premises Space Plans (and such pertinent additional information
as shall have been submitted by Tenant or requested by Landlord), as may be
required to
2
<PAGE>
complete the First Added Premises in accordance with the First Added
Premises Space Plans. Within six (6) business days after submission to
Tenant by Landlord of the First Added Premises Engineering Plans, Tenant
shall give its written approval thereof if they are a direct extension of
the First Added Premises Space Plans, otherwise such approval shall not be
unreasonably withheld, and Tenant must submit any reasonable modifications
to such plans within this same time period; however, the First Added
Premises Engineering Plans shall be deemed to have been approved by Tenant
unless Tenant shall have notified Landlord in writing to the contrary
within six (6) business days of their receipt by Tenant, stating in which
respects such plans fail to conform with the First Added Premises Space
Plans. The First Added Premises Engineering Plans shall be deemed to have
been approved by Tenant if they are returned by Tenant with specified
changes noted and such changes are made, whether or not approval is
thereafter specifically noted on the First Added Premises Engineering Plans
so changed.
(d) Landlord shall at Tenant's own cost and expense less the
"Construction Allowance" described in paragraph 4(f) hereof, cause the
First Added Premises to be improved and completed in accordance with the
First Added Premises Space Plans and First Added Premises Engineering Plans
("Construction Drawings"). Landlord reserves the right, however, (i) to
make substitutions of material or components of equivalent grade and
quality when and if any specified material or component shall not be
readily or reasonably available, and (ii) to make changes necessitated by
conditions met in the course of construction; provided, however that in all
such instances of substitutions or changes Tenant's approval of any change
shall first be obtained (which approval shall not be unreasonably withheld
or delayed so long as there shall be general conformity with the
Construction Drawings and the budget which had been previously approved by
Tenant).
(e) If Landlord shall, for any reason (including, without limitation,
failure to complete the work, if any, required to be done by Landlord under
this lease) fail to make available to Tenant possession of the First Added
Premises on or before September 1, 1998, or any other date, Landlord shall
not be subject to any liability for such failure nor for any failure to
timely complete any work. Under such circumstances, Tenant's obligations to
pay Base Rent and Tenant's Share of Operating Expenses with respect to the
First Added Premises shall not commence until Landlord makes possession
available; and such failure to make available to Tenant possession of the
First Added Premises on the September 1, 1998 or any other date or to
timely complete any work, shall not in any other way affect the validity or
continuance of this First Amendment, nor the Term or the obligations of
Tenant hereunder. Such deferral of rent shall be Tenant's sole and
exclusive right and remedy with respect to any such failure. There shall be
no deferral of rent, however, if such failure is caused in whole or part by
any act or omission of Tenant, its agents, servants, employees or
contractors, which has the effect of hindering or delaying Landlord's
delivery of possession or the timely completion of any work to be done by
Landlord (hereinafter a "Tenant Delay") which Tenant Delays are defined as:
(a) any delay which is caused by changes made by Tenant (other than as may
be subsequently required by any inspecting agency or for existing
conditions which were not evident on Landlord's original plans) in the work
to be performed by Landlord in readying the First Added Premises for
Tenant's occupancy, (b) any delay which is caused by any failure by Tenant,
without regard to any grace period applicable thereto, promptly to furnish
to Landlord any required information, approval or consent or caused by any
good faith reluctance on the part of Landlord to approve any information
required to be submitted by Tenant and approved by Landlord, or (c) any
delay which is caused by the performance of any work or activity in the
First Added Premises by Tenant or any of its employees, agents or
contractors. Tenant shall also pay to Landlord, within 10 days after
receipt of demand made from time to time, a sum equal to any additional
cost to Landlord in completing the First Added Premises resulting from any
Tenant Delay. Tenant may, upon agreement with the general contractor
performing such work, schedule Tenant's phone and cable contractor to
install Tenant's telephone, cabling and ancillary equipment at a mutually
agreeable time.
3
<PAGE>
(f) Landlord shall provide an allowance (the "Construction
Allowance") for the payment of the costs and expenses of completing the
Landlord's First Added Premises Work in an amount of Sixty Thousand Six
Hundred Eighteen and no/100 Dollars ($60,618.00). Tenant shall be
responsible for the payment of all Landlord's First Added Premises Work in
excess of the Construction Allowance (the "Excess Tenant Costs") which
excess shall be payable within thirty (30) days after Tenant's receipt of a
written request from Landlord which request shall be accompanied by a
calculation of the Excess Tenant Costs in reasonable detail. If the cost of
completing the Landlord's First Added Premises Work is less than
Construction Allowance, the portion of the Construction Allowance not used
shall be paid directly to Tenant on or before the later of the (i) last day
of the fifteenth (15/th/) month of the Term of the Lease, and (ii) the
ninetieth (90/th/) day after the First Added Premises has been added to the
Original Premises.
5. Parking. Beginning July 1, 1997, Exhibit "D" attached to the Original
lease (the "Parking Agreement') shall be amended to reflect that Landlord shall
reserve for Tenant an option to lease one (1) "reserved" and up to two (2)
"unreserved" parking spaces in the Parking Garage. The parking spaces shall be
provided at the monthly rates announced from time to time by the operator of the
Parking Garage. Tenant's failure to pay any rent due pertaining to any such
parking spaces shall constitute an event of default under the Lease as herein
amended.
6. Security Deposit. Tenant shall pay to Landlord the sum of Four
Thousand Four Hundred One and 33/100 Dollars ($4,401.33) to be held as
additional security deposit in accordance with paragraph 24 of the Original
Lease, which shall be paid to Landlord with the execution of this First
Amendment by Tenant.
7. Termination of Expansion Option. The Tenant's Expansion Option
provided in paragraph 32 of the Original Lease is terminated and null, void and
of no further effect.
8. Binding Effect. This First Amendment becomes effective only upon the
execution by Landlord and Tenant.
9. Conflict. If there is any conflict between the terms and provisions of
this First Amendment and the terms and provisions of the Lease, the terms and
provisions of this First Amendment shall govern. Except as herein specifically
set forth, all of the provisions of the Lease shall remain in full force and
effect and be binding upon the parties hereto.
10. Definitions. All capitalized terms used herein, but not defined
herein, shall have the same meanings given to such terms in the Lease unless
otherwise indicated.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this First
Amendment to Lease as of the day and year first above written.
LANDLORD:
DENVER-STELLAR ASSOCIATES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Amerimar Realty Management
Co.-Colorado
By: Amerimar Realty Management-
Pennsylvania, its general partner
By: ARC-Management Company,
its general partner
By: /s/ David G. Marshall
--------------------------------------
David G. Marshall, President
Date: September 11, 1998
-----------------------
4
<PAGE>
TENANT:
PRIME RESPONSE, INC., a Delaware
corporation
By: /s/ Cathy Lewis
---------------------------------
Cathy Lewis
Vice President of Finance
Date: 8/6/98
----------
5
<PAGE>
[FIFTH FLOOR FINISH PLAN APPEARS HERE]
<PAGE>
EXHIBIT C
---------
LEASE TERM AGREEMENT
THIS AGREEMENT, made as of the 20th day of January, 1998, between DENVER-
STELLAR ASSOCIATES LIMITED PARTNERSHIP, a Delaware limited partnership
(hereinafter referred to as "Landlord") and PRIME RESPONSE, INC., a Delaware
corporation (hereinafter referred to as "Tenant").
WITNESSETH
WHEREAS, by Lease (hereinafter called "Lease") made as of the 20th day of
January, 1998, Landlord leased unto Tenant certain premises known as Suite
Number 500, located at 1099 Eighteenth Street, Denver, Colorado, for a term of
five (5) years, three (3) months and zero (0) days commencing on June 1, 1998,
unless sooner terminated or extended as provided therein, and
WHEREAS, Landlord and Tenant now desire to set forth the correct
Commencement Date of the term and to adjust the Expiration Date of the Term to
provide for a full term of the Lease of FIVE years, SIX months and ZERO days.
NOW, THEREFORE, Landlord and Tenant do hereby agree as follows:
1. The Term of the Lease commenced JULY 1, 1998, and shall continue
until DECEMBER 31, 2003 unless sooner terminated or extended as
provided therein.
2. Except as hereby amended, the Lease shall continue in full force and
effect.
3. This Agreement shall be binding on the parties hereto, their heirs,
executors, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LANDLORD:
DENVER-STELLAR ASSOCIATES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Amerimar Realty Management Co.-
Colorado
By: Amerimar Realty Management-
Pennsylvania, its general partner
By: ARC-Management
Company, its general
partner
By: /s/ David G. Marshall
----------------------------------------
David G. Marshall, President
TENANT:
PRIME RESPONSE, INC., a Delaware
corporation
By: /s/ Robert Fetter CEO
----------------------------------------
Authorized Signature (Title)
<PAGE>
LICENSE AGREEMENT
(Use of Licensor's Security System and Equipment)
THIS LICENSE AGREEMENT ("Agreement") is executed as of the 1/st/ of
October, 1998, by and between DENVER-STELLAR ASSOCIATES LIMITED PARTNERSHIP, a
Delaware limited partnership ("Licensor"), and PRIME RESPONSE, INC., a Delaware
corporation ("Licensee").
RECITALS:
A. Licensor is the owner of a certain commercial office building located
at 1099 - 18th Street in Denver, Colorado, which is commonly known as Denver
Place Plaza Tower (the "Building").
B. Licensee has requested that Licensor grant to Licensee a license to
locate and install within the Building certain cables, wiring, transmission
lines, conduits, markers, signs and related facilities (collectively, the
"Equipment"). The Equipment will be used to provide certain electronic access
and security services to Licensee, its employees, licensees, and invitees at
those certain premises in the Building known as Suite 500 (the "Premises") and
leased by Licensee pursuant to that certain Office Lease between Licensor, as
landlord and Licensee, as tenant dated January 20, 1998 (the "Lease"). Licensor
has agreed to grant said license in accordance with and subject to the terms of
this Agreement.
GRANT OF LICENSE AND RELATED AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual
covenants set forth herein, Licensor and Licensee, intending to be legally
bound, covenant and agree as follows:
1. Grant of License. Licensor hereby grants to Licensee, in accordance
with and subject to all the other provisions of this Agreement, a non-exclusive
license on, under, across and through the License Area of the Building (defined
in paragraph 2(a) below), as it may be modified from time to time as provided
below, to construct, install, inspect, maintain, repair, reconstruct and replace
the Equipment subject to the terms of this Agreement (hereinafter the
"License"), at Licensee's sole cost and expense. All such activity associated
with the construction, installation, inspection, maintenance, repair and
replacement of the Equipment is sometimes referred to hereinafter collectively
as the "Work." The License shall inure to the benefit of Licensee and its
permitted successors and assigns (as set forth in paragraph 10 hereof), and
shall be binding upon Licensor and its successors-in-interest in and to the
Building. Nothing contained in this Agreement
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shall be construed as granting to Licensee any property, leasehold or ownership
rights in the Building or to create a partnership or joint venture between
Licensor and Licensee.
2. Conduct and Commencement of Work.
(a) Licensee, at its sole cost and expense, shall cause the
preparation of and submit to Licensor plans and specifications for the
Equipment, location of all components thereof, and all aspects of the Work
(the "Plans"). The Plans (including any proposed modifications thereto
after Licensor's initial approval, if any) shall be subject to Licensor's
approval before any Work may be commenced, which approval may be withheld
at Licensor's sole discretion. The space(s) identified in the Plans which
are approved by Licensor as the location of the Equipment is referred to as
the "License Area." Licensee and Licensor acknowledge that it is intended
that the License Area shall consist of approximately 11,565 square feet of
area located on the fifth floor of the Building (the "Primary Area"), plus
that area identified on the Plans necessary for the routing of cable from
the Primary Area to the Premises. It is understood and agreed that some or
all of the License Area may be the same area of the Building which houses
the wiring, cables, and related electronic facilities for Licensor's
security and access system for the Building and its tenants (such wiring,
cable and related materials being hereinafter sometimes referred to as the
"Licensor's Equipment" and such electronic security and access system being
hereinafter sometimes referred to as the "Licensor's Security System") and
that, subject to the terms of this Agreement, and as outlined on the Plans,
Licensee may utilize the Licensor's Equipment in connection with its
installation of the Equipment and use of its access and security system,
provided such use does not interfere in any way with the use of the
Licensor's Equipment or Licensor's Security System or the use of the same
by the Licensor or any other tenants in the Building.
(b) Licensee acknowledges and agrees that Licensor's review of the
Plans shall be solely for Licensor's own benefit and account; by conducting
such review and/or approving the Plans, Licensor shall not be regarded as
undertaking any obligation for the technical or legal sufficiency, adequacy
or safety of the Equipment or the Work, and Licensee waives and disclaims
any such responsibility of Licensor and hereby assumes all obligations and
duties related to such technical and legal sufficiency, adequacy and
safety. Licensor's approval of the Plans shall not be construed to limit or
abridge Licensee's obligations under this Agreement to any extent.
(c) Licensee, at its sole cost and expense, shall obtain and provide
copies to Licensor of all requisite building permits and other governmental
approvals prior to any and all consents that may be required therefor from
private parties undertaking any part or all of the Work. Without limitation
on the generality of the foregoing, Licensee acknowledges that Licensee
shall be solely responsible for securing all
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licenses and approvals, whether governmental, quasi-governmental or private
in nature, which are requisite to providing connections and related
facilities for the Equipment at any locations away from the Building
(including, without limitation, any public rights-of-way) or otherwise
required in connection with the Work. Furthermore, Licensee shall bear all
risks associated with any revocability of those licenses and approvals, and
Licensor shall have no obligation or duty to Licensee in connection
therewith. For purposes of interpreting Licensee's obligations hereunder,
the "Work" shall include the construction, installation, inspection,
maintenance, repair and replacement of any off-site connections and related
facilities required for Licensee's provision of access and security
services to the Building and/or its tenants.
(d) Licensee shall cause all Work to be undertaken and completed and
the Equipment maintained in a good, safe and workmanlike manner consistent
with the highest construction standards, in conformity with the approved
Plans, and in compliance with all applicable laws, rules and regulations
and any private restrictions applicable to the Work and the Owner's Rules
and Regulations attached hereto as Exhibit A and any future modifications
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thereof. Licensee shall not conduct the Work nor otherwise utilize the
License Area in any way so as to increase Licensor's insurance payments,
and at Licensor's option shall pay such increases. Licensee will perform
the Work in such a manner as to not unreasonably interrupt the Building's
normal operations (including the use of the Licensor's Security System) and
will repair any damage that the Work causes to the Building, the Licensor's
Equipment, the Licensor's Security System, or any other property located
therein such that the same is in as good or better condition than existed
immediately prior to the time of any damage. Furthermore, Licensee shall
schedule the Work at such times and take such other measures and
precautions as Licensor may require in order to avoid or minimize any
interference with Building operations that may be caused by the Work;
however, in the event of an emergency, Licensee shall have 24 hour a day, 7
day a week access to the License Area. In connection with the Work,
Licensee shall not enter the premises of any tenant or occupant of the
Building without that tenant's or occupant's prior written consent. If any
of the Work is not performed in accordance with the foregoing or any other
requirements of this Agreement, Licensor shall have the right, but not the
obligation, and without limiting Licensor's other remedies for such
failure, to correct any non-complying Work after sending ten (10) days'
notice and right to cure such nonconforming work, after which Licensee
shall reimburse Licensor for all costs and liabilities incurred in
connection therewith by Licensor, including attorneys' fees. No notice or
opportunity to cure need be given by Licensor if, in Licensor's reasonable
judgement, a hazardous condition exists or is about to exist.
(e) Licensee shall not disrupt, adversely affect or interfere with
other providers of services in the Building or with any occupant's use and
enjoyment of its leased or licensed premises or the common areas of the
Building. Licensee agrees
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to use all efforts to ensure that the Equipment, and the installation,
maintenance and operation thereof will in no way interfere with the use of
the Building, including but not limited to the Licensor's use of the
Licensor's Equipment and the Licensor's Security System, or the operation
of any other electronic devices by Licensor or by other lessees or
licensees of the Licensor (including but not limited to any communications
devices). If interference shown to be caused by Licensee's Equipment, or
the installation, operation, and maintenance thereof, shall occur, Licensor
shall give Licensee notice thereof, and Licensee shall take immediate
action to correct the same within twelve (12) hours of receipt of such
notice. Licensor reserves the right to disconnect power to the Equipment if
Licensee fails to correct such interference after proper notification and
the expiration of the twelve (12) hour cure period. Licensor agrees to
restore power to Licensee's Equipment after such disconnection if Licensee
corrects the cause of the interference thereafter.
(f) Licensee shall not store highly flammable materials or goods,
explosives, perishable foodstuffs, contraband, live animals, materials or
goods which emit odors in or upon the License Area. The Licensee covenants
that it shall not store, use or possess nor permit the storage, use or
possession of any Hazardous Substance (hereinafter defined) upon the
License Area. Hazardous Substance for purposes of this Agreement shall
mean, without limitation, any flammable explosives, radon, radioactive
materials, asbestos, urea-formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum based products, methane, hazardous
materials, hazardous wastes, hazardous or toxic substances or related
materials, as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections 9601
et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C.
-- ---
Sections 1801, et seq.), Sections 6901, et seq.), the Toxic Substances
-- --- -- ----
Control Act, as amended (15 U.S.C. Sections 2601 et seq.), or any other
-- ---
similar law, rules, regulation or statute concerning the protection of the
environment (collectively "Environmental Laws"). Licensee hereby covenants
and agrees, at its sole cost and expense, to indemnify, protect and defend
and save harmless the Licensor and any of its partners, employees and
agents from and against any all damages, losses, liabilities, obligations,
penalties, claims, litigation, demands, defenses, judgments, suits,
actions, proceedings, costs, disbursements and/or expenses (including,
without limitation, attorneys' and experts' fees, expenses and
disbursements) of any kind or nature whatsoever which may at any time be
imposed upon, incurred by or asserted or awarded against the Licensor, its
partners, agents or employees relating to, resulting from or arising out of
Licensee's failure to comply with its obligations under the foregoing
paragraph or Licensee's violation of any Environmental Law with respect to
its use of the License Area. Notwithstanding any other provision of this
Agreement, the indemnification provisions set forth in this paragraph shall
survive the expiration or earlier termination of this Agreement.
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3. Cost of Work; Mechanic's Liens. All Work shall be at Licensee's sole
cost and expense, and Licensor shall not have any responsibility or liability
therefor. Licensee specifically acknowledges and agrees that Licensor has no and
will have no liability to compensate Licensee to any extent for any value that
the Equipment may add or provide to the Building, and Licensee hereby
irrevocably waives all rights that Licensee might otherwise have to claim any
mechanic's lien or similar encumbrance against the Building in connection with
the Work. Some aspects of the Work (including, without limitation, the
preparation of the Plans) may be undertaken by independent contractors of
Licensee. Before any independent contractor performs any services or labor in
connection with the Building or the Work, Licensee shall secure from each such
independent contractor a waiver of all lien rights. Each such original waiver
shall be promptly submitted to Licensor after execution.
4. License Fees. Licensee shall pay to Licensor the sum of Six-Thousand-
Three-Hundred Dollars ($6,300.00) for access to the License Area in 63 equal
monthly installments of $100.00 due on the 1/st/ day of each month commencing
October 1, 1998. If any payment or any part of any such payment to be made by
Licensee under the terms of this Agreement shall become overdue for a period in
excess of five days, Licensee shall pay to Licensor a "late charge" of $.05 for
each dollar so overdue for the purpose of defraying the expense incident to
handling such overdue or delinquent payment, plus interest on the overdue amount
at the rate of eighteen percent (18%) per annum from the date when such payment
was due until the date paid. Nothing herein shall be construed as waiving any
rights of Licensor arising out of any default of Licensee by reason of
Licensor's accepting any such late charge or interest; the right to collect a
late charge and interest is separate and apart from and in addition to any other
rights or remedies of Licensor. In the event Licensor brings any action against
Licensee and/or its successors or assigns as a result of any breach of this
Agreement, Licensor shall be entitled to collect reasonable attorneys' fees and
all costs incurred if Licensor prevails in said action. In addition to the
license fees as provided herein, Licensee shall pay Licensor a one-time non-
refundable administration fee (the "Administration Fee") for the administrative
costs incurred in connection with the review of the Plans and project logistics
in the amount of Five-Hundred Dollars ($500.00). Licensee shall pay the
Administration Fee at the time the first month's installment of license fees are
due under this Agreement.
5. Indemnity/and Hold Harmless. Licensee shall defend and indemnify
Licensor and hold Licensor harmless from any liabilities, mechanic's or other
similar types of liens, damages, penalties, fines, costs, theft, or other losses
of any nature (including consequential damages) including, without limitation,
any property damage suffered by Licensor (including but not limited to
Licensor's Equipment or Licensor's Security System), Licensee or any third
parties or any claims for personal injury and/or workmen's compensation by
Licensee or any third parties, including independent contractors and/or
employees of Licensee and/or Licensor, together with all related costs and
expenses, including reasonable attorneys' fees incurred by or claimed against
Licensor, that may arise in connection with (i) the Work or any part thereof
including any off-site connections and related facilities for the Equipment (as
referenced in subparagraph 2(c) above), (ii) any other aspects of the Work or
Licensee's use and enjoyment of the License and the Equipment including the
granting of the License by Licensor and electrical and HVAC costs attributable
to operation of the
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Equipment, and (iii) any breach or default by Licensee of its obligations under
this Agreement provided that such loss, liability or damage is not caused by
Licensor's gross negligence or willful misconduct. To the extent Licensor pays
any sum which falls within the foregoing indemnity, Licensee shall reimburse
Licensor for such sum within thirty (30) days after Licensor makes demand
therefor. Licensee specifically agrees that Licensor's approval of the Plans
shall not be construed to limit the foregoing indemnity. Without limitation on
the generality of the foregoing, the foregoing indemnity shall apply to any
structural damage suffered by the Building in connection with the Work, whether
or not the Work conforms to the Plans. The provisions of this paragraph 5 shall
survive termination and expiration of this Agreement.
6. Completion of Work. Upon completion of the Work, Licensee shall
provide Licensor with all certificates or other approvals that are legally
required to evidence that the Work has been completed in conformity with all
applicable laws. In addition, Licensee shall furnish Licensor with a certificate
that the Work has been completed in conformity with the approved Plans, which
certification must be rendered by a licensed engineer or similar party
satisfactory to Licensor and must be in form and substance satisfactory to
Licensor. Licensee shall also supply Licensor with a complete set of "as built"
construction documents related to the Work.
7. Licensee's Covenants. Licensee hereby covenants and agrees:
(a) to keep the License Area and Equipment in good order, repair and
condition throughout the Term of this Agreement and any renewals thereof
and promptly and adequately repair all damage to the Building, Licensor's
Equipment or Licensor's Security System caused by Licensee or the
Equipment;
(b) to comply and remain in compliance with all federal, state and
municipal laws, orders, rules and regulations applicable to Licensee, the
Work and Equipment, as well as the Owner's Rules and Regulations attached
hereto as Exhibit A and any future modifications thereof;
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(c) not to disrupt, adversely affect or interfere with other
providers of services in the Building or with any occupant's or tenant's
use and enjoyment of their leased premises or the common areas of the
Building.
8. Term; Removal. The License shall remain in full force and effect for a
term of Five (5) years and Three (3) months from the date the monthly license
fee is first payable (the "Term"), unless terminated pursuant to the mutual
written agreement of the parties hereto; provided, however, that Licensor may
terminate the License upon ten (10) days' written notice (and opportunity to
cure) in the event that Licensee does or permits any one of the following:
(a) fails to pay any installment or other amount when due pursuant to
this Agreement;
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(b) commits any material breach or default of its obligations
hereunder or under any other agreement, lease or license with Licensor
and/or any of its affiliates;
(c) abandons or deserts the Building or Equipment during the Term or
any renewal thereof or Licensee removes (and does not replace or substitute
equipment for) all or a substantial portion of the Equipment, including
equipment in the License Area, from the Building;
(d) fails to completely construct and install its Equipment in the
Building within 90 (ninety) days of the date of this Agreement; or
(e) voluntarily or involuntarily files bankruptcy or makes a general
assignment for the benefit of creditors.
No notice or opportunity to cure need be given by Licensor if, in its
reasonable judgment, a hazardous condition exists or is about to exist.
Licensor's right of termination shall be cumulative with and in addition to all
other rights and remedies afforded to Licensor at law or in equity for such
breach or default. Upon any termination of the License, Licensee shall remove
the Equipment and restore the License Area to its original condition. Licensee
shall be obligated to complete any such removal and restoration within sixty
(60) days after the termination or expiration of the License. If any Equipment
is not so removed in a timely manner, then the remaining Equipment shall, at
Licensor's election, become part of the improvements constituting the Building,
and all incidents of ownership of the Equipment shall immediately vest in
Licensor or, at Licensor's option, Licensor may remove the Equipment and restore
those portions of the Building impacted by the Work and the costs for such
removal shall be charged to Licensee as additional license fees. In connection
with any removal, Licensee shall simultaneously restore those portions of the
Building impacted by the Work to substantially the same condition existing
immediately prior to the commencement of the Work. For purposes of applying the
indemnity provisions of paragraph 5 above, all activity related to such removal
and restoration shall be regarded as part of the Work.
If Licensee exercises its option to renew the Lease pursuant to Paragraph
31 of the January 20, 1998 Addendum thereto (the "Addendum"), the Term of this
Agreement shall also be renewed for the Renewal Term, as defined in the
Addendum, without notice from Licensee to Licensor other than the notice
required to be given pursuant to Paragraph 31(a) of the Addendum. In the event
of such renewal, Licensor shall pay Licensee a monthly License Fee of $100.00
payable on the 1st day or each month during the Renewal Term. All other
provisions and conditions of this Agreement shall remain in full force and
effect throughout the Renewal Term.
9. Effect of Prior License or Easement Agreement(s); Priority.
(a) Licensee acknowledges that the Building is or may already be
subject to other licenses and license and/or easement agreements.
Licensee's rights
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hereunder to use and enjoy the License is subject to and qualified in all
respects by the obligations of Licensor under all Prior licenses, license
and easement agreements (including, without limitation, the obligation of
Licensor to grant additional licenses, license and easement rights
affecting the Building). Licensee agrees that, to the extent the Equipment
must be relocated or otherwise modified to accommodate preexisting rights
in favor of prior grantees of licenses/easements or future
licenses/easements as deemed reasonably necessary by Licensor, Licensee
shall undertake such relocation or modification at its sole cost and
expense and all such activity shall be considered a part of the Work. In
the event Licensee reasonably determines that the alternative location for
the License Area (or the Equipment pursuant to Paragraph 9(c) below) chosen
by Licensor is infeasible, Licensee may terminate this Agreement upon
giving Licensor thirty (30) days' written notice and opportunity to provide
alternatives.
(b) Licensee further acknowledges and agrees that, notwithstanding
any provisions of this Agreement that may indicate to the contrary, all
rights and interests of Licensee under this Agreement are and shall be
subject and subordinate to all pre-existing interests in the Building
having priority over the License including, without limitation, the
interest of all persons or entities which have a lien on the Building.
Licensee acknowledges and agrees that Licensor shall have no liability to
Licensee in connection with any exercise or enforcement of those pre-
existing interests which may affect Licensee's interests hereunder.
Licensee further acknowledges and agrees that it has no rights to any
common areas in the Building under this Agreement, none of such common
areas of the Building shall be considered any part of the License Area
under this Agreement, and no Equipment shall be installed in any of the
common areas of the Building, including but not limited to any
communications closets located in any of the common areas of the Building.
(c) In the event Licensor requests that the Equipment be relocated or
that the License Area otherwise be modified, such that the License Area
shall be moved to a different portion of the Building from its then current
location, Licensee shall undertake such relocation or modification at its
sole cost and expense, and the area to which the License Area is relocated
shall henceforth be referred to as the License Area.
10. Successors and Assigns.
(a) Licensor shall be permitted to assign its rights hereunder to any
of its successors in interest to the Building and to any mortgagee of
Licensor's interests in the Building. Licensee shall not be permitted to
assign or delegate any of its rights or obligations hereunder without the
prior express written consent of Licensor, which may be withheld in
Licensor's sole discretion; any assignment attempted by Licensee
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in violation of the foregoing shall be void and of no force or effect at
Licensor's option.
11. Insurance. Licensee shall obtain and maintain such insurance,
including through a blanket policy, as will fully protect both Licensee and
Licensor from claims by employees of Licensee under all applicable workers'
compensation and/or employers' liability laws, including any employers'
disability insurance laws, and from all claims for damage to property or for
personal injury, including death to anyone whomsoever, that may arise from the
Work, the Equipment or any operations in connection with the performance of the
services in the Premises by Licensee, or by anyone directly or indirectly
engaged or employed by Licensee. Licensee shall provide Licensor with
certificates evidencing the required coverage prior to Licensor commencing any
Work in the Building.
Notwithstanding the generality of the foregoing, Licensee's general
liability insurance shall be a minimum of $2 million per occurrence, which may
take the form of $1 million in primary coverage with $1 million in excess
coverage, which must include a provision preventing cancellation of such policy
except following 30 days' prior written notice to Licensor. Licensor shall be
listed as an "additional insured" on said general liability policy. Licensee's
insurance carrier shall have a Best Rating of at least B + or better.
12. Non-Recourse Liability. Licensor and each of its successors-in-
interest to the Building shall have liability (as further outlined below) only
for those obligations of Licensor under this Agreement, if any, which accrue
during the term of that party's ownership of the Building, and each such party
shall have no liability for any such obligation that accrues either before or
after the time of that party's ownership of the Building. Furthermore, in any
event, any mortgagee of Licensor or its successors-in-interest that acquires
Licensor's interest in the Building by foreclosure or any conveyance in lieu
thereof or otherwise shall not have any liability whatsoever for any obligations
of Licensor hereunder. Any liability for damages or breach or nonperformance by
Licensor, or arising out of the subject matter of this Agreement or the
relationship created hereby, shall be collectible only out of Licensor's
interest in the Building and no personal liability is assumed by, or shall at
any time be asserted against, Licensor, its partners, affiliates, agents,
attorneys, servants and employees, or any of its or their successors or assigns;
all such liability, if any, being hereby expressly waived and released by
Licensee.
13. Other Defaults. Any default by Licensee in discharging any of its
obligations under the Lease, including but not limited to the payment of Rent
thereunder, shall be a default of Licensee's obligations under this Agreement,
and Licensor may exercise any of the rights and remedies available to it as if
Licensee was in default hereunder. Any default by Licensee hereunder, including
but not limited payment of the License Fee, shall be a default of Licensee's
obligations under the Lease, and Licensor may exercise any of the rights and
remedies available to it under the Lease as if Licensee was in default
thereunder.
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14. Governing Law. This Agreement and all the provisions hereof shall be
governed by and construed in accordance with the laws of the State of Colorado.
15. Notices. All notices or demands pursuant to this Agreement shall be in
writing and sent by first class mail, postage prepaid or by commercial overnight
delivery, prepaid, to the parties at their addresses provided below, or to such
other address as a party may specify by notice to the other party:
LICENSEE:
Prime Response, Inc.
1099 18/th/ Street, Suite 500
Denver, CO 80202
LICENSOR:
Denver-Stellar Associates Limited Partnership
c/o Amerimar Realty Management Co.-Colorado
999 - 18th Street, Suite 1000
Denver, Colorado 80202
Attention: General Manager
with a copy to:
Slivka Robinson Waters & O'Dorisio, P.C.
1099 - 18th Street, Suite 2600
Denver, Colorado 80202
Attention: John W. O'Dorisio, Jr., Esq.
16. Security Deposit. The Licensee shall keep on deposit with the Licensor
at all times during the term of this Agreement, a security deposit (the
"Security Deposit") in the amount of One-Thousand-Two-Hundred Dollars
($1,200.00) as security for the payment by the Licensee of the rent, license
fees, or any other sums due under this Agreement and for the faithful
performance of all the terms, conditions and covenants of this Agreement. If at
any time during the term of this Agreement the Licensee shall be in default in
the performance of any provision of this Agreement, the Licensor may (but shall
not be required to) use any such deposit, or so much thereof as necessary, in
payment of any rent or any other sums due under this Agreement in default, in
reimbursement of any expense incurred by the Licensor and in payment of the
damages incurred by the Licensor by reason of the Licensee's default, or at the
option of the Licensor, the same may be retained by the Licensor as liquidated
damages. In such event, the Licensee shall, on written demand of the Licensor,
forthwith remit to the Licensor a sufficient amount in cash to restore such
deposit to its original amount. If such deposit has not been utilized as
aforesaid, such deposit, or as much thereof as has not been utilized for such
purposes, shall be refunded to the Licensee, without interest, upon full
performance of this
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Agreement by the Licensee. Licensor shall have the right to commingle such
deposit with other funds of the Licensor. Licensor shall deliver the funds
deposited herein by the Licensee to any purchaser of the Licensor's interest in
the License Area in the event such interest be sold, and thereupon, the Licensor
shall be discharged from further liability with respect to such deposit.
Notwithstanding the above provisions of this Section, if claims of the Licensor
exceed the deposit for therein, the Licensee shall remain liable for the balance
of such claims.
17. Miscellaneous.
(a) The paragraph headings contained herein are intended for
convenience and reference only and are not intended to define, limit, or
describe the scope or intent of any provision of this Agreement.
(b) Licensor makes no warranty or representation that the License
Area or any part or all of the Building is suitable for the use
contemplated by this Agreement, it being assumed that Licensee has
satisfied itself thereof. Licensee has inspected the anticipated License
Area and the Building; accepts the same "AS IS", and agrees that Licensor
is under no obligation to perform any Work or provide any labor or
materials to prepare, modify and/or alter the License Area or the Building
for Licensee.
(c) Except as otherwise stated herein, no waiver of any breach of
this Agreement or any of the terms hereof shall be effective unless such
waiver is in writing and signed by the party against whom such waiver is
claimed. No waiver of any breach shall be deemed to be a waiver of any
other or subsequent breach. All prior or contemporaneous understandings and
agreements between the parties which relate to this Agreement are merged
into this Agreement which alone fully and completely expresses their
agreement. Neither party is relying upon any statement or representation by
the other not embodied in this Agreement.
(d) Licensor and Licensee acknowledge that each has carefully
reviewed this Agreement and that the normal rules of construction whereby
ambiguities in a contract are to be construed against the drafter shall not
be employed in the interpretation of this Agreement.
(e) In the event that a court of competent jurisdiction enters an
order of judgment declaring any material provision of this Agreement to be
invalid and/or unenforceable, the remainder of this Agreement shall
continue in full force and effect, such remaining provisions being deemed
modified to the extent necessary to comply with any court order and/or
judgment and applicable law.
(f) Licensee shall not place signs on any of the doors or corridors
leading to the License Area. Licensor shall have the right, at its option,
at Licensee's own
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cost and expense, to remove any signs placed by Licensee without Licensor's
prior written consent, and to repair any damage caused by such signs.
(g) Licensor shall not be liable to Licensee for any loss or damage
to any property or person occasioned by theft, fire, act of God, public
enemy, injunction, riot, strike, insurrection, war, court order,
requisition, or order of governmental body or authority or by any other
cause. Nor shall Licensor be liable for any damage or inconvenience which
may arise through (a) the leasing or licensing of other space within the
Building to whomsoever Licensor chooses for whatever use is allowed by
Licensor; (b) repair or alteration of any part of the Building or License
Area or the construction of improvements for tenants or other licensees in
the Building, it being specifically acknowledged and agreed by Licensee
that Licensor will, as a part of Licensor's leasing and licensing of other
space within the Building, be conducting construction work in order to
prepare space in the Building, from time to time, for other tenants and
licensees; or (c) Licensee's use of the Licensor's Equipment or Licensor's
Security System as provided in the Plans and in this Agreement, it being
specifically acknowledged and agreed by Licensee that its use of the
Licensor's Equipment and/or Licensor's Security System is at its own risk,
and that Licensor makes no representations regarding the same.
(h) Licensee and Licensor agree not to record this Agreement or any
memorandum thereof unless required by governmental action or franchise
agreement. In the event that recordation is so required, the recording
party agrees to promptly provide the other party with a copy of this
Agreement so recorded and, promptly upon termination of this Agreement, to
join with the other party in executing and recording a notice of
termination in the appropriate real property records.
IN WITNESS WHEREOF, Licensor and Licensee have entered into this License
Agreement effective as of the date first above written.
LICENSEE:
PRIME RESPONSE, INC., a Delaware
corporation
By: /s/ Cathy Lewis
-------------------------------------
Name: Cathy Lewis
Title: Vice President, Finance
12
<PAGE>
LICENSOR:
DENVER-STELLAR ASSOCIATES
LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Amerimar Realty Management Co.-
Colorado, a Colorado
By: Amerimar Realty Management-
Pennsylvania, its general partner
By: ARC - Management Company, its
general partner
By: /s/ David G. Marshall
--------------------------------
David G. Marshall, President
13
<PAGE>
EXHIBIT A
---------
RULES AND REGULATIONS
Rules and Regulations, to Lease between DENVER-STELLAR ASSOCIATES LIMITED
PARTNERSHIP, a Delaware limited partnership, as Landlord ("Landlord")and PRIME
RESPONSE, INC., a Delaware corporation as tenant ("Tenant"), pertaining to
certain space in Denver Place Plaza Tower, 1099 18th Street, Denver, Colorado
80202.
(a) Any sign, lettering, picture, notice, or advertisement installed
within Tenant's Premises which is visible to the public from within the
Building shall be installed at Tenant's cost and in such manner, character
and style as Landlord may approve in writing. No sign, lettering, picture,
notice or advertisement shall be placed on any outside window or in any
position so as to be visible from outside the Building.
(b) The use of the name of the Building or of pictures or
illustrations of the Building in advertising or other publicity, without
prior written consent of Landlord, is prohibited.
(c) Tenant, its subtenants and its and their customers, invitees,
licensees, and guests
(i) shall not obstruct and shall not use for any purpose other
than ingress and egress, the sidewalks, entrances, passages, courts,
corridors, vestibules, halls, elevators and stairways in and about the
Building;
(ii) shall not place objects against glass partitions or doors
or windows or adjacent to any open common space which would be
unsightly from the Building corridors or from the exterior of the
Building, and will promptly remove the same upon notice from Landlord;
(iii) shall not make noises, cause disturbances, create
vibrations, odors or noxious fumes or use or operate any electrical or
electronic devices or other devices that emit sound waves or are
dangerous to other tenants and occupants of the Building or that would
interfere with the operation of any device or equipment or radio or
television broadcasting or reception from or within the Building or
elsewhere, and shall not place or install any projections, antennae,
aerials or similar devices inside or outside of the Premises;
(iv) shall not make any room-to-room canvass to solicit
business from other tenants in the Building, and shall not exhibit,
sell or offer to sell, use, rent or exchange any item or services in
or from the Premises unless ordinarily embraced within the Tenant's
use of the Premises as specified in its lease;
(v) shall refrain from attempting to adjust any controls;
(vi) shall not waste, and shall not suffer or permit to be
wasted, electricity or water and shall cooperate fully with Landlord
to assure the most effective operation of the Building's heating and
air conditioning;
(vii) shall keep public corridor doors closed;
(viii) shall neither install nor operate machinery or any
mechanical devices of a nature not directly related to Tenant's
ordinary use of the Premises without the written permission of the
Landlord;
(ix) shall not use rest rooms or water fixtures for any purpose
other than that for which they are designed;
<PAGE>
(x) shall not mark upon, paint, cut, drill into, drive nails
or screws into, or in any way deface the walls, ceiling partitions or
floors of the leased Premises or of the Building;
(xi) shall not unduly obstruct any pipes, conduits and ducts in
the Premises; and
(xii) shall use chair pads, to be furnished by Tenant, under all
rolling and ordinary desk chairs in the carpeted areas.
(d) Tenant assumes full responsibility for protecting its space from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed and secured.
(e) Peddlers, solicitors and beggars shall be reported to the office
of the Building or as Landlord otherwise requests.
(f) No person or contractor not employed by Landlord shall be used to
perform window washing, cleaning, or other work in the Premises.
(g) Unless Landlord so consents, Tenant shall not, and Tenant shall
not permit or suffer anyone to:
(i) Cook in the premises;
(ii) Place vending or dispensing machines of any kind in the
Premises; or
(iii) At any time sell, purchase or give away, or permit the
sale, purchase or gift of, food in any form.
(iv) Use the Premises for lodging or for any immoral or illegal
purposes.
(v) Use the Premises to engage in the manufacture or sale of,
or permit tile use of, any spirituous, fermented, intoxicating or
alcoholic beverages on the Premises.
(vi) Use the Premises to engage in the manufacture or sale of,
or permit the use of, any illegal drugs.
(h) No furniture shall be placed in front of the building or in any
lobby or corridor, without the prior written consent of Landlord. Landlord
shall have the right to remove all non-permitted signs and furniture,
without notice to Tenant, at Tenant's expense.
(i) No animals are allowed in the Building.
