<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1999
REGISTRATION STATEMENT NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIREPOND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7389 41-1462409
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
890 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(781) 487-8400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
KLAUS P. BESIER
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIREPOND, INC.
890 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(781) 487-8400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN B. STEELE, ESQ. PATRICK J. RONDEAU, ESQ.
MCDERMOTT, WILL & EMERY HALE AND DORR LLP
28 STATE STREET 60 STATE STREET
BOSTON, MASSACHUSETTS 02109-1775 BOSTON, MASSACHUSETTS 02109-1803
(617) 535-4000 (617) 526-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share...................... $75,000,000 $20,850
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. 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 NOVEMBER 12, 1999
[FIREPOND LOGO]
[ ] SHARES
COMMON STOCK
FirePond, Inc. is offering shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. We have applied to have the common stock approved for quotation on the
Nasdaq National Market under the symbol "FIRE." We anticipate that the initial
public offering price will be between $ and $ per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to FirePond........................................ $ $
</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.
FirePond and one of our stockholders have granted the underwriters a 30-day
option to purchase up to additional shares of common stock to cover
over-allotments. BancBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 1999.
------------------------
ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
SG COWEN
E*OFFERING
The date of this prospectus is , 1999
<PAGE> 3
(inside front cover)
DESCRIPTION OF ARTWORK
At the top of the page is the name "FirePond" with the company's logo
above it. The following caption is beneath the name of the company and its logo:
"Integrated e-business sales and marketing." Beneath the caption is the text
"FirePond Application Suite(TM)."
In the center of the page is a small shaded circle with the following
text: "FirePond Business Rules Engine; Configuration and Intelligence Engine."
There are two shaded quarter-circles protruding from the top of the center
circle on the left and right. The quarter circle on the left is labeled
"E-Commerce Selling" and has the following text: "FirePond Commerce, Guided
Selling for B-to-B and B-to-C E-Commerce." The quarter circle on the right is
labeled "Channel Management" and has the following text: "FirePond Sales, Guided
Selling for Direct and Indirect Channels."
There are two squares protruding from the bottom of the center circle on
the left and right. The square on the left is labeled "Customer Relationship
Management" and has the following text: "FirePond Sales Manager, Sales
Administration and Customer Information Management." The square on the right is
labeled "Application Infrastructure" and has the following text: "FirePond
Process Server, Transaction-based Workflow Engine" and "FirePond Enterprise
Workbench, Maintenance and development platform for Application and Integration
Management."
<PAGE> 4
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.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Note on Forward Looking Statements.......................... 14
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 30
Management.................................................. 40
Certain Transactions........................................ 48
Principal Stockholders...................................... 50
Description of Capital Stock................................ 51
Shares Eligible for Future Sale............................. 55
Underwriting................................................ 57
Legal Matters............................................... 59
Experts..................................................... 59
Where You Can Find More Information......................... 59
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
We own or have rights to trademarks that we use in conjunction with the
sale of our products. "FirePond," our logo and our product names are our
trademarks. All other trade names and trademarks used in this prospectus are the
property of their respective owners.
i
<PAGE> 5
PROSPECTUS SUMMARY
This is only a summary and may not contain all of the information that you
should consider before investing in our common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and our financial
statements and the notes thereto included elsewhere in this prospectus. Unless
otherwise indicated, this prospectus assumes that the underwriters have not
exercised their option to purchase additional shares, and also assumes that all
shares of convertible preferred stock have been automatically converted into an
aggregate of shares of common stock. Unless otherwise indicated,
this prospectus has been adjusted to reflect a two-for-three reverse stock split
of the common stock to be effected on , 1999.
FIREPOND, INC.
FirePond is a leading provider of integrated e-business sales and marketing
solutions that enable companies to optimize their customer relationships and
maximize the effectiveness of their Internet-based and traditional sales
channels. We provide software and services that allow companies to merge their
e-commerce selling, customer relationship management, and channel management
strategies on a single, Internet-based platform.