(j) No lock or other security device shall be placed by Tenant on any
door in the Building without the Building manager being kept furnished with
two of the keys, cards or other means of access therefore. At the
termination of its tenancy, Tenant shall promptly deliver to Landlord all
keys, entry cards and other means of access to offices, rest rooms and
vaults.
(k) The use of oil, gas or inflammable liquids for heating, lighting
or any other purpose is expressly prohibited. Explosives or other
hazardous articles shall not be brought into the Building.
(l) Electric floor space heaters, humidifiers or A/C fans are not
permitted.
(m) Landlord shall have the right to approve or disapprove the movers
or moving company employed by Tenant. Tenant shall cause said movers to
use only the loading facilities and elevator designated by Landlord. In
the event Tenant's movers damage the elevator or any part of the Building,
Tenant shall forthwith pay to Landlord the amount required to repair said
damage.
<PAGE>
(n) If any Tenant desires telegraphic, telephonic, computer or other
electric connections, Landlord, or its agents, will direct the electricians
as to where and how the wires may be introduced, and without such
directions, no boring or cutting for wires will be permitted. Any such
installation and connection shall be made at Tenant's expenses, and, at
Landlord's option, shall be removed at Tenant's expense at the expiration
or termination of its Lease.
(o) Except for the following smoking areas specifically designated by
Landlord, the outdoor Plaza level of 1099 - 18th Street, the outdoor areas
at the corner of 18th and Champa and 19th and Curtis and the Smoke Haus in
the mall, all common areas of the building, including all sidewalks,
entries, passages, stairways, elevators, restrooms, lobbies and hallways,
shall be non-smoking areas. Tenant shall be responsible to prevent its
employees, agents, visitors, customers and guests from smoking in such
common areas.
(p) During the normal office hours of 6:00 a.m. to 6:00 p.m., Monday
through Friday, Tenant and its employees and agents shall observe the
building dress code, which requires a neat and clean appearance and
prohibits the wearing of cutoffs and ragged, torn, ripped, rent or holey
apparel.
(q) The Landlord reserves the right to modify and make such other and
further reasonable rules and regulations as in its judgment may, from time
to time, be needful and desirable for the safety, security, care and
cleanliness of the Premises and preservation of good order and therein.
<PAGE>
EXHIBIT 10.44
OFFICE LEASE
------------
CHINA BASIN LANDING
-------------------
BRE/CBL, LLC
a Delaware limited liability company
as Landlord,
and
PRIME RESPONSE, INC.,
a Delaware corporation,
as Tenant.
<PAGE>
CHINA BASIN LANDING
-------------------
INDEX
-----
<TABLE>
<CAPTION>
ARTICLE SUBJECT MATTER PAGE
- ------- -------------- ----
<S> <C> <C>
ARTICLE 1 PREMISES, BUILDING, PROJECT, AND COMMON AREAS................. 3
ARTICLE 2 LEASE TERM.................................................... 4
ARTICLE 3 BASE RENT..................................................... 4
ARTICLE 4 ADDITIONAL RENT............................................... 4
ARTICLE 5 USE OF PREMISES............................................... 8
ARTICLE 6 SERVICES AND UTILITIES........................................ 9
ARTICLE 7 REPAIRS....................................................... 10
ARTICLE 8 ADDITIONS AND ALTERATIONS..................................... 11
ARTICLE 9 COVENANT AGAINST LIENS........................................ 12
ARTICLE 10 INSURANCE..................................................... 12
ARTICLE 11 DAMAGE AND DESTRUCTION........................................ 14
ARTICLE 12 NONWAIVER..................................................... 15
ARTICLE 13 CONDEMNATION.................................................. 16
ARTICLE 14 ASSIGNMENT AND SUBLETTING..................................... 16
ARTICLE 15 SURRENDER OF PREMISES; OWNERSHIP AND
REMOVAL OF TRADE FIXTURES..................................... 19
ARTICLE 16 HOLDING OVER.................................................. 20
ARTICLE 17 ESTOPPEL CERTIFICATES......................................... 20
ARTICLE 18 SUBORDINATION................................................. 20
ARTICLE 19 DEFAULTS; REMEDIES............................................ 21
ARTICLE 20 COVENANT OF QUIET ENJOYMENT................................... 23
ARTICLE 21 SECURITY DEPOSIT.............................................. 23
ARTICLE 22 SUBSTITUTION OF OTHER PREMISES................................ 23
ARTICLE 23 SIGNS......................................................... 24
ARTICLE 24 COMPLIANCE WITH LAW........................................... 24
ARTICLE 25 LATE CHARGES.................................................. 24
ARTICLE 26 LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT.......... 25
ARTICLE 27 ENTRY BY LANDLORD............................................. 25
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 28 INTENTIONALLY DELETED......................................... 25
ARTICLE 29 MISCELLANEOUS PROVISIONS...................................... 26
</TABLE>
EXHIBITS
A OUTLINE OF PREMISES
B TENANT WORK LETTER
C FORM OF NOTICE OF LEASE TERM DATES
D RULES AND REGULATIONS
E FORM OF TENANT'S ESTOPPEL CERTIFICATE
ii
<PAGE>
CHINA BASIN LANDING
-------------------
INDEX OF MAJOR DEFINED TERMS
----------------------------
LOCATION OF
DEFINITION
DEFINED TERMS IN OFFICE LEASE
- ------------- ---------------
Additional Rent......................................................... 7
Alterations............................................................. 5
Base Building........................................................... 11
Base Rent............................................................... 6
Base Year............................................................... 7
Brokers................................................................. 38
Building................................................................ 4
Building Common Areas................................................... 5
Building Hours.......................................................... 9
China Basin Landing..................................................... 4
Common Areas............................................................ 5
Cost Pools.............................................................. 7
Direct Expenses......................................................... 7
Estimate................................................................ 8
Estimate Statement...................................................... 8
Estimated Excess........................................................ 8
Excess.................................................................. 7
Expense Year............................................................ 7
Force Majeure........................................................... 29
Holidays................................................................ 9
HVAC.................................................................... 9
Landlord................................................................ 1
Landlord Parties........................................................ 13
Landlord Repair Notice.................................................. 13
Lease................................................................... 1
Lease Commencement Date................................................. 6
Lease Expiration Date................................................... 6
Lease Term.............................................................. 6
Lease Year.............................................................. 4
Lines................................................................... 31
Mail.................................................................... 29
Notices................................................................. 29
Operating Expenses...................................................... 7
Original Improvements................................................... 12
Other Improvements...................................................... 32
Premises................................................................ 4
Project................................................................. 4
Project Common Areas.................................................... 5
Proposition 13.......................................................... 6
Renovations............................................................. 31
Rent.................................................................... 7
Security Deposit........................................................ 24
Statement............................................................... 7
Subject Space........................................................... 17
Summary................................................................. 1
Tax Expenses............................................................ 6
Tenant.................................................................. 1
Tenant Personal Property................................................ 20
Tenant Work Letter...................................................... 4
Tenant's Share.......................................................... 7
Transfer................................................................ 19
Transfer Notice......................................................... 17
iii
<PAGE>
Transfer Premium........................................................ 18
Transferee.............................................................. 17
Transfers............................................................... 17
iv
<PAGE>
CHINA BASIN LANDING
-------------------
OFFICE LEASE
------------
This Office Lease (the "Lease"), dated as of the date set forth in Section
1 of the Summary of Basic Lease Information (the "Summary"), below, is made by
and between BRE/CBL, LLC a Delaware limited liability company ("Landlord"), and
PRIME RESPONSE, INC., a Delaware Corp. ("Tenant").
SUMMARY OF BASIC LEASE INFORMATION
----------------------------------
TERMS OF LEASE DESCRIPTION
- -------------- -----------
1. Date: March 25, 1999
2. Premises
(Article 1).
2.1 Building: Wharfside Building, China Basin Landing,
185 Berry Street, San Francisco,
California 94107
2.2 Premises: Approximately 1,969 rentable square feet
of space located in Suite 4601 on the
fourth (4th) floor of the Building, as
further set forth in Exhibit A to the
---------
Office Lease.
3. Lease Term
(Article 2).
3.1 Length of Term: Two (2) years.
3.2 Lease Commencement
Date: Upon the vacation of the premises by the
existing tenant and completion of the
tenant improvements anticipated to no
later than June 1, 1999.
3.3 Lease Expiration Date: The date immediately preceding the 2nd
anniversary of the Lease Commencement
Date.
4. Base Rent (Article 3):
Annual
Monthly Rental Rate
Annual Installment per Rentable
Lease Year Base Rent of Base Rent Square Foot
---------- --------- ------------ ------------
1 - 2 $75,806.50 $6,317.21 $38.50
5. Base Year
(Article 4): Calendar year 1999.
6. Tenant's Share
(Article 4): Approximately 0.281%.
7. Permitted Use
(Article 5): General office use consistent with a
first-class office building
-1-
<PAGE>
8. Security Deposit
(Article 21): $6,317.21.
9. Address of Tenant Prime Response, Inc.
(Section 29.18): 1099 Eighteenth Street Suite 500
Denver, CO 80202
Attention: Cathy Lewis
(Prior to Lease Commencement Date)
and
185 Berry Street
Suite 4601
San Francisco, California 94107
Attention: Martin Muoto
(After Lease Commencement Date)
10. Address of Landlord
(Section 29.18): Jones Lang Wootton California, Inc.
China Basin Landing
185 Berry Street, Suite 140
San Francisco, California 94107
Attention: General Manager
with copies to:
McCarthy Cook & Co., LLC
5750 Wilshire Boulevard
Los Angeles, California 90036
Attention: Edward W. Cook III
and
Allen, Matkins, Leck, Gamble & Mallory
1999 Avenue of the Stars, Suite 1800
Los Angeles, California 90067
Attention: Anton N. Natsis, Esq.
11. Broker(s)
(Section 29.24): Jones Lang Wootton California, Inc.
185 Berry Street, Suite 140
San Francisco, California 94107
and
Arroyo & Coates Commercial Leasing Group
500 Washington Street
Suite 700
San Francisco, California 94111
-2-
<PAGE>
ARTICLE 1
PREMISES, BUILDING, PROJECT, AND COMMON AREAS
1.1 Premises, Building, Project and Common Areas.
--------------------------------------------
1.1.1 The Premises. Landlord hereby leases to Tenant and Tenant
------------
hereby leases from Landlord the premises set forth in Section 2.2 of the Summary
(the "Premises"). The outline of the Premises is set forth in Exhibit A
---------
attached hereto and each floor or floors of the Premises has the number of
rentable square feet as set forth in Section 2.2 of the Summary. The parties
hereto agree that the lease of the Premises is upon and subject to the terms,
covenants and conditions herein set forth, and Tenant covenants as a material
part of the consideration for this Lease to keep and perform each and all of
such terms, covenants and conditions by it to be kept and performed and that
this Lease is made upon the condition of such performance. The parties hereto
hereby acknowledge that the purpose of Exhibit A is to show the approximate
---------
location of the Premises in the "Building," as that term is defined in Section
1.1.2, below, only, and such Exhibit is not meant to constitute an agreement,
representation or warranty as to the construction of the Premises, the precise
area thereof or the specific location of the "Common Areas," as that term is
defined in Section 1.1.3, below, or the elements thereof or of the accessways to
the Premises or the "Project," as that term is defined in Section 1.1.2, below.
Except as specifically set forth in this Lease and in the Tenant Work Letter
attached hereto as Exhibit B (the "Tenant Work Letter"), Landlord shall not be
---------
obligated to provide or pay for any improvement work or services related to the
improvement of the Premises. Tenant also acknowledges that neither Landlord nor
any agent of Landlord has made any representation or warranty regarding the
condition of the Premises, the Building or the Project or with respect to the
suitability of any of the foregoing for the conduct of Tenant's business, except
as specifically set forth in this Lease and the Tenant Work Letter. The taking
of possession of the Premises by Tenant shall conclusively establish that the
Premises and the Building were at such time in good and sanitary order,
condition and repair.
1.1.2 The Building and The Project. The Premises are a part of the
----------------------------
building set forth in Section 2.1 of the Summary (the "Building"). The Building
is part of an office project known as "China Basin Landing." The term
"Project," as used in this Lease, shall mean (i) the Building and the Common
Areas, (ii) the land (which is improved with landscaping, subterranean parking
facilities and other improvements) upon which the Building and the Common Areas
are located, (iii) the other office building located adjacent to the Building
and the land upon which such adjacent office building is located, and (iv) at
Landlord's discretion, any additional real property, areas, land, buildings or
other improvements added thereto outside of the Project.
1.1.3 Common Areas. Tenant shall have the non-exclusive right to use
------------
in common with other tenants in the Project, and subject to the rules and
regulations referred to in Article 5 of this Lease, those portions of the
Project which are provided, from time to time, for use in common by Landlord,
Tenant and any other tenants of the Project (such areas, together with such
other portions of the Project designated by Landlord, in its discretion,
including certain areas designated for the exclusive use of certain tenants, or
to be shared by Landlord and certain tenants, are collectively referred to
herein as the "Common Areas"). The Common Areas shall consist of the "Project
Common Areas" and the "Building Common Areas." The term "Project Common Areas,"
as used in this Lease, shall mean the portion of the Project designated as such
by Landlord. The term "Building Common Areas," as used in this Lease, shall
mean the portions of the Common Areas located within the Building designated as
such by Landlord. The manner in which the Common Areas are maintained and
operated shall be at the sole discretion of Landlord and the use thereof shall
be subject to such rules, regulations and restrictions as Landlord may make from
time to time. Landlord reserves the right to make from time to time. Landlord
reserves the right to close temporarily, make alterations or additions to, or
change the location of elements of the Project and the Common Areas.
1.2 Verification of Rentable Square Feet of Premises, Building, and
---------------------------------------------------------------
Project. In the event that the rentable area of the Premises, the Building
- -------
and/or the Project shall hereafter change due to subsequent alterations and/or
other modifications to the Premises, the Building and/or the Project, the
rentable area of the Premises, the Building and/or the Project, as the case may
be, shall be appropriately adjusted as of the date of such alteration and/or
other modification, based
-3-
<PAGE>
upon the written verification by Landlord's space planner of such revised
rentable areas. In the event of any such adjustment to the rentable area of the
Premises, the Building and/or the Project, all amounts, percentages and figures
appearing or referred to in this Lease based upon such rentable area (including,
without limitation, the amount of the "Rent" and any "Security Deposit," as
those terms are defined in Article 4 and Article 21 of this Lease, respectively)
shall be modified in accordance with such determination.
ARTICLE 2
LEASE TERM
The terms and provisions of this Lease shall be effective as of the date
of this Lease. The term of this Lease (the "Lease Term") shall be as set forth
in Section 3.1 of the Summary, shall commence on the date set forth in Section
3.2 of the Summary (the "Lease Commencement Date"), and shall terminate on the
date set forth in Section 3.3 of the Summary (the "Lease Expiration Date")
unless this Lease is sooner terminated as hereinafter provided. For purposes of
this Lease, the term "Lease Year" shall mean each consecutive twelve (12) month
period during the Lease Term; provided, however, that the first Lease Year shall
commence on the Lease Commencement Date and end on the last day of the eleventh
month thereafter and the second and each succeeding Lease Year shall commence on
the first day of the next calendar month; and further provided that the last
Lease Year shall end on the Lease Expiration Date. At any time during the Lease
Term, Landlord may deliver to Tenant a notice in the form as set forth in
Exhibit C, attached hereto, as a confirmation only of the information set forth
- ---------
therein, which Tenant shall execute and return to Landlord within five (5) days
of receipt thereof.
ARTICLE 3
BASE RENT
Tenant shall pay, without prior notice or demand, to Landlord or
Landlord's agent at the management office of the Project, or, at Landlord's
option, at such other place as Landlord may from time to time designate in
writing, by a check for currency which, at the time of payment, is legal tender
for private or public debts in the United States of America, base rent ("Base
Rent") as set forth in Section 4 of the Summary, payable in equal monthly
installments as set forth in Section 4 of the Summary in advance on or before
the first day of each and every calendar month during the Lease Term, without
any setoff or deduction whatsoever. The Base Rent for the first full month of
the Lease Term shall be paid at the time of Tenant's execution of this Lease.
If any Rent payment date (including the Lease Commencement Date) falls on a day
of the month other than the first day of such month or if any payment of Rent is
for a period which is shorter than one month, the Rent for any fractional month
shall accrue on a daily basis for the period from the date such payment is due
to the end of such calendar month or to the end of the Lease Term at a rate per
day which is equal to 1/365 of the applicable annual Rent. All other payments
or adjustments required to be made under the terms of this Lease that require
proration on a time basis shall be prorated on the same basis.
ARTICLE 4
ADDITIONAL RENT
4.1 General Terms. In addition to paying the Base Rent specified in
-------------
Article 3 of this Lease, Tenant shall pay, commencing after the expiration of
the "Base Year", "Tenant's Share" of the annual "Direct Expenses," as those
terms are defined in Sections 4.2.1, 4.2.6 and 4.2.2 of this Lease,
respectively, which are in excess of the amount of Direct Expenses applicable to
the Base Year; provided, however, that in no event shall any decrease in Direct
Expenses for any "Expense Year," as that term is defined in Section 4.2.6 below,
below Direct Expenses for the Base Year entitle Tenant to any decrease in Base
Rent or any credit against sums due under this Lease. Such payments by Tenant,
together with any and all other amounts payable by Tenant to Landlord pursuant
to the terms of this Lease, are hereinafter collectively referred to as the
"Additional Rent", and the Base Rent and the Additional Rent are herein
collectively referred to as "Rent." All amounts due under this Article 4 as
Additional Rent shall be payable for the same periods and in the same manner as
the Base Rent. Without limitation on other obligations of Tenant which survive
the expiration of the Lease Term, the obligations of Tenant to pay the
Additional Rent provided for in this Article 4 shall survive the expiration of
the Lease Term.
-4-
<PAGE>
4.2 Definitions of Key Terms Relating to Additional Rent. As used in
----------------------------------------------------
this Article 4, the following terms shall have the meanings hereinafter set
forth:
4.2.1 "Base Year" shall mean the period set forth in Section 5 of
the Summary.
4.2.2 "Direct Expenses" shall mean "Operating Expenses" and "Tax
Expenses."
4.2.3 "Expense Year" shall mean each calendar year in which any
portion of the Lease Tenn falls, through and including the calendar year in
which the Lease Term expires, provided that Landlord, upon notice to Tenant, may
change the Expense Year from time to time to any other twelve (12) consecutive
month period, and, in the event of any such change, Tenant's Share of Direct
Expenses shall be equitably adjusted for any Expense Year involved in any such
change.
4.2.4 "Operating Expenses" shall mean all expenses, costs and
amounts of every kind and nature which Landlord pays or accrues during any
Expense Year because of or in connection with the ownership, management,
maintenance, security, repair, replacement, restoration or operation of the
Project, or any portion thereof. Without limiting the generality of the
foregoing, Operating Expenses shall specifically include any and all of the
following: (i) the cost of supplying all utilities, the cost of operating,
repairing, maintaining, and renovating the utility, telephone, mechanical,
sanitary, storm drainage, and elevator systems, and the cost of maintenance and
service contracts in connection therewith; (ii) the cost of licenses,
certificates, permits and inspections and the cost of contesting any
governmental enactments which may affect Operating Expenses, and the costs
incurred in connection with a transportation system management program or
similar program; (iii) the cost of all insurance carried by Landlord in
connection with the Project; (iv) the cost of landscaping, relamping, and all
supplies, tools, equipment and materials used in the operation, repair and
maintenance of the Project, or any portion thereof; (v) costs incurred in
connection with the parking areas servicing the Building; (vi) fees and other
costs, including management fees, consulting fees, legal fees and accounting
fees, of all contractors and consultants in connection with the management,
operation, maintenance and repair of the Project; (vii) payments under any
equipment rental agreements and the fair rental value of any management office
space; (viii) wages, salaries and other compensation and benefits, including
taxes levied thereon, of all persons engaged in the operation, maintenance and
security of the Project; (ix) costs under any instrument pertaining to the
sharing of costs by the Project; (x) operation, repair, maintenance and
replacement of all systems and equipment and components thereof of the Building;
(xi) the cost of janitorial, alarm, security and other services, replacement of
wall and floor coverings, ceiling tiles and fixtures in common areas,
maintenance and replacement of curbs and walkways, exterior windows and walls,
repair to roofs and re-roofing, waterproofing and sealing of garage, foundation
and basement areas; (xii) amortization (including interest on the unamortized
cost) of the cost of acquiring or the rental expense of personal property used
in the maintenance, operation and repair of the Project, or any portion thereof;
(xiii) the cost of capital improvements or other costs incurred in connection
with the Project (A) which are intended to effect economies in the operation or
maintenance of the Project, or any portion thereof, (B) that are required to
comply with present or anticipated conservation programs, (C) which are
replacements or modifications of nonstructural items located in the Common Areas
required to keep the Common Areas in good order or condition, or (D) that are
required under any governmental law or regulation; provided, however, that any
capital expenditure shall be amortized with interest over its useful life as
Landlord shall reasonably determine; (xiv) costs, fees, charges or assessments
imposed by, or resulting from any mandate imposed on Landlord by, any federal,
state or local government for fire and police protection, trash removal,
community services, or other services which do not constitute "Tax Expenses" as
that term is defined in Section 4.2.5, below; and (xv) payments under any
easement, license, operating agreement, declaration, restrictive covenant, or
instrument pertaining to the sharing of costs by the Building. If Landlord is
not furnishing any particular work or service (the cost of which, if performed
by Landlord, would be included in Operating Expenses) to a tenant who has
undertaken to perform such work or service in lieu of the performance thereof by
Landlord, Operating Expenses shall be deemed to be increased by an amount equal
to the additional Operating Expenses which would reasonably have been incurred
during such period by Landlord if it had at its own expense furnished such work
or service to such tenant. If the Project is not at least ninety-five percent
(95%) occupied during all or a portion of the Base Year or any Expense Year,
Landlord may elect to make an appropriate adjustment to the components of
Operating Expenses for such year to determine the amount of
-5-
<PAGE>
completion thereof. In addition, Landlord may in its discretion, require Tenant
to obtain a lien and completion bond or some alteranate form of security
satisfactory to Landlord in an amount sufficient to ensure the lien-free
completion of such Alterations and naming Landlord as a co-obligee.
8.5 Landlord's Property. All Alterations, improvements, fixtures,
-------------------
equipment and/or appurtenances which may be installed or placed in or about the
Premises, from time to time, shall be at the sole cost of Tenant and shall be
and become the property of Landlord, except that Tenant may remove any
Alterations, improvements, fixtures and/or equipment which Tenant can
substantiate to Landlord have not been paid for with any Tenant improvement
allowance funds provided to Tenant by Landlord, provided Tenant repairs any
damage to the Premises and Building caused by such removal and returns the
affected portion of the Premises to a building standard tenant improved
condition as determined by Landlord. Furthermore, Landlord may, by written
notice to Tenant prior to the end of the Lease Term, or given following any
earlier termination of this Lease, require Tenant, at Tenant's expense, to
remove any Alterations or improvements in the Premises, and to repair any damage
to the Premises and Building caused by such removal and returns the affected
portion of the Premises to a building standard tenant improved condition as
determined by Landlord. If Tenant fails to complete such removal and/or to
repair any damage caused by the removal of any Alterations or improvements in
the Premises, and return the affected portion of the Premises to a building
standard tenant improved condition as determined by Landlord, Landlord may do so
and may charge the cost thereof to Tenant. Tenant hereby protects, defends,
indemnifies and holds Landlord harmless from any liability, cost, obligation,
expense or claim of lien in any manner relating to the installation, placement,
removal or financing of any such Alterations, improvements, fixtures and/or
equipment in, on or about the Premises, which obligations of Tenant shall
survive the expiration or earlier termination of this Lease.
ARTICLE 9
COVENANT AGAINST LIENS
Tenant shall keep the Project and Premises free from any liens or
encumbrances arising out of the work performed, materials furnished or
obligations incurred by or on behalf of Tenant, and shall protect, defend,
indemnify and hold Landlord harmless from and against any claims, liabilities,
judgments or costs (including, without limitation, reasonable attorneys' fees
and costs) arising out of same or in connection therewith. Tenant shall give
Landlord notice at least twenty (20) days prior to the commencement of any such
work on the Premises (or such additional time as may be necessary under
applicable laws) to afford Landlord the opportunity of posting and recording
appropriate notices of non-responsibility. Tenant shall remove any such lien or
encumbrance by bond or otherwise within five (5) days after notice by Landlord,
and if Tenant shall fail to do so, 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 subject Landlord's title to the Building or
Premises to any liens or encumbrances whether claimed by operation of law or
express or implied contract. Any claim to a lien or encumbrance upon the
Building or Premises arising in connection with any such work 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
Project, Building and Premises.
ARTICLE 10
INSURANCE
10.1 Indemnification and Waiver. Tenant hereby assumes all risk of
--------------------------
damage to property or injury to persons in, upon or about the Premises from any
cause whatsoever and agrees that Landlord, its partners, subpartners and their
respective officers, agents, servants, employees, and independent contractors
(collectively, "Landlord Parties") shall not be liable for, and are hereby
released from any responsibility for, any damage either to person or property or
resulting from the loss of use thereof, which damage is sustained by Tenant or
by other persons claiming through Tenant. Tenant shall indemnify, defend,
protect, and hold harmless the
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Landlord Parties from any and all loss, cost, damage, expense and liability
(including without limitation court costs and reasonable attorneys' fees)
incurred in connection with or arising from any cause in, on or about the
Premises, any acts, omissions or negligence of Tenant or of any person claiming
by, through or under Tenant, or of the contractors, agents, servants, employees,
invitees, guests or licensees of Tenant or any such person, in, on or about the
Project or any breach of the terms of this Lease, either prior to, during, or
after the expiration of the Lease Term, provided that the terms of the foregoing
indemnity shall not apply to the negligence or willful misconduct of Landlord.
Should Landlord be named as a defendant in any suit brought against Tenant in
connection with or arising out of Tenant's occupancy of the Premises, Tenant
shall pay to Landlord its costs and expenses incurred in such suit, including
without limitation, its actual professional fees such as appraisers',
accountants' and attorneys' fees. Further, Tenant's agreement to indemnify
Landlord pursuant to this Section 10.1 is not intended and shall not relieve any
------------
insurance carrier of its obligations under policies required to be carried by
Tenant pursuant to the provisions of this Lease, to the extent such policies
cover the matters subject to Tenant's indemnification obligations; nor shall
they supersede any inconsistent agreement of the parties set forth in any other
provision of this Lease. The provisions of this Section 10.1 shall survive the
expiration or sooner termination of this Lease with respect to any claims or
liability arising in connection with any event occurring prior to such
expiration or termination.
10.2 Tenant's Compliance With Landlord's Fire and Casualty Insurance.
---------------------------------------------------------------
Tenant shall, at Tenant's expense, comply with all insurance company
requirements pertaining to the use of the Premises. If Tenant's conduct or use
of the Premises causes any increase in the premium for such insurance policies
then Tenant shall reimburse Landlord for any such increase. Tenant, at Tenant's
expense, shall comply with all rules, orders, regulations or requirements of the
American Insurance Association (formerly the National Board of Fire
Underwriters) and with any similar body.
10.3 Tenant's Insurance. Tenant shall maintain the following coverages in
------------------
the following amounts.
10.3.1 Commercial General Liability Insurance covering the insured
against claims of bodily injury, personal injury and property damage (including
loss of use thereof) arising out of Tenant's operation's, and contractual
liabilities (covering the performance by Tenant of its indemnity agreements)
including a Broad Form endorsement covering the insuring provisions of this
Lease and the performance by Tenant of the indemnity agreements set forth in
Section 10.1 of this Lease, for limits of liability not less than:
Bodily Injury and $5,000,000 each occurrence
Property Damage Liability $5,000,000 annual aggregate
Personal Injury Liability $5,000,000 each occurrence
$5,000,000 annual aggregate
0% Insured's participation
10.3.2 Physical Damage Insurance covering (i) all office furniture,
business and trade fixtures, office equipment, free-standing cabinet work,
movable partitions, merchandise and all other items of Tenant's property on the
Premises installed by, for, or at the expense of Tenant, (ii) the "Tenant
Improvements," as that term is defined in Section 2.1 of the Tenant Work Letter,
and any other improvements which exist in the Premises as of the Lease
Commencement Date (excluding the Base Building) (the "Original Improvements"),
and (iii) all other improvements, alterations and additions to the Premises.
Such insurance shall be written on an "all risks" of physical loss or damage
basis, for the full replacement cost value (subject to reasonable deductible
amounts) new without deduction for depreciation of the covered items and in
amounts that meet any co-insurance clauses of the policies of insurance and
shall include coverage for damage or other loss caused by fire or other peril
including, but not limited to, vandalism and malicious mischief, theft, water
damage of any type, including sprinkler leakage, bursting or stoppage of pipes,
and explosion, and providing business interruption coverage for a period of one
year.
10.3.3 Worker's Compensation and Employer's Liability or other
similar insurance pursuant to all applicable state and local statutes and
regulations.
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10.3.4 Business Interruption Insurance in the amount necessary to
insure payment of Tenant's obligations to pay Rent hereunder for a period of not
less than twelve (12) months.
10.4 Form of Policies. The minimum limits of policies of insurance
----------------
required of Tenant under this Lease shall in no event limit the liability of
Tenant under this Lease. Such insurance shall (i) name Landlord, and any other
party the Landlord so specifies, as an additional insured, including Landlord's
managing agent, if any; (ii) specifically cover the liability assumed by Tenant
under this Lease, including, but not limited to, Tenant's obligations under
Section 10.1 of this Lease; (iii) be issued by an insurance company having a
rating of not less than A-X in Best's Insurance Guide or which is otherwise
acceptable to Landlord and licensed to do business in the State of California;
(iv) be primary insurance as to all claims thereunder and provide that any
insurance carried by Landlord is excess and is non-contributing with any
insurance requirement of Tenant; (v) be in form and content reasonably
acceptable to Landlord; and (vi) provide that said insurance shall not be
canceled or coverage changed unless thirty (30) days' prior written notice shall
have been given to Landlord and any mortgagee of Landlord. Tenant shall deliver
said policy or policies or certificates (including endorsements) thereof to
Landlord on or before the Lease Commencement Date and at least thirty (30) days
before the expiration dates thereof. In the event Tenant shall fail to procure
such insurance, or to deliver such policies or certificate, Landlord may, at its
option, procure such policies for the account of Tenant, and the cost thereof
shall be paid to Landlord within five (5) days after delivery to Tenant of bills
therefor.
10.5 Subrogation. Landlord and Tenant intend that their respective
-----------
property loss risks shall be borne by reasonable 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 each
other for such losses, and waive all rights of subrogation of their respective
insurers, provided such waiver of subrogation shall not affect the right to the
insured to recover thereunder. The parties agree that their respective
insurance policies are now, or shall be, endorsed such that the waiver of
subrogation shall not affect the right of the insured to recover thereunder, so
long as no material additional premium is charged therefor.
10.6 Additional Insurance Obligations. Tenant shall carry and maintain
--------------------------------
during the entire Lease Term, as the same may be extended, at Tenant's sole cost
and expense, increased amounts of the insurance required to be carried by Tenant
pursuant to this Article 10 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 11
DAMAGE AND DESTRUCTION
11.1 Repair of Damage to Premises by Landlord. Tenant shall promptly
----------------------------------------
notify Landlord of any damage to the Premises resulting from fire or any other
casualty. If the Premises or any Common Areas serving or providing access to
the Premises shall be damaged by fire or other casualty, Landlord shall promptly
and diligently, subject to reasonable delays for insurance adjustment or other
matters beyond Landlord's reasonable control, and subject to all other terms of
this Article 11, restore the Base Building and such Common Areas. Such
restoration shall be to substantially the same condition of the Base Building
and the Common Areas prior to the casualty, except for modifications required by
zoning and building codes and other laws or by the holder of a mortgage on the
Building or Project or any other modifications to the Common Areas deemed
desirable by Landlord, provided that access to the Premises and any common
restrooms serving the Premises, upon notice (the "Landlord Repair Notice") to
Tenant from Landlord, Tenant shall assign to Landlord (or to any party
designated by Landlord) all insurance proceeds payable to Tenant under Tenant's
insurance required under Section 10.3 of this Lease, and Landlord shall repair
any injury or damage to the Tenant Improvements and the Original Improvements
installed in the Premises and shall return such Tenant Improvements and Original
Improvements to their original condition; provided that if the cost of such
repair by Landlord exceeds the amount of insurance proceeds received by Landlord
from Tenant's insurance carrier, as assigned by Tenant, the cost of such repairs
shall be paid by Tenant to
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Landlord prior to Landlord's commencement of repair of the damage, or as soon as
such additional costs are known. In the event that Landlord does not deliver the
Landlord Repair Notice within sixty (60) days following the date the casualty
becomes known to Landlord, Tenant shall, at its sole cost and expense, repair
any injury or damage to the Tenant Improvements and the Original Improvements
installed in the Premises and shall return such Tenant Improvements and Original
Improvements to their original condition. Whether or not Landlord delivers a
Landlord Repair Notice, prior to the commencement of construction, Tenant shall
submit to Landlord, for Landlord's review and approval, all plans,
specifications and working drawings relating thereto, and Landlord shall select
the contractors to perform such improvement work. 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;
provided however, that if such fire or other casualty shall have damaged the
Premises or Common Areas necessary to Tenant's occupancy, Landlord shall allow
Tenant a proportionate abatement of Rent to the extent Landlord is reimbursed
from the proceeds of rental interruption insurance purchased by Landlord as part
of Operating Expenses, during the time and to the extent the Premises are unfit
for occupancy for the purposes permitted under this Lease, and not occupied by
Tenant as a result thereof; provided, further, however, that if the damage or
destruction is due to the negligence or wilful misconduct of Tenant or any of
its agents, employees, contractors, invitees or guests, Tenant shall be
responsible for any reasonable, applicable insurance deductible (which shall be
payable to Landlord upon demand) and there shall be no rent abatement. In the
event that Landlord shall not deliver the Landlord Repair Notice, Tenant's right
to rent abatement pursuant to the preceding sentence shall terminate as of the
date which is reasonably determined by Landlord to be the date Tenant should
have completed repairs to the Premises assuming Tenant used reasonable due
diligence in connection therewith.
11.2 Landlord's Option to Repair. Notwithstanding the terms of Section
---------------------------
11.1 of this Lease, Landlord may elect not to rebuild and/or restore the
Premises, Building and/or Project, and instead terminate this Lease, by
notifying Tenant in writing of such termination within sixty (60) days after the
date of damage, such notice to include a termination date giving Tenant sixty
(60) days to vacate the Premises, but Landlord may so elect only if the Building
or Project shall be damaged by fire or other casualty or cause, whether or not
the Premises are affected, and one or more of the following conditions is
present: (i) in Landlord's reasonable judgment, repairs cannot reasonably be
completed within ninety (90) days after the date of discovery of the damage
(when such repairs are made without the payment of overtime or other premiums);
(ii) the holder of any mortgage on the Building or Project or ground lessor with
respect to the Building or Project 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; (iii) the damage is not fully covered by
Landlord's insurance policies; or (iv) Landlord decides to rebuild the Building
or Common Areas so that they will be substantially different structurally or
architecturally; (v) the damage occurs during the last eighteen (18) months of
the Lease Term; or (vi) any owner of any other portion of the Project, other
than Landlord, does not intend to repair the damage to such portion of the
Project
11.3 Waiver of Statutory Provisions. The provisions of this Lease,
------------------------------
including this Article 11, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or the Project, and any statute or regulation of
the State of California, including, without limitation, Sections 1932(2) and
1933(4) of the California Civil Code, with respect to any rights or obligations
concerning damage or destruction in the absence of an express agreement between
the parties, and any other statute or regulation, now or hereafter in effect,
shall have no application to this Lease or any damage or destruction to all or
any part of the Premises, the Building or the Project.
ARTICLE 12
NONWAIVER
No provision of this Lease shall be deemed waived by either party hereto
unless expressly waived in a writing signed thereby. The waiver by either party
hereto of any breach of any term, covenant or condition herein contained shall
not be deemed to be a waiver of any subsequent breach of same or any other term,
covenant or condition herein contained. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding
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breach by Tenant of any term, covenant or condition of this Lease, other than
the failure of Tenant to pay the particular Rent so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
Rent. 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. No receipt of monies by Landlord from Tenant after the
termination of this Lease shall in any way alter the length of the Lease Term or
of Tenant's right of possession hereunder, or after the giving of any notice
shall reinstate, continue or extend the Lease Term or affect any notice given
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit, or after final judgment for
possession of the Premises, Landlord may receive and collect any Rent due, and
the payment of said Rent shall not waive or affect said notice, suit or
judgment.
ARTICLE 13
CONDEMNATION
If the whole or any part of the Premises, Building or Project 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, Building or Project, 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 effective as of the date
possession is required to be surrendered to the authority. If more than twenty-
five percent (25%) of the rentable square feet of the Premises is taken, or if
access to the Premises is substantially impaired, in each case for a period in
excess of one hundred eighty (180) days, Tenant shall have the option to
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. Tenant shall not because of such taking assert
any claim against Landlord or the authority for any compensation because of such
taking and Landlord shall be entitled to 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
Lease Term pursuant to the terms of this Lease, and for moving expenses, so long
as such claims do not diminish the award available to Landlord, its ground
lessor with respect to the Building or Project or its mortgagee, and such claim
is payable separately to Tenant. All Rent shall be apportioned as of the date
of such termination. If any part of the Premises shall be taken, and this Lease
shall not be so terminated, the Rent shall be proportionately abated. Tenant
hereby waives any and all rights it might otherwise have pursuant to Section
1265.130 of The California Code of Civil Procedure. Notwithstanding anything to
the contrary contained in this Article 13, in the event of a temporary taking of
all or any portion of the Premises for a period of one hundred and eighty (180)
days or less, then this Lease shall not terminate but the Base Rent and the
Additional Rent shall be abated for the period of such taking in proportion to
the ratio that the amount of rentable square feet of the Premises taken bears to
the total rentable square feet of the Premises. Landlord shall be entitled to
receive the entire award made in connection with any such temporary taking.
ARTICLE 14
ASSIGNMENT AND SUBLETTING
14.1 Transfers. Tenant shall not, without the prior written consent of
---------
Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to
attach to, or otherwise transfer, this Lease or any interest hereunder, permit
any assignment, or other transfer of this Lease or any interest hereunder by
operation of law, sublet the Premises or any part thereof, or enter into any
license or concession agreements or otherwise permit the occupancy or use of the
Premises or any part thereof by any persons other than Tenant and its employees
and contractors (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 desires Landlord's consent to any Transfer, Tenant shall notify Landlord
in writing, which notice (the "Transfer Notice") shall include (i) the proposed
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effective date of the Transfer, which shall not be less than thirty (30) days
nor more than one hundred eighty (180) days after the date of delivery of the
Transfer Notice, (ii) a description of the portion of the Premises to be
transferred (the "Subject Space"), (iii) all of the terms of the proposed
Transfer and the consideration therefor, including calculation of the "Transfer
Premium", as that term is defined in Section 14.3 below, in connection with such
Transfer, the name and address of the proposed Transferee, and a copy of all
existing executed and/or proposed documentation pertaining to the proposed
Transfer, including all existing operative documents to be executed to evidence
such Transfer or the agreements incidental or related to such Transfer, provided
that Landlord shall have the right to require Tenant to utilize Landlord's
standard Transfer documents in connection with the documentation of such
Transfer, (iv) current financial statements of the proposed Transferee certified
by an officer, partner or owner thereof, business credit and personal references
and history of the proposed Transferee and any other information required by
Landlord which will 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 (v) an executed
estoppel certificate from Tenant in the form attached hereto as Exhibit E. Any
---------
Transfer made without Landlord's prior written consent shall, at Landlord's
option, be null, void and of no effect, and shall, at Landlord's option,
constitute a default by Tenant under this Lease. Whether or not Landlord
consents to any proposed Transfer, Tenant shall pay Landlord's review and
processing fees, as well as any reasonable professional fees (including, without
limitation, attorneys', accountants', architects', engineers' and consultants'
fees) incurred by Landlord, within thirty (30) days after written request by
Landlord.
14.2 Landlord's Consent. Landlord shall not unreasonably withhold its
------------------
consent to any proposed Transfer of the Subject Space to the Transferee on the
terms specified in the Transfer Notice. Without limitation as to other
reasonable grounds for withholding consent, the parties hereby agree that it
shall 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
apply:
14.2.1 The Transferee is of a character or reputation or engaged in
a business which is not consistent with the quality of the Building or the
Project;
14.2.2 The Transferee intends to use the Subject Space for purposes
which are not permitted under this Lease;
14.2.3 The Transferee is either a governmental agency or
instrumentality thereof;
14.2.4 The Transferee is not a party of reasonable financial worth
and/or financial stability in light of the responsibilities to be undertaken in
connection with the Transfer on the date consent is requested;
14.2.5 The proposed Transfer would cause a violation of another
lease for space in the Project, or would give an occupant of the Project a right
to cancel its lease;
14.2.6 The terms of the proposed Transfer will allow the Transferee
to exercise a right of renewal, right of expansion, right of first offer, or
other similar right held by Tenant (or will allow the Transferee to occupy space
leased by Tenant pursuant to any such right); or
14.2.7 Either the proposed Transferee, or any person or entity which
directly or indirectly, controls, is controlled by, or is under common control
with, the proposed Transferee, (i) occupies space in the Project at the time of
the request for consent, or (ii) is negotiating or has negotiated with Landlord
to lease space in the Project.
14.2.8 The Transferee does not intend to occupy the entire Premises
and conduct its business therefrom for a substantial portion of the term of the
Transfer.
If Landlord consents to any Transfer pursuant to the terms of this Section
14.2 (and does not exercise any recapture rights Landlord may have under Section
14.4 of this Lease), Tenant may within six (6) months after Landlord's consent,
but not later than the expiration of said six-month period, enter into such
Transfer of the Premises or portion thereof, upon substantially the same terms
and conditions as are set forth in the Transfer Notice furnished by Tenant to
Landlord pursuant to Section 14.1 of this Lease. Notwithstanding anything to the
contrary in the Lease, if
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Tenant or any proposed Transferee claims that Landlord has unreasonably withheld
or delayed its consent under Section 14.2 or otherwise has breached or acted
unreasonably under this Article 14, their sole remedies shall be a declaratory
judgment and an injunction for the relief sought without any monetary damages,
and Tenant hereby waives all other remedies, including, without limitation, any
right at law or equity to terminate this Lease, on its own behalf and, to the
extent permitted under all applicable laws, on behalf of the proposed
Transferee. Tenant shall indemnify, defend and hold harmless Landlord from any
and all liability, losses, claims, damages, costs, expenses, causes of action
and proceedings involving any third party or parties (including without
limitation Tenant's proposed subtenant or assignee) who claim they were damaged
by Landlord's wrongful withholding or conditioning of Landlord's consent.
14.3 Transfer Premium. If Landlord consents to a Transfer, as a condition
----------------
thereto which the parties hereby agree is reasonable, Tenant shall pay to
Landlord any "Transfer Premium," as that term is defined in this Section 14.3,
received by Tenant from such Transferee. "Transfer Premium" shall mean all
rent, additional rent or other consideration payable by such Transferee in
connection with the Transfer in excess of the Rent and Additional Rent payable
by Tenant under this Lease during the term of the Transfer on a per rentable
square foot basis if less than all of the Premises is transferred. "Transfer
Premium" shall also include, but not be limited to, key money, bonus money or
other cash consideration paid by Transferee to Tenant in connection with such
Transfer, and any payment in excess of fair market value for services rendered
by Tenant to Transferee or for assets, fixtures, inventory, equipment, or
furniture transferred by Tenant to Transferee in connection with such Transfer.
In the calculations of the Rent (as it relates to the Transfer Premium
calculated under this Section 14.3), the Rent paid during each annual period for
------------
the Subject Space, shall be computed after adjusting such rent to the actual
effective rent to be paid, taking into consideration any and all leasehold
concessions granted in connection therewith, including, but not limited to, any
rent credit and tenant improvement allowance. For purposes of calculating any
such effective rent all such concessions shall be amortized on a straight-line
basis over the relevant term.
14.4 Landlord's Option as to Subject Space. Notwithstanding anything to
-------------------------------------
the contrary contained in this Article 14, Landlord shall have the option, by
giving written notice to Tenant within thirty (30) days after receipt of any
Transfer Notice, to recapture the Subject Space. Such recapture notice shall
cancel and terminate this Lease with respect to the Subject Space as of the date
stated in the Transfer Notice as the effective date of the proposed Transfer
until the last day of the term of the Transfer as set forth in the Transfer
Notice (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). In the event of a recapture by Landlord, if this Lease
shall be canceled 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 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. If Landlord declines,
or fails to elect in a timely manner to recapture the Subject Space under this
Section 14.4, then, provided Landlord has consented to the proposed Transfer,
Tenant shall be entitled to proceed to transfer the Subject Space to the
proposed Transferee, subject to provisions of this Article 14.
14.5 Effect of Transfer. If Landlord consents to a Transfer, (i) the terms
------------------
and conditions of this Lease shall in no way be deemed to have been waived or
modified, (ii) such consent shall not be deemed consent to any further Transfer
by either Tenant or a Transferee, (iii) 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, (iv)
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, and (v) 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 the Lease
from any liability under this Lease, including, without limitation, in
connection with the Subject Space. 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, and shall have the right 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 two percent (2%), Tenant shall pay
Landlord's costs of such audit.
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14.6 Additional Transfers. For purposes of this Lease, the term "Transfer"
--------------------
shall also include (i) if Tenant is a partnership, the withdrawal or change,
voluntary, involuntary or by operation of law, of fifty percent (50%) or more of
the partners, or transfer of fifty percent (50%) or more of partnership
interests, within a twelve (12)-month period, or the dissolution of the
partnership without immediate reconstitution thereof, and (ii) if Tenant is a
closely held corporation (i.e., whose stock is not publicly held and not traded
through an exchange or over the counter), (A) the dissolution, merger,
consolidation or other reorganization of Tenant or (B) the sale or other
transfer of an aggregate of fifty percent (50%) or more of the voting shares of
Tenant (other than to immediate family members by reason of gift or death),
within a twelve (12)-month period, or (C) the sale, mortgage, hypothecation or
pledge of an aggregate of fifty percent (50%) or more of the value of the
unencumbered assets of Tenant within a twelve (12)-month period.
14.7 Occurrence of Default. Any Transfer hereunder shall be subordinate
---------------------
and subject to the provisions of this Lease, and if this Lease shall be
terminated during the term of any Transfer, Landlord shall have the right to:
(i) treat such Transfer as cancelled and repossess the Subject Space by any
lawful means, or (ii) require that such Transferee attorn to and recognize
Landlord as its landlord under any such Transfer. If Tenant shall be in default
under this Lease, 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.
Such Transferee shall rely on any representation by Landlord that Tenant is in
default hereunder, without any need for confirmation thereof by Tenant. Upon
any assignment, the assignee shall assume in writing all obligations and
covenants of Tenant thereafter to be performed or observed under this Lease. No
collection or acceptance of rent by Landlord from any Transferee shall be deemed
a waiver of any provision of this Article 14 or the approval of any Transferee
or a release of Tenant from any obligation under this Lease, whether theretofore
or thereafter accruing. In no event shall Landlord's enforcement of any
provision of this Lease against any Transferee be deemed a waiver of Landlord's
right to enforce any term of this Lease against Tenant or any other person. If
Tenant's obligations hereunder have been guaranteed, Landlord's consent to any
Transfer shall not be effective unless the guarantor also consents to such
Transfer.
ARTICLE 15
SURRENDER OF PREMISES; OWNERSHIP AND
REMOVAL OF TRADE FIXTURES
15.1 Surrender of Premises. No act or thing done by Landlord or any agent
---------------------
or employee of Landlord during the Lease Term shall be deemed to constitute an
acceptance by Landlord of a surrender of the Premises unless such intent is
specifically acknowledged in writing by Landlord. The delivery of keys to the
Premises to Landlord or any agent or employee of Landlord shall not constitute a
surrender of the Premises or effect a termination of this Lease, whether or not
the keys are thereafter retained by Landlord, and notwithstanding such delivery
Tenant shall be entitled to the return of such keys at any reasonable time upon
request until this Lease shall have been properly terminated. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not, or
a mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises or terminate any or all such sublessees or
subtenancies.
15.2 Removal of Tenant Property by Tenant. Upon the expiration of the
------------------------------------
Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject
to the provisions of this Article 15, quit and surrender possession of the
Premises to Landlord in as good order and condition as when Tenant took
possession and as thereafter improved by Landlord and/or Tenant, reasonable wear
and tear and repairs which are specifically made the responsibility of Landlord
hereunder excepted. Upon such expiration or termination, Tenant shall, without
expense to Landlord, remove or cause to be removed from the Premises all debris
and rubbish, and such items of furniture, equipment, business and trade
fixtures, free-standing cabinet work, movable partitions and other articles of
personal property owned by Tenant or installed or placed by Tenant at its
expense in the Premises (the "Tenant Personal Property"), and such similar
articles of any other persons claiming under Tenant, as Landlord may, in its
sole discretion, require to be removed, and Tenant shall repair at is own
expense all damage to the Premises and
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Building resulting from such removal. Landlord shall have the right, at Tenant's
sole cost and expense, to dispose of any Tenant Personal Property remaining in
the Premises after Tenant's vacation of the same in any manner Landlord sees
fit.
ARTICLE 16
HOLDING OVER
If Tenant holds over after the expiration of the Lease Term or earlier
termination thereof, with or without the express or implied consent of Landlord,
such tenancy shall be from month-to-month only, and shall not constitute a
renewal hereof or an extension for any further term, and in such case Rent shall
be payable at a monthly rate equal to the product of (i) the Rent applicable
during the last rental period of the Lease Term under this Lease, and (ii) a
percentage equal to the sum of (A) 200% and (B) the percentage by which Rent was
increased at the time of the last increase of Rent during the Lease Term. Such
month-to-month tenancy shall be subject to every other applicable term, covenant
and agreement contained herein. Nothing contained in this Article 16 shall be
construed as consent by Landlord to any holding over by Tenant, and Landlord
expressly reserves the right to require Tenant to surrender possession of the
Premises to Landlord as provided in this Lease upon the expiration or other
termination of this Lease. The provisions of this Article 16 shall not be
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law. If Tenant fails to surrender the Premises
upon the termination or expiration of this Lease, in addition to any other
liabilities to Landlord accruing therefrom, Tenant shall protect, defend,
indemnify and hold Landlord harmless from all loss, costs (including reasonable
attorneys' fees) and liability resulting from such failure, including, without
limiting the generality of the foregoing, any claims made by any succeeding
tenant founded upon such failure to surrender and any lost profits to Landlord
resulting therefrom.
ARTICLE 17
ESTOPPEL CERTIFICATES
Within ten (10) days following a request in writing by Landlord, Tenant
shall execute, acknowledge and deliver to Landlord an estoppel certificate,
which, as submitted by Landlord, shall be substantially in the form of Exhibit
-------
E, attached hereto (or such other form as may be required by any prospective
- -
mortgagee or purchaser of the Project, or any portion thereof), indicating
therein any exceptions thereto that may exist at that time, and shall also
contain any other information reasonably requested by Landlord or Landlord's
mortgagee or prospective mortgagee. Any such certificate may be relied upon by
any prospective mortgagee or purchaser of all or any portion of the Project.
Tenant shall execute and deliver whatever other instruments may be reasonably
required for such purposes. At any time during the Lease Term, Landlord may
require Tenant to provide Landlord with a current financial statement and
financial statements of the two (2) years prior to the current financial
statement year. Such statements shall be prepared in accordance with generally
accepted accounting principles and, if such is the normal practice of Tenant,
shall be audited by an independent certified public accountant. Failure of
Tenant to timely execute, acknowledge and deliver such estoppel certificate or
other instruments shall constitute an acceptance of the Premises and an
acknowledgment by Tenant that statements included in the estoppel certificate
are true and correct, without exception.
ARTICLE 18
SUBORDINATION
This Lease shall be subject and subordinate to all present and future
ground or underlying leases of the Building or Project and to the lien of any
mortgage, trust deed or other encumbrances now or hereafter in force against the
Building or Project or any part thereof, if any, and to all renewals,
extensions, modifications, consolidations and replacements thereof, and to all
advances made or hereafter to be made upon the security of such mortgage or
trust deeds, unless the holders of such mortgages, trust deeds or other
encumbrances, or the lessors under such ground lease of underlying leases,
require in writing that this Lease be superior thereto. Tenant covenants and
agrees in the event any proceedings are brought for the foreclosure of any such
mortgage or deed in lieu thereof (or if any ground lease is terminated), to
attorn, without any deductions or set-offs whatsoever, to the lienholder or
purchaser or any successors thereto
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upon any such foreclosure sale or deed in lieu thereof (or to the ground
lessor), if so requested to do so by such purchaser or lienholder or ground
lessor, and to recognize such purchaser or lienholder or ground lessor as the
lessor under this Lease, provided such lienholder or purchaser or ground lessor
shall agree to accept this Lease and not disturb Tenant's occupancy, so long as
Tenant timely pays the rent and observes and performs the terms, covenants and
conditions of this Lease to be observed and performed by Tenant. Landlord's
interest herein may be assigned as security at any time to any lienholder.
Tenant shall, within five (5) days of request by Landlord, execute such further
instruments or assurances as Landlord may reasonably deem necessary to evidence
or confirm the subordination or superiority of this Lease to any such mortgages,
trust deeds, ground leases or underlying leases. Tenant waives the provisions of
any current or future statute, rule or law which may give or purport to give
Tenant any right or election to terminate or otherwise adversely affect this
Lease and the obligations of the Tenant hereunder in the event of any
foreclosure proceeding or sale. Tenant shall, within five (5) days of request by
Landlord from time to time, (i) execute a Nondisturbance and Attornment
Agreement in the form reasonably approved by Landlord's mortgagee in favor of
any mortgagee of the Building or Project, and (ii) execute any other form of
nondisturbance and attornment agreement (or subordination, nondisturbance and
attornment agreement, or subordination of the applicable mortgagee's lien)
reasonably required by any mortgagee of the Building or Project which provides
comparable nondisturbance protection to Tenant in the event of a foreclosure.
ARTICLE 19
DEFAULTS; REMEDIES
19.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute a default of this Lease by Tenant:
19.1.1 Any failure by Tenant to pay any Rent or any other charge
required to be paid under this Lease, or any part thereof, when due unless such
failure is cured within three (3) days after notice; or
19.1.2 Except where a specific time period is otherwise set forth
for Tenant's performance in this Lease, in which event the failure to perform by
Tenant within such time period shall be a default by Tenant under this Section
19.1.2, any failure by Tenant to observe or perform any other provision,
covenant or condition of this Lease to be observed or performed by Tenant where
such failure continues for ten (10) days after written notice thereof from
Landlord to Tenant; provided that if the nature of such default is such that the
same cannot reasonably be cured within a ten (10) day period, Tenant shall not
be deemed to be in default if it diligently commences such cure within such
period and thereafter diligently proceeds to rectify and cure such default, but
in no event exceeding a period of time in excess of thirty (30) days after
written notice thereof from Landlord to Tenant; or
19.1.3 To the extent permitted by law, a general assignment by
Tenant or any guarantor of the Lease for the benefit of creditors, or the taking
of any corporate action in furtherance of bankruptcy or dissolution whether or
not there exists any proceeding under an insolvency or bankruptcy law, or the
filing by or against Tenant or any guarantor of any proceeding under an
insolvency or bankruptcy law, unless in the case of a proceeding filed against
Tenant or any guarantor the same is dismissed within sixty (60) days, or the
appointment of a trustee or receiver to take possession of all or substantially
all of the assets of Tenant or any guarantor, unless possession is restored to
Tenant or such guarantor within thirty (30) days, or any execution or other
judicially authorized seizure of all or substantially all of Tenant's assets
located upon the Premises or of Tenant's interest in this Lease, unless such
seizure is discharged within thirty (30) days; or
19.1.4 Abandonment or vacation of all or a substantial portion of
the Premises by Tenant; or
19.1.5 The failure by Tenant to observe or perform according to the
provisions of Articles 5, 14, 17 or 18 of this Lease where such failure
continues for more than two (2) business days after notice from Landlord; or
19.1.6 Tenant's failure to occupy the Premises within ten (10)
business days after the Lease Commencement Date.
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The notice periods provided herein are in lieu of, and not in addition to,
any notice periods provided by law.
19.2 Remedies Upon Default. Upon the occurrence of any event of default by
---------------------
Tenant, Landlord shall have, in addition to any other remedies available to
Landlord at law or in equity (all of which remedies shall be distinct, separate
and cumulative), the option to pursue any one or more of the following,
remedies, each and all of which shall be cumulative and nonexclusive, without
any notice or demand whatsoever.
19.2.1 Terminate this Lease, in which event Tenant shall immediately
surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearages in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying the Premises or any part
thereof, without being liable for prosecution or any claim or damages therefor;
and Landlord may recover from Tenant the following:
(i) The worth at the time of any unpaid rent which has been
earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; plus
(iii) The worth at the time of award of the amount by which
the unpaid rent for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, specifically including but not limited
to, brokerage commissions and advertising expenses incurred, expenses of
remodeling the Premises or any portion thereof for a new tenant, whether
for the same or a different use, and any special concessions made to obtain
a new tenant; and
(v) At Landlord's election, such other amounts in addition
to or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Section 19.2 shall be deemed to be and to
mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. As used in Paragraphs
19.2.1(i) and (ii), above, the "worth at the time of award" shall be computed by
allowing interest at the rate set forth in Article 25 of this Lease, but in no
case greater than the maximum amount of such interest permitted by law. As used
in Paragraph 19.2.1 (iii) above, the "worth at the time of award" shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
19.2.2 Landlord shall have the remedy described in California Civil
Code Section 1951.4 (lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any default by
Tenant, Landlord may, from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease, including the right to recover
all rent as it becomes due.
19.2.3 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 Sections 19.2.1 and 19.2.2, above, or
any law or other provision of this Lease), without prior demand or notice except
as required by applicable law, 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.
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19.3 Subleases of Tenant. Whether or not Landlord elects to terminate
-------------------
this Lease on account of any default by Tenant, as set forth in this Article
-------
19, Landlord shall have the right to terminate any and all subleases, licenses,
- --
concessions or other consensual arrangements for possession entered into by
Tenant and affecting the Premises within ten (10) days of notice from Landlord,
or may, in Landlord's sole discretion, succeed to Tenant's interest in such
subleases, licenses, concessions or arrangements. In the event of Landlord's
election to succeed to Tenant's interest in any such subleases, licenses,
concessions or arrangements, Tenant shall, as of the date of notice by Landlord
of such election, have no further right to or interest in the rent or other
consideration receivable thereunder.
19.4 Form of Payment After Default. Following the occurrence of an
-----------------------------
event of default by Tenant, Landlord shall have the right to require that any or
all subsequent amounts paid by Tenant to Landlord hereunder, whether to cure the
default in question or otherwise, be paid in the form of money order, cashier's
or certified check drawn on an institution acceptable to Landlord, or by other
means approved by Landlord, notwithstanding any prior practice of accepting
payments in any different form.
19.5 Efforts to Relet. No re-entry or repossession, repairs,
----------------
maintenance, changes, alterations and additions, reletting, appointment of a
receiver to protect Landlord's interests hereunder, 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 to accept a surrender of the
Premises, nor shall same operate to release Tenant in whole or in part from any
of Tenant's obligations hereunder, unless express written notice of such
intention is sent by Landlord to Tenant. Tenant hereby irrevocably waives any
right otherwise available under any law to redeem or reinstate this Lease.
ARTICLE 20
COVENANT OF QUIET ENJOYMENT
Landlord covenants that Tenant, on paying the Rent, charges for services
and other payments herein reserved and on keeping, observing and performing all
the other terms, covenants, conditions, provisions and agreements herein
contained on the part of Tenant to be kept, observed and performed, shall,
during the Lease Term, peaceably and quietly have, hold and enjoy the Premises
subject to the terms, covenants, conditions, provisions and agreements hereof
without interference by any persons lawfully claiming by or through Landlord.
The foregoing covenant is in lieu of any other covenant express or implied.
ARTICLE 21
SECURITY DEPOSIT
Concurrent with Tenant's execution of this Lease, Tenant shall deposit
with Landlord a security deposit (the "Security Deposit") in the amount set
forth in Section 8 of the Summary, as security for the faithful performance by
Tenant of all of its obligations under this Lease. If Tenant defaults with
respect to any provisions of this Lease, including, but not limited to, the
provisions relating to the payment of Rent, the removal of property and the
repair of resultant damage, Landlord may, without notice to Tenant, but shall
not be required to apply all or any part of the Security Deposit for the payment
of any Rent or any other sum in default and Tenant shall, upon demand therefor,
restore the Security Deposit to its original amount. Any unapplied portion of
the Security Deposit shall be returned to Tenant, or, at Landlord's option, to
the last assignee of Tenant's interest hereunder, within sixty (60) days
following the expiration of the Lease Term. Tenant shall not be entitled to any
interest on the Security Deposit. Tenant hereby waives the provisions of Section
1950.7 of the California Civil Code, or any successor statute.
ARTICLE 22
SUBSTITUTION OF OTHER PREMISES
Landlord shall have the right to move Tenant to other space in the Project
comparable to the Premises, and all terms hereof shall apply to the new space
with equal force. In such event, Landlord shall give Tenant prior notice, shall
provide Tenant, at Landlord's sole cost and expense, with tenant improvements at
least equal in quality to those in the Premises and shall
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move Tenant's effects to the new space at Landlord's sole cost and expense at
such time and in such manner as to inconvenience Tenant as little as reasonably
practicable. Simultaneously with such relocation of the Premises, the parties
shall immediately execute an amendment to this Lease stating the relocation of
the Premises.
ARTICLE 23
SIGNS
23.1 Full Floors. Subject to Landlord's prior written approval, in its
-----------
sole discretion, and provided all signs are in keeping with the quality, design
and style of the Building and Project, Tenant, if the Premises comprise an
entire floor of the Building, at its sole cost and expense, may install
identification signage anywhere in the Premises including in the elevator lobby
of the Premises, provided that such signs must not be visible from the exterior
of the Building.
23.2 Multi-Tenant Floors. If other tenants occupy space on the floor on
-------------------
which the Premises is located, Tenant's identifying signage shall be provided by
Landlord, at Tenant's cost, and such signage shall be comparable to that used by
Landlord for other similar floors in the Building and shall comply with
Landlord's Building standard signage program.
23.3 Prohibited Signage and Other Items. Any signs, notices, logos,
----------------------------------
pictures, names or advertisements which are installed and that have not been
separately approved by Landlord may be removed without notice by Landlord at the
sole expense of Tenant. Tenant may not install any signs on the exterior or
roof of the Project or the Common Areas. Any signs, window coverings, or blinds
(even if the same are located behind the Landlord-approved window coverings for
the Building), or other items visible from the exterior of the Premises or
Building, shall be subject to the prior approval of Landlord, in its sole
discretion.
23.4 Building Directory. Tenant shall be provided (1) line on the
------------------
Building directory, at Tenant's sole cost and expense to display Tenant's name
and location in the Building.
ARTICLE 24
COMPLIANCE WITH LAW
Tenant shall not do anything or suffer anything to be done in or about
the Premises or the Project which will in any way conflict with any law,
statute, ordinance or other governmental rule, regulation or requirement now in
force or which may hereafter be enacted or promulgated. At its sole cost and
expense, Tenant shall promptly comply with all such governmental measures.
Should any standard or regulation now or hereafter be imposed on Landlord or
Tenant by a state, federal or local governmental body charged with the
establishment, regulation and enforcement of occupational, health or safety
standards for employers, employees, landlords or tenants, then Tenant agrees, at
its sole cost and expense, to comply promptly with such standards or
regulations. Tenant shall be responsible, at its sole cost and expense, to make
all alterations to the Premises as are required to comply with the governmental
rules, regulations, requirements or standards described in this Article 24. The
----------
judgment of any court of competent jurisdiction or the admission of Tenant in
any judicial action, regardless of whether Landlord is a party thereto, that
Tenant has violated any of said governmental measures, shall be conclusive of
that fact as between Landlord and Tenant.
ARTICLE 25
LATE CHARGES
If any installment of Rent or any other sum due from Tenant shall not be
received by Landlord or Landlord's designee within five (5) days after said
amount is due, then Tenant shall pay to Landlord a late charge equal to ten
percent (10%) of the overdue amount plus any attorneys' fees incurred by
Landlord by reason of Tenant's failure to pay Rent and/or other charges when due
hereunder. The late charge shall be deemed Additional Rent and the right to
require it shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord's remedies in any manner. In addition to the late charge
described above, any Rent or other amounts owing
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hereunder which are not paid within ten (10) days after the date they are due
shall bear interest from the date when due until paid at a rate per annum equal
to the highest rate permitted by applicable law.
ARTICLE 26
LANDLORD'S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT
26.1 Landlord's Cure. All covenants and agreements to be kept or
---------------
performed by Tenant under this Lease shall be performed by Tenant at Tenant's
sole cost and expense and without any reduction of Rent, except to the extent,
if any, otherwise expressly provided herein. If Tenant shall fail to perform any
obligation under this Lease, and such failure shall continue in excess of the
time allowed under Section 19.1.2, above, unless a specific time period is
otherwise stated in this Lease, Landlord may, but shall not be obligated to,
make any such payment or perform any such act on Tenant's part without waiving
its rights based upon any default of Tenant and without releasing Tenant from
any obligations hereunder.
26.2 Tenant's Reimbursement. Except as may be specifically provided to
----------------------
the contrary in this Lease, Tenant shall pay to Landlord, upon delivery by
Landlord to Tenant of statements therefor: (i) sums equal to expenditures
reasonably made and obligations incurred by Landlord in connection with the
remedying by Landlord of Tenant's defaults pursuant to the provisions of Section
26.1; (ii) sums equal to all losses, costs, liabilities, damages and expenses
referred to in Article 10 of this Lease; and (iii) sums equal to all
expenditures made and obligations incurred by Landlord in collecting or
attempting to collect the Rent or in enforcing or attempting to enforce any
rights of Landlord under this Lease or pursuant to law, including, without
limitation, all legal fees and other amounts so expended. Tenant's obligations
under this Section 26.2 shall survive the expiration or sooner termination of
the Lease Term.
ARTICLE 27
ENTRY BY LANDLORD
Landlord reserves the right at all reasonable times and upon reasonable
notice to Tenant (except in the case of an emergency) to enter the Premises to
(i) inspect them; (ii) show the Premises to prospective purchasers, mortgagees
or tenants, or to current or prospective mortgagees, ground or underlying
lessors or insurers; (iii) post notices of nonresponsibility; or (iv) alter,
improve or repair the Premises, the premises of other tenants in the Building,
or the Building, or for structural alterations, repairs, additions, or
improvements to the Building or the Building's systems and equipment.
Notwithstanding anything to the contrary contained in this Article 27, Landlord
may enter the Premises at any time to (A) perform services required of Landlord,
including janitorial service; (B) take possession due to any breach of this
Lease in the manner provided herein; and (C) perform any covenants of Tenant
which Tenant fails to perform. Landlord may make any such entries without the
abatement of Rent and may take such reasonable steps as required to accomplish
the stated purposes. Tenant hereby waives any claims for damages or for any
injuries or inconvenience to or interference with Tenant's business, lost
profits, any loss of occupancy or quiet enjoyment of the Premises, and any other
loss occasioned thereby. For each of the above purposes, Landlord shall at all
times have a key with which to unlock all the doors in the Premises, excluding
Tenant's vaults, safes and special security areas designated in advance by
Tenant. In an emergency, Landlord shall have the right to use any means that
Landlord may deem proper to open the doors in and to the Premises. Any entry
into the Premises by Landlord in the manner hereinbefore described shall not be
deemed to be a forcible or unlawful entry into, or a detainer of, the Premises,
or an actual or constructive eviction of Tenant from any portion of the
Premises. No provision of this Lease shall be construed as obligating Landlord
to perform any repairs, alterations or decorations except as otherwise expressly
agreed to be performed by Landlord herein.
ARTICLE 28
INTENTIONALLY DELETED
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ARTICLE 29
MISCELLANEOUS PROVISIONS
29.1 Terms; Captions. The words "Landlord" and "Tenant" as used herein
---------------
shall include the plural as well as the singular. The necessary grammatical
changes required to make the provisions hereof apply either to corporations or
partnerships or individuals, men or women, as the case may require, shall in all
cases be assumed as though in each case fully expressed. The captions of
Articles and Sections are for convenience only and shall not be deemed to limit,
construe, affect or alter the meaning of such Articles and Sections.
29.2 Binding Effect. Subject to all other provisions of this Lease, each
--------------
of the covenants, conditions and provisions of this Lease shall extend to and
shall, as the case may require, bind or inure to the benefit not only of
Landlord and of Tenant, but also of their respective heirs, personal
representatives, successors or assigns, provided this clause shall not permit
any assignment by Tenant contrary to the provisions of Article 14 of this Lease.
29.3 No Air Rights. No rights to any view or to light or air over any
-------------
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease. If at any time any windows of the Premises are
temporarily darkened or the light or view therefrom is obstructed by reason of
any repairs, improvements, maintenance or cleaning in or about the Project, the
same shall be without liability to Landlord and without any reduction or
diminution of Tenant's obligations under this Lease.
29.4 Modification of Lease. Should any current or prospective mortgagee
---------------------
or ground lessor for the Building or Project require a modification of this
Lease, which modification 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, 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 to deliver the same to Landlord within ten (10) days following a
request therefor. At the request of Landlord or any mortgagee or ground lessor,
Tenant agrees to execute a short form of Lease and deliver the same to Landlord
within ten (10) days following the request therefor.
29.5 Transfer of Landlord's Interest. Tenant acknowledges that Landlord
-------------------------------
has the right to transfer all or any portion of its interest in the Project or
Building and in this Lease, and Tenant agrees that in the event of any such
transfer, Landlord shall automatically be released from all liability under this
Lease and Tenant agrees to look solely to such transferee for the performance of
Landlord's obligations hereunder after the date of transfer and such transferee
shall be deemed to have fully assumed and be liable for all obligations of this
Lease to be performed by Landlord, including the return of any Security Deposit,
and Tenant shall attorn to such transferee. Tenant further acknowledges that
Landlord may assign its interest in this Lease to a mortgage lender as
additional security and agrees that such an assignment shall not release
Landlord from its obligations hereunder and that Tenant shall continue to look
to Landlord for the performance of its obligations hereunder.
29.6 Prohibition Against Recording. Except as provided in Section 29.4
-----------------------------
of this Lease, neither this Lease, nor any memorandum, affidavit or other
writing with respect thereto, shall be recorded by Tenant or by anyone acting
through, under or on behalf of Tenant.
29.7 Landlord's Title. Landlord's title is and always shall be paramount
----------------
to the title of Tenant. Nothing herein contained shall empower Tenant to do any
act which can, shall or may encumber the title of Landlord.
29.8 Relationship of Parties. 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 venturer or any
association between Landlord and Tenant.
29.9 Application of Payments. Landlord shall have the right to apply
-----------------------
payments received from Tenant pursuant to this Lease, regardless of Tenant's
designation of such payments, to satisfy any obligations of Tenant hereunder, in
such order and amounts as Landlord, in its sole discretion, may elect.
-26-
<PAGE>
29.10 Time of Essence. Time is of the essence with respect to the
---------------
performance of every provision of this Lease in which time of performance is a
factor.
29.11 Partial Invalidity. If any term, provision or condition contained in
------------------
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease, or the application of such term, provision or condition to persons
or circumstances other than those with respect to which it is invalid or
unenforceable, shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
29.12 No Warranty. In executing and delivering this Lease, Tenant has not
-----------
relied on any representations, including, but not limited to, any representation
as to the amount of any item comprising Additional Rent or the amount of the
Additional Rent in the aggregate or that Landlord is furnishing the same
services to other tenants, at all, on the same level or on the same basis, or
any warranty or any statement of Landlord which is not set forth herein or in
one or more of the exhibits attached hereto.
29.13 Landlord Exculpation. The liability of Landlord or the Landlord
--------------------
Parties 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 Project or the
Premises shall be limited solely and exclusively to an amount which is equal to
the lesser of (a) the interest of Landlord in the Building or (b) the equity
interest Landlord would have in the Building if the Building were encumbered by
third-party debt in an amount equal to eighty percent (80%) of the value of the
Building (as such value is determined by Landlord), provided that in no event
shall such liability extend to any sales or insurance proceeds received by
Landlord or the Landlord Parties in connection with the Project, Building or
Premises. Neither Landlord, nor any of the Landlord Parties shall have any
personal liability therefor, and Tenant hereby expressly waives and releases
such personal liability on behalf of itself and all persons claiming by, through
or under Tenant. The limitations of liability contained in this Section 29.13
shall inure to the benefit of Landlord's and the Landlord Parties' present and
future 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 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. Notwithstanding any contrary provision
herein, neither Landlord nor the Landlord Parties shall be liable under any
circumstances for injury or damage to, or interference with, Tenant's business,
including but not limited to, loss of profits, loss of rents or other revenues,
loss of business opportunity, loss of goodwill or loss of use, in each case,
however occurring.
29.14 Entire Agreement. It is understood and acknowledged that there are
----------------
no oral agreements between the parties hereto affecting this Lease and this
Lease constitutes the parties' entire agreement with respect to the leasing of
the Premises and supersedes and cancels any and all previous negotiations,
arrangements, brochures, agreements and understandings, if any, between the
parties hereto or displayed by Landlord to Tenant with respect to the subject
matter thereof, and none thereof shall be used to interpret or construe this
Lease. None of the terms, covenants, conditions or provisions of this Lease can
be modified, deleted or added to except in writing signed by the parties hereto.
29.15 Right to Lease. Landlord reserves the absolute right to effect such
--------------
other tenancies in the Project as Landlord in the exercise of its sole business
judgment shall determine to best promote the interests of the Building or
Project. Tenant does not rely on the fact, nor does Landlord represent, that
any specific tenant or type or number of tenants shall, during the Lease Term,
occupy any space in the Building or Project.
29.16 Force Majeure. Any prevention, delay or stoppage due to strikes,
-------------
lockouts, labor disputes, acts of God, inability to obtain services, labor or
materials or reasonable substitutes therefor, governmental actions, civil
commotions, fire or other casualty, and other causes beyond the reasonable
control of the party obligated to perform, except with respect to the
obligations imposed with regard to Rent and other charges to be paid by Tenant
pursuant to this Lease and except as to Tenant's obligations under Articles 5
----------
and 24 of this Lease (collectively, a "Force Majeure"), notwithstanding anything
- ------
to the contrary contained in this Lease, shall excuse the performance of such
party for a period equal to any such prevention, delay or stoppage and,
-27-
<PAGE>
therefore, if this Lease specifies a time period for performance of an
obligation of either party, that time period shall be extended by the period of
any delay in such party's performance caused by a Force Majeure.
29.17 Waiver of Redemption by Tenant. Tenant hereby waives, for Tenant and
------------------------------
for all those claiming under Tenant, any and all rights now or hereafter
existing to redeem by order or judgment of any court or by any legal process or
writ, Tenant's right of occupancy of the Premises after any termination of this
Lease.
29.18 Notices. All notices, demands, statements, designations, approvals
-------
or other communications (collectively, "Notices") given or required to be given
by either party to the other hereunder or by law shall be in writing, shall be
(A) sent by United States certified or registered mail, postage prepaid, return
receipt requested ("Mail"), (B) transmitted by telecopy, if such telecopy is
promptly followed by a Notice sent by Mail, (C) delivered by a nationally
recognized overnight courier, or (D) delivered personally. Any Notice shall be
sent, transmitted, or delivered, as the case may be, to Tenant or Landlord at
the appropriate address set forth in Section 9 or 10 of the Summary, as
appropriate, or to such other place as either party may from time to time
designate in a Notice to the other. Any Notice will be deemed given (i) three
(3) days after the date it is posted if sent by Mail, (ii) the date the telecopy
is transmitted, (iii) the date the overnight courier delivery is made, or (iv)
the date personal delivery is made or attempted to be made. If Tenant is
notified of the identity and address of Landlord's mortgagee or ground or
underlying lessor, Tenant shall give to such mortgagee or ground or underlying
lessor written notice of any default by Landlord under the terms of this Lease
by registered or certified mail, and such mortgagee or ground or underlying
lessor shall be given a reasonable opportunity to cure such default prior to
Tenant's exercising any remedy available to Tenant.
29.19 Joint and Several. If there is more than one Tenant, the obligations
-----------------
imposed upon Tenant under this Lease shall be joint and several.
29.20 Authority. If Tenant is a corporation, trust or partnership, each
---------
individual executing this Lease on behalf of Tenant hereby represents and
warrants that Tenant is a duly formed and existing entity qualified to do
business in California and that Tenant has full right and authority to execute
and deliver this Lease and that each person signing on behalf of Tenant is
authorized to do so. In such event, Tenant shall, within ten (10) days after
execution of this Lease, deliver to Landlord satisfactory evidence of such
authority and, if a corporation, upon demand by Landlord, also deliver to
Landlord satisfactory evidence of (i) good standing in Tenant's state of
incorporation and (ii) qualification to do business in California.
29.21 Attorneys' Fees. In the event that either Landlord or Tenant should
---------------
bring suit for the possession of the Premises, for the recovery of any sum due
under this Lease, or because of the breach of any provision of this Lease or for
any other relief against the other, then all costs and expenses, including
reasonable attorneys' fees, incurred by the prevailing party therein shall be
paid by the other party, which obligation on the part of the other party shall
be deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgment.
29.22 Governing Law; WAIVER OF TRIAL BY JURY. This Lease shall be
--------------------------------------
construed and enforced in accordance with the laws of the State of California.
IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT
TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA,
(II) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN
THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE
OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MATTER ARISING OUT OF OR IN
CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S
USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY
EMERGENCY OR STATUTORY REMEDY. IN THE EVENT LANDLORD COMMENCES ANY SUMMARY
PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT
SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH
COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE
RELEGATED TO AN INDEPENDENT ACTION AT LAW.
-28-
<PAGE>
29.23 Submission of Lease. Submission of this instrument for examination
-------------------
or signature by Tenant does not constitute a reservation of, option for or
option to lease, and it is not effective as a lease or otherwise until execution
and delivery by both Landlord and Tenant.
29.24 Brokers. Landlord and Tenant hereby warrant to each other that they
-------
have had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease, excepting only the real estate brokers or agents
specified in Section 11 of the Summary (the "Brokers"), and that they know of no
other real estate broker or agent who is entitled to a commission in connection
with this Lease. Each party agrees to indemnify and defend the other party
against and hold the other party harmless from any and all claims, demands,
losses, liabilities, lawsuits, judgments, costs and expenses (including without
limitation reasonable attorneys' fees) with respect to any leasing commission or
equivalent compensation alleged to be owing on account of any dealings with any
real estate broker or agent, other than the Brokers, occurring by, through, or
under the indemnifying party.
29.25 Independent Covenants. This Lease shall be construed as though the
---------------------
covenants herein between Landlord and Tenant are independent and not dependent
and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any acts hereunder
at Landlord's expense or to any setoff of the Rent or other amounts owing
hereunder against Landlord.
29.26 Project or Building Name and Signage. Landlord shall have the right
------------------------------------
at any time to change the name of the Project or Building and to install, affix
and maintain any and all signs on the exterior and on the interior of the
Project or Building as Landlord may, in Landlord's sole discretion, desire.
Tenant shall not use the name of the Project or Building or use pictures or
illustrations of the Project or Building in advertising or other publicity or
for any purpose other than as the address of the business to be conducted by
Tenant in the Premises, without the prior written consent of Landlord.
29.27 Counterparts. This Lease may be executed in counterparts with the
------------
same effect as if both parties hereto had executed the same document. Both
counterparts shall be construed together and shall constitute a single lease.
29.28 Confidentiality. Tenant acknowledges that the content of this Lease
---------------
and any related documents are confidential information. Tenant shall keep such
confidential information strictly confidential and shall not disclose such
confidential information to any person or entity other than Tenant's financial,
legal, and space planning consultants.
29.29 Transportation Management. Landlord has entered into an agreement
-------------------------
with the Department of City Planning to implement a Transportation Management
Program ("TMP") for tenants and their employees, and to participate in a program
designed to coordinate commute alternatives, marketing, and brokerage for
greater downtown employees. During the term of the TMP, Landlord agrees to
provide transportation brokerage and commute assistance services to Tenant, and
to assist Tenant in meeting the transportation needs of its employees. Tenant
agrees to cooperate with and assist Landlord's TMP Coordinator ("Coordinator"),
through designation of a responsible employee, to distribute to Tenant's
employees written materials encouraging the use of public transit and
ridesharing, and to distribute and return to the Coordinator transportation
survey questionnaire forms.
29.30 Building Renovations. It is specifically understood and agreed that
--------------------
Landlord has made no representation or warranty to Tenant and has no obligation
and has made no promises to alter, remodel, improve, renovate, repair or
decorate the Premises, Building, or any part thereof and that no representations
respecting the condition of the Project, Premises or the Building, or the areas
in vicinity of the Project have been made by Landlord to Tenant except as
specifically set forth herein or in the Tenant Work Letter. However, Tenant
hereby acknowledges that Landlord is currently renovating or may during the
Lease Term renovate improve, alter, or modify (collectively, the "Renovations")
the Project, the Building and/or the Premises including without limitation the
parking structure, common areas, systems and equipment, roof, and structural
portions of the same, which Renovations may include, without limitation, (i)
installing sprinklers in the Building common areas and tenant spaces, (ii)
modifying the common areas and tenant spaces to comply with applicable laws and
regulations, including regulations relating to the physically disabled, seismic
conditions, and building safety
-29-
<PAGE>
and security, (iii) installing new floor covering, lighting, and wall coverings
in the Building common areas, and (iv) creating additional parking areas or
occupied space within the Project, and in connection with any Renovations,
Landlord may, among other things, erect scaffolding or other necessary
structures in the Building, limit or eliminate access to portions of the
Project, including portions of the common areas, or perform work in the
Building, which work may create noise, dust or leave debris in the Building.