Our FirePond Application Suite allows companies to deliver highly
consistent and personalized interactive buying experiences to their customers
over the Internet, as well as in more traditional selling channels, to increase
customer conversion and retention. Our products are able to link information
obtained from business-to-business or business-to-consumer e-commerce
transactions into traditional sales channels, where it can dramatically improve
the effectiveness of both sales models. Our products can also deliver
information from these interactive, Internet-based transactions into the larger
enterprise, where real-time customer interactions and transactions trigger
coordinated, customer-focused processes based upon the company's common view of
the customer. This customer-centric approach allows companies to manage their
ongoing sales, marketing, product planning and fulfillment activities in a
fashion that maximizes the lifetime value of each customer relationship.
We target the largest 2000 companies in the world, commonly known as Global
2000 companies, in selected vertical industries that are typically characterized
by complex products, services or channel relationships, including health
care/insurance, financial services, high technology, telecommunications,
automotive/trucking and manufacturing. Our customers include ADP, Empire Blue
Cross Blue Shield, KLA-Tencor, Renault V.I. and Sprint. We sell our products
primarily through a direct sales force which is distributed throughout North
America, Europe and Asia.
Our goal is to be the leading provider of integrated e-business sales and
marketing solutions. To achieve this goal, key elements of our strategy are to:
- leverage our vertical market focus to translate customer requirements
into deeper e-business application functionality and expand into new
vertical markets;
- exploit our established international infrastructure to target leading
businesses worldwide;
- utilize our unique development organization to rapidly expand our
products' e-business application functionality;
- expand our relationships with system integrators and complementary
software vendors to expand our market reach and implementation capacity;
- provide a range of product packaging options in order to better penetrate
Global 2000 accounts; and
- leverage our 16 years of implementation expertise to deliver optimized
solutions for our customers.
1
<PAGE> 6
We were incorporated in Minnesota in 1983 as a provider of custom developed
interactive selling solutions. We undertook a strategic restructuring in late
1996 to focus on providing more standardized software products. We later became
a Delaware corporation as a result of a reincorporation merger effected in
, 1999. Our principal executive offices are at 890 Winter Street,
Waltham, Massachusetts 02451 and our telephone number at that address is (781)
487-8400. Information contained on our web site at http://www.firepond.com does
not constitute part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by FirePond........................... shares
Common stock to be outstanding after the offering.......... shares
Use of proceeds............................................ For debt repayment, working capital and
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol..................... FIRE
</TABLE>
The number of shares of common stock outstanding after this offering
excludes:
- shares issuable upon exercise of outstanding options as of
, 1999 at a weighted average exercise price of $ per
share; and
- shares issuable upon exercise of outstanding warrants as of
, 1999 at a weighted average price of $ per share.
As of , 1999, we have also reserved an additional
shares of common stock for future issuance under our 1997 Stock Option Plan, our
1999 Director Plan and our 1999 Stock Option and Grant Plan. We also plan to
issue warrants to purchase up to 500,000 shares of our common stock over the
next 12 months in connection with sales of our products as well as to our
present and future strategic partners.
2
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables are a summary of financial data for our business. The
pro forma net loss per share calculation reflects the conversion of our
convertible preferred stock into shares of common stock upon the completion of
this offering. See Note 3 of Notes to Consolidated Financial Statements for an
explanation of the number of shares used in computing per share data. The pro
forma consolidated balance sheet data summarized below reflects the conversion
of all outstanding shares of convertible preferred stock into shares of common
stock and the payment of stock dividends due to certain common and preferred
stockholders upon completion of this offering. The pro forma as adjusted
consolidated balance sheet data also reflects the sale of the common stock in
this offering at an assumed initial public offering price of $ per share,
after deduction of estimated underwriting discounts and commissions and our
estimated offering expenses and the use of net proceeds as described in "Use of
Proceeds."