Similarly, other properties in the vicinity of the Project may undergo
substantial construction or renovation during the Lease Term (the "Area
Renovations"), which may cause substantial disturbance to traffic and parking,
and may cause dust, noise and vibrations which may affect the Project. Tenant
hereby agrees that such Renovations or Area Renovations and Landlord's actions
in connection with such Renovations or Area Renovations shall in no way
constitute a constructive eviction of Tenant nor entitle Tenant to any abatement
of Rent. Landlord shall have no responsibility or for any reason be liable to
Tenant for any direct or indirect injury to or interference with Tenant's
business arising from the Renovations or Area Renovations, nor shall Tenant be
entitled to any compensation or damages from Landlord for loss of the use of the
whole or any part of the Premises or of Tenant's personal property or
improvements resulting from the Renovations or Area Renovations or Landlord's
actions in connection with such Renovations or Area Renovations, or for any
inconvenience or annoyance occasioned by such Renovations or Area Renovations or
Landlord's actions.
29.31 No Violation. Tenant hereby warrants and represents that neither its
------------
execution of nor performance under this Lease shall cause Tenant to be in
violation of any agreement, instrument, contract, law, rule or regulation by
which Tenant is bound, and Tenant shall protect, defend, indemnify and hold
Landlord harmless against any claims, demands, losses, damages, liabilities,
costs and expenses, including, without limitation, reasonable attorneys' fees
and costs, arising from Tenant's breach of this warranty and representation.
29.32 Communications and Computer Lines. Tenant may install, maintain,
---------------------------------
replace, remove or use any communications or computer wires and cables
(collectively, the "Lines") at the Project in or serving the Premises, provided
that (i) 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 Articles 7 and 8 of this Lease, (ii) an
acceptable number of spare Lines and space for additional Lines shall be
maintained for existing and future occupants of the Project, as determined in
Landlord's reasonable opinion, (iii) the Lines therefor (including riser cables)
shall be appropriately insulated to prevent excessive electromagnetic fields or
radiation, and shall be surrounded by a protective conduit reasonably acceptable
to Landlord, (iv) any new or existing Lines servicing the Premises shall comply
with all applicable governmental laws and regulations, (v) as a condition to
permitting the installation of new Lines, Landlord may require that Tenant
remove existing Lines located in or serving the Premises and repair any damage
in connection with such removal, and (vi) Tenant shall pay all costs in
connection therewith. 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. Landlord makes no
representation or assurances with regard to the suitability, available or
capacity of the Building's telephone and communication distribution network or
risers within or service to the Building for Tenant's communication needs.
29.33 Development of the Project.
--------------------------
29.33.1 Subdivision. Landlord reserves the right to further
-----------
subdivide all or a portion of the Project. Tenant agrees to execute and deliver,
upon demand by Landlord and in the form requested by Landlord, any additional
documents needed to conform this Lease to the circumstances resulting from such
subdivision.
29.33.2 The Other Improvements. If portions of the Project or
----------------------
property adjacent to the Project (collectively, the "Other Improvements") are
owned by an entity other than Landlord, Landlord, at its option, may enter into
an agreement with the owner or owners of any or all of the Other Improvements,
(ii) for the common management, operation, maintenance, improvement and/or
repair of all or any portion of the Project and the Other Improvements, (iii)
for the allocation of a portion of the Direct Expenses to the Other Improvements
and the operating expenses and taxes for the Other Improvements to the Project,
and (iv) for the use or improvement of the Other Improvements and/or the Project
in connection
-30-
<PAGE>
with the improvement, construction, and/or excavation of the Other Improvements
and/or the Project. Nothing contained herein shall be deemed or construed to
limit or otherwise affect Landlord's right to convey all or any portion of the
Project or any other of Landlord's rights described in this Lease.
29.33.3 Construction of Project and Other Improvements. Tenant
----------------------------------------------
acknowledges that portions of the Project and/or the Other Improvements may be
under construction following Tenant's occupancy of the Premises, and that such
construction may result in levels of noise, dust, obstruction of access, etc.
which are in excess of that present in a fully constructed project. Tenant
hereby waives any and all rent offsets or claims of constructive eviction which
may arise in connection with such construction.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
executed the day and date first above written.
"Landlord":
BRE/CBL, LLC,
a Delaware limited liability company
By: /s/ [ILLEGIBLE]
----------------------------------
Its: Vice President
------------------------------
"Tenant":
PRIME RESPONSE, INC.,
A Delaware corporation
By: /s/ Cathy Lewis
---------------------------------
Its: VP - Finance
----------------------------
By: /s/ [ILLEGIBLE]
---------------------------------
Its: VP - Client Services
---------------------------
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<PAGE>
EXHIBIT A
---------
CHINA BASIN LANDING
-------------------
OUTLINE OF PREMISES
-------------------
[FLOOR PLAN APPEARS HERE]
CHINA BASIN LANDING
WHARFSIDE BUILDING
SUITE 4601
Page 32
<PAGE>
EXHIBIT B
---------
CHINA BASIN LANDING
-------------------
TENANT WORK LETTER
------------------
Except as provided below, Landlord shall not be obligated to construct
or install any improvements or facilities of any kind in the Premises, and
Tenant shall accept the Premises in its currently existing, "as-is" condition.
Notwithstanding the foregoing, Landlord agrees that, Landlord shall, at
Landlord's sole cost and expense, complete the following work in the Premises
(the "Landlord Work"):
a. paint the interior of the Premises with one (1) coat of
Building standard paint, in a Building standard color to be designated, subject
to availability, by Tenant, and
b. install new Building standard carpet in the Premises in a
Building standard color.
EXHIBIT B - Page 33
<PAGE>
EXHIBIT C
---------
CHINA BASIN LANDING
-------------------
NOTICE OF LEASE TERM DATES
--------------------------
To: _________________
_________________
_________________
_________________
Re: Office Lease dated ____________, 19__ between _____________, a
__________________ ("Landlord"), and ________________, a
__________________ ("Tenant") concerning Suite ________ on
floor(s) _______________ of the office building located at
________________, San Francisco, California.
Gentlemen:
In accordance with the Office Lease (the "Lease"), we wish to advise
you and/or confirm as follows:
1. The Lease Term shall commence on or has commenced on
_______________ for a term of _______________ ending on
_______________.
2. Rent commenced to accrue on _______________, in the amount of
_______________.
3. If the Lease Commencement Date is other than the first day of
the month, the first billing will contain a pro rata
adjustment. Each billing thereafter, with the exception of the
final billing, shall be for the full amount of the monthly
installment as provided for in the Lease.
4. Your rent checks should be made payable to _______________ at
_______________.
5. The exact number of rentable/usable square feet within the
Premises is _______________ square feet.
6. Tenant's Share as adjusted based upon the exact number of usale
square feet within the Premises is ______________%.
"Landlord":
______________________________________,
a ____________________________________
By: __________________________________
Its: ______________________________
Agreed to and Accepted
as of _________, 19__.
"Tenant":
____________________________
a __________________________
By: ________________________
Its: _____________________
EXHIBIT C - Page 34
<PAGE>
EXHIBIT D
---------
CHINA BASIN LANDING
-------------------
RULES AND REGULATIONS
---------------------
Tenant shall faithfully observe and comply with the following Rules and
Regulations. Landlord shall not be responsible to Tenant for the nonperformance
of any of said Rules and Regulations by or otherwise with respect to the acts or
omissions of any other tenants or occupants of the Project. In the event of any
conflict between the Rules and Regulations and the other provisions of this
Lease, the latter shall control.
1. Tenant shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the Premises without obtaining Landlord's
prior written consent. Tenant shall bear the cost of any lock changes or
repairs required by Tenant. Two keys will be furnished by Landlord for the
Premises, and any additional keys required by Tenant must be obtained from
Landlord at a reasonable cost to be established by Landlord. Upon the
termination of this Lease, Tenant shall restore to Landlord all keys of stores,
offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant
and in the event of the loss of keys so furnished, Tenant shall pay to Landlord
the cost of replacing same or of changing the lock or locks opened by such lost
key if Landlord shall deem it necessary to make such changes.
2. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building during such hours as are customary for comparable
buildings in the vicinity of the Building. Tenant, its employees and agents
must be sure that the doors to the Building are securely closed and locked when
leaving the Premises if it is after the normal hours of business for the
Building. Any tenant, its employees, agents or any other persons entering or
leaving the Building at any time when it is so locked, or any time when it is
considered to be after normal business hours for the Building, may be required
to sign the Building register. Access to the Building may be refused unless the
person seeking access has proper identification or has a previously arranged
pass for access to the Building. Landlord will furnish passes to persons for
whom Tenant requests same in writing. Tenant shall be responsible for all
persons for whom Tenant requests passes and shall be liable to Landlord for all
acts of such persons. The Landlord and his agents shall in no case be liable
for damages for any error with regard to the admission to or exclusion from the
Building of any person. In case of invasion, mob, riot, public excitement, or
other commotion, Landlord reserves the right to prevent access to the Building
or the Project during the continuance thereof by any means it deems appropriate
for the safety and protection of life and property.
3. No furniture, freight or equipment of any kind shall be brought into or
removed from the Building without prior notice to Landlord. All moving activity
into or out of the Building shall be scheduled with Landlord and done only at
such time and in such manner as Landlord designates. Landlord shall have the
right to prescribe the weight, size and position of all safes and other heavy
property brought into the Building and also the times and manner of moving the
same in and out of the Building. Safes and other heavy objects shall, if
considered necessary by Landlord, stand on supports of such thickness as is
necessary to properly distribute the weight. Landlord will not be responsible
for loss of or damage to any such safe or property in any case. Any damage to
any part of the Building, its contents, occupants or visitors by moving or
maintaining any such safe or other property shall be the sole responsibility and
expense of Tenant.
4. No sign, advertisement, notice or handbill shall be exhibited,
distributed, painted or affixed by Tenant on any part of the Premises or the
Building without the prior written consent of the Landlord. Tenant shall not
disturb, solicit, peddle, or canvass any occupant of the Project and shall
cooperate with Landlord and its agents of Landlord to prevent same.
5. The toilet rooms, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein. The expense
of any breakage, stoppage or damage resulting from the violation of this Rule
shall be borne by the tenant who, or whose servants, employees, agents, visitors
or licensees shall have caused same.
35
<PAGE>
6. Tenant shall not overload the floor of the Premise, nor mark, drive
nails or screws, or drill into the partitions, woodwork or drywall or in any way
deface the Premises or any part thereof without Landlord's prior written
consent. Tenant shall not purchase spring water, ice, towel, linen, maintenance
or other like services from any person or persons not approved by Landlord.
7. Except for vending machines intended for the sole use of Tenant's
employees and invitees, no vending machine or machines other than fractional
horsepower office machines shall be installed, maintained or operated upon the
Premises without the written consent of Landlord.
8. Tenant shall not use or keep in or on the Premises, the Building, or
the Project any kerosene, gasoline, explosive material, corrosive material,
material capable of emitting toxic fames, or other inflammable or combustible
fluid chemical, substitute or material. Tenant shall provide material safety
data sheets for any Hazardous Material used or kept on the Premises.
9. Tenant shall not use, keep or permit to be used or kept, any foul or
noxious gas or substance in or on the Premises, or permit or allow the Premises
to be occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Project by reason of noise, odors, or vibrations, or
interfere with other tenants or those having business therein, whether by the
use of any musical instrument, radio, phonograph, or in any other way. Tenant
shall not throw anything out of doors, windows or skylights or down passageways.
10. Tenant shall not bring into or keep within the Project, the Building
or the Premises any animals, birds, aquariums, or, except in areas designated by
Landlord, bicycles or other vehicles.
11. No cooking shall be done or permitted on the Premises, nor shall the
Premises be used for the storage of merchandise, for lodging or for any
improper, objectionable or immoral purposes. Notwithstanding the foregoing,
Underwriters' laboratory-approved equipment and microwave ovens may be used in
the Premises for heating food and brewing coffee, tea, hot chocolate and similar
beverages for employees and visitors, provided that such use is in accordance
with all applicable federal, state, county and city laws, codes, ordinances,
rules and regulations.
12. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the use of the Premises
provided for in the Summary. Tenant shall not occupy or permit any portion of
the Premises to be occupied as an office for a messenger-type operation or
dispatch office, public stenographer or typist, or for the manufacture or sale
of liquor, narcotics, or tobacco in any form, or as a medical office, or as a
barber or manicure shop, or as an employment bureau without the express prior
written consent of Landlord. Tenant shall not engage or pay any employees on
the Premises except those actually working for such tenant on the Premises nor
advertise for laborers giving an address at the Premises.
13. Landlord reserves the right to exclude or expel from the Project any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
14. Tenant, its employees and agents shall not loiter in or on the
entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators,
vestibules or any Common Areas for the purpose of smoking tobacco products or
for any other purpose, nor in any way obstruct such areas, and shall use them
only as a means of ingress and egress for the Premises.
15. Tenant shall not waste electricity, water or air conditioning and
agrees to cooperate fully with Landlord to ensure the most effective operation
of the Building's heating and air conditioning system, and shall refrain from
attempting to adjust any controls. Tenant shall participate in recycling
programs undertaken by Landlord.
16. Tenant shall store all its trash and garbage within the interior of
the Premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the ordinary
and customary manner of removing and disposing of trash and garbage in San
Francisco, California without violation of any law or ordinance governing such
disposal. All trash, garbage and refuse disposal shall be made only through
entry-ways and
EXHIBIT D - Page 36
<PAGE>
elevators provided for such purposes at such times as Landlord shall designate.
If the Premises is or becomes infested with vermin as a result of the use or any
misuse or neglect of the Premises by Tenant, its agents, servants, employees,
contractors, visitors or licensees, Tenant shall forthwith, at Tenant's expense,
cause the Premises to be exterminated from time to time to the satisfaction of
Landlord and shall employ such licensed exterminators as shall be approved in
writing in advance by Landlord.
17. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
18. No awnings or other projection shall be attached to the outside walls
of the Building without the prior written consent of Landlord, and no curtains,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises other than Landlord standard drapes.
All electrical ceiling fixtures hung in the Premises or spaces along the
perimeter of the Building must be fluorescent and/or of a quality, type, design
and a warm white bulb color approved in advance in writing by Landlord. Neither
the interior nor exterior of any windows shall be coated or otherwise
sunscreened without the prior written consent of Landlord. Tenant shall be
responsible for any damage to the window film on the exterior windows of the
Premises and shall promptly repair any such damage at Tenant's sole cost and
expense. Tenant shall keep its window coverings closed during any period of the
day when the sun is shining directly on the windows of the Premises. Prior to
leaving the Premises for the day, Tenant shall draw or lower window coverings
and extinguish all lights. Tenant shall abide by Landlord's regulations
concerning the opening and closing of window coverings which are attached to the
windows in the Premises, if any, which have a view of any interior portion of
the Building or Building Common Areas.
19. Tenant hereby acknowledges that Landlord shall have no obligation to
provide guard service or other security measures for the benefit of the
Premises, the Building or the Project. Tenant hereby assumes all responsibility
for the protection of Tenant and its agents, employees, contractors, invitees
and guests, and the property thereof, from acts of third parties, including
keeping doors locked and other means of entry to the Premises closed, whether or
not Landlord, at its option, elects to provide security protection for the
Project or any portion thereof. Tenant further assumes the risk that any safety
and security devices, services and programs which Landlord elects, in its sole
discretion, to provide may not be effective, or may malfunction or be
circumvented by an unauthorized third party, and Tenant shall, in addition to
its other insurance obligations under this Lease, obtain its own insurance
coverage to the extent Tenant desires protection against losses related to such
occurrences. Tenant shall cooperate in any reasonable safety or security
program developed by Landlord or required by law.
20. No auction, liquidation, fire sale, going-out-of-business or
bankruptcy sale shall be conducted in the Premises without the prior written
consent of Landlord.
21. No tenant shall use or permit the use of any portion of the Premises
for living quarters, sleeping apartments or lodging rooms.
Landlord reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or to make such other and further
reasonable Rules and Regulations as in Landlord's judgment may from time to time
be necessary for the management, safety, care and cleanliness of the Premises,
Building, the Common Areas and the Project, and for the preservation of good
order therein, as well as for the convenience of other occupants and tenants
therein. Landlord may waive any one or more of these Rules and Regulations for
the benefit of any particular tenants, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
tenant, nor prevent Landlord from thereafter enforcing any such Rules or
Regulations against any or all tenants of the Project. Tenant shall be deemed
to have read these Rules and Regulations and to have agreed to abide by them as
a condition of its occupancy of the Premises.
37
<PAGE>
EXHIBIT E
---------
CHINA BASIN LANDING
-------------------
FORM OF TENANT'S ESTOPPEL CERTIFICATE
-------------------------------------
The undersigned as Tenant under that certain Office Lease (the "Lease")
made and entered into as of ________________, 199_ by and between ________ as
Landlord, and the undersigned as Tenant, for Premises on the _____________
floor(s) of the office building located at ______________, San Francisco,
California __________, certifies as follows:
1. Attached hereto as Exhibit A is a true and correct copy of the Lease
and all amendments and modifications thereto. The documents contained in
Exhibit A represent the entire agreement between the parties as to the Premises
and the project of which the Premises are a part.
2. The undersigned currently occupies the Premises described in the Lease,
the Lease Term commenced on __________, and the Lease Term expires on _________,
and the undersigned has no option to terminate or cancel the Lease or to
purchase all or any part of the Premises, the Building and/or the Project.
3. Base Rent became payable on ___________.
4. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Exhibit A.
5. Tenant has not transferred, assigned, or sublet any portion of the
Premises nor entered into any license or concession agreements with respect
thereto except as follows:
6. Tenant shall not modify the documents contained in Exhibit A without
the prior written consent of Landlord's mortgagee.
7. All monthly installments of Base Rent, all Additional Rent and all
monthly installments of estimated Additional Rent have been paid when due
through ________________. The current monthly installment of Base Rent is
$ ___________________.
8. All conditions of the Lease to be performed by Landlord necessary to
the enforceability of the Lease have been satisfied and Landlord is not in
default thereunder. In addition, the undersigned has not delivered any notice
to Landlord regarding a default by Landlord thereunder.
9. No rental has been paid more than thirty (30) days in advance and no
security has been deposited with Landlord except as provided in the Lease.
10. As of the date hereof, there are no existing defenses or offsets, to
the undersigned's knowledge, claims or any basis for a claim, that the
undersigned has against Landlord.
11. If Tenant is a corporation or partnership, each individual executing
this Estoppel Certificate on behalf of Tenant hereby represents and warrants
that Tenant is a duly formed and existing entity qualified to do business in
California and that Tenant has full right and authority to execute and deliver
this Estoppel Certificate and that each person signing on behalf of Tenant is
authorized to do so.
12. There are not actions pending against the undersigned or any guarantor
of the Lease under the bankruptcy or similar laws of the United States or any
state.
38
<PAGE>
13. Other than in compliance with all applicable laws and incidental to
the ordinary course of the use of the Premises, the undersigned has not used or
stored any hazardous substances in the Premises.
14. To the undersigned's knowledge, all tenant improvement work to be
performed by Landlord under the Lease has been completed in accordance with the
Lease and has been accepted by the undersigned and all reimbursements and
allowances due to the undersigned under the Lease in connection with any tenant
improvement work have been paid in full.
The undersigned acknowledges that this Estoppel Certificate may be
delivered to Landlord or to a prospective mortgagee or prospective purchaser,
and acknowledges that said prospective mortgagee or prospective purchaser will
be relying upon the statements contained herein in making the loan or acquiring
the property of which the Premises are a part and that receipt by it of this
certificate is a condition of making such loan or acquiring such property.
Executed at __________________ on the _____________ day of __________, 19__.
"Tenant":
____________________________,
a __________________________
By: ________________________
Its:_____________________
By: ________________________
Its: ____________________
39
<PAGE>
[LETTERHEAD OF CHINA BASIN LANDING APPEARS HERE]
June 11, 1999
Mr. Martin Muoto
Prime Response, Inc.
185 Berry Street
Suite 4601
San Francisco, CA 94107
Re: Subordination Agreement; Acknowledge of Lease Assignment, Estoppel,
Attornment and Non-Disturbance Agreement ("Subordination and Non-
Disturbance Agreement")
Dear Mr. Muoto:
Wells Fargo Bank, which holds a Secured Promissory Note for China Basin Landing,
has requested that the attached Subordination and Non-Disturbance Agreement be
forwarded to you for review and execution.
The purpose of this agreement is to confirm the lien rights of Wells Fargo Bank
following a modification to the Secured Promissory Note, as is described in the
agreement.
As required under your lease, please sign in the presence of a notary and return
three originals of this agreement to me at the address below within five (5)
business days of your receipt of this letter. Once the agreement has been signed
by the owner and lender, one fully executed copy will be returned to you.
Thank you for your cooperation in this matter.
Sincerely,
Jones Lang Wootton California, Inc.
Katherine A. Mattes, CPM(R) CCIM(R)
General Manager
Km: SNDA to tenants
185 Berry Street, Suite 140, San Francisco, CA 94107-1739 .
Phone (415) 543-3521 . Facsimile (415) 543-1623
Managed and Leased by Jones Lang Wootton USA
40
<PAGE>
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
WELLS FARGO BANK, NATIONAL
ASSOCIATION
Real Estate Group (AU __________)
417 Montgomery St., 5th Floor
San Francisco, CA 94111
Attn: Kathy Marker
Loan No. 3396TZH
================================================================================
SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL,
ATTORNMENT AND NON-DISTURBANCE AGREEMENT
(Lease To Deed of Trust)
NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR SECURITY INTEREST IN THE
PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF
SOME OTHER OR LATER SECURITY INSTRUMENT.
THIS SUBORDINATION AGREEMENT; ACKNOWLEDGMENT OF LEASE ASSIGNMENT, ESTOPPEL,
ATTORNMENT AND NON-DISTURBANCE AGREEMENT ("Agreement") is made as of
---------
__________________, 1999 by and between BRE/CBL L.L.C., a Delaware limited
liability company ("Owner"), PRIME RESPONSE, INC., a Delaware corporation
-----
("Lessee" and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Lender").
------- ------
RECITALS
--------
A. Pursuant to the terms and provisions of a lease dated March 25, 1999
("Lease"), Owner, as "Lessor", granted to Lessee a leasehold estate in and
-----
to a portion of the property described on Exhibit A attached hereto an
----------
incorporated herein by this reference (which property, together with all
improvements now or hereafter located on the property, is defined as the
"Property").
-------
B. Owner previously executed a Deed of Trust With Absolute Assignment of
Leases and Rents, Security Agreement and Fixture Filing dated as of
November 20, 1997, executed by Owner, as trustor, in favor of Lender, as
beneficiary, recorded on November 20, 1997 as Document No. 97-G261147-00 in
the records of the County Recorder of San Francisco, California ("Deed of
-------
Trust") encumbering the Property and securing, among other things, a
-----
secured Promissory Note ("Original Note") in the principal sum of SIXTY-TWO
-------------
MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($62,500,000.00) dated
November 20, 1997, in favor of Lender, which Note is payable with interest
and upon the terms and conditions described therein ("Loan").
----
C. Owner has executed an Additional Advance Agreement and Omnibus Amendment to
Loan Documents (the "Additional Advance Agreement") pursuant to which,
----------------------------
among other things, Lender has agreed to make an additional advance to
Owner in the amount of up to TEN MILLION AND NO/100THS DOLLAR
($10,000,000.00) (the "Additional Advance"). In connection with the
------------------
Additional Advance, Owner ha executed delivered to Lender (a) an Amended
and Restated Secured Promissory Note in the principal amount of SEVENTY-TWO
MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($72,500,000.00)
evidencing the aggregate amount of the Original Loan and the Additional
Advance (the "Amended Note"), and (b) an Additional Advance Agreement and a
------------
Memorandum thereof, which Memorandum is to be recorded concurrently
herewith. All references in this Agreement to "Note" shall mean the
----
Amended Note, and all references to Deed of Trust and the Note shall
include the revisions and modifications thereto under the Additional
Advance Agreement.
Page 1 of 9
41
<PAGE>
D. As a condition to making the Additional Advance, which is secured by the
Deed of Trust, Lender requires that the Deed of Trust be unconditionally
and at all times remain a lien on the Property, prior and superior to all
the rights of Lessee under the Lease and that the Lessee specifically and
unconditionally subordinate the Lease to the lien of the Deed of Trust.
E. Owner and Lessee have agreed to the subordination, attornment and other
agreements herein in favor of Lender.
NOW THEREFORE, for valuable consideration and to induce Lender to make the
Additional Advance, Owner and Lessee hereby agree for the benefit of Lender as
follows:
1. SUBORDINATION. Owner and Lessee hereby agree that:
-------------
1.1 Prior Lien. The Deed of Trust securing the Note in favor of Lender,
----------
and any modifications, renewals or extensions thereof, shall
unconditionally be and at all times remain a lien on the Property
prior and superior to the Lease;
1.2 Subordination. Lender would not make the Additional Advance without
-------------
this agreement to subordinate; and
1.3 Whole Agreement. This Agreement shall be the whole agreement and
---------------
only agreement with regard to the subordination of the Lease to the
lien of the Deed of Trust and shall supersede and cancel, but only
insofar as would affect the priority between the Deed of Trust and the
Lease, any prior agreements as to such subordination, including,
without limitation, those provisions, if any, contained in the Lease
which provide for the subordination of the Lease to a deed or deeds of
trust or to a mortgage or mortgages.
AND FURTHER, Lessee individually declares, agrees and acknowledges for the
benefit of Lender, that:
1.4 Use of Proceeds. Lender, in making disbursements pursuant to the
---------------
Note, the Deed of Trust or any loan agreements with respect to the
Property, is under no obligation or duty to, nor has Lender
represented that it will see to the application of such proceeds by
the person or persons to whom Lender disburses such proceeds, and any
application or use of such proceeds for purposes other than those
provided for in such agreement or agreements shall not defeat this
agreement to subordinate in whole or in part;
1.5 Waiver, Relinquishment and Subordination. Lessee intentionally and
----------------------------------------
unconditionally waives, relinquishes and subordinates all of Lessee's
right, title and interest in and to the Property to the lien of the
Deed of Trust and understands that in reliance upon, and in
consideration of, this waiver, relinquishment and subordination,
specific loans and advances are being and will be made by Lender and,
as part and parcel thereof, specific monetary and other obligations
are being and will be entered into which would not be made or entered
into but for said reliance upon this waiver, relinquishment and
subordination.
2. ASSIGNMENT. Lessee acknowledges and consents to the assignment of the
----------
Lease by Lessor in favor of Lender.
3. ESTOPPEL. Lessee acknowledges and represents that:
--------
3.1 Lease Effective. The Lease has been duly executed and delivered by
---------------
Lessee and, subject to the terms and conditions thereof, the Lease is
in full force and effect, the obligations of Lessee thereunder are
valid and binding and there have been no modifications or additions to
the Lease, written or oral;
Page 2 of 9
42
<PAGE>
3.2 No Default. To the best of Lessee's knowledge, as of the date
----------
hereof: (i) there exists no breach, default, or event or condition
which, with the giving of notice or the passage of time or both, would
constitute a breach or default under the Lease; and (ii) there are no
existing claims, defenses or offsets against rental due or to become
due under the Lease;
3.3 Entire Agreement. The Lease constitutes the entire agreement between
----------------
Lessor and Lessee with respect to the Property and Lessee claims no
rights with respect to the Property other than as set forth in the
Lease; and
3.4 No Prepaid Rent. No deposits or prepayments of rent have been made
---------------
in connection with the Lease, except as follows: (if none, state
"None") Six Thousand Three Hundred Seventeen and 21/100 Dollars
----
($6,317.21).
4. ADDITIONAL AGREEMENTS. Lessee covenants and agrees that, during all such
---------------------
times as Lender is the Beneficiary under the Deed of Trust:
4.1 Modification, Termination and Cancellation. Lessee will not consent
------------------------------------------
to any modification, amendment, termination or cancellation of the
Lease (in whole or in part) without Lender's prior written consent and
will not make any payment to Lessor in consideration of any
modification, termination or cancellation of the Lease (in whole or in
part) without Lender's prior written consent;
4.2 Notice of Default. Lessee will notify Lender in writing concurrently
-----------------
with any notice given to Lessor of any default by Lessor under the
Lease, and Lessee agrees that Lender has the right (but not the
obligation) to cure any breach or default specified in such notice
within the time periods set forth below and Lessee will not declare a
default of the Lease, as to Lender, if Lender cures such default
within fifteen (15) days from and after the expiration of the time
period provided in the Lease for the cure thereof by Lessor; provided,
--------
however, that if such default cannot with diligence be cured by Lender
-------
within such fifteen (15) day period, the commencement of action by
Lender within such fifteen (15) day period to remedy the same shall be
deemed sufficient so long as Lender pursues such cure with diligence;
4.3 No Advance Rents. Lessee will make no payments or prepayments of
----------------
rent more than one (1) month in advance of the time when the same
become due under the Lease; and
4.4 Assignment of Rents. Upon receipt by Lessee of written notice from
-------------------
Lender that Lender has elected to terminate the license granted to
Lessor to collect rents, as provided in the Deed of Trust, and
directing the payment of rents by Lessee to Lender, Lessee shall
comply with such direction to pay and shall not be required to
determine whether Lessor is in default under the Loan and/or the Deed
of Trust.
5. ATTORNMENT. Lessee agrees for the benefit of Lender (including for this
----------
purpose any transferee of Lender or any transferee of Lessor's title in and
to the Property by Lender's exercise of the remedy of sale by foreclosure
under the Deed of Trust) as follows:
5.1 Payment of Rent. Lessee shall pay to Lender all rental payments
---------------
required to be made by Lessee pursuant to the terms of the Lease for
the duration of the term of the Lease;
5.2 Continuation of Performance. Lessee shall be bound to Lender in
---------------------------
accordance with all of the provisions of the Lease for the balance of
the term thereof, and Lessee hereby attorns to Lender as its landlord,
such attornment to be effective and self-operative without the
execution of any further instrument immediately upon Lender succeeding
to Lessor's interest in the Lease and giving written notice thereof to
Lessee;
Page 3 of 9
43
<PAGE>
5.3 No Offset. Lender shall not be liable for, nor subject to, any
---------
offsets or defenses which Lessee may have by reason of any act or
omission of Lessor under the Lease, nor for the return of any sums
which Lessee may have paid to Lessor under the Lease as and for
security deposits, advance rentals or otherwise, except to the extent
that such sums are actually delivered by Lessor to Lender; and
5.4 Subsequent Transfer. If Lender, by succeeding to the interest of
-------------------
Lessor under the Lease, should become obligated to perform the
covenants of Lessor thereunder, then, upon any further transfer of
Lessor's interest by Lender, all of such obligations shall terminate
as to Lender.
6. NON-DISTURBANCE. In the event of a foreclosure under the Deed of Trust,so
---------------
long as there shall then exist no breach, default, or event of default on
the part of Lessee under the Lease, Lender agrees for itself and its
successors and assigns that the leasehold interest of Lessee under the
Lease shall not be extinguished or terminated by reason of such
foreclosure, but rather the Lease shall continue in full force and effect
and Lender shall recognize and accept Lessee as tenant under the Lease
subject to the terms and provisions of the Lease except as modified by this
Agreement; provided, however, that Lessee and Lender agree that the
-------- -------
following provisions of the Lease (if any) shall not be binding on Lender:
any option to purchase with respect to the Property; any right of first
refusal with respect to the Property; any provision regarding the use of
insurance proceeds or condemnation proceeds with respect to the Property
which is inconsistent with the terms of the Deed of Trust.
7. MISCELLANEOUS.
-------------
7.1 Heirs, Successors, Assigns and Transferees. The covenants herein
------------------------------------------
shall be binding upon, and inure to the benefit of, the heirs,
successors and assigns of the parties hereto; and
7.2 Notices. All notices or other communications required or permitted
-------
to be given pursuant to the provisions hereof shall be deemed served
upon delivery or, if mailed, upon the first to occur of receipt or the
expiration of three (3) days after deposit in United States Postal
Service, certified mail, postage prepaid and addressed to the address
of Lessee or Lender appearing below:
Page 4 of 9
44
<PAGE>
"OWNER" "LENDER"
BRE/CBL L.L.C., a Delaware limited WELLS FARGO BANK, NATIONAL
liability company ASSOCIATION
345 Park Avenue, 31st Floor Real Estate Group (AU #______)
New York, NY 10154 417 Montgomery St., 5th Floor
Attention: Steve Orbuch San Francisco, CA 94111
Attn: Kathy Marker
------------------------
Loan No. 339672H
---------------------
"LESSEE"
Prime Response, Inc.
185 Berry Street, Suite 4601
San Francisco, CA 94107
Attn: Mr. Martin Muoto
provided, however, any party shall have the right to change its
-------- -------
address for notice hereunder by the giving of written notice thereof
to the other party in the manner set forth in this Agreement; and
7.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of
which together shall constitute and be construed as one and the same
instrument; and
7.4 Remedies Cumulative. All rights of Lender herein to collect rents
-------------------
on behalf of Lessor under the Lease are cumulative and shall be in
addition to any and all other rights and remedies provided by law and
by other agreements between Lender and Lessor or others; and
7.5 Paragraph Headings. Paragraph headings in this Agreement are for
------------------
convenience only and are not to be construed as part of this Agreement
or in any way limiting or applying the provisions hereof.
INCORPORATION. Exhibit A and Lease Guarantor's Consent (if any) are attached
- ------------- ---------
hereto and incorporated herein b this reference.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH ALLOWS THE
PERSON OBLIGATED ON YOUR REAL PROPERTY SECURITY TO OBTAIN A LOAN A
PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT
OF THE LAND.
Page 5 of 9
45
<PAGE>
IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF THIS AGREEMENT, THE PARTIES
CONSULT WITH THEIR ATTORNEYS WITH RESPECT HERETO.
"OWNER"
BRE/CBL L.L.C.,
a Delaware limited liability company
By:___________________________________
Name:_________________________________
Its:__________________________________
______________________________________
"LENDER"
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By:___________________________________
Name:_________________________________
Its:__________________________________
"LESSEE"
PRIME RESPONSE, INC., a Delaware
corporation
By: /s/ Cathy Lewis
-----------------------------------
Name: Cathy Lewis
---------------------------------
Its: V P - Finance
----------------------------------
(ALL SIGNATURES MUST BE ACKNOWLEDGED)
Page 6 of 9
46
<PAGE>
EXHIBIT A
Loan No. 3396TZ
DESCRIPTION OF PROPERTY
EXHIBIT A to Subordination Agreement; Acknowledgment of Lease Assignment,
- ---------
Estoppel, Attornment and Non-Disturbance Agreement dated as of ________________,
executed by BRE/CBL L.L.C., a Delaware limited liability company, as "Owner",
PRIME RESPONSE, INC., a Delaware corporation as "Lessee", and WELLS FARGO BANK
NATIONAL ASSOCIATION, as "Lender".
All that certain real property located in the City and County of San Francisco,
State of California, described as follows:
BEGINNING at the point of intersection of the southeasterly line of Berry Street
and the southwesterly line of Third Street; running thence southeasterly along
said line of Third Street 234.17 feet to the most northerly corner of that
certain parcel of land described in deed dated January 5, 1933 from Southern
Pacific Company to the City and County of San Francisco, recorded November 30,
1934, in Book 2714 of Official Records, page 403, Records of the City and County
of San Francisco; thence southeasterly at an angle of 12 12' 20" to the right
from said line of Third Street and along the southwesterly line of said parcel
of land described in said deed, a distance of 41.774 feet to a point in the
northwesterly line of Channel Street thence southwesterly at an angle of 77 47'
40" to the right from last described course and along said line of Channel
Street 816.168 feet to a point in the northeasterly line of Fourth Street;
thence northwesterly at right angles from said line of Channel Street and along
said line of Fourth Street 275 feet to the southeasterly line of Berry Street
825 feet to the point of beginning.
EXCEPTING THEREFROM the lands as described in the deed dated August 5, 1970,
from South Berry Street Corporation, a Delaware corporation, to the State of
California, recorded September 30, 1970, Series No. 16072, in the office of the
Recorder of the City and County of San Francisco, State of California, in Book
B-458 of Official Records, page 4 described as follows:
BEGINNING at a point on the southeasterly line of existing Berry Street, distant
thereon north 46 17' 30" east, 33.14 feet from the intersection of said
southeasterly line with the northeasterly line of existing Fourth Street; thence
along said southeasterly line north 46 17' 30" east, 10.31 feet; thence south 57
41' 27" east, 0.60 of a foot; thence south 32 18' 33" west, 10.00 feet; thence
north 57 41' 27" west, 3.09 feet to the point of beginning.
Page 7 of 9
47
<PAGE>
STATE OF Colorado
COUNTY OF Denver ss.
On this 19 day of July, 1999, before me, __________________________________
a Notary Public in and for the State of Colorado, personally appeared
____________________ personally known to me (or proved on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal
Signature /s/ Bambi Lynn Barr
-----------------------------
My commission expires 11-15-99
-----------------
STATE OF ____________
COUNTY OF _____________ ss.
On this ___ day of ________, 19__, before me, __________________________________
a Notary Public in and for the State of __________, personally appeared
____________________ personally known to me (or proved on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal
Signature ______________________________
My commission expires _________________
Page 8 of 9
48
<PAGE>
STATE OF ____________
COUNTY OF _____________ ss.
On this ___ day of ________, 19__, before me, __________________________________
a Notary Public in and for the State of __________, personally appeared
____________________ personally known to me (or proved on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal
Signature ______________________________
My commission expires _________________
STATE OF ____________
COUNTY OF _____________ ss.
On this ___ day of ________, 19__, before me, __________________________________
a Notary Public in and for the State of __________, personally appeared
____________________ personally known to me (or proved on the basis of
satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to
the within instrument and acknowledged to me that he/she/they executed the same
in his/her/their authorized capacity(ies), and that by his/her/their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal
Signature ______________________________
My commission expires _________________
Page 9 of 9
49
<PAGE>
EXHIBIT 10.45
DATED 29th December 1995
PDFM LIMITED
- and -
PRIME RESPONSE LIMITED
LEASE
- of -
Office Premises at
Goat Wharf High Street
Brentford Middlesex
Term 15 years
Commencing 29 September 1995
Rent (Pounds) 151,000
Berwin Leighton
Adelaide House
London Bridge
London EC4R 9HA
snbn/p432/249/a1
19.12.95
<PAGE>
6 OBLIGATIONS IN SCHEDULES TO THIS LEASE
7 STAMP DUTY CERTIFICATE
8 LANDLORD AND TENANT (COVENANT) ACT 1995 DECLARATION
Schedule 1 - Description of the Premises
Part 1 - Description of the Premises
Part 2 - Rights enjoyed with demise
Part 3 - Exceptions and reservations
Part 4 - Encumbrances
Schedule 2 - Rent Reviews
1. The review dates
2. Upward only rent reviews
3. The market rent
4. Matters to be disregarded
5. Procedure for determination of market rent
6. Time limits
7. Rental adjustments
8. Reviewed rent reserved in phases
9. Memorandum of rent review
Schedule 3 - Insurance Provision
1. Insured Risks
2. Tenants liability for insurance premiums
3. Tenant's obligations in relation to insurance cover
4. Landlord's obligation to insure and reinstate
5. Landlord's obligations in relation to insurance
6. Suspension of Rent
7. Options to determine
8. Retention of insurance proceeds
Schedule 4 - Form of guarantee on assignment
1. Guarantee
2. No waiver or release of liability
3. Guarantors to accept new lease upon disclaimer
4. Subordination of rights of the Guarantors
<PAGE>
DEED
LEASE
DATE: 29/th/ December 1995
PARTIES:
(1) PDFM LIMITED whose registered office is at Triton Court 14 Finsbury Square
London EC2A 1PD acting in the capacity of General Partner of PDFM Second
Property Partnership (a limited partnership registered under the Limited
Partnership Act 1907 of the same address) ("the Landlord") and
(2) PRIME RESPONSE LIMITED whose registered office is at Albany House 41 High
Street Brentford Middlesex TW8 OJW ("the Tenant")
OPERATIVE PROVISIONS:
1 INTERPRETATION
1.1 Definitions
In this Lease if the context so allows:
Conducting Media
means any of the drains, sewers, conduits, flues, gutters, gullies,
channels, ducts, shafts, watercourses, pipes, cables, wires mains and other
service media
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Encumbrances
means the restrictions, stipulations, covenants, rights, reservations,
provisions and other matters contained imposed by or referred to in the
documents brief particulars of which are set out in Schedule 1 Part 4
Insured Risks
has the meaning given to it in Schedule 3
Interest
means interest at the rate of 3% over the base rate of National
Westminster Bank Plc for the time being and from time to time (as well
after as before judgment), or such other comparable rate as the Landlord
may reasonably designate if the base rate ceases to be published
Landlord
includes all persons from time to time entitled to the immediate
reversion to this Lease
Lease
includes any documents supplemental to this Lease
Outgoings
means in relation to the Premises all non-domestic rates, water rates,
water charges and all existing and future rates, taxes, charges,
assessments, impositions and outgoings whatsoever (whether parliamentary
municipal parochial or otherwise) which are now or may at any time be
payable charged or assessed on property or the owner or occupier of
property, but "taxes" in
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this context does not include value added tax, nor any taxes imposed on
the Landlord in respect of the yearly rent reserved by this Lease or in
respect of a disposal of the interest in immediate or mediate reversion
to this Lease
Premises
means the property described in Schedule 1 Part 1
Tenant
includes the Tenant's successors in title and assigns in whom this Lease
may for the time being be vested
Term
means the term of years granted by this Lease
Unsecured Underletting
means an underletting of the whole or part of the Premises in relation to
which the underlessor and the underlessee have agreed to exclude the
provisions of Sections 24 to 28 of the Landlord and Tenant Act 1954 and
their agreement to do so has been duly authorized beforehand by the Court
1.2 Interpretation of restrictions and liability
1.2.1 Where the Tenant is placed under a restriction in this Lease, the
restriction includes the obligation on the Tenant not to permit or allow
the infringement of the restriction by any person
1.2.2 References to liability include, where the context allows, claims demands
proceedings damages losses costs and expenses
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1.3 Clauses and clause headings
1.3.1 The clause and paragraph headings in this Lease are for ease of
reference only and are not to be taken into account in the
construction or interpretation of any covenant condition or proviso to
which they refer
1.3.2 Unless the context otherwise requires, references:
1.3.2.1 to numbered clauses and Schedules are references to the relevant
clause in or Schedule to this Lease: and
1.3.2.2 in any Schedule to a numbered paragraph are references to the relevant
paragraph in that Schedule
1.4 Singular and plural meanings
Words in this Lease importing the singular meaning, where the context
so allows, include the plural meaning and vice versa
1.5 Statutes and statutory instruments
References in this Lease to any statutes or statutory instruments
include and refer to any statute or statutory instrument amending
consolidating or replacing them respectively from time to time in
force, and references to a statute include statutory instruments and
regulations made pursuant to them
1.6 Gender
Words in this Lease importing any one gender include both other
genders and may be used interchangeably, and words denoting natural
persons where the context so allows include corporations and vice
versa
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1.7 Joint and several obligations
At any time that the party of the second part to this Lease is two or
more persons the expression "the Tenant" includes the plural number and
obligations in this Lease expressed or implied to be made with the Tenant
or by the Tenant are to be treated as made with or by such individuals
jointly and severally
2 THE LETTING TERMS
In consideration of the rent reserved by and the covenants in this Lease:
2.1 the Landlord LETS to the Tenant:
2.1.1 ALL the Premises;
2.1.2 TOGETHER WITH the rights set out in Schedule 1 Part 2; and
2.1.3 EXCEPT AND RESERVED to the Landlord the rights set out in Schedule 1 Part
3;
2.2 for the TERM of fifteen years commencing on 29 September 1995
subject to the Encumbrances; and
2.3 the Tenant PAYING during the Term:
2.3.1 from the 29/th/ day of December 1995 to the 28/th/ day of January 1997
the yearly rent of a peppercorn (if demanded);
5
<PAGE>
2.3.2 for the remainder of the Term the yearly rent of (Pounds)151,000 subject
to revision under Schedule 2
all such payments to be made by equal quarterly payments in advance on
the usual quarter days in every year the first (or a proportionate part)
of such payments in respect of the period commencing on the 29/th/ day of
January 1997 and ending on the following quarter day to be made on the 25
December 1996;
2.3.3 as additional rent the monies payable by the Tenant under Schedule 3
commencing on the date hereof; and
2.3.4 as additional rent any value added tax chargeable on the rent and
additional rent reserved in clauses 2.3.1, 2.3.2 and 2.3.3
3 TENANT'S COVENANTS
THE TENANT COVENANTS with the Landlord as follows:
3.1 Rent
3.1.1 To pay the yearly rent reserved by this Lease, free from any deductions
and rights of set-off, at the times and in the manner required in clause
2.3.2 and by means of a standing order to the Tenant's bankers
3.1.2 To pay the additional rents reserved by this Lease at the times and in
the manner specified in relation to each of them
3.2 Interest
3.2.1 To pay Interest on so much of the rents, reviewed rents, and other monies
payable under this Lease as remain unpaid seven days after they have
become due from the date that they became due until the payment is made
to the Landlord
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<PAGE>
3.2.2 To pay Interest under clause 3.2.1 for any period during which the
Landlord properly refuses to accept the tender of payment because of
an unremedied breach of covenant of the Tenant
3.3 Outgoings and Contributions
3.3.1 To pay Outgoings
3.3.2 To pay for all gas and electricity consumed on the Premises, all
charges for meters, and all standing charges
3.3.3 To pay to the Landlord on demand a fair and proper proportion (to be
conclusively determined by the Landlord or the Landlord's surveyor) of
the expense of cleaning, lighting, repairing, renewing, decorating,
maintaining and rebuilding any party walls, lifts, fences, gutters,
drains, roadways, pavements, entrance ways, stairs and passages,
access ways and service areas which are or may be used or enjoyed by
an occupier of the Premises in common with any other person or persons
3.4 Repair
Well and substantially to repair maintain and clean the Premises and
to keep the Premises in good and substantial repair maintained and in
clean condition (except in respect of damage by Insured Risks as
allowed in Schedule 3)
3.5 Decorations
3.5.1 To decorate the inside of the Premises in the year 2000 and from then
in every subsequent fifth year of the Term and in the last three
months of the Term (howsoever determined) with two coats of good
quality paint or good quality polish, and with paper for those parts
normally papered, or other suitable and appropriate materials of good
quality, in a workmanlike manner (such
7
<PAGE>
decorations in the last three months of the Term to be executed in
such colours patterns and materials as the Landlord may reasonably
require)
3.5.2 To decorate the exterior of the Premises in the year 1998 and from
then in every subsequent third year of the Term and also in the last
three months of the Term (howsoever determined) with three coats of
good quality paint or good quality polish or other suitable material
of good quality in a proper and workmanlike manner
3.5.3 Not without the consent of the Landlord to alter cover up or change
any part of the architectural decorations or the external colour of
the Premises
3.6 Landlord's right of inspection and right of repair
3.6.1 To permit the Landlord and its employees or agents at all reasonable
times upon reasonable prior notice to enter into inspect and view the
Premises and examine their condition and also to take a schedule of
fixtures in the Premises
3.6.2 If any breach of covenant, defects, disrepair, removal of fixtures or
unauthorised alterations or additions are found on inspection for
which the Tenant is liable, then, on notice from the Landlord, to
execute to the reasonable satisfaction of the Landlord or its Surveyor
all repairs works replacements or removals required within two months
(or sooner if necessary) after the receipt of the notice
3.6.3 If the Tenant fails to comply with a notice under clause 3.6.2, the
Landlord may itself or by its workpeople or agents enter the Premises
and execute the repairs works replacements or removals
3.6.4 To pay to the Landlord on demand all reasonable expenses so incurred
under clause 3.6.3
8
<PAGE>
3.7 Yield up repair at the end of the Term
At the termination of this Lease or at such later time as the Landlord
recovers possession of the Premises from the Tenant:
3.7.1 quietly to yield up the Premises (with all additions and improvements
to the Premises and all fixtures in the Premises, other than tenant's
fixtures which the Tenant may be entitled to remove) repaired
maintained cleaned decorated and kept in accordance with the Tenant's
covenants in this Lease (except in respect of damage by Insured Risks
as allowed in Schedule 3)
3.7.2 if so requested by the Landlord, to remove from the Premises all the
Tenant's belongings - that is to say trade fixtures and fittings and
all notices notice boards and signs bearing the name of or otherwise
relating to the Tenant (including in this context any persons deriving
title to the Premises under the Tenant) or its business; and
3.7.3 to make good to the reasonable satisfaction of the Landlord all damage
to the Premises resulting from the removal of the Tenant's belongings
from the Premises
3.8 Landlord's right of entry for repairs, etc.
To permit the Landlord or other owners tenants or occupiers of any
adjoining or neighbouring property and their respective agents workmen
and employees to enter the Premises at reasonable times, after giving
to the Tenant reasonable written notice (except in an emergency):
3.8.1 to alter maintain or repair the adjoining premises or property of the
Landlord or person so entering; or
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<PAGE>
3.8.2 to construct alter maintain repair or fix anything or additional thing
serving such property and running through or on the Premises; or
3.8.3 to comply with an obligation to any third party having legal rights
over the Premises; or
3.8.4 in exercise of a right or to comply with an obligation of repair
maintenance or renewal under this Lease; or
3.8.5 in connection with the development of any adjoining or neighbouring
land or premises including the right to build on or into or in
prolongation of any boundary wall of the Premises -
where the same cannot be reasonably effected from any adjoining or
neighbouring premises subject to the Landlord (or other person so
entering) exercising the right in a reasonable manner and making good
any damage caused to the Premises without unreasonable delay
3.9 Alterations
3.9.1 Not to make any alterations or additions to or affecting the structure
or exterior of the Premises, or the appearance of the Premises as seen
from the exterior
3.9.2 Not without the consent of the Landlord (such consent not to be
unreasonably withheld) to make any other alterations or additions to
the Premises
3.9.3 Not to install or erect any exterior lighting shade canopy or awning
or other structure in front of or elsewhere outside the Premises
10
<PAGE>
3.9.4 On the termination of this Lease, to the extent required by the
Landlord, to reinstate the Premises to the condition in which they
were in at the grant of this Lease, such reinstatement to be carried
out under the supervision and to the reasonable satisfaction of the
Landlord or the Landlord's surveyor
3.10 Alienation
3.10.1 Not to assign or charge part only of the Premises
3.10.2 Not to assign or charge the whole nor underlet the whole or any part
of the Premises without the consent of the Landlord (such consent not
to be unreasonably withheld)
3.10.3 Not otherwise than by assignment or underletting permitted under this
clause 3.10 to:
3.10.3.1 part with or share possession or occupation of the whole or a part of
the Premises; or
3.10.3.2 grant to third parties any rights over the Premises
3.10.4 On an assignment, to obtain (if the Landlord reasonably so requires)
guarantors reasonably acceptable to the Landlord for any assignee and
to obtain a direct covenant by deed by the assignee with the Landlord
to observe and perform the covenants of the Tenant and the conditions
in this Lease throughout the period that the assignee holds the Lease
in such form as the Landlord may reasonably require and a direct
covenant by deed by such guarantors in the terms set out in Schedule 4
3.10.5 on the grant of an underlease, to obtain covenants by deed from the
underlessee direct with the Landlord in such form as the Landlord may
reasonably require that the underlessee will:
3.10.5.1 not assign or charge part only of the premises underlet;
11
<PAGE>
3.10.5.2 not part with or share possession or occupation of the whole or any
part of the premises underlet nor grant to third parties rights over
them otherwise than by a permitted assignment or sub-underletting;
3.10.5.3 not assign charge or sub-underlet the whole of the premises sub-
underlet or sub-underlet the whole or any part of the premises
underlet without obtaining the previous consent of the Landlord under
this Lease (such consent not to be unreasonably withheld);
3.10.5.4 provide for the inclusion in any sub-underleases granted out of the
underlease (whether immediate or mediate) of covenants to the same
effect as those contained in these clauses 3.10.5 and clause 3.10.6
3.10.6 On the grant of any underlease:
3.10.6.1 to include provisions for the revision of the rent reserved by the
underlease in an upward only direction to correspond in time and
effect with the provisions for the revision of rent in this Lease;
3.10.6.2 not to reserve or take a premium or fine;
3.10.6.3 to reserve a rent which is at least equal to the market rent as at the
time of the grant of the underlease (assessed in accordance with the
principles in Schedule 2) or the proportionate part of the market rent
of the Premises where only part of the Premises is underlet;
3.10.6.4 to include such covenants of the underlessee as are not inconsistent
with or impair the due performance and observance of the covenants of
the Tenant in this Lease
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3.10.7 Not so to underlet the Premises as to sub-divide them into more than
three units of occupation nor so that any such unit of occupation
created or any left remaining comprises less than one complete floor
(disregarding the common parts on any floor)
3.10.8 Not to underlet the whole or any part of the Premises otherwise than
by way of Unsecured Underletting
3.10.9 The preceding provisions of this clause 3.10 do not apply to any
parting with possession or occupation or the sharing of occupation or
sub-division of the Premises to or with any member of a group of
companies of which the Tenant is itself a member if:
3.10.9.1 the interest in the Premises so created is and remains no more than a
tenancy-at-will; and
3.10.9.2 the possession occupation or sub-division are immediately determined
if the Tenant and the relevant member cease for any reason whatsoever
to be members of the same group of companies;
and for this purpose two companies are members of a group if, and only
if, one is a subsidiary of the other or both are subsidiaries of a
third company, subsidiary having the meaning given to it by Section
736 of the Companies Act 1985
3.11 Registration of dispositions of this Lease
To produce to and leave with the Solicitors of the Landlord the
document effecting the disposition (and in each case a certified copy
for retention by the Landlord) within one month after any disposition
of this Lease or the Premises (a disposition being an assignment,
charge, transfer, underlease, assignment or surrender of any
underlease, or on any transmission by death or otherwise
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<PAGE>
documentary evidence of devolution affecting the Premises), and on
each occasion to pay to the Solicitors such fee as they may reasonably
require for the registration
3.12 Enforcement of underleases
3.12.1 Not without the consent of the Landlord (such consent not to be
unreasonably withheld) to vary the terms, or waive the benefit, of any
covenant of the underlessee or condition in an underlease of the
Premises
3.12.2 Diligently to enforce the covenants of the underlessee and the
conditions in an underlease of the Premises and (if reasonably
required by the Landlord) to exercise by way of enforcement the powers
of re-entry in the underlease
3.12.3 Not without the consent of the Landlord to accept any sum or payment
in kind by way of commutation of the rent payable by an underlessee of
the Premises
3.12.4 Not to accept the payment of rent from an underlessee of the Premises
otherwise than by regular quarterly (or more frequent) payments in
advance
3.12.5 Duly and punctually to exercise all rights to revise the rent reserved
by an underlease of the Premises, and not to agree with an underlessee
a revised rent without the approval of the Landlord (such approval not
to be unreasonably withheld)
3.13 User
3.13.1 Not to use the Premises otherwise than as high class offices and for
purposes ancillary to that use
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3.13.2 Nothing in this Lease implies or is to be treated as a warranty to the
effect that the use of the Premises for those purposes is in
compliance with all town planning laws and regulations now or from
time to time in force
3.14 Restrictions affecting use of the Premises
3.14.1 Not to erect nor install in the Premises any engine furnace plant or
machinery which causes noise fumes or vibration which can be heard
smelled or felt outside the Premises
3.14.2 Not to store in the Premises any petrol or other specially inflammable
explosive or combustible substance
3.14.3 Not to use the Premises for any noxious noisy or offensive trade or
business nor for any illegal or immoral act or purpose
3.14.4 Not to hold any sales by auction on the Premises
3.14.5 Not to hold in or on the Premises any exhibition public meeting or
public entertainment
3.14.6 Not to permit any vocal or instrumental music in the Premises so that
it can be heard outside the Premises
3.14.7 Not to permit livestock of any kind to be kept on the Premises
3.14.8 Not to do anything in the Premises which may be or grow to be a
nuisance or damage to the Landlord or to the owners tenants and
occupiers of adjoining and neighbouring properties
3.14.9 Not to load or use the floors walls ceilings or structure of the
Premises so as to cause strain damage or interference with the
structural parts, loadbearing framework, roof, foundations, joists and
external walls of the Premises
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3.14.10 Not to overload the lifts electrical installation or Conducting Media
in the Premises
3.14.11 Not to do or omit to do anything which may interfere with or which
imposes an additional loading on any ventilation heating air
conditioning or other plant or machinery serving the Premises
3.14.12 Not to use the Premises as a betting shop or betting office
3.14.13 Not to use the Premises for the sale of alcoholic liquor for
consumption either on or off the Premises
3.14.14 Not to allow any person to sleep in the Premises nor to use the
Premises for residential purposes
3.14.15 Not to accumulate trade empties on the Premises
3.14.16 Not to place leave or install any articles merchandise goods or other
things in front of or elsewhere outside the Premises
3.14.17 Not to permit the drains to be obstructed by oil grease or other
deleterious matter, but to keep thoroughly cleaned the Premises and
the drains serving the Premises as often as may be necessary
3.14.18 Not to use any portion of any access road leading to the Premises for
the parking of vehicles
3.15 Advertisements and signs
3.15.1 Not to place or display on the exterior of the Premises or on the
windows or inside the Premises so as to be visible from the exterior
of the Premises any name writing notice sign illuminated
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sign display of lights placard poster sticker or advertisement other
than:
3.15.1.1 a suitable sign of a size and kind first approved by the Landlord
(such approval not to be unreasonably withheld) or the Landlord's
surveyor showing the Tenant's name and trade; and
3.15.1.2 such other notices as the Landlord may in its reasonable discretion
approve
3.15.2 If any name writing notice sign placard poster sticker or
advertisement is placed or displayed in breach of these provisions, to
permit the Landlord to enter the Premises and remove such name writing
notice sign placard poster sticker or advertisement and to pay to the
Landlord on demand the expense of so doing
3.16 Compliance with statutes, etc
3.16.1 To comply in all respects with the provisions of all statutes for the
time being in force and requirements of any competent authority
relating to the Premises or anything done in or on them by the Tenant,
and to keep the Landlord indemnified against liability in consequence
of the Tenant's failure to comply with them
3.16.2 In particular but without affecting the general operation of clause
3.16.1:
3.16.2.1 to execute all works and do all things on or in respect of the
Premises which are required under the Offices Shops and Railway
Premises Act 1963;
3.16.2.2 to comply with all requirements under any present or future statute
order by-law or regulation as to the use or occupation of or otherwise
concerning the Premises;
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3.16.2.3 to execute with all due diligence (commencing work within two months
or sooner if necessary and then proceeding continuously) all works to
the Premises for which the Tenant is liable under this clause 3.16 and
of which the Landlord has given notice to the Tenant;
and, if the Tenant does not comply with clause 3.16.2.3, to permit the
Landlord to enter the Premises to carry out such works, and to
indemnify the Landlord on demand for the expenses of so doing
(including surveyors' and other professional advisers' fees)
3.17 Planning permissions
3.17.1 Not without the consent of the Landlord (such consent not to be
unreasonably withheld) to make any application under the Town and
Country Planning Acts, as defined in the Town and Country Planning Act
1990, to any local planning authority for permission to develop,
including change of use of, the Premises
3.17.2 To indemnify the Landlord against any development charges other
charges and expenses payable in respect of such applications made by
the Tenant and to reimburse to the Landlord the reasonable costs it
may properly incur in connection with such consent
3.17.3 To keep the Landlord indemnified against any expense incurred in
consequence of the use of the Premises reverting to that existing
before the application was made
3.17.4 Forthwith to give to the Landlord full particulars in writing of the
grant of planning permission
3.17.5 Not to implement any planning permission if the Landlord makes
reasonable objection to any of the conditions subject to which it has
been granted
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3.18 Compliance with town planning and environmental requirements
3.18.1 To perform and observe the requirements of statutes and regulations
relating to town and country planning and environmental protection
applying to the Premises, and to obtain any development or other
consent permit or licence by reason of the development or manner of
use of or on the Premises by the Tenant
3.18.2 To keep the Landlord indemnified against liability by reason of the
Tenant's failure to obtain any requisite development or other consent
permit or licence or in complying with the requirements of statutes
and regulations
3.18.3 To give full particulars to the Landlord of any notice, or proposal
for a notice, or order or proposal for an order, made given or issued
to the Tenant under any statute or regulation relating to town and
country planning, environmental protection or otherwise within seven
days after the receipt of any such by the Tenant
3.18.4 Forthwith to take all reasonable and necessary steps to comply with
any such notice or order
3.18.5 At the request and cost of the Landlord, to make or join with the
Landlord in making such objections or representations against or in
respect of any proposal for such a notice or order as the Landlord may
consider expedient
3.19 Claims made by third parties
3.19.1 To keep the Landlord indemnified against liability in respect of any
accident loss or damage to person or property in the Premises
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3.19.2 To keep the Landlord indemnified against liability of the Landlord to
third parties by reason of breach by the Tenant of its obligations in
this Lease
3.20 Expenses of the Landlord
To pay to the Landlord on demand all reasonable expenses (including
solicitors' costs bailiffs' fees and surveyors' and architects' fees)
incurred by the Landlord:
3.20.1 incidental to or in proper contemplation of the preparation and
service of a schedule of dilapidations during or within 3 months after
the termination of this Lease and/or a notice under Sections 146 and
147 of the Law of Property Act 1925, even if forfeiture is avoided
otherwise than by relief granted by the Court;
3.20.2 in the recovery or attempted recovery of arrears of rent or additional
rent due from the Tenant; and
3.20.3 in connection with every application for any consent or approval made
under this Lease whether or not consent or approval is given (unless
such consent is unlawfully withheld)
3.21 Obstruction of windows or lights and easements
3.21.1 Not to stop up or obstruct any windows of the Premises or any other
buildings belonging to the Landlord
3.21.2 Not to permit any easement or similar right to be made or acquired
into against or on the Premises
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3.21.3 Where any such easement or right is or is attempted to be acquired,
immediately to give notice of the circumstances to the Landlord, and
at the request and cost of the Landlord to adopt such course as it may
reasonably require for preventing the acquisition of the easement or
right to such easement
3.22 Cleaning windows
To keep clean the glass in the windows of the Premises
3.23 Value added tax
To pay value added tax on taxable supplies of goods and services made
by the Landlord in connection with this Lease, for which the
consideration is to be treated as exclusive of value added tax
chargeable on the payment
3.23.1 Where the Landlord is entitled under this Lease to recover from the
Tenant the costs of goods and services supplied to the Landlord, but
in respect of which the Landlord makes no taxable supply to the
Tenant, to indemnify the Landlord against so much of the input tax on
the cost for which the Landlord is not entitled to credit allowance
under Section 26 of the Value Added Tax Act 1994
3.24 Notices "to let" and "for sale"
3.24.1 To allow the Landlord or its agents to enter the Premises at any time:
3.24.1.1 within six months next before the termination of this Lease to fix on
the Premises a notice board for reletting the Premises;
3.24.1.2 to fix on some part of the Premises a notice board for the sale of the
interest of the Landlord
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3.24.2 Not to remove or obscure any such notice board; and
3.24.3 To permit all persons authorized by the Landlord or its agents to view
the Premises at reasonable hours without interruption in connection
with any such letting or sale
4 PROVISOS
THE PARTIES AGREE to the following provisos:
4.1 Proviso for Re-Entry
4.1.1 The Landlord may terminate this Lease by re-entering the Premises (or
a part of them) itself or by an authorized agent if:
4.1.1.1 any rent remains unpaid twenty one days after becoming due for payment
(whether or not formally demanded); or
4.1.1.2 the Tenant fails to perform or observe any of its covenants or the
conditions in this Lease or allows any distress or execution to be
levied on its goods; or
4.1.1.3 an event of insolvency occurs in relation to the Tenant or one of the
Tenants or any guarantor of the Tenant or one of the Tenants
4.1.2 Re-entry in exercise of the rights in clause 4.1.1 does not affect any
other right or remedy of the Landlord for breach of covenant or
condition by the Tenant occurring before the termination of this Lease
4.1.3 The expression an event of insolvency in clause 4.1.1 includes:
4.1.3.1 (in relation to a company or other corporation which is the Tenant or
one of the Tenants or a guarantor) inability of the company to pay its
debts, entry into liquidation either
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compulsory or voluntary (except for the purpose of amalgamation or
reconstruction), the passing of a resolution for a creditors winding
up, the making of a proposal to the company and its creditors for a
composition in satisfaction of its debts or a scheme of arrangement of
its affairs, the application to the court for an administration order,
and the appointment of a receiver or administrative receiver; and
4.1.3.2 (in relation to an individual who is the Tenant or a guarantor)
inability to pay or having no reasonable prospect of being able to pay
his debts, the presentation of a bankruptcy petition, (unless
vexatiously presented) the making of a proposal to his creditors for a
composition in satisfaction of his debts or a scheme of an arrangement
of his affairs, the application to the court for an interim order, and
the appointment of a receiver or interim receiver;
and in relation to the various events of insolvency they are, wherever
appropriate, to be interpreted in accordance and conjunction with the
relevant provisions of the Insolvency Act 1986
4.2 Power for Landlord to deal with adjoining property
The Landlord may deal as it thinks fit with other property adjoining
or nearby belonging to the Landlord, and may erect or permit to be
erected on such property any buildings irrespective of whether they
affect or diminish the light or air which may now or at any time be
enjoyed by the Tenant in respect of the Premises but not so as to
materially interfere with the Tenant's use of the Premises or the
business carried on thereat
4.3 Accidents
The Landlord shall not be responsible to the Tenant or the
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Tenant's licensees nor to any other person for any:
4.3.1 accident happening or injury suffered in the Premises; or
4.3.2 damage to or loss of any goods or property sustained in the building
on the Premises
4.4 Removal of property after determination of term
4.4.1 If after the Tenant has vacated the Premises following the termination
of this Lease any property of the Tenant remains in the Premises, and
the Tenant fails to remove it within fourteen days after being
requested in writing by the Landlord to do so the Landlord may as the
agent of the Tenant sell such property and hold the proceeds of sale,
after deducting the costs and expenses of removal storage and sale
reasonably and properly incurred by it, to the order of the Tenant
4.4.2 The Tenant will indemnify the Landlord against any liability incurred
by it to any third party whose property has been sold by the Landlord
in the bona fide mistaken belief (which is to be presumed unless the
contrary be proved) that it belonged to the Tenant and was liable to
be dealt with as such under this clause 4.4
4.5 Notices consents and approvals
4.5.1 Any notice served under or in connection with this Lease is to be in
writing and be treated as properly served if compliance is made with
either the provisions of Section 196 of the Law of Property Act 1925
(as amended by the Recorded Delivery Service Act 1962) or Section 23
of the Landlord and Tenant Act 1927
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4.5.2 Any consent or approval under this Lease is required to be obtained
before the act or event to which it applies is carried out or done and
is to be treated as effective only if the consent or approval is given
in writing
4.6 Limitation on Original Tenant's Liability
Notwithstanding anything to the contrary contained in this Lease Prime
Response Limited ("Prime Response") shall only be liable for the
Tenant's covenants and obligations herein contained for such period as
the Lease remains vested in Prime Response subject to the condition
that immediately prior to transferring its interest in this Lease
Prime Response enters into a guarantee of the Tenant's covenants and
obligations contained herein in the form of guarantee contained in
Schedule 4 of this Lease for such period only as the Lease remains
vested in the assignee of Prime Response ("the Condition") and in the
event that Prime Response fails to comply with the Condition it shall
remain liable under the tenant's covenants and obligations herein
contained until such time as it has complied with all elements the
Condition save as to timing
5 LANDLORD'S COVENANTS
THE LANDLORD COVENANTS with the Tenant as follows:
Quiet enjoyment
That the Tenant, paying the rents reserved and performing the Tenant's
covenants in this Lease, may lawfully and peaceably enjoy the Premises
throughout the Term without interruption by the Landlord or by any
person lawfully claiming through under or in trust for the Landlord
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6 OBLIGATIONS IN SCHEDULES TO THIS LEASE
The Landlord and the Tenant mutually covenant to observe and perform
their respective obligations and the conditions in the Schedules
7 STAMP DUTY CERTIFICATE
It is certified that there is no agreement to which this Lease gives
effect
8 LANDLORD AND TENANT (COVENANTS) ACT 1995 DECLARATION
This Lease does not constitute a new tenancy for the purposes of
Section 1 of the Landlord and Tenant (Covenants) Act 1995
DELIVERED as a deed on the date at the head of this Lease
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SCHEDULE 1
PART 1
Description of the Premises
All that piece or parcel of land situate at 2 Goat Wharf High Street Brentford
in the London Borough of Hounslow together with the office building erected
thereon or on some part thereof being the whole of the property comprised in HM
Land Registry title number AGL5973 and all which said premises are for the
purposes of identification only shown edged red on the plan annexed hereto but
excluding therefrom (to the extent that it forms part of Title Number AGL5973)
the retaining wall running between the points marked A and B on the said plan.
PART 2
Rights Enjoyed with the Premises
The rights listed or referred to in the Property Register to Title Number
AGL5973
PART 3
Exceptions and Reservations
1. All rights of entry upon the Premises referred to in clause 3
2. The exceptions and reservations listed or referred to in the Property
Register to title number AGL5973 and in particular (but without prejudice
to the generality of the foregoing) those listed in a Transfer dated 14th
October 1988 made between (1) Oxford & Cambridge Developments Limited and
(2) Provident Mutual Life Assurance Association and a further Transfer
dated 24 June 1994 made between Provident Mutual Life Assurance
Association and (2) PDFM Limited
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PART 4
Encumbrances
The matters contained referred or mentioned in the Property Register and Entry
number 1 of the Charges Register to title number AGL5973
[ROAD MAP APPEARS HERE]
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SCHEDULE 2
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Rent Reviews
1 The review dates
The yearly rent payable under this Lease is to be reviewed on the
29/th/ September 2000, 29/th/ September 2005 (referred to in this
Schedule as the review dates and the relevant review date shall be
construed accordingly) and with effect on and from each review date
the reviewed rent (as agreed or determined in accordance with this
Schedule) is to become payable as the yearly rent reserved by this
Lease
2 Upward only rent reviews
The reviewed rent is to be the greater of:
2.1 the yearly rent reserved under this Lease immediately preceding the
relevant review date; and
2.2 the market rent of the Premises at the relevant review date
3 The market rent
For the purposes of this Lease, the expression "market rent" means the
yearly rent at which the Premises might reasonably be expected to be
let in the open market by a willing landlord to a willing tenant:
3.1 with vacant possession;
3.2 for a term of ten years from the relevant review date having a rent
review, in the same terms as this Lease, at the expiry of each period
of five years throughout the term;
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3.3 without the payment of a premium by the willing tenant;
3.4 on the basis that the willing tenant would receive as a term of the
letting such a rent free or concessionary rental period, or other
inducement, as the willing landlord would negotiate with the willing
tenant, in respect of the period that such willing tenant would
require in which to carry out its fitting out works and the rate of
the market rent payable by the Tenant from the review date would be
such as the willing tenant would pay at the expiry of the rent free or
concessionary rent period, or following the receipt of the inducement;
and
3.5 subject to the provisions of this Lease, other than the length of the
term and the amount of rent, but including these provisions for rent
review;
but on the assumption, if not the fact, that at the relevant review
date:
3.6 the Premises are fit for immediate occupation and use (but this
assumption does not affect the operation of paragraph 4.3);
3.7 in case the Premises have been destroyed or damaged they have been
fully reinstated;
3.8 the Premises are in a state of full repair and the covenants of the
Tenant and the Landlord have been fully observed and performed;
3.9 there is not in operation any statute order or instrument regulation
or direction which has the effect of regulating or restricting the
amount of rent of the Premises which might otherwise be payable; and
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3.10 the Premises may be lawfully used throughout the Term as offices and
that no capital is required to be expended upon the Premises to enable
them to be so used
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4 Matters to be disregarded
In agreeing or determining the market rent the effect upon it of the
following matters are to be disregarded:-
4.1 the occupation of the Premises by the Tenant
4.2 any goodwill attached to the Premises by reason of the carrying on at
the Premises of the business of the Tenant;
4.3 any improvements to the Premises made by the Tenant with the consent
of the Landlord other than those:
4.3.1 made in pursuance of an obligation to the Landlord;
4.3.2 for which the Landlord has paid;
4.4 any works carried out by the Tenant which have diminished the market
rent; and
4.5 (at the option of the Landlord) the level of rent in any underletting
of the Premises or part thereof
and in this paragraph 4 reference to "the Tenant" include
predecessors-in-title to the Tenant, and sub-tenants of the Tenant or
of the predecessors-in-title of the Tenant and any other lawful
occupiers
5 Procedure for determination of market rent
5.1 The Landlord and the Tenant are to endeavour to agree the market rent
at any time not being earlier than twelve months before the relevant
review date, but if they have not agreed the market rent three months
before the relevant review date the amount of the market rent is to be
determined by reference to the determination of an independent expert
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5.2 The expert shall be nominated by the Landlord and the Tenant jointly,
but, if they cannot or do not do so, then he shall be nominated by the
President for the time being of the Royal Institution of Chartered
Surveyors on the application either of the Landlord or of the Tenant
at any time after the date being three months before the relevant
review date
5.3 The expert shall act as an expert not as an arbitrator and shall be
required to:
5.3.1 give notice to the Landlord and the Tenant allowing each of them an
opportunity to submit to him within such reasonable time as he may
stipulate a proposal for the market rent accompanied (if either of
them so wish) by a statement of reasons, and a professional rental
valuation or report; and
5.3.2 permit each of the Landlord and the Tenant to make submissions in
respect of the other's reasons valuation and report;
but the expert shall not be bound by any such proposal or submission
and may make his determination as he thinks fit
5.4 The expert nominated is to be a chartered surveyor having not less
than 10 years' experience of leasehold valuation of property being put
to the same or similar use as the Premises and of property in the same
region in which the Premises are situated
5.5 If the expert refuses to act, becomes incapable of acting or dies, the
Landlord or the Tenant may require the appointment of another expert
as provided in paragraph 5.1
5.6 The fees and expenses of the expert, including the cost of his
nomination, are to be borne in such manner and proportions as the
expert may direct, but in the absence of any such direction, they are
to be borne by the Landlord and the Tenant in equal shares
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5.7 The determination of the expert is to be final and binding on the
parties except on a matter of law
6 Time limits
Time is not of the essence in agreeing or determining the reviewed
rent or of appointing an expert
7 Rental adjustments
7.1 If the market rent has not been agreed or determined in accordance
with the provisions of this Schedule before the relevant review date,
then, until the market rent has been so agreed or determined, the
Tenant will continue to pay on account rent at the rate of yearly rent
payable immediately before the relevant review date
7.2 The Tenant will pay to the Landlord within seven days after the time
that the market rent has been agreed or determined all arrears of the
reviewed rent which have accrued in the meantime, with interest equal
to the base rate of National Westminster Bank Plc on each of the
instalments of the arrears from the time that it would have become due
if the market rent had then been agreed or determined until payment
becomes due from the Tenant to the Landlord under this paragraph 7.2
8 Reviewed rent reserved in phases
The Landlord and the Tenant may, at any time before the market rent is
determined by an expert, settle the reviewed rent in more than one
amount and agree to reserve the amounts increasing in phases until the
next review date or, if none, the expiry of the Term
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9 Memorandum of rent review
The parties shall cause a memorandum of the reviewed rent duly signed
by the Landlord and the Tenant to be endorsed on or securely annexed
to this Lease and the counterpart of this Lease
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SCHEDULE 3
Insurance provisions
1 Insured Risks
1.1 Insured Risks means the risks and other contingencies against which the
Premises are required to be, or which may from time to time be, insured
under this Lease, but subject to any exclusions limitations and
conditions in the policy of insurance
1.2 Insured Risks include, without limitation, fire, lightning, explosion,
storm, tempest, flood, bursting and overflowing of water tanks apparatus
or pipes, earthquake, aircraft (but not hostile aircraft) and other
aerial devices dropped from aircraft, riot and civil commotion, malicious
damage and such other risks as the Landlord may reasonably consider it
prudent to insure
1.3 If a risk or contingency itemised, or otherwise included, as an Insured
Risk, can no longer be insured or can only be insured at an uneconomic
rate, the risk or contingency shall cease to be treated as an Insured
Risk from the time that cover is withdrawn and the Landlord has notified
the Tenant of its withdrawal
2 Tenant's liability for insurance premiums
2.1 The Tenant will pay to the Landlord on demand the reasonable insurance
premiums incurred by the Landlord
2.2 Insurance premiums are to include all monies expended, or required to be
expended by the Landlord in effecting and maintaining cover against:
2.2.1 Insured Risks;
2.2.2 three years' loss of rent insurance;
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2.2.3 such professional fees as may be incurred in connection with rebuilding
or reinstatement of the Premises;
2.2.4 the costs of demolition, shoring up, and site clearance works;
2.2.5 third party and public liability risks; and
2.2.6 value added tax liability on such items
2.3 The insurance cover may take into account cover for the effects of
inflation and escalation of costs and fees, the Landlord's reasonable
estimate of the market rent of the Premises as defined in Schedule 2 in
the context of ensuing rent reviews and the termination of the Lease
3 Tenant's Obligations in relation to insurance cover
3.1 The Tenant will not do anything which may render void or voidable the
insurance of the Landlord on the Premises or which may cause insurance
premiums to be increased
3.2 The Tenant will provide efficient fire extinguishers of a type reasonably
approved by the Landlord, and will adopt such other precautions against
Insured Risks as the Landlord or its insurers may reasonably consider
appropriate
3.3 If the insurance of the Landlord is vitiated in whole or in part in
consequence of an act or omission of the Tenant, persons occupying or
enjoying the use of the Premises through or under the Tenant, or their
respective employees workmen agents or visitors, the Tenant will pay to
the Landlord on demand a sum equal to the amount of the insurance monies
which have become irrecoverable in consequence of that act or omission
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3.4 The Tenant may not insure the Premises for any of the Insured Risks in
such a manner as would permit the insurer of the Landlord to average the
proceeds of insurance or cancel insurance cover
3.5 The Tenant will notify the Landlord forthwith of the occurrence of damage
to the Premises by any of the Insured Risks
3.6 If the Premises are damaged by Insured Risks, the Tenant will pay to the
Landlord on demand the amount of any reasonable uninsured excess to which
the insurance cover of the Landlord is subject
3.7 The obligations of the Tenant to repair and to yield up in repair the
Premises are to remain operative to the extent that the insurance of the
Landlord in respect of Insured Risks is vitiated or insurance monies are
withheld by reason of an act or omission of the Tenant, persons occupying
or enjoying the use of the Premises through or under the Tenant, or their
respective employees workmen agents or visitors, but do not otherwise
operate in respect of damage to the Premises by Insured Risks
4 Landlord's obligation to insure and reinstate
4.1 The Landlord will keep the Premises insured with an insurer of repute
against Insured Risks and other items referred to in paragraph 2.2 for
the full cost of reinstatement, subject to such uninsured excess as the
insurer may reasonably apply
4.2 Following the occurrence of damage to or destruction of the Premises by
an Insured Risk, the Landlord will diligently apply, or procure the
application of, the proceeds of the insurance covering reinstatement and
rebuilding costs for those purposes, and will make good any deficiency in
the proceeds of the insurance out of its own resources
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4.3 The obligations of the Landlord in paragraph 4.2 do not apply:
4.3.1 if the Landlord is unable, after using its reasonable endeavours to do
so, to obtain any requisite planning permission or other consents for the
reinstatement or rebuilding of the Premises or of a building of similar
size character and amenity; or
4.3.2 if the Landlord's insurance is vitiated by reason of an act or omission
of the Tenant, persons occupying or enjoying the use of the Premises
through or under the Tenant, or their respective employees workmen agents
or visitors
4.4 Where the Premises are substantially damaged or destroyed, the Tenant may
not object to the reinstatement or rebuilding of the Premises in a form
which is not identical to the Premises immediately before the damage or
destruction occurred if the Premises as reinstated or rebuilt are of
equivalent or better standard, with materially the same floor area and
affords amenities which are not inferior to or deficient from those
enjoyed by the Tenant before the occurrence of the damage or destruction
5 Landlord's obligations in relation to insurance
5.1 The Landlord will use its reasonable endeavours to procure that its
insurers waive entitlement to rights of subrogation against the Tenant,
persons occupying or enjoying the use of the Premises through or under
the Landlord, and their respective employees workmen agents or visitors
5.2 The Landlord will notify its insurers of the Tenant's interest in the
Premises and, if practicable, have it noted on the policies of insurance
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5.3 The Landlord will provide the Tenant with a copy of its insurance
policies (or other evidence of the conditions of insurance) on the
Premises, and at the request of the Tenant with a receipt for the payment
of the last premium or other evidence of renewal and up-to-date details
of the amount of cover
5.4 The Landlord will promptly notify the Tenant of any changes in its
insurance cover or of the terms on which cover has been effected
5.5 The Landlord may retain for its exclusive benefit any discount on the
insurance premiums or commission offered to it by its insurer
6 Suspension of Rent
6.1 Paragraph 6.2 applies if the Premises are at any time during the Term so
damaged by an Insured Risk as to render the Premises or any part of them
unfit for occupation use or enjoyment, except in the circumstances
referred to in paragraph 4.3.2
6.2 The rent and additional rent reserved by this Lease, or a fair proportion
of them according to the nature and extent of the damage sustained, shall
be suspended and cease to be payable until the Premises (excluding
fitting out works and replacement of contents) have been reinstated and
made fit for occupation use and enjoyment, or, if earlier, until the
expiry of three years from the occurrence of the damage
6.3 A dispute as to the amount of the abatement of the rent or the duration
of the period of abatement is to be submitted to a single arbitrator, by
whose decision the parties are to be bound, who is to be appointed by the
parties jointly if they can agree on one, but if they do not agree, then
by the President for the time being of the Royal Institution of Chartered
Surveyors at the request of either party, and the arbitration is to be
conducted under the Arbitration Acts 1950-1979
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7 Options to determine
7.1 If for any reason beyond the control of the Landlord it proves impossible
to commence rebuilding or reinstatement of the Premises within two years
of the occurrence of the damage by an Insured Risk, the Landlord may
terminate this Lease by giving to the Tenant notice to that effect at any
time until such rebuilding and reinstatement has actually commenced
7.2 If the rebuilding or reinstatement of the Premises has not been commenced
two years after the occurrence of the damage by an Insured Risk, the
Tenant may give three months notice to the Landlord of intention to
terminate this Lease, and if the rebuilding or reinstatement work has not
commenced in earnest within three months of the giving of the notice,
this Lease shall terminate at the expiry of the notice
7.3 The termination of this Lease under this paragraph 7 shall not affect any
liability which has accrued at any time before the time of termination
8 Retention of insurance proceeds
On the termination of this Lease under paragraph 7, or if this Lease is
terminated by the operation of the doctrine of frustration, the Landlord
shall be entitled to retain for its exclusive benefit the proceeds of
insurance
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SCHEDULE 4
Form of guarantee on assignment
1 Guarantee
1.1 The Guarantors jointly and severally guarantee to the Landlord (but only
for such period as the Lease remains vested in the BL Assignee) that
the Tenant will pay the rents reserved by and perform and observe all the
Tenant's covenants in this Lease and the Guarantors will pay and make
good to the Landlord on demand any losses damages costs and expenses
suffered or incurred by the Landlord by reason of any failure of the
Tenant to do so
1.2 In the context of these guarantee provisions, references to the Tenant
are to the Assignee only (in its capacity as Tenant) with respect of whom
this guarantee is given
2 No waiver or release of liability
The Guarantors shall not be released from liability under these
provisions by reason of:
2.1 any forbearance the granting of time or any other indulgence on the part
of the Landlord, including (but without affecting the general operation
of this paragraph 2) any granting or extension of time under or varying
the procedure set out in Schedule 2, paragraph 5; or
2.2 any variation of this Lease, whether or not made with the consent of the
Guarantors, and the guarantee of the Guarantors in clause 1 is to operate
in relation to this Lease as it may be varied from time to time
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3 Guarantors to accept new lease upon disclaimer
3.1 If this Lease is effectively determined by disclaimer at any time during
such period as the Lease is vested in the Assignee, the BL Guarantors
shall, if the Landlord by notice within three months after the date of
determination so requires take from the Landlord a lease of the Premises
3.2 The lease is to be granted to the Guarantors under clause 3.1 is to be on
the following terms:
3.2.1 the term is to commence on the date of termination of this Lease and to
be equal to the residue of the Term which would have remained unexpired
at that date if this Lease had not then been terminated;
3.2.2 the yearly rent is to be the same as would have been payable under this
Lease if it had continued and, if a rent review operative from a review
date before the grant of the lease has not been completed, the Guarantors
will complete the rent review as if it had been the Tenant under this
Lease;
3.2.3 the lease is otherwise to be on the same terms and conditions as would
have applied under this Lease if it had continued undetermined; and
3.2.4 the Guarantors are to succeed to the rights and assume the liability of
the Tenant under this Lease as if the Lease had continued undetermined
4 Subordination of rights of the Guarantors
4.1 With respect to any sums paid by the Guarantors under this Schedule and
to any other rights which may accrue to the Guarantors in respect of any
sums so paid or liabilities incurred under this guarantee or in the
observance performance or discharge
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of the obligations and covenants of the Tenant in this Lease, the
Guarantors shall rank and be entitled to enforce its rights only after
all obligations and covenants under this guarantee have been fully
observed and performed, and if they have not the Guarantors shall not:
4.1.1 seek to recover from the Tenant, or any third party whether directly or
by way of set-off lien counterclaim or otherwise or accept any money or
other property or security or exercise any rights in respect of any sum
which may be or become due to the Guarantors on account of the failure by
the Tenant to observe and perform or discharge such obligations or
covenants in this Lease;
4.1.2 claim, prove or accept any payment in composition by way of winding-up,
liquidation, bankruptcy or other form of insolvency of the Tenant in
competition with the Landlord for any amount whatsoever owing to the
Guarantors by the Tenant; nor
4.1.3 exercise any right or remedy in respect of any amount paid by the
Guarantors under this Lease or any liability incurred in observing
performing or discharging the obligations and covenants of the Tenant
4.2 The Guarantors warrant that it has not taken, and undertakes with the
Landlord that it will not without the consent of the Landlord (such
consent not to be unreasonably withheld):
4.2.1 take any security from the Tenant in respect of this guarantee and, if
any such security is so taken notwithstanding, it shall be held on trust
for the Landlord as security for the respective liabilities of the
Guarantors and the Tenant; nor
4.2.2 be entitled to any right of proof in the bankruptcy, liquidation or other
form of insolvency of the Tenant or exercise any other right of the
Guarantors discharging his liability in respect of such obligations and
covenants
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EXECUTED under the )
Common Seal Of )
PDFM LIMITED )
in the presence of:- )
/s/ [ILLEGIBLE]^^ SEAL APPEARS HERE
/s/ [ILLEGIBLE]^^
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Exhibit 10.46
DATE OF LEASE EXECUTION:
1. REFERENCE DATA
1.1 SUBJECTS REFERRED TO:
Each reference in this Lease to any of the following subjects shall be construed
to incorporate the data stated for that subject in this Section 1.1:
LANDLORD: BRE/CambridgePark Office H L.L.C., a Delaware limited
liability company
MANAGING AGENT: Spaulding and Slye Services Limited Partnership
LANDLORD'S & MANAGING AGENT'S ADDRESS:
Spaulding and Slye Services Limited Partnership
125 CambridgePark Drive
Cambridge, MA 02140
LANDLORD'S REPRESENTATIVE: John M. Kane
TENANT: Prime Response Group, Inc., a Delaware corporation.