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED OCTOBER 31, ENDED JULY 31,
------------------------------- ------------------
1996 1997 1998 1998 1999
-------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product-related revenues................. $ -- $ 416 $ 8,281 $ 5,901 $ 12,237
Custom development services.............. 34,158 26,114 22,354 18,272 12,061
------- -------- ------- ------- --------
Total revenues........................ 34,158 26,530 30,635 24,173 24,298
Income (loss) from operations.............. 3,150 (27,198) (7,738) (4,004) (20,112)
Net income (loss).......................... $ 1,844 $(28,789) $(8,064) $(4,298) $(20,517)
Net income (loss) per share:
Basic and diluted net income (loss) per
share................................. $ 0.18 $ (2.79) $ (0.81) $ (0.43) $ (2.05)
Basic weighted average common shares
outstanding........................... 10,401 10,319 9,925 9,908 10,017
Diluted weighted average common shares
outstanding........................... 10,432 10,319 9,925 9,908 10,017
Pro forma net loss per share (unaudited):
Pro forma net loss per share............. $ (0.48) $ (0.99)
Pro forma basic and diluted weighted
average common shares outstanding..... 16,900 20,754
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 1,936
Working capital (deficit).................................. (4,403)
Total assets............................................... 20,086
Long-term debt, less current portion....................... 1,130
Convertible preferred stock................................ 191
Total stockholders' equity................................. 229
</TABLE>
3
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially and adversely
affected. In such case, the trading price of our common stock could decline, and
you may lose all or part of your investment.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AS A SOFTWARE COMPANY, OUR FUTURE
SUCCESS IS UNCERTAIN
Although FirePond was incorporated in 1983, we have only been focused on
providing software products since 1997, and accordingly, we have a limited
operating history pursuing this business model. The revenue and income potential
of the market for e-business sales and marketing solutions is unproven. As a
result, our historical financial statements are not an accurate indicator of our
future operating results. In addition, we have limited insight into trends that
may emerge and affect our business, and we cannot forecast operating expenses
based on our historical results. In evaluating FirePond, you should consider the
risks and uncertainties frequently encountered by early stage companies in new
and rapidly evolving markets. If we are not able to successfully address these
risks, our business could be harmed.
WE EXPECT TO CONTINUE TO INCUR LOSSES
We have incurred quarterly and annual losses intermittently since we were
formed in 1983, and regularly since we undertook our strategic restructuring in
late 1996. We incurred net losses of $28.8 million for fiscal 1997, $8.1 million
for fiscal 1998 and $20.5 million for the nine months ended July 31, 1999. We
expect to continue to incur losses on both a quarterly and annual basis for the
foreseeable future. Moreover, we expect to continue to incur significant sales
and marketing and research and development expenses, and, as a result, we will
need to generate significant revenues to achieve and maintain profitability.
Although our revenues have grown in recent quarters, we cannot be certain that
we can sustain this growth or that we will generate sufficient revenues to
attain profitability.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE BECAUSE WE DEPEND ON A SMALL
NUMBER OF LARGE ORDERS AND OUR SALES AND IMPLEMENTATION PROCESS CAN BE LENGTHY
AND COMPLEX
We currently derive a significant portion of our license revenues in each
quarter from a small number of relatively large orders, and we generally
recognize revenues from our licenses over the related implementation period. If
we are unable to recognize revenues from one or more substantial license sales
planned for a particular fiscal quarter, our operating results for that quarter
would be materially and adversely affected. In addition, the purchase of our
products typically involves a significant cost to our customers, including the
purchase of related hardware and software, as well as training and integration
costs. Implementations also require a substantial commitment of resources by our
customers or their consultants over an extended period of time. The time
required to complete an implementation may vary from customer to customer and
may be protracted due to unforeseen circumstances. As a result and because our
sales cycle is relatively long, we may have difficulty predicting when we will
recognize revenues.