TENANT'S ADDRESS (FOR NOTICE AND BILLING):
Prime Response Group, Inc.
150 CambridgePark Drive
Cambridge, Massachusetts 02140
TENANT'S REPRESENTATIVE: Jacqueline Crowley
BUILDING: The building located at 150 CambridgePark Drive, Cambridge,
Massachusetts.
LOT: The parcel of land on which the Building is located and described in
Exhibit A.
PREMISES: The space located on the first floor of the Building as shown on
Exhibit B.
RENTABLE FLOOR AREA OF THE PREMISES: Approximately 4,705 square feet
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TOTAL RENTABLE FLOOR AREA OF THE BUILDING: approximately 252,180 square feet
SCHEDULED TERM COMMENCEMENT DATE: June 1, 1999
LEASE TERM OR TERM: Commencing on the Term Commencement Date as defined in
Section 3.2 hereof and continuing for five (5) years
thereafter, plus the partial month at the beginning of the
Term, if any, unless sooner terminated as provided herein
ANNUAL RENT: $36.50 per square foot of Rentable Floor Area of the Premises, or
$14,311.04 per calendar month, and proportionally at such rate
for any partial month (net of Tenant's charges for electrical
consumption in the Premises).
BASE ANNUAL ELECTRICITY CHARGE: $1.00 per square foot of Rentable Floor
Area of the Premises
BASE ANNUAL OPERATING COSTS: All of Landlord's Operating Costs (other than
real estate taxes) for calendar year 1999
(i.e., January 1, 1999 through December 31,
1999), together with all real estate taxes
for fiscal year 2000 (i.e., July 1, 1999
through June 30, 2000).
TENANT'S PROPORTIONATE SHARE: 1.87%
PERMITTED USES: Office Uses
COMMERCIAL GENERAL LIABILITY INSURANCE:
$1,000,000 bodily injury, property damage combined single
limit per occurrence, $2,000,000 annual aggregate.
BROKER: Spaulding and Slye Services Limited Partnership and Godino & Company
SECURITY DEPOSIT: $42,933.12
TENANT'S PARKING ACCESS CARDS: 14
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TENANT IMPROVEMENT ALLOWANCE: $12.00 per square foot of Rentable Floor
Area of the Premises
1.2 EXHIBITS.
The exhibits listed below in this section are incorporated in this Lease by
reference and are to be construed as part of this Lease:
EXHIBIT A Description of Lot
EXHIBIT B Plan showing Premises.
EXHIBIT C Landlord's Services
EXHIBIT D Rules and Regulations
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TABLE OF CONTENT'S
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ARTICLE II - PREMISES AND TERM...................................... 11
2.1 DESCRIPTION OF PREMISES.................................... 11
2.2 TERM....................................................... 11
2.3 OPTION TO EXTEND........................................... 11
ARTICLE III - CONSTRUCTION.......................................... 13
3.1 TERM COMMENCEMENT DATE..................................... 13
3.2 DELIVERY OF PREMISES....................................... 13
3.3 PREPARATION OF PREMISES FOR OCCUPANCY...................... 14
3.4 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION.............. 15
3.5 ALTERATIONS AND ADDITIONS.................................. 15
3.6 REPRESENTATIVES............................................ 17
ARTICLE IV - RENT................................................... 17
4.1 ANNUAL RENT................................................ 17
4.2 ANNUAL OPERATING COST ESCALATION........................... 17
4.3 ESTIMATED ANNUAL OPERATING EXPENSE ESCALATION PAYMENT...... 19
4.4 ELECTRICITY................................................ 20
4.5 CHANGE OF FISCAL YEAR...................................... 21
4.6 PAYMENTS................................................... 21
ARTICLE V - LANDLORD'S COVENANTS.................................... 22
5.1 LANDLORD'S COVENANTS DURING THE TERM....................... 22
5.1.1 Building Services................................ 22
5.1.2 Additional Building Services..................... 22
5.1.3 Repairs.......................................... 22
5.1.4 Tenant Directory................................. 22
5.1.5 Food Service..................................... 23
5.1.6 Quiet Enjoyment.................................. 24
5.2 INTERRUPTIONS.............................................. 24
ARTICLE VI - TENANT'S COVENANTS..................................... 25
6.1 TENANT'S COVENANTS DURING THE TERM......................... 25
6.1.1 Tenant's Payments................................ 25
6.1.2 Repairs and Yielding Up.......................... 25
6.1.3 Occupancy and Use................................ 25
6.1.4 Rules and Regulations............................ 26
6.1.5 Safety Appliances................................ 27
6.1.6 Assignment and Subletting........................ 27
</TABLE>
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6.1.7 Indemnity........................................ 28
6.1.8 Tenant's Insurance............................... 29
6.1.9 Tenant's Worker's Compensation Insurance......... 30
6.1.10 Landlord's Right of Entry........................ 30
6.1.11 Loading.......................................... 30
6.1.12 Landlord's Costs................................. 30
6.1.13 Tenant's Property................................ 31
6.1.14 Labor or Materialmen's Liens..................... 31
6.1.15 Changes or Additions............................. 31
6.1.16 Holdover......................................... 31
6.1.17 Security......................................... 32
6.1.18 Tenant Financial Statements...................... 32
ARTICLE VII - DAMAGE AND DESTRUCTION; CONDEMNATION.................. 32
7.1 FIRE OR OTHER CASUALTY................................ 32
7.2 EMINENT DOMAIN........................................ 34
ARTICLE VIII - RIGHTS OF MORTGAGEE.................................. 36
8.1 PRIORITY OF LEASE..................................... 36
8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF
MORTGAGEE'S LIABILITY................................. 36
8.3 MORTGAGEE'S ELECTION.................................. 37
8.4 NO PREPAYMENT OR MODIFICATION, ETC.................... 37
8.5 NO RELEASE OR TERMINATION............................. 38
8.6 CONTINUING OFFER...................................... 38
8.7 MORTGAGEE'S APPROVAL.................................. 38
ARTICLE IX - DEFAULT................................................ 39
9.1 EVENTS OF DEFAULT..................................... 39
9.2 TENANT'S OBLIGATIONS AFTER TERMINATION................ 40
ARTICLE X - MISCELLANEOUS........................................... 41
10.1 NOTICE OF LEASE....................................... 41
10.2 RELOCATION............................................ 42
10.3 NOTICES FROM ONE PARTY TO THE OTHER................... 42
10.4 BIND AND INURE........................................ 42
10.5 NO SURRENDER.......................................... 43
10.6 NO WAIVER, ETC........................................ 43
10.7 NO ACCORD AND SATISFACTION............................ 43
10.8 CUMULATIVE REMEDIES................................... 44
10.9 LANDLORD'S RIGHT TO CURE.............................. 44
10.10 ESTOPPEL CERTIFICATE.................................. 44
10.11 WAIVER OF SUBROGATION................................. 45
10.12 ACTS OF GOD........................................... 45
</TABLE>
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10.13 BROKERAGE............................................. 45
10.14 SUBMISSION NOT AN OFFER............................... 46
10.15 APPLICABLE LAW AND CONSTRUCTION....................... 46
10.16 AUTHORITY OF TENANT................................... 47
ARTICLE XI - SECURITY DEPOSIT....................................... 47
</TABLE>
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ARTICLE II PREMISES AND TERM
2.1 DESCRIPTION OF PREMISES.
Subject to and with the benefit of the provisions of this Lease, Landlord
hereby leases to Tenant, and Tenant leases from Landlord, Tenant's Space in the
Building, excluding exterior faces of exterior walls, the common facilities area
and building service fixtures and equipment serving exclusively or in common
other parts of the Building. Tenant's Space, with such exclusions, is
hereinafter referred to as the Premises.
Tenant shall have, as appurtenant to the Premises, the right to use in
common with others entitled thereto: (a) common walkways, driveways, hallways,
lobbies, ramps, loading docks and stairways located in the Building or on the
parcel on which the Building is located (the "Lot"), (b) building service
fixtures and equipment serving the Premises including elevators, (c) the parking
facility, if any, on a first-come, first-served basis in the location from time
to time designated by Landlord, Tenant's use not to exceed the number of
Tenant's Parking Access Cards, and (d) if the Premises include less than the
entire Rentable Floor Area of any floor, the common toilets in the central core
area of such floor. Such rights shall be always subject to the Rules and
Regulations set forth in Exhibit D, attached hereto and incorporated herein by
reference, as the same may be amended by the Landlord from time to time and such
other reasonable Rules and Regulations from time to time established by the
Landlord by suitable notice to Tenant, and to the right of the Landlord to
designate and change from time to time such areas, facilities, fixtures and
equipment.
2.2 TERM.
To have and to hold for a period (the "Term") commencing on the Term
Commencement Date (as defined in Section 3.1 hereof) and continuing for the
Term, unless sooner terminated as provided herein.
2.3 OPTION TO EXTEND.
Tenant shall have the right and option to extend the Term for one (1)
additional period of five (5) years (the "Extension Term") commencing upon the
expiration of the original Term referred to in Section 1.1 (the "Original
Term"), provided that Tenant shall give Landlord notice of Tenant's exercise of
such option at least nine (9) months prior to the expiration of the Original
Term and provided further that no event of default by Tenant exists hereunder,
and no condition exists which with the giving of notice or the passage of time,
or both, would constitute an event of default
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hereunder, at either the time of giving such notice or at the time of the
commencement of such Extension Term. Prior to the exercise by Tenant of such
option, the expression "Term" shall mean the Original Term, and after the
exercise by Tenant of such option, the expression "Term" shall mean the Original
Term as it has been extended by the Extension Term. Except as expressly
otherwise provided in the following paragraph and except for this Section 2.3
hereof, all the terms, covenants, conditions, provisions and agreements in the
Lease contained shall be applicable to the Extension Term. If Tenant shall give
notice of its exercise of said option to extend in the manner and within the
time period provided aforesaid, the Term shall be extended upon the giving of
such notice without the requirement of any further action on the part of either
Landlord or Tenant. If Tenant shall fail to give timely notice of the exercise
of any such option as aforesaid, Tenant shall have no right to extend the Term
of this Lease, time being of the essence of the foregoing provisions.
The Annual Base Rent payable during the Extension Term shall be the amount
being the greater of (i) the Annual Base Rent in effect for the Lease Year
immediately preceding the commencement of the Extension Term or (ii) the Fair
Market Rent for the Premises, as determined below, as of the commencement of the
Extension Term. If for any reason the Annual Base Rent payable during the
Extension Term has not been determined as of the commencement of the Extension
Term, Tenant shall pay the Annual Base Rent payable during the Original Term
until the Annual Base Rent for the Extension Term is determined, at which time,
an appropriate adjustment, if any, shall be made.
For purposes here, the Fair Market Rent shall mean the fair rent for the
Premises as of the commencement of the Extension Term under market conditions
then existing. Fair Market Rent shall be determined by agreement between
Landlord and Tenant, but if Landlord and Tenant are unable to agree upon the
Fair Market Rent at least six (6) months prior to the date upon which the Fair
Market Rent is to take effect, then the Fair Market Rent shall be determined by
appraisal made as hereinafter provided by a board of three (3) reputable
independent commercial real estate consultants, appraisers, or brokers, each of
whom shall have at least ten years of experience in the north suburban Boston
office rental market and each of whom is hereinafter referred to as "appraiser".
Tenant and Landlord shall each appoint one such appraiser and the two appraisers
so appointed shall appoint the third appraiser. The cost and expenses of each
appraiser appointed separately by Tenant and Landlord shall be borne by the
party who appointed the appraiser. The cost and expenses of the third appraiser
shall be shared equally by Tenant and Landlord. Landlord and Tenant shall
appoint their respective appraisers at lease five (5) months
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prior to commencement of the period for which Fair Market Rent is to be
determined and shall designate the appraisers so appointed by notice to the
other party. The two (2) appraisers so appointed and designated shall appoint
the third appraiser at lease four (4) months prior to the commencement of such
period and shall designate such appraisers by notice to Landlord and Tenant. The
board of three (3) appraisers shall determine the Fair Market Rent of the space
in question as of the commencement of the period to which the Fair Market Rent
shall apply and shall notify Landlord and Tenant of their determinations at
least sixty (60) days prior to the commencement of such period. If the
determinations of the Fair Market Rent of any two (2) or all three (3)
appraisers shall be identical in amount, said amount shall be deemed to be the
Fair Market Rent of the subject space. If the determinations of all three (3)
appraisers shall be different in the amount, the average of the two values
nearest in amount shall be deemed the Fair Market Rent. The Fair Market Rent of
the subject space determined in accordance with the provisions of this Section
shall be binding and conclusive on Tenant and Landlord.
Time is of the essence of the foregoing provisions.
ARTICLE III CONSTRUCTION
3.1 TERM COMMENCEMENT DATE.
The Term of this Lease shall commence on, and the Term Commencement Date
shall be, the Scheduled Term Commencement Date if Landlord is not obligated to
do Landlord's Work hereunder or, if Landlord is so obligated, the earlier of (a)
the date on which the premises shall be deemed ready for occupancy in accordance
with Section 3.3. below; or (b) the date on which Tenant commences beneficial
use of the Premises. Tenant shall, in all events, be treated as having commenced
beneficial use of the Premises when it begins to move into the Premises
furniture and equipment for its regular business operations.
As soon as may be convenient after the Term Commencement Date has been
determined, Landlord and Tenant agree to join with each other in the execution,
in recordable form, of a written Declaration in which the Term Commencement Date
and specified term of this Lease shall be stated.
3.2 DELIVERY OF PREMISES.
Tenant acknowledges that Tenant has had an opportunity to inspect the
Premises. Except as set forth hereinafter, the Premises, shall be delivered to
Tenant As Is, Where Is with all faults and without
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representation, warranty or guaranty of any kind by Landlord to Tenant. Landlord
agrees to give Tenant, its architect, the Contractor (as defined below), and
subcontractors reasonable access to the Premises to permit Tenant to prepare
drawings and obtain permits and approvals with respect to Tenant's Work (as
defined below). Tenant's access to and use and occupancy of the Premises prior
to the Term Commencement Date shall be subject to all of the provisions of this
Lease, other than the payment of Annual Rent and electricity changes.
3.3 PREPARATION OF PREMISES FOR OCCUPANCY.
Subject to the provisions hereof, Tenant shall undertake all work to
prepare the Premises for Tenant's use and occupancy in accordance with Plans
approved as set forth below ("Tenant's Work") at Tenant's sole cost and expense,
except that Landlord shall reimburse Tenant in an amount not to exceed the
Tenant Improvement Allowance. Provided that Tenant is not then in default under
any provision of this Lease or, if Tenant is in default, that Tenant cures the
same within the applicable cure period, if any, the Tenant Improvement Allowance
shall be payable by Landlord to Tenant to reimburse Tenant for architectural
fees payable to Tenant's architect, Design Science (the "Architect"), upon
notice to Tenant accompanied by the Architect's invoice therefor and to pay the
Contractor (as defined hereinafter) directly upon notice to Landlord from time
to time, accompanied by invoices from the Contractor which have been approved by
the Architect. After the entire amount of the Tenant Improvement Allowance has
been paid out by Landlord, Tenant shall bear all additional costs to complete
Tenant's Work at Tenant's sole cost and expense. If any portion of the Tenant
Improvement Allowance remains after the completion of Tenant's Work, it shall
not be payable or credited to Tenant in any manner whatsoever. Tenant shall
retain Spaulding and Slye Construction Company (the "Contractor") to serve as
Tenant's general contractor. It is understood and agreed that the actions or
inactions of the Contractor shall in no way be attributable to the Landlord, and
that Landlord has no responsibility for the completion of Tenant's Work.
For purposes hereof, Tenant shall submit a complete set of proposed plans
and specifications (collectively, "Plans") showing Tenant's Work to Landlord.
No later than five (5) business days thereafter, Landlord shall either approve
or disapprove the Plans, specifying by notice to Tenant in reasonable detail the
respects in which the Plans are disapproved. If Landlord disapproves the Plans,
Tenant shall submit to Landlord revised Plans which respond to the items of
disapproval specified in Landlord's notice no later than five (5) days from
Landlord's notice of disapproval. Thereafter, Landlord shall have five (5) days
from Tenant's submission of the
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Plans to Landlord to approve or disapprove the revised Plans in accordance with
the foregoing and, in case of disapproval, Tenant shall have an additional five
(5) days to submit revised Plans responding to the items of disapproval
specified in Landlord's notices. The parties shall work diligently and in good
faith to agree upon approved Plans.
Landlord will not approve any construction, alterations, or additions
requiring unusual expense to readapt the Premises to normal office use on lease
termination or increasing the cost of construction, insurance or taxes on the
Building or of Landlord's services called for by Section 5.1 unless Tenant first
gives assurances acceptable to Landlord that such readaptation will be made
prior to such termination without expense to Landlord and makes provisions
acceptable to Landlord for payment of such increased cost. Landlord will also
disapprove any alterations or additions requested by Tenant which will delay
completion of the Premises. Tenant's construction, installation of furnishings,
and later changes or additions shall be coordinated with any work being
performed by Landlord in such manner as to maintain harmonious labor relations
and not to damage the Building or Lot or interfere with Building operations.
3.4 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION.
All construction work required or permitted by this Lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authority and insurers of the Building and the Lot.
Either party may inspect the work of the other at reasonable times and promptly
shall give notice of observed defects. Landlord's obligations under Sections
3.2 and 3.3, if any, shall be deemed to have been performed when Tenant
commences to occupy any portion of the Premises for the Permitted Uses except
for items which are incomplete or do not conform with the requirements of
Section 3.1 and as to which Tenant shall in either case have given written
notice to Landlord within three (3) weeks after such commencement. Tenant
acknowledges that the Building may be undergoing substantial renovation during
the Term of the Lease. Tenant acknowledges that its quiet enjoyment and access
to the Demised Premises during the Term may be disturbed by the noise, dust,
vibrations and other effects of demolition in the Building, provided, however,
that Landlord shall use reasonable efforts to avoid undue interference with
Tenant's use of the Premises.
3.5 ALTERATIONS AND ADDITIONS.
This Section 3.5 shall apply before and during the Term. Tenant shall not
make any alterations and additions to the Premises except in accordance with
plans and specifications first approved by Landlord. In no event shall any
alterations or additions be considered or approved by Landlord which (a) involve
or might affect any structural or exterior element of the Building or building
mechanical, electrical or plumbing systems, including the common facilities of
the Building, or (b) will require unusual expense to readapt the Premises to
normal office use on Lease termination or increase the cost of construction or
of insurance or taxes on the Building or the Lot. All alterations and additions
shall become a part of the Premises, unless and until Landlord, at its option,
shall specify the same for removal pursuant to Section 6.1.2. All of Tenant's
alterations and additions and installation and delivery of telephone systems,
furnishings, and equipment shall be coordinated with any work being performed by
Landlord and shall be performed in such manner, and by such persons as shall
maintain harmonious labor relations and not cause any damage to the Building or
interference with Building construction or operation and, except for
installation of furnishings, equipment and telephone systems, and except as
otherwise expressly set forth herein, shall be performed by general contractors
first approved by Landlord. Before commencing any work Tenant shall: secure all
licenses and permits necessary therefor; deliver to Landlord a statement of the
names of all its contractors and subcontractors (the identity of which must have
been previously approved by Landlord as hereinabove contemplated) and the
estimated cost of all labor and material to be furnished by them; and cause each
contractor to carry (i) worker's compensation insurance in statutory amounts
covering an the contractor's and subcontractor's employees and (ii)
comprehensive public liability insurance with such limits as Landlord may
reasonably require, but in no event less than a combined single limit of
$1,500,000 (all such insurance to be written in companies approved by Landlord
and insuring Landlord and Tenant as well as the contractors), and to deliver to
Landlord certificates of all such insurance. Tenant agrees to pay promptly when
due, and to defend and indemnify Landlord from and against, the entire cost of
any work done on the Premises by Tenant, its agents, employees or independent
contractors, and not to cause or permit any liens for labor or materials
performed or furnished in connection therewith to attach to the Building or the
Lot and immediately to discharge any such liens which may so attach. Tenant
shall pay within fourteen (14) days after being billed therefor by Landlord, as
additional rent, one hundred percent (100%) of any increase in real estate taxes
on the Premises not otherwise billed to Tenant which shall, at any time after
the commencement of the Term, result from any alteration, addition or
improvement to the Premises made by or on behalf of Tenant.
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In connection with the installation of telecommunication equipment by
Tenant, such installation shall occur only in such locations and in such a
manner as approved in writing by the Landlord and none of such wires, ducts or
equipment shall be located in areas outside the Premises (provided, however,
that Tenant may install wires and cables in risers and ducts outside the
Premises which are in existence on the date of this Lease and for which there
exists, in Landlord's sole discretion, adequate space for Tenant's wires and
cables). Telephone switches, antennae, electronic distribution boxes and
similar equipment shall only be located within the Premises. Landlord shall not
be liable for any loss, damage or interruption of service related to such
facilities.
3.6 REPRESENTATIVES.
Each party authorizes the other to rely in connection with their respective
rights and obligations under this Article III upon approval and other actions on
the party's behalf by Landlord's Representative in the case of Landlord or
Tenant's Representative in the case of Tenant or by any person designated in
substitution or addition by notice to the other party.
ARTICLE IV RENT
4.1 ANNUAL RENT.
Tenant agrees to pay rent to Landlord without any offset or reduction
whatever (except as made in accordance with the express provisions of this
Lease), the Annual Rent in equal monthly installments in advance on the first
day of each calendar month included in the Term after the Term Commencement
Date; and for any portion of a calendar month at the beginning or end of the
Term, at the proportionate rate payable for such portion, in advance.
4.2 ANNUAL OPERATING COST ESCALATION.
In addition to Annual Rent, Tenant shall pay to Landlord as additional
rent, Tenant's Proportionate Share of Annual Operating Costs (as hereinafter
defined) which is in excess of Base Annual Operating Costs ("Tenant's Escalation
Payment"). Tenant's Proportionate Share of Annual Operating Costs shall be
determined by multiplying Annual Operating Costs by a fraction, the numerator of
which is the Rentable Floor Area of the Premises and the denominator of which is
the Total Rentable Floor Area of the Building. In the event that the Building
is not fully occupied, such Annual Operating Costs shall be adjusted to reflect
the costs which would be incurred if the Building were 95% occupied.
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Annual Operating Costs shall mean the actual expenses paid or incurred by
Landlord in the operation, maintenance and management of the Building and Lot
and all real estate taxes and assessments, general or special, ordinary or
extraordinary, foreseen or unforeseen, imposed upon the Building and Lot and any
future improvement of whatever kind thereto or thereon. Annual Operating Costs
shall include without limitation:
4.20.1 (a) real estate taxes on the Building and Lot and off-site parking areas;
(b) installments and interest on assessments for public betterment or
public improvements; (c) expenses of any proceedings for abatement of
taxes and assessments with respect to any fiscal year or fraction of a
fiscal year; (d) service, repair, replacement and other maintenance to
the Building and Lot and components thereof; (e) wages and salaries (and
taxes and other charges imposed upon employers with respect to such wages
and salaries) and fringe benefits and worker's compensation insurance
premiums paid to persons employed by the Landlord for rendering service
in the operation, maintenance, and repair of the Building and Lot and
related facilities and off-site parking areas and amenities; (f) cost of
independent contractors hired for the operation, maintenance and repair
of the Building and Lot and related facilities and amenities (which
payments may be to affiliates of Landlord provided the same are at
reasonable rates consistent with the type of occupancy and the services
rendered); (g) costs of electricity, steam, water, fuel, heating,
lighting, air conditioning, sewer, and other utilities chargeable to the
operation and maintenance of the Building and Lot net of tenant's
electric; (h) cost of insurance including insurance deductible for and
relating to the Building and the Lot, including fire and extended
coverage (or such greater coverages as Landlord may elect to carry),
elevator, boiler, sprinkler leakage, water damage, public liability and
property damage, plate glass, and rent protection; (i) costs of supplies;
(j) costs of window cleaning, janitorial services, security services,
landscaping, snow and ice removal and painting; (k) sales or use taxes on
supplies and services; (l) consulting, accounting fees, legal, tax
appeal, engineering and other professional fees and expenses; (m)
management fees; (n) contributions, costs or expenses related to common
areas or facilities and off-site parking areas of any office park or
development of which the Building or Lot are a part, (o) alterations and
improvements to the Building and Lot which are not capital in nature made
by reason of any requirement of any insurance underwriters
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or any federal, state, or local statutes, regulations, ordinances, or any
other duly constituted public authorities having jurisdiction over the
Building and Lot; and (p) all Expense of Operation of the Food Services as
defined in section 5.1.5 and (q) without limiting any of the foregoing, any
other expense or charge which, in accordance with sound accounting and
management principles generally accepted, would be construed as an
operating expense. The term Operating Costs shall not include the interest
and amortization on mortgages for the Building and Lot or leasehold
interests therein; any charge for depreciation; leasing commissions or
legal fees for the negotiation and enforcement of leases; and the cost of
special services rendered to tenants (including Tenant) for which a special
charge is made.
In the event Landlord shall make a capital expenditure for Essential
Capital Improvements, as hereinafter defined, during any year, the annual
amortization of such expenditure (determined by dividing the amount of the
expenditure by the useful life of the improvement, as determined by Landlord),
together with interest at the greater of the Prime Rate prevailing plus 2% or
Landlord's actual borrowing rate for such Essential Capital Improvements shall
be deemed part of Annual Operating Costs for each year of such useful life. As
used herein, "Essential Capital Improvement" means any of the following:
4.2.0.1.1 a labor saving device, energy saving device or other
installation, improvement or replacement which reduces
Operating Costs as referred to above, whether or not voluntary
or required by governmental mandate; or
4.2.0.1.2 an installation, change, improvement, addition, alteration, or
removal of any architectural barriers, whether or not the
foregoing are structural in nature, made by reason of any
governmental requirement whether or not such governmental
requirement exists on the date of the execution of this Lease
if such governmental requirement is or will be applicable
generally to similar office buildings; or
4.2.0.1.3 an installation or improvement which directly enhances the
health or safety of tenants in the Building generally, whether
or not voluntary or required by governmental
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mandate (as for example, without limitation, for life safety or
security).
4.2.0.1.4 costs or expenditures incurred in replacing compressors and
refrigeration equipment in order to comply with regulations
regarding ozone depleting refrigerants or resulting from the
excessive cost of or inability to obtain such materials.
4.3 ESTIMATED ANNUAL OPERATING EXPENSE ESCALATION PAYMENT.
If, with respect to any fiscal year or fraction thereof during the Term,
Landlord estimates that Tenant will be obligated to pay Tenant's Escalation
Payment, then Tenant shall pay, as additional rent, on the first day of each
month of such fiscal year and each ensuing fiscal year thereafter, an estimate
equal to 1/12th of Tenant's Escalation Payment for the respective fiscal year
("Estimated Monthly Operating Expense Cost Payments"), with an appropriate
additional payment or refund to be made within 30 days after Landlord's
Statement (as hereafter defined) is delivered to Tenant. Landlord may adjust
such Estimated Monthly Annual Operating Cost Payment from time to time and at
any time during a fiscal year, and Tenant shall pay, as additional rent, on the
first day of each month following receipt of Landlord's notice thereof, the
adjusted Estimated Monthly Annual Operating Cost Payment.
As soon as practicable after the end of each fiscal year ending during the
Term and after lease termination, Landlord shall render a statement ("Landlord's
Statement") in reasonable detail and according to usual accounting practices
certified by Landlord and showing for the preceding fiscal year or fraction
thereof, as the case may be, Landlord's Annual Operating Costs, Tenant's
Proportionate Share thereof, and Tenant's Escalation Payment, as defined above.
4.4 ELECTRICITY.
Tenant will be billed for electricity for Tenant's lights and outlet
consumption on a monthly basis based on an annual estimate of $1.00 per rentable
square foot. Should the actual average expense to Landlord per square foot for
Tenant's electricity be different, an additional charge or a credit will be made
at the end of each year's occupancy to be paid with or credited against the next
monthly charge for Tenant's electricity. Notwithstanding the foregoing,
Landlord reserves the right to assess Tenant's charge for electricity based on
an engineer's survey of Tenant's electrical usage conducted from time to time or
on the sub-metering of
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all or part of the Premises. Such charges for Tenant's electricity shall be paid
by Tenant as additional rent at the same time and in the same manner as payments
of Annual Rent.
Tenant covenants and agrees that its use of electric current shall not
exceed 4.0 watts per square foot of usable floor area and that its total
connected lighting load will not exceed the maximum load from time to time
permitted by applicable governmental regulations. In the event Tenant
introduces into the Premises personnel or equipment which overloads the capacity
of the Building's electrical system or in any other way interferes with the
system's ability to perform properly, supplementary systems including check
meters may, if and as needed, at Landlord's option, be provided by Landlord, at
Tenant's expense. Landlord shall not in any way be liable or responsible to
Tenant for any loss or damage or expense which Tenant may sustain or incur if,
during the Term of this Lease, either the quantity or character of electric
current is changed or electric current is no longer available or suitable for
Tenant's requirements due to a factor or cause beyond Landlord's control.
Landlord reserves the exclusive right to provide electric and other utility
service to the Building. Tenant may request permission from Landlord (which
consent may be withheld in its sole discretion) to arrange electric and other
utility service exclusively serving the Premises. Should such permission be
granted, however, such service shall be installed only in such locations and in
such manner as shall be specifically approved by Landlord in its sole
discretion, Tenant shall be responsible for restoration of any damage caused by
such installation and Tenant shall be responsible for removal of such
installations at the termination of this Lease. Landlord may limit Tenant's
choice of electrical or other utility providers in order to avoid proliferation
of such services to the Building or for any other reason. In no event, however,
shall Landlord be responsible for any damages or inconvenience caused by
interruption in or poor quality of electricity or other utility services
provided to the Building or the Premises unless such damages are caused by the
negligence of Landlord, its agents or employees.
4.5 CHANGE OF FISCAL YEAR.
Landlord shall have the right from time to time to change the periods of
accounting under Section 4.2 to any annual period other than a calendar year,
and upon any such change all items referred to in Section 4.2 shall be
appropriately apportioned. In all Landlord's
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Statements rendered under Section 4.2, amounts for periods partially within and
partially without the accounting periods shall be appropriately apportioned, and
any items which are not determinable at the time of a Landlord's Statement shall
be included therein on the basis of Landlord's estimate, and with respect
thereto Landlord shall render promptly after determination a supplemental
Landlord's Statement, and appropriate adjustment shall be made according
thereto. All Landlord's Statements shall be prepared on an accrual basis of
accounting.
4.6 PAYMENTS.
All payments of Annual Rent and additional rent shall be made to Managing
Agent, or to such other person as Landlord may from time to time designate. If
any installment of Annual Base Rent or additional rent or payments due on
account of leasehold improvements is paid more than 10 days after the due date
thereof, at Landlord's election, it shall bear interest at a rate equal to the
average prime commercial rate from time to time established by the three largest
national banks in Boston, Massachusetts plus 4% per annum from such due date,
which interest shall be immediately due and payable as further additional rent.
ARTICLE V LANDLORD'S COVENANTS
5.1 LANDLORD'S COVENANTS DURING THE TERM.
Landlord covenants during the Term:
5.1.1 Building Services - To furnish during normal working hours heat,
air-conditioning, elevator service and hot and chilled water
service and after normal working hours on business days cleaning
service as shown in Exhibit C. "Normal working hours" shall mean
the hours of 8:00 a.m. through 5:00 p.m. Monday through Friday
and the hours of 8:00 a.m. through 1:00 p.m. on Saturdays, and no
hours on legal holidays and Sundays; provided, however, that
Tenant shall have access to the Building 24 hours a day, 365 days
a year, by means of a key or other access device to the main
lobby of the Building to be provided to Tenant by Landlord.
Tenant shall pay when due all amounts and charges for such
services during hours other than normal working hours and shall
indemnify and hold harmless Landlord from and against any and all
claims, liabilities, damages, losses, costs and expenses
(including reasonable attorneys' fees) in connection therewith.
Landlord is not and shall not be required
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to furnish to Tenant or any other occupant of the Premises
telephone or other communication service.
5.1.2 Additional Building Services - To furnish, through Landlord's
employees or independent contractors, reasonable additional
Building operation services upon reasonable advance request of
Tenant at equitable rates including an administrative fee from
time to time established by Landlord to be paid by Tenant;
5.1.3 Repairs - Except as otherwise provided in Article VII, to make
such repairs to the roof, exterior walls, floor slabs, other
structural components and common facilities of the Building as
may be necessary to keep them in serviceable condition; and
5.1.4 Tenant Directory - To include Tenant's name on the Tenant
directory maintained by Landlord in the main lobby of the
Building and on the floor of the Building on which the Premises
are located, and to provide a Building standard sign on or
adjacent to the entrance door to the Premises.
5.1.5 Food Service - Landlord (or any affiliate or agent designated by
Landlord) may provide, within the Building or any building in the
office park in which the Building is located known as
CambridgePark (an "Office Park Building"), a food service of a
size, type, location and serving capacity as Landlord shall deem
suitable, in its sole discretion. All losses incurred by Landlord
in operating the food service facility during any fiscal year and
properly allocable to the Building and other Office Park
Buildings (the "Food Service Losses") shall be added to the
Landlord's Annual Operating Costs for the year in which such
losses were incurred for the purpose of calculating the Tenant's
Escalation Payment pursuant to Section 4.2. All profits realized
by the Landlord in operating the food service facility during any
fiscal year and properly allocable to the Building and other
Office Park Buildings (the "Food Service Profits") shall be
credited against the Landlord's Annual Operating Costs for the
Building and other Office Park Buildings for such year. For the
purposes of this Section 5.1.5, the Food Service Profits or
Losses for any year shall be calculated by deducting from the
Gross Receipts of the Food Service (as hereinafter defined) all
Expenses of Operation (as hereinafter defined). Gross Receipts of
the Food Service as used herein are defined to mean the total
amount in dollars of the actual prices charged, in cash, for food
and beverages served at the facility,
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excluding sums collected for any sales tax or excise tax. The
Expenses of Operation of the food service shall mean all expenses
of operating the food service facility, including without
limitation, salaries, wages, employment taxes and fringe
benefits, food service administration costs, food costs,
concessionaire's costs, operating costs, equipment maintenance
and repair costs, if any, plus an annual return to the Landlord
upon its investment in establishing the food service facility
(including without limitation the cost of furniture, equipment,
furnishings, and related mechanical systems) equal to fifteen
percent (15%) of its investment or $50,000, whichever is less.
If during any six-month period, the mathematical average of the number of
luncheon meals served by the food service facility per day is fewer than 300, or
the Food Service Losses incurred by the Landlord in operating the food service
facility during such six-month period exceed $25,000, then the Landlord shall
have the right and option, in its sole discretion, to take any steps necessary
to reduce or eliminate the losses (including without limitation, modification or
termination of the food service), unless one hundred percent (100%) of the
tenants occupying the Building agree that the Landlord's Annual Operating Costs
hereunder for the purpose of calculating the Annual Operating Expense Escalation
shall include one hundred percent (100%) of the Food Service Losses, without
limitation.
Landlord reserves the right to approve Tenant's use of a food service
operator other than the Landlord's food service operator, if any. Such approval
will not be unreasonably withheld.
5.1.6 Quiet Enjoyment - That Landlord has the right to make this Lease
and that Tenant on paying the rent and performing its obligations
hereunder shall peacefully and quietly have, hold and enjoy the
Premises throughout the Term without any manner of hindrance or
molestation from Landlord or anyone claiming under Landlord,
subject however to all the terms and provisions hereof.
5.2 INTERRUPTIONS.
Landlord shall not be liable to Tenant for any compensation or reduction of
rent by reason of inconvenience or annoyance, injury, death or for loss of
business arising from power or other utility losses or shortages, air pollution
or contamination, or from the necessity of Landlord's entering the Premises for
any of the purposes in this Lease
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authorized, or for repairing the Premises or any portion of the Building or the
Lot or for any interruption or termination (by reason of any cause reasonably
beyond Landlord's control, including without limitation, loss of any applicable
license or government approval) of the food service provided by Landlord
pursuant to Section 5.1.5. In case Landlord is prevented or delayed from making
any repairs, alterations or improvements, or furnishing any service or
performing any other covenant or duty to be performed on Landlord's part, by
reason of any cause beyond Landlord's reasonable control, Landlord shall not be
liable to Tenant therefor, nor, except as expressly otherwise provided in
Article VII, shall Tenant be entitled to any abatement or reduction of rent by
reason thereof, nor shall the same give rise to a claim in Tenant's favor that
such failure constitutes actual or constructive total or partial, eviction from
the Premises.
Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency or until necessary repairs have
been completed. Except in case of emergency repairs, Landlord will give Tenant
reasonable advance notice of any contemplated stoppage and will use reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
Landlord also reserves the right to institute such policies, programs and
measures as may be necessary, required or expedient for the conservation or
preservation of energy or energy services or as may be necessary or required to
comply with applicable codes, rules, regulations or standards.
ARTICLE VI TENANT'S COVENANTS
6.1 TENANT'S COVENANTS DURING THE TERM.
Tenant covenants during the Term and such further time as Tenant occupies
any part of the Premises:
6.1.1 Tenant's Payments - To pay when due (a) all Annual Rent, (b) all
taxes which may be imposed on Tenant's personal property in the
Premises (including, without limitation, Tenant's fixtures and
equipment) regardless to whomever assessed, (c) as additional
rent, Tenant's Escalation Payments, (d) all charges by public
utilities for electricity, telephone (including service
inspections therefor) and other services rendered to the Premises
not otherwise required hereunder to be furnished by Landlord
without charge and not
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consumed in connection with any services required to be furnished
by Landlord without charge, (e) as additional rent, all costs for
Landlord's Work attributable to change orders and any work
performed in the Premises by Landlord or Tenant in excess of
Landlord's Work, and (f) as additional rent, all charges to
Landlord for services rendered pursuant to Section 5.1.2 hereof.
6.1.2 Repairs and Yielding Up - Except as otherwise provided in Article
VII and Section 5.1.3, to keep the Premises in good order, repair
and condition, reasonable wear only excepted; and at the
expiration or termination of this Lease peaceably to yield up the
Premises and all alterations and additions therein, including all
telephone and data wiring installed by or at the request of
tenant, in such order, repair and condition, first removing all
goods and effects of Tenant and any alterations and additions,
the removal of which is required by agreement or specified to be
removed by Landlord by notice to Tenant, and repairing all damage
caused by such removal and restoring the Premises and leaving
them dean and neat.
6.1.3 Occupancy and Use - Continuously from the Commencement Date, to
use and occupy the Premises only for the Permitted Uses; not to
injure or deface the Building or the Lot; to keep the Premises
dean and in a neat and orderly condition; and not to permit in
the Premises any use thereof which is improper, offensive,
contrary to law or ordinances, or liable to create a nuisance or
to create an unsafe or hazardous condition, or to invalidate or
increase the premiums for any insurance on the Building or its
contents or liable to render necessary any alteration or addition
to the Building; not to dump, flush, or in any way introduce any
Hazardous Materials or any other toxic substances into the
septic, sewage or other waste disposal system serving the
Premises, not to generate, store or dispose of Hazardous
Materials in or on the Premises, or the Lot or dispose of
Hazardous Materials from the Premises to any other location
without the prior written consent of Landlord and then only in
compliance with the Resource Conservation and Recovery Act of
1976, as amended, 42 U.S.C. (S) 6901 et seq., and all other
applicable laws, ordinances and regulations; to notify Landlord
of any incident which would require the filing of a notice under
applicable federal, state, or local law; not to use, store or
dispose of Hazardous Materials on the Premises without first
submitting to Landlord a list of all such Hazardous substances
and all permits required therefor and thereafter providing to
Landlord on an annual basis Tenant's certification
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that all such permits have been renewed with copies of such
renewed permits; and to comply with the orders and regulations of
all governmental authorities with respect to zoning, building,
fire, health and other codes, regulations, ordinances or laws
applicable to the Premises. As used herein, "Hazardous Materials"
shall mean and include, but shall not be limited to, any
petroleum product and all hazardous or toxic substances or wastes
including any asbestos-containing materials, waste oils, solvents
and chlorinated oils, polychlorinated biphenyls (PCBs), or
substances which are included under or regulated by any federal,
state or local law, rule or regulation (whether now existing or
hereafter enacted or promulgated, as they may be amended from
time to time) pertaining to the environment, contamination or
clean-up (all such laws, rules and regulations being referred to
collectively as the "Environmental Laws"), including, without
limitation, the Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 and
regulations adopted pursuant to said Act.
6.1.4 Rules and Regulations - To comply with the Rules and Regulations
set forth in Exhibit D and all other reasonable Rules and
Regulations hereafter made by Landlord, of which Tenant has been
given notice, for the care and use of the Building and the Lot
and their facilities and approaches, it being understood that
Landlord shall not be liable to Tenant for the failure of other
tenants of the Building to conform to such Rules and Regulations.
6.1.5 Safety Appliances - To keep the Premises equipped with all safety
appliances required by law or ordinance or any other regulation
of any public authority because of any use made by Tenant and to
procure all licenses and permits so required because of such use
and, if requested by Landlord, to do any work so required because
of such use, it being understood that the foregoing provisions
shall not be construed to broaden in any way Tenant's Permitted
Uses.
6.1.6 Assignment and Subletting.
Not without the prior written consent of Landlord to assign, mortgage,
pledge, encumber, sell or transfer this Lease, in whole or in part, to make any
sublease, or to permit occupancy of the Premises or any part thereof by anyone
other than Tenant, voluntarily or by operation of law (it being understood that
in no event shall Landlord consent to any such assignment, sublease or occupancy
if the same is on terms more
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favorable to the successor occupant than to the then occupant); as additional
rent, to reimburse Landlord promptly for reasonable legal and other expenses
incurred by Landlord in connection with any request by Tenant for consent to
assignment or subletting; no assignment or subletting shall affect the
continuing primary liability of Tenant (which, following assignment, shall be
joint and several with the assignee); no consent to any of the foregoing in a
specific instance shall operate as a waiver in any subsequent instance.
Landlord's consent to any proposed assignment or subletting shall not be
unreasonably withheld, but is required both as to the terms and conditions
thereof, and as to the creditworthiness of the proposed assignee or subtenant
and the consistency of the proposed assignee's or subtenant's business with
other uses and tenants in the Building. In the event that any assignee or
subtenant pays to Tenant any amounts in excess of the Annual Rent and additional
rent then payable hereunder, or pro rata portion thereof on a square footage
basis for any portion of the Premises, Tenant shall promptly pay one hundred
percent (100%) of said excess to Landlord as and when received by Tenant. If
Tenant requests Landlord's consent to assign this Lease or sublet more than
twenty-five (25%) of the Premises, Landlord shall have the option, exercisable
by written notice to Tenant given within ten (10) days after receipt of such
request, to terminate this Lease as of a date specified in such notice which
shall be not less than thirty (30) or more than sixty (60) days after the date
of such notice. Landlord may, in its sole discretion, withhold consent to any
proposed assignment or subletting to another tenant of the Building or an
affiliate of such tenant or an entity (or affiliate of any entity) with which
Landlord was negotiating for space in the Building during the preceding eighteen
(18) months.
If at any time during the Term of this Lease, Tenant is:
6.1.6.0.1 (i) a corporation, limited liability company or a trust (whether or
not having shares of beneficial interest) and there shall occur
any change in the identity of any of the persons then having
power to participate in the election or appointment of the
directors, trustees or other persons exercising like functions
and managing the affairs of Tenant; or
6.1.6.0.2 (ii) a partnership or association or otherwise not a natural person
(and is not a corporation, limited liability company or a
trust) and there shall occur any change in the identity of any
of the persons who then are members of such partnership or
association or who comprise Tenant;
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Tenant shall so notify Landlord and Landlord may terminate this Lease by notice
to Tenant given within ninety (90) days thereafter if, in Landlord's reasonable
judgment, the credit of Tenant is thereby materially impaired. This paragraph
shall not apply if the initial Tenant named herein is a corporation and the
outstanding voting stock thereof is listed on a recognized securities exchange.
Notwithstanding anything to the contrary contained in this Lease, Tenant
may assign Tenant's interest in this Lease, without Landlord's prior written
consent (but upon not less than thirty (30) days prior notice to Landlord
setting forth the name and address and enclosing the most recent annual and
quarterly financial reports (audited, if available) of the proposed assignee),
to: (a) a subsidiary, affiliate, parent or other entity which controls, is
controlled by, or is under common control with Tenant; or (b) a successor entity
to Tenant resulting from merger, consolidation or non-bankruptcy reorganization;
provided, in each case, that the assignee has a net worth which is at least as
great as the greater of the net worth of Tenant (x) at the time of execution of
the Lease or (y) immediately prior to the assignment.
6.1.7 Indemnity - To defend, with counsel approved by Landlord, all
actions against Landlord, Managing Agent, any partner, member,
trustee, stockholder, officer, director, employee or beneficiary
of Landlord or Managing Agent, holders of mortgages secured by
the Premises or the Building and Lot and any other party having
an interest in the Premises ("Indemnified Parties") with respect
to, and to pay, protect, indemnify and save harmless, to the
extent permitted by law, all Indemnified Parties from and
against, any and all liabilities, losses damages, costs, expenses
(including reasonable attorneys' fees and expenses), causes of
action, suits, claims, demands or judgments of any nature arising
from or related to (i) injury to or death of any person, or
damage to or loss of property, on the Premises or on adjoining
sidewalks, streets or ways, or connected with the use, condition
or occupancy of any of the foregoing unless caused by the
negligence of Landlord or its servants or agents, (ii) violation
of this Lease, or (iii) any act, fault, omission, or other
misconduct of Tenant or its agents, employees, contractors,
licensees, sublessees or invitees or (iv) the use, generation,
storage or disposal of Hazardous Materials by Tenant or its
agents, employees or invitees on the Premises, the Building or
Lot or any portion thereof or any surrounding area, including,
without limitation, any and all liabilities, losses, damages,
costs, expenses
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(including reasonable attorneys' fees and expenses), causes of
action, suits, claims, demands or judgments of any nature arising
from or related to removal or other remediation of any Hazardous
Materials or precautions required to protect against the release
of Hazardous Materials by Tenant or its agents, employees,
contractors, licensees, sublessees or invitees into the
environment to the extent required by any Environmental Laws (as
defined below).
6.1.8 Tenant's Insurance - To maintain (a) all risk property insurance
in amounts sufficient to fully cover Tenant's improvements and
all property in the Premises which is not owned by Landlord and
(b) commercial general liability insurance on the Premises, with
Landlord named as an additional insured, indemnifying Landlord
and Tenant against all claims and demands for (i) injury to or
death of any person or damage to or loss of property, on the
Premises or adjoining walks, streets or ways, or connected with
the use, condition or occupancy of any of the foregoing unless
caused by the negligence of Landlord or its servants or agents,
(ii) violation of this Lease, or (iii) any act, fault or
omission, or other misconduct of Tenant or its agents, employees,
contractors, licensees, sublessees or invitees, in amounts which
shall, at the beginning of the Term, be at least equal to the
limits set forth in Section 1.1, and from time to time during the
Term, shall be for such higher limits, if any, as are customarily
carried in the area in which the Premises are located on property
similar to the Premises and used for similar purposes, and shall
be written on the "Occurrence Basis," and to furnish Landlord
with certificates thereof. Such insurance shall be effected under
valid and enforceable policies with insurers authorized to do
business in Massachusetts as stock or mutual companies that are
rated in the current edition of Best's Key Rating Guide, Property
---------------------------------
and Casualty as A and as Class VII or higher. Such policies shall
------------
name Landlord and Tenant as the insureds as their respective
interests may appear. Not later than the first to occur of (a)
the Commencement Date or (b) the commencement of any activities
by Tenant in or about the Premises and thereafter not less than
thirty (30) days prior to the expiration dates of the expiring
policies theretofore furnished pursuant to this Section 6.1.8,
Tenant shall deliver to Landlord certificates of insurance issued
by the insurers evidencing all such policies in form satisfactory
to Landlord, accompanied by evidence satisfactory to Landlord of
payment of the first installment of the premiums. Each such
policy shall provide that it may not be canceled and that its
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form, terms or conditions may not be changed without at least
thirty (30) days' prior written notice to each insured named
therein.
6.1.9 Tenant's Worker's Compensation Insurance - To keep all of
Tenant's employees working in the Premises covered by worker's
compensation insurance in statutory amounts and to furnish
Landlord with certificates thereof.
6.1.10 Landlord's Right of Entry - To permit Landlord and Landlord's
agents entry: to examine the Premises at reasonable times and, if
Landlord shall so elect, to make repairs or replacements; to
remove, at Tenant's expense, any changes, additions, signs,
curtains, blinds, shades, awnings, aerials, or the like not
consented to in writing; and to show the Premises to prospective
tenants during the twelve (12) months preceding expiration of the
Term and to prospective purchasers and mortgagees at all
reasonable times.
6.1.11 Loading - Not to place Tenant's Property, as defined in Section
6.1.13, upon the Premises so as to exceed a rate of fifty (50)
pounds of live load per square foot and not to move any safe,
vault or other heavy equipment in, about or out of the Premises
except in such manner and at such times as Landlord shall in each
instance approve; Tenant's business machines and mechanical
equipment which cause vibration or noise that may be transmitted
to the Building structure or to any other leased space in the
Building shall be placed and maintained by Tenant in settings of
cork, rubber, spring, or other types of vibration eliminators
sufficient to eliminate such vibration or noise.
6.1.12 Landlord's Costs - In case Landlord shall be made party to any
litigation commenced by or against Tenant or by or against any
parties in possession of the Premises or any part thereof
claiming under Tenant, to pay, as additional rent, all costs
including, without implied limitation, reasonable counsel fees
incurred by or imposed upon Landlord in connection with such
litigation and, as additional rent, also to pay all such costs
and fees incurred by Landlord in connection with the successful
enforcement by Landlord of any obligations of Tenant under this
Lease.
6.1.13 Tenant's Property - All the furnishings, fixtures, equipment,
effects and property of every kind, nature and description of
Tenant and of all persons claiming by, through or under Tenant
which, during the continuance of this Lease or any occupancy of
the Premises by
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Tenant or anyone claiming under Tenant, may be on the Premises or
elsewhere in the Building or on the Lot shall be at the sole risk
and hazard of Tenant, and if the whole or any part thereof shall
be destroyed or damaged by fire, water or otherwise, or by the
leakage or bursting of water pipes, steam pipes, or other pipes,
by theft, or from any other cause, no part of said loss or damage
is to be charged to or to be borne by Landlord unless due to the
gross negligence of Landlord.
6.1.14 Labor or Materialmen's Liens - To pay promptly when due the
entire cost of any work done on the Premises by Tenant, its
agents, employees, or independent contractors; not to cause or
permit any liens for labor or materials performed or furnished in
connection therewith to attach to the Premises; and immediately
to discharge any such liens which may so attach.
6.1.15 Changes or Additions - Not to make any changes or additions to
the Premises without Landlord's prior written consent and only in
accordance with Article III hereto, provided that Tenant shall
reimburse Landlord for all costs incurred by Landlord in
reviewing Tenant's proposed changes or additions, and provided
further that, in order to protect the functional integrity of the
Building, all changes and additions shall be performed by
contractors selected from a list of approved contractors prepared
by Landlord from time to time.
6.1.16 Holdover - To pay to Landlord the greater of twice (a) the then
fair market rent as conclusively determined by Landlord or (b)
the total of the Annual Rent and all additional rent then
applicable for each month or portion thereof Tenant shall retain
possession of the Premises or any part thereof after the
termination of this Lease, whether by lapse of time or otherwise,
and also to pay an damages sustained by Landlord on account
thereof; the provisions of this subsection shall not operate as a
waiver by Landlord of the right of reentry provided in this
Lease. At the option of Landlord exercised by a written notice
given to Tenant while such holding over continues, such holding
over shall constitute an extension of this Lease for a period of
one year.
6.1.17 Security - To indemnify, and save Landlord harmless from any
claim for injury to person or damage to property asserted by any
personnel, employee, guest, invitee or agent of Tenant which is
suffered or occurs in or about the Premises or in or about the
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Building or the Lot by reason of the act of any intruder or any
other person in or about the Premises, the Building or the Lot.
6.1.18 Tenant Financial Statements - Tenant shall provide Landlord with
audited financial statements on an annual basis, within ninety
(90) days of the end of Tenant's fiscal year.
ARTICLE VII DAMAGE AND DESTRUCTION; CONDEMNATION
7.1 FIRE OR OTHER CASUALTY.
Subject to the provisions of Section 7.1.2 hereof, in the event during the
Term hereof the Premises shall be partially damaged (as distinguished from
"substantially damaged" as such term is hereinafter defined) by fire, explosion,
casualty or any other occurrence covered or as may be required to be covered, as
herein provided, by Landlord's insurance or by such casualty plus required
demolition, or by action taken to reduce the impact of any such event, Landlord
shall forthwith proceed to repair such damage and restore the Premises, or so
much thereof as was originally constructed or delivered by Landlord to
substantially its condition at the time of such fire, explosion, casualty or
occurrence, provided that Landlord shall not be obligated to expend for such
repair an amount in excess of the insurance proceeds recovered as a result of
such damage and, further provided that Tenant is not then in default of any of
its obligations under this Lease beyond any applicable cure period. Landlord
shall not be responsible for any delay which may result from any cause beyond
Landlord's reasonable control.
7.1.1 If, however, (i) the Premises should be damaged or destroyed (a)
by fire or other casualty (1) to the extent of twenty-five
percent (25%) or more of the cost of replacement, or (2) so that
twenty-five (25%) or more of the principal area contained in the
Premises shall be rendered untenantable, or (b) by any casualty
other than those covered by insurance policies required to be
maintained by Landlord under this Lease (hereinafter
"substantially damaged"), or (ii) the Premises shall be damaged
in whole or in part during the last year of the Term, or (iii)
there shall be damage to the Premises of a character as cannot
reasonably be expected to be repaired within twelve (12) months
from the date of casualty, or (iv) such restoration involves the
demolition of or repair of damage to twenty-five percent (25%) or
more of the Premises, or (v) applicable law requires the
demolition of the Building or forbids the rebuilding of the
damaged portion of the Building, or (vi) such
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restoration requires repairs in an amount in excess of the
insurance proceeds recovered or recoverable, or (vii) Landlord's
mortgagee shall require that the insurance proceeds from such
damage or destruction be applied against the principal balance
due on any mortgage, Landlord may, at its option, either
terminate this Lease or elect to repair the Premises and Landlord
shall notify Tenant as to its election within ninety (90) days
after such fire or casualty. If Landlord elects to terminate this
Lease, the Term hereof shall end on the date specified in the
notice (which shall be the end of a calendar month and not sooner
than thirty (30) days after such election was made). If Landlord
does not elect to terminate this Lease, then Landlord shall
perform such repairs set forth in Section 7.1.3 hereof and Tenant
shall perform such repairs in the Building as set forth in
Section 7.1.4 hereof, and the Term shall continue without
interruption and this Lease shall remain in full force and
effect.
If Landlord has not elected to terminate this Lease and if there shall be
damage to the Premises of a character as cannot (in the judgment of Landlord's
engineer) reasonably be expected to be repaired within twelve (12) months from
the date of casualty, then Tenant may, at its option, terminate this Lease
provided that Tenant's election shall be made by notice to Landlord within
thirty (30) days of Landlord's delivery of the estimate of Landlord's engineer
as to the time period required for restoration.
7.1.2 If Landlord does not elect to terminate this Lease as provided in
Section 7.1.2 hereof and if Tenant is not then in default of any
of its obligations under the Lease beyond any applicable cure
period provided for herein, Landlord shall, provided any third
party mortgagee of the Building makes insurance proceeds
available for restoration, reconstruct as much of the Premises as
was originally constructed by Landlord (it being understood by
Tenant that Landlord shall not be responsible for any
reconstruction of leasehold improvements, which reconstruction is
the sole responsibility of Tenant) to substantially its condition
at the time of such damage, but Landlord shall not be responsible
for any delays which may result from any cause beyond Landlord's
reasonable control.
7.1.3 If Landlord does not elect to terminate this Lease as provided in
Section 7.1.2 hereof; Tenant shall, at its own cost and expense,
repair and restore the Premises in accordance with the provisions
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of Section 6.1.15 hereof to the extent not required to be
repaired by Landlord pursuant to the provisions of this Section
7.1, including, but not limited to, the repairing and/or
replacement of its merchandise, trade fixtures, furnishings and
equipment in a manner and to at least a condition equal to that
prior to its damage or destruction. Tenant agrees to commence the
performance of its work when notified by Landlord that the work
to be performed by Tenant can, in accordance with good
construction practices, then be commenced and Tenant shall
complete such work as promptly thereafter as is practicable, but
in no event more than 90 days thereafter.
7.1.4 All proceeds payable from Landlord's insurance policies with
respect to the Premises shall belong to and shall be payable to
Landlord. If Landlord does not elect to terminate this Lease as
provided in Section 7.1.2 hereof, Landlord shall disburse and
apply so much of any insurance recovery as shall be necessary
against the cost to Landlord of restoration and rebuilding of
Landlord's work referred to in Section 7.1.3 hereof, subject to
the prior rights of any lessor under a ground or underlying lease
covering the Building and/or the holder of any mortgage liens
against the Building.
7.1.5 In the event that the provisions of Section 7.1.1 or Section
7.1.2 shall become applicable, the Annual Rent and additional
rent shall be abated or reduced proportionately during any period
in which, by reason of such damage or destruction, there is
substantial interference with the operation of the business of
Tenant in the Premises, having regard to the extent to which
Tenant may be required to discontinue its business in the
Premises, and such abatement or reduction shall continue for the
period commencing with such destruction or damage and ending with
the completion by Landlord of such work of repair and/or
reconstruction as Landlord is obligated to do.
7.2 EMINENT DOMAIN.
If, after the execution and before termination of this Lease, the entire
Premises shall be taken by eminent domain or destroyed by the action of any
public or quasi-public authority, or in the event of conveyance in lieu thereof,
the Term shall cease as of the day possession shall be taken by such authority,
and Tenant shall pay rent up to that date with a pro-rata refund by Landlord of
such rent and additional
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rent as shall have been paid in advance for a period subsequent to the date of
the taking of possession.
If less than twenty-five percent (25%) of the Premises shall be so taken or
conveyed, this Lease shall cease only with respect to the parts so taken or
conveyed, as of the day possession shall be taken, and Tenant shall pay rent up
to that day, with an appropriate refund by Landlord of such rent as may have
been paid in advance for a period subsequent to the date of the taking of
possession, and thereafter the Annual Rent shall be equitably adjusted. Pending
agreement of such rental adjustment, Tenant agrees to pay to Landlord the Annual
Rent and additional rent in effect immediately prior to the taking by eminent
domain. Landlord shall at its expense make all necessary repairs or alterations
so as to constitute the remaining premises a complete architectural unit.
If more than twenty-five percent (25%) of the Premises shall be so taken or
conveyed, then the Term shall cease only as respects the part so taken or
conveyed, from the day possession shall be taken, and Tenant shall pay rent to
that date with an appropriate refund by Landlord of such rent as may have been
paid in advance for a period subsequent to the date of the taking of possession,
but Landlord shall have the right to terminate this Lease upon notice to Tenant
in writing within thirty (30) days after such taking of possession. If Landlord
does not elect to terminate the Lease, all of the terms herein provided shall
continue in effect except that the Annual Rent shall be equitably adjusted, and
Landlord shall make all necessary repairs or alterations so as to constitute the
remaining premises a complete architectural unit.
All compensation awarded for any such taking or conveyance, whether for the
whole or a part of the Premises, shall be the property of Landlord, whether such
damages shall be awarded as compensation for diminution in the value of the
leasehold or of the fee of or underlying leasehold interest in the Premises, and
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
and to any and all such compensation; provided, however, that Tenant shall be
entitled to seek a separate award for Tenant's stock, trade fixtures and
relocation expense.
In the event of any taking of the Premises or any part thereof for
temporary use, this Lease shall be and remain unaffected thereby and rent shall
not abate.
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ARTICLE VIII RIGHTS OF MORTGAGEE
8.1 PRIORITY OF LEASE.
This Lease is and shall continue to be subject and subordinate to any
presently existing mortgage or deed of trust of record covering the Lot or
Building or both (the "mortgaged premises"). The holder of any such presently
existing mortgage or deed of trust shall have the election to subordinate the
same to the rights and interests of Tenant under this Lease exercisable by
filing with the appropriate recording office a notice of such election,
whereupon the Tenant's rights and interests hereunder shall have priority over
such mortgage or deed of trust.
Unless the option provided for in the next following sentence shall be
exercised, this Lease shall be superior to and shall not be subordinate to, any
mortgage, deed of trust or other voluntary hen hereafter placed on the mortgaged
premises. The holder of any such mortgage, deed of trust or other voluntary
lien shall have the option to subordinate this Lease to the same, provided that
such holder enters into an agreement with Tenant by the terms of which the
holder will agree to recognize the rights of Tenant under this Lease and to
accept Tenant as tenant of the Premises under the terms and conditions of this
Lease in the event of acquisition of title by such holder through foreclosure
proceedings or otherwise and Tenant will agree to recognize the holder of such
mortgage as Landlord in such event, which agreement shall be made to expressly
bind and inure to the benefit of the successors and assigns of Tenant and of the
holder and upon anyone purchasing the mortgaged premises at any foreclosure
sale. Any such mortgage to which this Lease shall be subordinated may contain
such terms, provisions and conditions as the holder deems usual or customary.
8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF MORTGAGEE'S LIABILITY.
The word "mortgage" as used herein includes mortgages, deeds of trust or
other similar instruments evidencing other voluntary liens or encumbrances, and
modifications, consolidations, extensions, renewals, replacements and
substitutes thereof. The word "holder" shall mean a mortgagee, and any
subsequent holder or holders of a mortgage. Until the holder of a mortgage
shall enter and take possession of the Premises for the purpose of foreclosure,
such holder shall have only such rights of Landlord as are necessary to preserve
the integrity of this Lease as security. Upon entry and taking possession of
the Premises for the
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purpose of foreclosure, such holder shall have all the rights of Landlord.
Notwithstanding any other provision of this Lease to the contrary, including
without limitation Section 10.4, no such holder of a mortgage shall be liable,
either as mortgagee or as assignee, to perform, or be liable in damages for
failure to perform any of the obligations of Landlord unless and until such
holder shall enter and take possession of the Premises for the purpose of
foreclosure, and such holder shall not in any event be liable to perform or for
failure to perform the obligations of Landlord under Section 3.2. Upon entry for
the purpose of foreclosure, such holder shall be liable to perform all of the
obligations of Landlord (except for the obligations under Section 3.2), subject
to and with the benefit of the provisions of Section 10.4, provided that a
discontinuance of any foreclosure proceeding shall be deemed a conveyance under
said provisions to the owner of the equity of the Premises.
8.3 MORTGAGEE'S ELECTION.
Notwithstanding any other provision to the contrary contained in this
Lease, if prior to substantial completion of Landlord's obligations under
Article III, any holder of a first mortgage on the mortgaged premises enters and
takes possession thereof for the purpose of foreclosing the mortgage, such
holder may elect, by written notice given to Tenant and Landlord at any time
within ninety (90) days after such entry and taking of possession, not to
perform Landlord's obligations under Article III, and in such event such holder
and all persons claiming under it shall be relieved of all obligations to
perform, and all liability for failure to perform, said Landlord's obligations
under Article III, and Tenant may terminate this Lease and all its obligations
hereunder by written notice to Landlord and such holder given within thirty (30)
days after the day on which such holder shall have given its notice as
aforesaid.
8.4 NO PREPAYMENT OR MODIFICATION, ETC.
Tenant shall not pay Annual Rent, additional rent, or any other charge more
than ten (10) days prior to the due date thereof. No prepayment of Annual Rent,
additional rent or other charge, no assignment of this Lease and no agreement to
modify so as to reduce the rent, change the Term, or otherwise materially change
the rights of Landlord under this Lease, or to relieve Tenant of any obligations
or liability under this Lease, shall be valid unless consented to in writing by
Landlord's mortgagees of record, if any.
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8.5 NO RELEASE OR TERMINATION.
No act or failure to act on the part of Landlord which would entitle Tenant
under the terms of this Lease, or by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease, shall result in a release or termination
of such obligations or a termination of this Lease unless (i) Tenant shall have
first given written notice of Landlord's act or failure to act to Landlord's
mortgagees of record, if any, specifying the act or failure to act on the part
of Landlord which could or would give basis to Tenant's rights and (ii) such
mortgagees, after receipt of such notice, have failed or refused to correct or
cure the condition complained of within a reasonable time thereafter, but
nothing contained in this Section 8.5 shall be deemed to impose any obligation
on any such mortgagee to correct or cure any such condition. "Reasonable time"
as used above means and includes a reasonable time to obtain possession of the
mortgaged premises, if the mortgagee elects to do so, and a reasonable time to
correct or cure the condition if such condition is determined to exist.
8.6 CONTINUING OFFER.
The covenants and agreements contained in this Lease with respect to the
rights, powers and benefits of a mortgagee (particularly, without limitation
thereby, the covenants and agreements contained in this Article VIII) constitute
a continuing offer to any person, corporation or other entity, which by
accepting or requiring an assignment of this Lease or by entry or foreclosure
assumes the obligations herein set forth with respect to such mortgagee; such
mortgagee is hereby constituted a party to this Lease as an obligee hereunder to
the same extent as though its name were written hereon as such; and such
mortgagee shall be entitled to enforce such provisions in its own name. Tenant
agrees on request of Landlord to execute and deliver from time to time any
agreement which may reasonably be deemed necessary to implement the provisions
of this Article VIII.
8.7 MORTGAGEE'S APPROVAL.
Landlord's obligation to perform its covenants and agreements hereunder is
subject to the condition precedent that this Lease be approved by the holder of
any mortgage of which the Premises are a part and by the issuer of any
commitment to make a mortgage loan which is in effect on the date hereof.
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ARTICLE IX DEFAULT
9.1 EVENTS OF DEFAULT.
If any default by Tenant continues, in case of Annual Rent, additional rent
or any other monetary obligation to Landlord for more than ten (10) days after
notice (provided, however, that if Tenant defaults in any monetary obligation to
Landlord twice in any twelve (12) month period, no notice of default by Tenant
of any monetary obligation shall thereafter be required), or if Tenant fails to
provide an estoppel certificate in accordance with Section 10.10 hereof, or if
any default by Tenant continues in any other case for more than thirty (30) days
after notice and such additional time, if any, as is reasonably necessary to
cure the default if the default is of such a nature that it cannot reasonably be
cured in thirty (30) days and Tenant promptly commences to cure such default and
diligently pursues such cure without interruption to completion; or if Tenant
becomes insolvent, fails to pay its debts as they fall due, files a petition
under any chapter of the U.S. Bankruptcy Code, 11 U.S.C. 101 et seq., as it may
be amended (or any similar petition under any insolvency law of any
jurisdiction), or if such petition is filed against Tenant; or if Tenant
proposes any dissolution, liquidation, composition, financial reorganization or
recapitalization with creditors, makes an assignment or trust mortgage for
benefit of creditors, or if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property of Tenant; or if the
leasehold hereby created is taken on execution or other process of law in any
action against Tenant; then, and in any such case, Landlord and the agents and
servants of Landlord may, in addition to and not in derogation of any remedies
for any preceding breach of covenant, immediately or at any time thereafter
while such default continues and without further notice, at Landlord's election,
do any one or more of the following: (1) give Tenant written notice stating
that the Lease is terminated, effective upon the giving of such notice or upon a
date stated in such notice, as Landlord may elect, in which event the Lease
shall be irrevocably extinguished and terminated as stated in such notice
without any further action, or (2) with or without process of law, in a lawful
manner enter and repossess the Premises as of Landlord's former estate, and
expel Tenant and those claiming through or under Tenant, and remove its and
their effects, without being guilty of trespass, in which event the Lease shall
be irrevocably extinguished and terminated at the time of such entry, or (3)
pursue any other rights or remedies permitted by law. Any such termination of
the Lease shall be without prejudice to any remedies which might otherwise be
used for arrears of rent or prior breach of covenant,
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and in the event of such termination Tenant shall remain liable under this Lease
as hereinafter provided. Tenant hereby waives all statutory rights (including,
without limitation, rights of redemption, if any) to the extent such rights may
be lawfully waived, and Landlord, without notice to Tenant, may store Tenant's
effects and those of any person claiming through or under Tenant at the expense
and risk of Tenant and, if Landlord so elects, may sell such effects at public
auction or private sale and apply the net proceeds to the payment of all sums
due to Landlord from Tenant, if any, and pay over the balance, if any, to
Tenant.
9.2 TENANT'S OBLIGATIONS AFTER TERMINATION.
In the event that this Lease is terminated under any of the provisions
contained in Section 9.1 or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, (i) the excess of the total rent reserved for the residue of the
Term over the rental value of the Premises for said residue of the Term and (ii)
the unamortized portion of the actual out-of-pocket costs and expenses incurred
by Landlord in completing Landlord's Work and fees and commissions paid to the
Broker, amortized on a straight-line reduction basis from 100% to 0% over the
Term of the Lease set forth in Section 1.1 hereof. In calculating the rent
reserved, there shall be included, in addition to the Annual Rent and all
additional rent, the value of all other consideration agreed to be paid or
performed by Tenant for said residue. Tenant further covenants as an additional
and cumulative obligation after any such ending to pay punctually to Landlord
all the sums and perform all the obligations which Tenant covenants in this
Lease to pay and to perform in the same manner and to the same extent and at the
same time as if this Lease had not been terminated. In calculating the amounts
to be paid by Tenant under the next foregoing covenant, Tenant shall be credited
with any amount paid to Landlord as compensation as provided in the first
sentence of this Section 9.2 and also with the net proceeds of any rents
obtained by Landlord by reletting the Premises, after deducting all Landlord's
expenses in connection with such reletting, including, without implied
limitation, all repossession costs, brokerage commissions, fees for legal
services and expenses of preparing the Premises for such reletting, it being
agreed by Tenant that Landlord may (i) relet the Premises or any part or parts
thereof for a term or terms which may at Landlord's option be equal to or less
than or exceed the period which would otherwise have constituted the balance of
the Term and may grant such concessions and free rent as Landlord in its sole
judgment considers advisable or necessary to relet the same and (ii) make such
alterations, repairs and
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decorations in the Premises as Landlord in its sole judgment considers advisable
or necessary to relet the same, and no action of Landlord in accordance with the
foregoing or failure to relet or to collect rent under reletting shall operate
or be construed to release or reduce Tenant's liability as aforesaid.
So long as at least twelve (12) months of the Term remain unexpired at the
time of such termination, in lieu of any other damages or indemnity and in lieu
of full recovery by Landlord of all sums payable under all the foregoing
provisions of this Section 9.2, Landlord may by written notice to Tenant, at any
time after this Lease is terminated under any of the provisions contained in
Section 9.1, or is otherwise terminated for breach of any obligation of Tenant
and before such full recovery, elect to recover and Tenant shall thereupon pay,
as liquidated damages, an amount equal to the aggregate of the Annual Rent and
additional rent accrued under Article IV in the 12 months ended next prior to
such termination plus the amount of Annual Rent and additional rent of any kind
accrued and unpaid at the time of termination and less the amount of any
recovery by Landlord under the foregoing provisions of this Section 9.2 up to
the time of payment of such liquidated damages.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
ARTICLE X MISCELLANEOUS
10.1 NOTICE OF LEASE.
Upon request of either party, both parties shall execute and deliver, after
the Term begins, a notice of this Lease in form appropriate for recording or
registration, and if this Lease is terminated before the Term expires, an
instrument in such form acknowledging the date of termination.
10.2 RELOCATION.
Landlord reserves the right to relocate the Premises to comparable space
within the Building or another Office Park Building by giving
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Tenant prior written notice of such intention to relocate. If within thirty (30)
days after receipt of such notice, Landlord and Tenant have not agreed on the
space to which the Premises are to be relocated and the timing of such
relocation, this Lease shall terminate on that date which is sixty (60) days
after the Tenant's receipt of such notice. If Landlord and Tenant do so agree,
then the Lease shall be deemed amended by deleting the description of the
original Premises and substituting thereof a description of such comparable
space and, if such relocation is to another Office Park Building owned by a
party other than Landlord, by reexecuting the Lease with the owner of such other
Office Park Building being substituted for the Landlord hereunder. Landlord
agrees to pay the reasonable costs of moving Tenant to such other space within
the Building or the park.
10.3 NOTICES FROM ONE PARTY TO THE OTHER.
All notices required or permitted hereunder shall be in writing and
addressed, if to the Tenant, at Tenant's Address or such other address as Tenant
shall have last designated by notice in writing to Landlord and, if to Landlord,
at Landlord's Address or such other address as Landlord shall have last
designated by notice in writing to Tenant. Any notice shall have been deemed
duly given if mailed to such address postage prepaid, registered or certified
mail, return receipt requested, when deposited with the U.S. Postal Service, or
if delivered to such address by hand, when so delivered.
10.4 BIND AND INURE.
The obligations of this Lease shall run with the land, and this Lease shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Landlord named herein and
each successive owner of the Premises shall be liable only for the obligations
accruing during the period of its ownership. The obligations of Landlord shall
be binding upon the assets of Landlord which comprise the Building and the Lot
but not upon other assets of Landlord. No individual partner, member, trustee,
stockholder, officer, director, employee or beneficiary of Landlord shall be
personally liable under this Lease and Tenant shall look solely to Landlord's
interest in the Building and the Lot in pursuit of its remedies upon an event of
default hereunder, and the general assets of the individual partners, trustees,
stockholders, officers, employees or beneficiaries of Landlord shall not be
subject to levy, execution or other enforcement procedure for the satisfaction
of the remedies of Tenant.
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10.5 NO SURRENDER.
The delivery of keys to any employee of Landlord or to Landlord's agent or
any employee thereof shall not operate as a termination of this Lease or a
surrender of the Premises.
10.6 NO WAIVER, ETC.
The failure of Landlord to seek redress for violation of, or to insist upon
the strict performance of any covenant or condition of this Lease or any of the
Rules and Regulations referred to in Section 6.1.4, whether heretofore or
hereafter adopted by Landlord, shall not be deemed a waiver of such violation
nor prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation, nor
shall the failure of Landlord to enforce any of said Rules and Regulations
against any other tenant in the Building be deemed a waiver of any such Rules or
Regulations. The receipt by Landlord of Annual Rent or additional rent with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach by Landlord, unless such waiver be in writing and signed
by Landlord. No consent or waiver, express or implied, by Landlord to or of any
breach of any agreement or duty shall be construed as a waiver or consent to or
of any other breach of the same or any other agreement or duty.
10.7 NO ACCORD AND SATISFACTION.
No acceptance by Landlord of a lesser sum than the Annual Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed as
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided.