OUR QUARTERLY OPERATING RESULTS ARE DIFFICULT TO PREDICT AND DISAPPOINTING
QUARTERLY REVENUES OR OPERATING RESULTS COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO FALL
We have difficulty determining if and when we will receive license revenues
from a particular customer. In addition, because our revenues from
implementation, maintenance and training services are largely correlated with
our license revenues, a decline in license revenues would also cause a decline
in our services revenues in the same quarter and in subsequent quarters.
Accordingly, our quarterly revenues and operating results are difficult to
predict and may fluctuate significantly from quarter to quarter as a result of
these and other factors discussed elsewhere in "Risk Factors." 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.
4
<PAGE> 9
As third parties are increasingly used for providing professional services,
our services revenues will not likely grow at the same rate as our license
revenues. Some of our services revenues are somewhat more predictable than
license revenues. As services revenues decline as a percentage of total net
revenues, our total net revenues could become less predictable.
Most of our expenses, such as employee compensation and rent, are
relatively fixed in the short term. Moreover, our expense levels are based, in
part, on our expectations regarding future revenue levels. As a result, if
revenues for a particular quarter are below our expectations, we may be unable
to proportionately reduce operating expenses for that quarter, and therefore
this revenue shortfall would seriously harm our expected operating results for
that quarter.
A SIGNIFICANT PERCENTAGE OF OUR PRODUCT DEVELOPMENT IS PERFORMED BY A THIRD
PARTY INTERNATIONALLY
A significant percentage of our product development work, and some of our
implementation services, are performed by a third-party development organization
in Minsk, Belarus. Unpredictable developments in the political, economic and
social conditions in Belarus, or our failure to renew our consulting agreement
with this organization on terms similar to our current agreement with this
organization, could potentially eliminate or reduce the availability of these
product development and implementation services. If access to these services
were to be unexpectedly eliminated or significantly reduced, our ability to meet
development objectives vital to our ongoing strategy would be hindered, and our
business could be seriously harmed.
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE NEW FIREPOND APPLICATION SUITE, WHICH
HAS BEEN RECENTLY INTRODUCED
We expect to derive substantially all of our product license revenues in
the future from sales of the newly announced FirePond Application Suite and its
component products, which were generally released in October 1999. While the
FirePond Business Rule Engine was also an element of our prior product line
offering, substantially all of the FirePond Application Suite represents new
functionality implemented in a new technical architecture.
Our business depends on the successful release, introduction and customer
acceptance of this new suite of products. Although our products are subject to
our internal testing procedures, customers may discover errors or other problems
with the product, which may adversely affect their acceptance. We expect that we
will continue to depend on revenues from new and enhanced versions of the
FirePond Application Suite for the foreseeable future, and our business would be
harmed if our target customers do not adopt and expand their use of the FirePond
Application Suite and its component products.
OUR DEPENDENCE UPON INTERNATIONAL REVENUES AND OPERATIONS CREATES A DIFFERENT
SET OF RISKS TO OUR BUSINESS
International revenues currently account for a significant percentage of
our total revenues. We expect international revenues to continue to account for
a significant percentage of total revenues in the future and we believe that we
must continue to expand our international sales activities in order to be
successful. However, foreign markets for our products may develop more slowly
than currently anticipated. International revenues represented 5% of total
revenues in fiscal 1997, 12% of total revenues in fiscal 1998, and 14% in the
nine months ended July 31, 1999. We currently maintain operations in select
countries in Europe and Asia. Within these regions, we maintain a select number
of relationships focused on channel distribution and systems integrators. Our
failure to expand our international sales could materially adversely affect our
business, operating results and financial condition.
The continued expansion of our international operations may be adversely
affected by a number of risks, including:
- expenses associated with customizing products for foreign countries;
- protectionist laws and business practices that favor local competitors;
- dependence on local vendors;
5
<PAGE> 10
- payment cycles for international customers which are typically longer
than those for customers in the United States;
- multiple, conflicting and changing governmental laws and regulations;
- foreign currency exchange rate fluctuations; and
- general international economic downturns.