10.8 CUMULATIVE REMEDIES.
The specific remedies to which Landlord may resort under the terms of this
Lease are cumulative and are not intended to be exclusive of any other remedies
or means of redress to which it may be lawfully entitled in case of any breach
or threatened breach by Tenant of any provisions of this Lease. In addition to
the other remedies provided in this Lease,
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Landlord shall be entitled to the restraint by injunction of the violation or
attempted or threatened violation of any of the covenants, conditions or
provisions of this Lease or to a decree compelling specific performance of any
such covenants, conditions or provisions.
10.9 LANDLORD'S RIGHT TO CURE.
If Tenant shall at any time default in the performance of any obligation
under this Lease, Landlord shall have the right, but shall not be obligated, to
enter upon the Premises and to perform such obligation, notwithstanding the fact
that no specific provision for such substituted performance by Landlord is made
in this Lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All sums so
paid by Landlord (together with interest at the rate of 4% per annum in excess
of the then prime commercial rate of interest being charged by the three largest
national banks in Boston, Massachusetts) and all necessary incidental costs and
expenses in connection with the performance of any such act by Landlord, shall
be deemed to be additional rent under this Lease and shall be payable to
Landlord immediately on demand. Landlord may exercise the foregoing rights
without waiving any other of its rights or releasing Tenant from any of its
obligations under this Lease.
10.10 ESTOPPEL CERTIFICATE.
Tenant agrees, from time to time, upon not less than 15 days' prior written
request by Landlord, to execute, acknowledge and deliver to Landlord a statement
in writing certifying that this Lease is unmodified and in full force and
effect; that Tenant has no defenses, offsets or counterclaims against its
obligations to pay the Annual Rent and additional rent and to perform its other
covenants under this Lease; that there are no uncured defaults of Landlord or
Tenant under this Lease (or, if there have been modifications, that this Lease
is in full force and effect as modified and stating the modifications, and, if
there are any defenses, offsets, counterclaims, or defaults, setting them forth
in reasonable detail); and the dates to which the Annual Rent, additional rent
and other charges have been paid. Any such statement delivered pursuant to this
Section 10.10 shall be in a form reasonably acceptable to and may be relied upon
by any prospective purchaser or mortgagee of premises which include the Premises
or any prospective assignee of any such mortgagee.
10.11 WAIVER OF SUBROGATION.
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Any insurance carried by either party with respect to the Premises and
property therein or occurrences thereon shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrences of injury or
loss. Each party, notwithstanding any provisions of this Lease to the contrary,
hereby waives any rights of recovery against the other for injury or loss due to
hazards covered by insurance containing such clause or endorsement to the extent
of the indemnification received thereunder.
10.12 ACTS OF GOD.
In any case where either party hereto is required to do any act, delays
caused by or resulting from Acts of God, war, civil commotion, fire, flood or
other casualty, labor difficulties, shortages of labor, materials or equipment,
government regulations, unusually severe weather, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed time or a "reasonable time," and such time shall be deemed to be
extended by the period of such delay.
10.13 BROKERAGE.
Tenant and Landlord represent and warrant that they dealt with no brokers
in connection with this transaction other than the Broker and agree to defend,
with counsel approved by the other, indemnify and save the other harmless from
and against any and all cost, expense or liability for any compensation,
commissions or charges claimed by a broker or agent, other than the Broker in
connection with this Lease. Landlord hereby agrees to pay the brokerage fees to
the Broker in connection with the execution and delivery of this Lease.
10.14 SUBMISSION NOT AN OFFER.
The submission of a draft of this Lease or a summary of some or all of its
provisions does not constitute an offer to lease or demise the Premises, it
being understood and agreed that neither Landlord nor Tenant shall be legally
bound with respect to the leasing of the Premises unless and until this Lease
has been executed by both Landlord and Tenant and a fully executed copy has been
delivered to each of them.
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10.15 APPLICABLE LAW AND CONSTRUCTION.
This Lease shall be governed by and construed in accordance with the laws
of the Commonwealth of Massachusetts. If any term, covenant, condition or
provision of this Lease or the application thereof to any person or
circumstances shall be declared invalid or unenforceable by the final ruling of
a court of competent jurisdiction having final review, the remaining terms,
covenants, conditions and provisions of this Lease and their application to
persons or circumstances shall not be affected thereby and shall continue to be
enforced and recognized as valid agreements of the parties, and in the place of
such invalid or unenforceable provision, there shall be substituted a like, but
valid and enforceable provision which comports to the findings of the aforesaid
court and most nearly accomplishes the original intention of the parties.
There are no oral or written agreements between Landlord and Tenant
affecting this Lease. This Lease may be amended, and the provisions hereof may
be waived or modified, only by instruments in writing executed by Landlord and
Tenant.
The titles of the several Articles and Sections contained herein are for
convenience only and shall not be considered in construing this Lease.
Unless repugnant to the context, the words "Landlord" and "Tenant"
appearing in this Lease shall be construed to mean those named above and their
respective heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively. If there be more than one tenant,
the obligations imposed by this Lease upon Tenant shall be joint and several.
10.16 AUTHORITY OF TENANT.
Tenant represents and warrants to Landlord (which representations and
warranties shall survive the delivery of this Lease) that: (a) Tenant (i) is
duly organized, validly existing and in good standing under the laws of its
state of incorporation, (ii) has the corporate power and authority to carry on
businesses now being conducted and is qualified to do business in every
jurisdiction where such qualification is necessary and (iii) has the corporate
power to execute and deliver and perform its obligations under this Lease and
(b) the execution, delivery and performance by Tenant of its obligations under
this Lease have been duly authorized by all requisite corporate action and will
not
42
<PAGE>
violate any provision of law, any order of any court or other agency of
government, the corporate charter or by-laws of the Tenant or any indenture,
agreement or other instrument to which it is a party or by which it is bound.
ARTICLE XI SECURITY DEPOSIT
Simultaneously with Tenant's delivery of the executed Lease to Landlord,
Tenant will deliver the Security Deposit to Landlord, to be held by Landlord, as
security, without interest, for and during the Term, which deposit shall be
returned to Tenant at the termination of this Lease, provided there exists no
default by Tenant or breach of any understanding of Tenant. Notwithstanding the
foregoing, (a) no later than fifteen (15) days after the sixth (6th) month
anniversary of the Term Commencement Date, the Security Deposit shall be reduced
to $28,622.08 by the return to Tenant of the difference between the Security
Deposit then held by Landlord and $28,622.08, provided that no event of default
by Tenant then exists hereunder, and no condition exists which with the giving
of notice or the passage of time, or both, would constitute an event of default,
and (b) no later than fifteen (15) days after the twenty-fourth (24th) month
anniversary of the Term Commencement Date, the Security Deposit shall be reduced
to $14,311.04 by the return to Tenant of the difference between the Security
Deposit then held by Landlord and $14,311.04 provided that no event of default
by Tenant then exists hereunder, and no condition exists which with the giving
of notice or the passage of time, or both, would constitute an event of default,
and provided further that Tenant provides current financial statements to
Landlord which are acceptable to Landlord in Landlord's sole discretion. If all
or any part of the Security Deposit is applied to an obligation of Tenant
hereunder, Tenant shall immediately upon request by Landlord restore the
Security Deposit to its original amount. Tenant shall not have the right to
call upon Landlord to apply all or any part of the Security Deposit to cure any
default or fulfill any obligation of Tenant, but such use shall be solely in the
discretion of Landlord. Upon any conveyance by Landlord of its interest under
this Lease, the Security Deposit may be delivered by Landlord to Landlord's
grantee or transferee. Upon any delivery, Tenant hereby releases Landlord
herein named of any and all liability with respect to look solely to such
grantee or transferee. It is further understood that this provision shall also
apply to subsequent grantees and transferees.
EXECUTED as a sealed instrument in two or more counterparts on the day and
year first above written.
43
<PAGE>
LANDLORD:
BRE/CAMBRIDGEPARK OFFICE II L.L.C.,
a Delaware limited liability company
By:________________________________
TENANT:
PRIME RESPONSE GROUP, INC.
By:________________________________
Name:
Title:
Hereunto duly authorized
44
<PAGE>
EXHIBIT A
Description of the Lot
That certain parcel of land with buildings thereon situated in Cambridge,
Middlesex County, Massachusetts, shown as Lot A on plan entitled "Subdivision
Plan of Land Cambridge, Mass." Scale 1" - 60', dated February 27, 1985, prepared
by Harry R. Feldman, Inc. recorded with Middlesex South Registry of Deeds as
Plan No. 1038 of 1985 more particularly bounded and described as follows:
Northerly by CambridgePark Drive, four hundred seventy-three and 70/100
(473.70) feet;
Easterly by Lot B as shown on said plan, two hundred sixty-two and 50/100
(262.50) feet;
Southerly by said Lot B, sixteen and 70/100 (16.70) feet;
Easterly again by said Lot.B, one hundred ten (110.00) feet;
Southerly again by said Lot B, by three lines of two hundred twenty-two and
24/100 (222.24) feet, two hundred eighteen and 12/100 (218.12) feet and twenty-
three and 28/100 (23.28) feet; and
Westerly by said Lot B, two hundred ninety-five and 15/100 (295.15) feet.
Containing according to said plan 158,215 square feet.
<PAGE>
EXHIBIT C
LANDLORD'S SERVICES
I. CLEANING
A. GENERAL
1. All cleaning work will be performed between 8 a.m. and 12
midnight, Monday through Friday, unless otherwise necessary for
stripping, waxing, etc.
2. Abnormal waste removal (e.g., computer installation paper, bulk
packaging, wood or cardboard crates, refuse from cafeteria
operation, etc.) shall be Tenant's responsibility.
B. DAILY OPERATIONS (5 TIMES PER WEEK)
1. Tenant Areas
a. Empty and clean all waste receptacles; wash receptacles as
necessary.
b. Vacuum all rugs and carpeted areas.
c. Empty, damp-wipe and dry all ashtrays.
2. Lavatories
a. Sweep and wash floors with disinfectant.
b. Wash both sides of toilet seats with disinfectant.
c. Wash all mirrors, basins, bowls, urinals.
d. Spot clean toilet partitions.
e. Empty and disinfect sanitary napkin disposal receptacles.
f. Refill toilet tissue, towel, soap, and sanitary napkin
dispensers.
3. Public Areas
a. Wipe down entrance doors and clean glass (interior and
exterior).
b. Vacuum elevator carpets and wipe down doors and walls.
c. Clean water coolers.
C-1
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C. OPERATIONS AS NEEDED (BUT NOT LESS THAN EVERY OTHER DAY)
1. Tenant and Public Areas
a. Buff all resilient floor areas.
D. WEEKLY OPERATIONS
1. Tenant Areas, Lavatories, Public Areas
a. Hand-dust and wipe clean all horizontal surfaces with
treated cloths to include furniture, office equipment,
window sills, door ledges, chair rails, baseboards,
convector tops, etc., within normal reach.
b. Remove finger marks from private entrance doors, light
switches, and doorways.
c. Sweep all stairways.
E. MONTHLY OPERATIONS
1. Tenant and Public Areas
a. Thoroughly vacuum seat cushions on chairs, sofas, etc.
b. Vacuum and dust grillwork.
2. Lavatories
a. Wash down interior walls and toilet partitions.
F. AS REQUIRED AND WEATHER PERMITTING
1. Entire Building
a. Clean inside of all windows.
b. Clean outside of all windows.
G. YEARLY
1. Public Areas
a. Strip and wax all resilient tile floor areas.
C-2
<PAGE>
II. HEATING, VENTILATING, AND AIR CONDITIONING
1. Heating, ventilating, and air conditioning as required to provide
reasonably comfortable temperatures for normal business day
occupancy (excepting holidays); Monday through Friday from 8:00
a.m. to 6:00 p.m. and Saturday from 8:00 a.m. to 1:00 p.m.
2. Maintenance of any additional or special air conditioning
equipment and the associated operating cost will be at Tenant's
expense, which is estimated at $50 per hour.
III. WATER
Hot water for lavatory purposes and cold water for drinking,
lavatory and toilet purposes, and cold water for Tenant's kitchen
and Tenant's hot water heater (Tenant is to supply hot water
heater).
IV. ELEVATORS (IF BUILDING IS ELEVATORED)
Elevators for the use of all tenants and the general public for
access to and from all floors of the Building. Programming of
elevators (including, but not limited to, service elevators)
shall be as Landlord from time to time determines best for the
Building as a whole.
V. RELAMPING OF LIGHT FIXTURES
Tenant will reimburse Landlord for the cost of lamps, ballasts
and starters and the cost of replacing same within the Premises.
VI. CAFETERIA AND VENDING INSTALLATIONS
1. Any space to be used primarily for lunchroom or cafeteria
operation shall be Tenant's responsibility to keep clean and
sanitary, it being understood that Landlord's approval of such
use must be first obtained in writing.
2. Vending machines or refreshment service installations by Tenant
must be approved by Landlord in writing and shall be restricted
in use to employees and business callers.
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All cleaning necessitated by such installations shall be at
Tenant's expense.
VII ELECTRICITY
A. Landlord, at Landlord's expense, shall furnish electrical energy
required for lighting, electrical facilities, equipment, machinery,
fixtures, and appliances used in or for the benefit of the Premises,
in accordance with the provisions of the Lease of which this Exhibit
is part.
B. Tenant shall not, without prior written notice to Landlord in each
instance, connect to the Building electric distribution system any
fixtures, appliances or equipment other than normal office machines
such as personal computers, desk-top calculators and typewriters, or
any fixtures, appliances or equipment which Tenant on a regular basis
operates beyond normal building operating hours. In the event of any
such connection, Tenant agrees to an increase in the ANNUAL ESTIMATED
ELECTRICAL COST TO THE PREMISES and a corresponding increase in Annual
Rent by an amount which will reflect the cost to Landlord of the
additional electrical service to be furnished by Landlord, such
increase to be effective as of the date of any such installation. If
Landlord and Tenant cannot agree thereon, such amount shall be
conclusively determined by a reputable independent electrical engineer
or consulting firm to be selected by Landlord and paid equally by both
parties, and the cost to Landlord will be included in Landlord's
Operating Costs provided in Section 4.2 hereof.
C. Tenant's use of electrical energy in the Premises shall not at any
time exceed the capacity of any of the electrical conductors or
equipment in or otherwise serving the Premises. In order to insure
that such capacity is not exceeded and to avert possible adverse
effect upon the Building electric service, Tenant shall not, without
prior written notice to Landlord in each instance, connect to the
Building electric distribution system any fixtures, appliances or
equipment which operate on a voltage in excess of 120 volts nominal or
make any alteration or addition to the electric system of the
Premises. Unless Landlord shall reasonably object to the connection of
any such fixtures, appliances or equipment, all additional risers or
other equipment required therefor shall be provided by Landlord, and
the cost thereof shall be paid by Tenant upon Landlord's
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demand. In the event of any such connection, Tenant agrees to an
increase in the ANNUAL ESTIMATED ELECTRICAL COST TO THE PREMISES such
increase to be effective as of the date of any such connection. If
Landlord and Tenant cannot agree thereon, such amount shall be
conclusively determined by a reputable independent electrical engineer
or consulting firm to be selected by Landlord and paid equally by both
parties, and the cost to Landlord will be included in Landlord's
Operating Costs provided in Section 4.2 hereof.
D. If at any time after the date of this Lease, the rates at which
Landlord purchases electrical energy from the public utility supplying
electric service to the Building, or any charges incurred or taxes
payable by Landlord in connection therewith, shall be increased or
decreased, the ANNUAL ESTIMATED ELECTRICAL COST TO THE PREMISES shall
be increased or decreased, as the case may be, by an amount equal to
the estimated increase or decrease, as the case may be, in Landlord's
cost of furnishing the electricity referred to in Paragraph A above as
a result of such increase or decrease in rates, charges, or taxes. If
Landlord and Tenant cannot agree thereon, such amount shall be
conclusively determined by a reputable independent electrical engineer
or consulting firm to be selected by Landlord and paid equally by both
parties, and the cost to Landlord will be included in Landlord's
Operating Costs as provided in Section 4.2 hereof. Any such increase
or decrease shall be effective as of the date of the increase or
decrease in such rate, charge or taxes.
E. Landlord may, at any time, elect to discontinue the furnishing of
electrical energy. In the event of any such election by Landlord: (1)
Landlord agrees to give reasonable advance notice of any such
discontinuance to Tenant; (2) Landlord agrees to permit Tenant to
receive electrical service directly from the public utility supplying
service to the Building and to permit the existing feeders, risers,
wiring and other electrical facilities serving the Premises to be used
by Tenant and/or such public utility for such purpose to the extent
they are suitable and safely capable; (3) Landlord agrees to pay such
charges and costs, if any, as such public utility may impose in
connection with the installation of Tenant's meters and to make or, at
such public utility's election, to pay for such other installations as
such public utility may require, as a condition of providing
comparable electrical service to Tenant; and (4) Tenant shall
C-5
thereafter pay, directly to the utility furnishing the same, all
charges for electrical services to the Premises.
C-6
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety and
well-being of all tenants of the Building and to insure compliance with
governmental and other requirements. Strict adherence to these rules and
regulations is necessary to guarantee that each and every tenant will enjoy a
safe and undisturbed occupancy of its premises in the Building. Any continuing
violation of these rules and regulations by Tenant shall constitute a default by
Tenant under the Lease.
Landlord may, upon request of any tenant, waive the compliance by such
tenant of any of the following rules and regulations, provided that (i) no
waiver shall be effective unless signed by Landlord's authorized agent, (ii) any
such waiver shall not relieve such tenant from the obligation to comply with
such rule or regulation in the future unless otherwise agreed to by Landlord,
(iii) no waiver granted to any tenant shall relieve any other tenant from the
obligation of complying with these rules and regulations, unless such other
tenant has received a similar written waiver from the Landlord, and (iv) any
such waiver shall not relieve Tenant from any liability to Landlord for any loss
or damage occasioned as a result of Tenant's failure to comply with any rule or
regulation
1. The entrances, lobbies, passages, corridors, elevators, halls, courts,
sidewalks, vestibules, and stairways shall not be encumbered or
obstructed by Tenant, Tenant's agents, servants, employees, licensees
or visitors or used by them for any purposes other than ingress or
egress to and from the Premises. Landlord shall have the right to
control and operate portions of the Building and the facilities
furnished for common use of the tenants in such manner as Landlord
deems best for the benefit of the tenants generally.
2. The moving in or out of all safes, freight, furniture, or bulky matter
of any description shall take place during the hours which Landlord
may determine from time to time. Landlord reserves the right to
inspect all freight and bulky matter to be brought into the Building
and to exclude from the Building all freight and bulky matter which
violates any of these Rules and Regulations or the Lease of which
these Rules and Regulations are a part. Landlord reserves the right to
have Landlord's structural engineer review Tenant's floor loads on the
Premises at Tenant's expense.
D-1
<PAGE>
3. Tenant, or the employees, agents, servants, visitors or licensees of
Tenant shall not at any time place waste or discard any rubbish,
paper, articles, or objects of any kind whatsoever outside the doors
of the Premises or in the corridors or passageways of the Building. No
animals or birds shall be brought or kept in or about the Building.
Bicycles shall not be permitted in the Building.
4. Tenant shall not place objects against glass partitions or doors or
windows or adjacent to any common space which would be unsightly from
the Building corridors or from the exterior of the Building and will
promptly remove the same upon notice from Landlord.
5. Tenant shall not make noises, cause disturbances, create vibrations,
odors (other than ordinarily acceptable tenant kitchen odors in the
building) or noxious fumes or use or operate any electric or
electrical devices or other devices that emit sound waves or are
dangerous to other tenants and occupants of the Building or that would
interfere with the operation of any device or equipment or radio or
television broadcasting or reception from or within the Building or
elsewhere, or with the operation of roads or highways in the vicinity
of the Building, and shall not place or install any projections,
antennae, aerials, or similar devices inside or outside of the
Premises, without the prior written approval of Landlord.
6. Tenant may not (without Landlord's approval therefor, which approval
will be signified on Tenant's Plans submitted pursuant to the Lease)
and Tenant shall not permit or suffer anyone to: (a) cook in the
Premises except as accessory to the use of a coffee room/kitchenette
containing a microwave oven; (b) place vending or dispensing machines
of any kind in or about the Premises; (c) at any time sell, purchase
or give away, or permit the sale, purchase, or gift of food in any
form.
7. Tenant shall not: (a) use the Premises for lodging, manufacturing or
for any immoral or illegal purposes; (b) use the Premises to engage in
the manufacture or sale of, or permit the use of spirituous,
fermented, intoxicating or alcoholic beverages on the Premises; (c)
use the Premises to engage in the manufacture or sale of, or permit
the use of, any illegal drugs on the Premises.
D-2
<PAGE>
8. No awning or other projections (including antennae) shall be attached
to the outside walls or windows. No curtains, blinds, shades, screens
or signs other than those furnished by Landlord shall be attached to,
hung in, or used in connection with any window or door of the Premises
without prior written consent of Landlord.
9. No signs, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or
inside of the Premises if visible from outside of the Premises.
Interior signs on doors shall be painted or affixed for Tenant by
Landlord or by sign painters first approved by Landlord at the expense
of Tenant and shall be of a size, color and style acceptable to
Landlord.
10. Tenant shall not use the name of the Building or use pictures or
illustrations of the Building in advertising or other publicity
without prior written consent of Landlord. Landlord shall have the
right to prohibit any advertising by Tenant which, in Landlord's
opinion, tends to impair the reputation of the Building or its
desirability for offices, and upon written notice from Landlord,
Tenant will refrain from or discontinue such advertising.
11. Door keys for doors in the Premises will be furnished at the
Commencement of the Lease by Landlord. Tenant shall not affix
additional locks on doors and shall purchase duplicate keys only from
Landlord and will provide to Landlord the means of opening of safes,
cabinets, or vaults left on the Premises. In the event of the loss of
any keys so furnished by Landlord, Tenant shall pay to Landlord the
cost thereof. Each tenant shall, upon the termination of its tenancy,
restore to Landlord all keys of offices, storage and toilet rooms
either furnished to, or otherwise procured by, such tenant.
12. Tenant shall cooperate and participate in all security programs
affecting the Building.
13. Tenant assumes full responsibility for protecting its space from
theft, robbery and pilferage, which includes keeping doors locked and
other means of entry to the Premises closed and secured.
14. Tenant shall not make any room-to-room canvass to solicit business
from other tenants in the Building, and shall not
D-3
<PAGE>
exhibit, sell or offer to sell, use, rent or exchange any item or
services in or from the Premises unless ordinarily embraced within
Tenant's use of the Premises as specified in its Lease. Canvassing,
soliciting and peddling in the Building are prohibited and Tenant
shall cooperate to prevent the same. Peddlers, solicitors and beggars
shall be reported to the Management Office.
15. Tenant shall not mark, paint, drill into, or in any way deface any
part of the Building or Premises. No boring, driving of nails or
screws (except for picture hanging, etc.), cutting or stringing of
wires shall be permitted, except with the prior written consent of
Landlord, and as Landlord may direct. Tenant shall not construct,
maintain, use or operate within their respective premises any
electrical device, wiring or apparatus in connection with a loud
speaker system or other sound system, except as reasonably required as
part of a communication system approved in writing by Landlord, prior
to the installation thereof. Tenant shall not install any resilient
tile or similar floor covering in the Premises except with the prior
written approval of Landlord. The use of cement or other similar
adhesive material is expressly prohibited.
16. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and shall refrain from
attempting to adjust controls. Tenant shall keep corridor doors dosed
except when being used for access.
17. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other substances
shall be thrown therein. All damage resulting from misuse of said
fixtures shall be borne by the tenant who, or whose servant,
employees, agents, licensees, invitees, customers or guests shall have
caused the same.
18. Building employees shall not be required to perform, and shall not be
requested by any tenant or occupant to perform, any work outside of
their regular duties, unless under specific instructions from the
office of the Managing Agent of the Building. The requirements of
tenants will be attended to only upon application to Landlord, and any
special requirements shall be billed to Tenant (and paid when the next
installment of
D-4
<PAGE>
rent is due) in accordance with the schedule of charges maintained by
Landlord from time to time or at such charge as is agreed upon in
advance by Landlord and Tenant.
19. Tenant may request heating and/or air conditioning during other
periods in addition to normal working hours by submitting its request
in writing to the office of the Managing Agent of the Building no
later than 2:00 p.m. the preceding work day (Monday through Friday) on
forms available from the office of the Managing Agent. The request
shall clearly state the start and stop hours of the "off-hour"
service. Tenant shall submit to the Building Manager a list of
personnel authorized to make such request. The Tenant shall be charged
for such operation in the form of additional rent; such charges are to
be determined by the Managing Agent and shall be fair and reasonable
and reflect the additional operating costs involved.
20. Tenant covenants and agrees that its use of the Premises shall not
cause a discharge of more than the gallonage per foot of Premises
Design Floor Area per day of sanitary (non-industrial) sewage allowed
under the sewage discharge permit for the Building. Discharges in
excess of that amount, and any discharge of industrial sewage, shall
only be permitted if Tenant, at its sole expense, shall have obtained
all necessary permits and licenses therefor, including without
limitation permits from state and local authorities having
jurisdiction thereof. Tenant shall submit to Landlord on December 31
of each year of the Term of this Lease a statement, certified by an
authorized officer of Tenant, which contains the following
information: name of all chemicals, gases, and hazardous substances,
used, generated, or stored on the Premises; type of substance (liquid,
gas or granular); quantity used, stored or generated per year; method
of disposal; permit number, if any, attributable to each substance,
together with copies of all permits for such substances; and permit
expiration date for each substance. No flammable, combustible or
explosive fluid, chemical or substance shall be brought into or kept
upon the Premises, the Building or the Lot (other than those fluids or
chemicals customarily used by tenants of other first-class office
buildings in connection with office purposes and then only those types
and quantities permitted under Landlord's policies of insurance for
the Building).
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<PAGE>
21. Landlord reserves the right to exclude from the Building at all times
any person who is not known or does not properly identify himself to
the Building management. Landlord may, at its option, require all
persons admitted to or leaving the Building between the hours of 6:00
p.m. and 8:00 a.m., Monday through Friday, and at any hour on
Saturdays, Sundays and legal holidays, to register. Each tenant shall
be responsible for all persons for whom it authorizes entry into the
Building, and shall be liable to Landlord for all acts or ornissions
of such persons.
22. Landlord reserves the right to inspect all freight to be brought into
the Building and to exclude from the Building all freight which
violates any of these rules and regulations. There shall not be used
in any space or in the common halls of the Building, either by any
tenant or by jobbers or others in the delivery or receipt of
merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
D-6
<PAGE>
Exhibit 10.47
[LETTERHEAD OF COLLINS STREET BUSINESS CENTER APPEARS HERE]
________________________________________________________________________________
COLLINS STREET BUSINESS CENTRE
SERVICED OFFICES AGREEMENT
BETWEEN
MERDENE PTY LTD (A.C.N. 052 404 690)
trading as COLLINS STREET BUSINESS CENTRE
The Manager
AND
PRIME RESPONSE PTY LTD
(A.C.N. 082 682 451)
The Tenant
SIX MONTHS
24 November, 1999
________________________________________________________________________________
<PAGE>
COLLINS STREET BUSINESS CENTRE
SERVICED OFFICES AGREEMENT
BETWEEN
- -------
MERDENE PTY LTD (A.C.N. 052 404 690) (trading as COLLINS STREET BUSINESS CENTRE)
of Level 8, 350 Collins Street, Melbourne 3000 (the "Manager")
AND
- ---
THE TENANT whose name and address appear in the Schedule under the heading of
Tenant.
- --------------------------------------------------------------------------------
WHEREAS:
- -------
The Manager wishes to licence to and the Tenant wishes to accept such licence of
the Premises set out in the Schedule on the terms and conditions of this
Agreement.
- --------------------------------------------------------------------------------
THE PARTIES AGREE AS FOLLOWS:
- ----------------------------
Premises, Services, Term and Rent
- ---------------------------------
1. The Manager hereby licences to the Tenant the premises and any Furniture
specified in the Schedule for the Term and at the Rent also specified in
the Schedule.
2. The Manager shall also provide to the Tenant a telephone answering and
reception service between 8:30 a.m. and 5:30 p.m. Monday to Friday
excluding public holidays, together with any Services specified in the
Schedule. The Tenant shall give the Manager one month's notice of any
intention to cease or vary use by the Tenant of any of the Services.
3. Where the Manager has provided any of the Services to the Tenant, the
Manager shall issue monthly invoices in arrears which shall be paid by the
Tenant within 7 days of receipt.
4. The Premises shall only be used for the purpose of conducting a legal and
reputable business or profession.
5. The Tenant shall have exclusive possession of the Premises for the Term,
without unreasonable interference by the Manager.
Access
- ------
6. The Tenant shall have access to the Premises from the commencement of the
Term as set out in the Schedule 24 hours a day, 365 days a year. Any
access by the Tenant outside normal business hours shall be restricted to
the Tenant, persons accompanied by the Tenant or persons authorised by the
Tenant and for which the Tenant has first obtained permission for their
access from the Manager.
<PAGE>
Serviced Offices Agreement 3 Prime Response Pty Ltd
- -------------------------------------------------------------------------------
7. The Manager shall have access to the Premises for the purposes of
inspection or repair upon reasonable notice to the Tenant, but may enter
the Premises without such notice in the case of emergency, or if the
Manager has reasonable cause to believe the Tenant has abandoned the
Premises.
Manager's Obligation
- --------------------
8. The Manager shall:-
(a) ensure the Premises and any equipment is in good condition at the
commencement of and for the duration of the Term, and that there is
adequate security for the Premises;
(b) ensure the Premises are adequately insured against public liability,
fire and theft and;
(c) promptly pay all applicable rates, taxes and other outgoings relating
to the Premises, excluding telephone charges.
Tenant's Obligations
- --------------------
9. The Tenant shall:
(a) attend to prompt payment of Rent and any invoices for Services in
accordance with the terms and conditions of this Agreement, and shall
be responsible for insuring his assets and possessions on the
Premises;
(b) obtain at the Tenant's own expense any necessary consents for the
purpose of running the Tenant's business at the Premises, together
with arranging for rental and payment of any telephone lines and calls
(the Tenant may install up to 2 lines per office);
(c) take care of the Premises and ensure the Premises are kept in a tidy
and clean condition and upon termination of this Agreement to
peaceably surrender the Premises to the Manager in such condition,
fair wear and tear excepted;
(d) not make any alterations or additions to the Premises without the
Manager's consent in writing, including placement of any sign or
advertisement either inside or outside the Premises;
(e) notify the Manager immediately upon becoming aware of any loss or
damage or defect to the Premises, or anything which may affect the
Manager's insurance over the Premises;
(f) not obstruct or interfere with any of the common areas or any of the
other Tenants in their business activities, and not sleep or hold any
auctions on the Premises;
(g) not directly air any matter of concern relating to the Premises or the
Manager directly with the Manager's employees, either in public or
private, but shall instead take up such matter direct with the Manager
by appointment or by letter addressed to the Manager;
<PAGE>
Serviced Offices Agreement 4 Prime Response Pty Ltd
- -------------------------------------------------------------------------------
(h) not keep on the Premises any oils, greases, hazardous chemicals or
other noxious substances, any animals, birds or fish and shall ensure
all rubbish is regularly removed; and
(i) ensure that all agents, officers and employees of the Tenant are aware
of and observe the Tenant's obligations under this Agreement, and if
the Tenant comprises of two or more persons their obligations under
this Agreement shall be joint and several.
Mutual Obligations
- ------------------
10. The Manager and the Tenant shall:
(a) keep the terms and conditions of this Agreement confidential and shall
not disclose any information relating to those terms and conditions to
any third party, unless the consent of the other is first obtained in
writing;
(b) hereby indemnify the other and shall keep the other indemnified from
and against any loss or damage to the Premises, any person's property
or any person through injury or death, caused as a result of any
accident, neglect or deliberate or careless act of such party on the
Premises or resulting from any breach by such party of the terms and
conditions of this Agreement (but the Manager shall not be responsible
for any loss or damage incurred by the Tenant from provision by the
Manager of cleaning services); and
(c) if the Premises for any reason beyond the control of the parties
becomes unfit for use or occupation, terminate this Agreement
immediately by notice in writing from one to the other, without
compensation payable between them.
Option for Renewal
- ------------------
11. If an Option period is specified in the Schedule, the Tenant shall have the
right to extend the Term for that period, provided the Tenant gives to the
Manager at least one month's notice in writing of the Tenant's desire to
exercise the Option, and has paid all monies owning to the Manager under
this Agreement to the date of giving notice.
12. The terms and conditions of this Agreement shall apply to any extended
period, subject to the Manager reasonably determining a new rent in
accordance with the current market conditions.
Security Deposit
- ----------------
13. The Tenant shall pay to the Manager the Security amount specified in the
Schedule before commencing the Term, for security against default by and
liability for payment of monies owing to the Manager under this Agreement.
14. The Manager shall be entitled to deduct from the Security any monies owed
to the Manager for Rent or provision of Services under this Agreement, or
otherwise as a result of a breach of this Agreement by the Tenant.
15. The Security, or any remaining portion of it, shall be refunded to the
Tenant within 7 days of the termination of this Agreement.
<PAGE>
Serviced Offices Agreement 5 Prime Response Pty Ltd
- -------------------------------------------------------------------------------
Repairs
- -------
16. The Tenant shall in a prompt manner repair in full any damage to the
Premises resulting from neglect, omission or a deliberate or careless act
or a breach of a term or condition of this Agreement by the Tenant.
Early Termination
- -----------------
17. Where a party is of the view that the other (the "Defaulting Party") is in
breach of this Agreement or is otherwise performing its obligations under
this Agreement in an unsatisfactory manner, it may give notice in writing
to the Defaulting Party requesting a remedy of such breach or
unsatisfactory performance within 7 days of the date of the notice, failing
which that party may immediately terminate this Agreement and pursue
remedies available to it at law.
18. Upon such early termination, the Tenant shall peaceably vacate the
Premises, and the Security shall be refunded less any amounts duly deducted
by the Manager in accordance with this Agreement.
Holding Over
- ------------
19. Where leases of the Premises continues beyond the Term and any Option
period, the terms and conditions of this Agreement shall apply until such
time as either the Tenant or the Manager gives not less than one month's
notice in writing to the other of that party's intention to terminate this
Agreement.
Costs
- -----
20. The reasonable costs of both the Manager and the Tenant in preparing this
Agreement and any necessary stamp duty shall be paid by the Tenant.
Keys
- ----
21. The Tenant shall receive one set of keys to the Premises free of charge.
Additional sets of keys are available on request at a charge of $20,
refundable upon return for the keys during the Term or upon termination of
this Agreement.
22. All keys remain the property of the Manager.
Assignment
- ----------
23. The Manager may assign his rights and obligations under this Agreement to a
third party without the consent of the Tenant, while the Tenant may only
assign his rights and obligations with the consent of the Manager in
writing.
Notices
- -------
24. Any written notice served by a party under this Agreement is deemed to be
duly served if delivered by hand or mailed:-
(a) in the case of Tenant, at the Premises; and
(b) in the case of the Manager, also at the Premises.
<PAGE>
Serviced Offices Agreement 6 Prime Response Pty Ltd
- -------------------------------------------------------------------------------
Headlease
- ---------
25. The Tenant shall comply with all applicable terms and conditions of the
Manager's Headlease with respect to the Premises, a copy of which the
Tenant acknowledges receiving at or prior to the date of execution of this
Agreement (less details of any financial provisions contained in the
Headlease).
- --------------------------------------------------------------------------------
THE PARTIES HEREBY ENTER INTO THIS AGREEMENT ON THE DATE FIRST APPEARING IN THE
- -------------------------------------------------------------------------------
SCHEDULE.
- --------
The Manager
The Common Seal of MERDENE PTY LTD }
is hereunto affixed in accordance } (SEAL)
with its Articles of Association }
in the presence of: }
/s/ J.R. Lacey /s/ Susan Lacey
_________________________________ __________________________________
Secretary Director
J.R. Lacey Susan Lacey
_________________________________ __________________________________
Print Name Print Name
The Tenant
The Common Seal of THE TENANT }
is hereunto affixed in accordance with its }
Articles of Association in the presence of:}
/s/ Nigel Cannings /s/ Brain Rowe
- --------------------------------- ----------------------------------
Secretary Director
Nigel Cannings Brain Rowe
- --------------------------------- ----------------------------------
Print Name Print Name
<PAGE>
Serviced Offices Agreement 7 Prime Response Pty Ltd
- -------------------------------------------------------------------------------
SCHEDULE
AGREEMENT SIGNED: the day of , 1999.
- ----------------
TENANT: PRIME RESPONSE PTY LTD
- ------
(A.C.N. 082 682 451)
of Level 8, 350 Collins Street, Melbourne 3000
PREMISES: Suite 2 and Office Number 1.3 of Suite 1 at Level 8 (North),
- --------
350 Collins Street, Melbourne, Victoria, together with
shares use of waiting room at reception, kitchen, toilet and
bathroom facilities, and other common floor areas, as
indicated on the attached floor plan.
RENT: $4,585.00 per calendar month in advance, payable as the
- ----
Manager shall direct on the first day of each calendar month
and for any part of a month a payment proportionate to that
part, which Rent includes the provision of services
described in Clause 2 and all outgoings for rates, taxes,
insurance premiums, cleaning and like charges, but excludes
telephone line rentals and call charges, and any car parking
arrangement.
Offices rented on a monthly basis are subject to rent
increases upon the giving of one month's notice.
TERM: Commencing 25/th/ May, 1999, and terminating 24/th/
- ----
November, 1999.
OPTION: Monthly
- ------
SECURITY: $Nil
- --------
FURNITURE: Three Desks
- ---------
Three Credenza's
Three 3 Draw Pedestal's
Three 3 Draw Filing Cabinet's
Three Executive Chairs
Six Visitor Chairs
SERVICES: Telephone handset Provided at no charge
- --------
Additional Furniture }
Photocopying } At market rates
Secretarial Services } determined by the Manager
Boardroom Rental }
Use of Fax }
<PAGE>
[FLOORPLAN APPEARS HERE]
<PAGE>
Australian Securities Commission
Corporations Law
Memorandum
and
Articles of Association
OF
PRIME RESPONSE PTY LTD
A.C.N.. 082 682 451
[LOGO]
- -------------------------------------------------------------------------------
Melbourne Law Searches Pty, Ltd.
A.C.N. 050 239 417
Level 11 C.U. Tower, 485 La Trobe Street Melbourne Vic 3000
- -------------------------------------------------------------------------------
<PAGE>
----------------
----------------
Form 204
PANNELL KERR FORSTER
ATTN: JAN GORING
GPO BOX 5099BB
MELBOURNE VIC 3001
- --------------------------------------------------------------------------------
Certificate of Registration [SEAL]
of a Company AUSTRALIAN
SECURITIES
COMMISSION
Corporations Law Sub-section 121(1)
This is to certify that
PRIME RESPONSE PTY. LTD.
Australian Company Number 082 682 451
is a registered company under Division 1 of Part 2.2 of the
Corporations Law of Victoria and because
of its registration it is an incorporated company.
The company is limited by shares.
The company is a proprietary company.
The day of commencement of registration is
the nineteenth day of May, 1998.
Given under the seal of the
Australian Securities Commission
on this nineteenth day of May, 1998.
[Seal]
/s/ Alan Cameron
Alan Cameron
Chairman
<PAGE>
Exhibit 21.1
Subsidiaries of Prime Response, Inc.
------------------------------------
Name of Subsidiary Jurisdiction of Organization
- ------------------ ----------------------------
Prime Response U.S., Inc. Delaware
Prime Response Limited England
Prime Response Pty. Australia
Prime Response SARL France
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated February 2, 2000 relating to the financial statements of Prime
Response, Inc., which appear in such Registration Statement. We also consent to
the references to us under the headings "Experts" and "Selected Financial Data"
in such Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 7, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 3,999 530 0
<SECURITIES> 0 0 0
<RECEIVABLES> 9,204 4,858 0
<ALLOWANCES> (147) (43) 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 15,651 6,508 0
<PP&E> 5,733 4,267 0
<DEPRECIATION> (3,131) (2,156) 0
<TOTAL-ASSETS> 25,515 10,152 0
<CURRENT-LIABILITIES> 16,931 6,446 0
<BONDS> 0 0 0
43,076 31,261 0
0 0 0
<COMMON> 8,360 4,333 0
<OTHER-SE> (44,496) (32,918) 0
<TOTAL-LIABILITY-AND-EQUITY> (44,496) (32,860) 0
<SALES> 20,522 16,536 10,182
<TOTAL-REVENUES> 20,522 16,536 10,182
<CGS> 7,411 9,106 5,058
<TOTAL-COSTS> 38,299 30,976 12,189
<OTHER-EXPENSES> 2,443 (131) (148)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 115 294 227
<INCOME-PRETAX> (20,404) (14,603) (2,086)
<INCOME-TAX> 15 0 159
<INCOME-CONTINUING> (20,419) (14,603) (2,245)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (20,419) (14,603) (2,245)
<EPS-BASIC> (3.44) (2.36) (2.43)
<EPS-DILUTED> (3.44) (2.36) (2.43)
</TABLE>