Our international sales growth will be limited if we are unable to:
- establish additional foreign operations;
- expand international sales channel management and support organizations;
- develop additional relationships with international service providers; or
- establish additional relationships with additional distributors and
systems integrators.
A substantial portion of our foreign sales are not invoiced in U.S.
dollars, and our exposure to losses in foreign currency transactions may
increase. We may choose to limit any currency exposure through the purchase of
forward foreign exchange contracts or other hedging strategies. Any currency
hedging strategy we may adopt may not be successful in avoiding foreign exchange
related losses.
MANAGING OUR GEOGRAPHICALLY DISPERSED ORGANIZATION PRESENTS A NUMBER OF
CHALLENGES
If we fail to manage our geographically dispersed organization, we may fail
to meet or exceed our objectives and our revenues may decline. We perform
research and development activities in Minnesota, New Jersey, Massachusetts and
Belarus, and our executive officers and other key employees are similarly
dispersed throughout the United States, Europe and Asia to market and sell our
products in those regions. This geographic dispersion requires significant
management resources that our locally-based competitors do not need to devote to
their operations. In addition, the expansion of our existing international
operations and entry into additional international markets will require
significant management attention and financial resources.
INTEGRATION OF A NEW MANAGEMENT TEAM AND NEW PERSONNEL AS WELL AS CONTINUED
RAPID GROWTH MAY STRAIN OUR OPERATIONS
We have recently experienced a period of rapid growth and expansion. All
members of our senior management team have joined FirePond since March 1997.
From July 1997 to December 1998, significant turnover of our employees occurred
in conjunction with our change in focus from providing custom development
services to providing more standardized software products. Our new employees
include a number of key managerial, sales, marketing, planning, technical and
operations personnel who have not yet been fully integrated into our
organization. During this period, we also significantly expanded our
international operations. A significant increase in personnel will likely be
necessary to address potential growth in our customer base and market
opportunities.
We intend to continue to expand our operations internationally and
domestically, grow our customer base and pursue market opportunities through
multiple growth strategies. Our rapid growth and expansion places significant
demands on our managerial, administrative, operational, financial and other
resources. To accommodate continued anticipated growth and expansion, we will be
required to:
- improve existing and implement new operational and financial systems,
procedures and controls;
- hire, train, manage, retain and motivate qualified personnel;
- enter into relationships with strategic partners; and
- complete the integration of our new management team.
6
<PAGE> 11
These measures may place a significant burden on our management and our
internal resources. If we are not able to install adequate systems, procedures
and controls to support our future operations in an efficient and timely manner,
or if we are unable to otherwise manage growth effectively, our business could
be harmed.
INTENSE COMPETITION FROM OTHER TECHNOLOGY COMPANIES COULD PREVENT US FROM
INCREASING OR SUSTAINING REVENUES AND PREVENT US FROM ACHIEVING OR SUSTAINING
PROFITABILITY
The market for integrated e-business sales and marketing solutions is
intensely competitive. Many of our current and potential competitors have longer
operating histories, greater name recognition and substantially greater
financial, technical, marketing, management, service and support resources than
we do. Therefore, they may be able to respond more quickly than we can to new or
changing opportunities, technologies, standards or customer requirements. If we
are unable to compete effectively, our business, financial condition and
operating results would be materially adversely affected.
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 software
industry consolidation and formation of alliances among industry participants.
Increased competition could result in pricing pressures, reduced margins or the
failure of our products to achieve or maintain market acceptance.
FAILURE TO EXPAND OUR RELATIONSHIPS WITH SYSTEMS INTEGRATORS AND CONSULTING
FIRMS WOULD IMPEDE ACCEPTANCE OF OUR PRODUCTS AND GROWTH OF OUR REVENUES
At times, we rely on systems integrators and consulting firms to recommend
our products to their customers and to install and support our products for
their customers. To increase our revenues and implementation capabilities, we
must develop and expand our relationships with systems integrators and
consulting firms. In addition, systems integrators and consulting firms may
develop, market or recommend software applications that compete with our
products. 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 would result in our inability to
recognize revenues from the license of our products to these customers.
YEAR 2000 CONSIDERATIONS AMONG OUR CUSTOMERS AND POTENTIAL CUSTOMERS MAY REDUCE
OUR SALES
We may experience reduced license sales as customers and potential
customers put a priority on correcting year 2000 problems and therefore defer
purchase decisions for software products until later in calendar 2000.
Accordingly, demand for our products may be particularly volatile and
unpredictable for the remainder of calendar 1999 and 2000.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF E-BUSINESS SALES AND MARKETING
SOLUTIONS ARE NOT WIDELY ADOPTED
Our products address a new and emerging market for e-business sales and
marketing solutions. The failure of this market to develop, or a delay in the
development of this market, would materially adversely affect our business,
financial condition and operating results. The success of e-business sales and
marketing solutions depends substantially upon the widespread adoption of the
Internet as a primary medium for commerce and business applications. 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
depends. Moreover, critical issues concerning the commercial use of the
Internet, such as security, reliability, cost, accessibility 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 lose its viability due to delays in the
development or
7
<PAGE> 12
adoption of new standards and protocols to handle increased activity or due to
increased government regulation and taxation of Internet commerce.
WE MUST INTRODUCE NEW AND ENHANCED PRODUCTS ON A TIMELY BASIS THAT RESPOND
EFFECTIVELY TO CHANGING TECHNOLOGY
To be competitive, we must develop and introduce new products and product
enhancements which meet the needs of companies seeking to deploy and manage
e-business applications over the Internet on a timely basis. The market for
software and services that enable enterprise e-business initiatives is
characterized by rapid technological change, changes in customer requirements,
frequent new product and service introductions and enhancements, and evolving
industry standards. Advances in Internet technology or in e-commerce software
applications, or the development of entirely new technologies to replace
existing software, could lead to new competitive products that have better
performance or lower prices than our products and could render our products
obsolete and unmarketable. In addition, if a new software language or operating
system becomes standard or is widely adopted in our industry, we may need to
rewrite portions of our products in another computer language or for another
operating system to remain competitive. If we are unable to develop new and
enhanced products on a timely basis that respond to changing technology, our
business could be seriously harmed.
It is common for software companies to acquire other companies as a means
of introducing new products or emerging technologies. Competitors with large
market capitalizations or cash reserves would be better positioned than we are
to acquire such new technologies or products.
OUR CUSTOM DEVELOPMENT SERVICES REVENUES ARE EXPECTED TO DECLINE AS A PERCENTAGE
OF TOTAL REVENUES BUT TO CONTINUE TO REPRESENT A SIGNIFICANT PERCENTAGE OF OUR
TOTAL REVENUES
Custom development services revenues represented 98% of total revenues for
fiscal 1997, 73% of total revenues for fiscal 1998 and 50% of total revenues for
nine months ended July 31, 1999. While we anticipate that custom development
services revenues will decline as a percentage of total revenues as license
revenues increase, we expect that it will continue to represent a significant
percentage of our total revenues. A decrease in our custom development services
revenues could harm our business. Our professional services organization
supports several maintenance contracts related to our custom development
services business which continue to generate a significant percentage of our
revenues and some of which provide a substantial amount of high margin revenues.
The expiration or termination of current maintenance contracts by these
customers could adversely affect our overall revenues and our operating results,
and an unexpected cancellation of these contracts could hinder our ability to
rapidly redeploy our personnel dedicated to these projects.
BECAUSE A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR
REVENUES FROM PROVIDING CUSTOM DEVELOPMENT SERVICES, THESE REVENUES COULD
DECLINE IF WE LOSE A MAJOR CUSTOMER
We have derived a significant portion of our revenues from providing custom
development services in each quarter from a limited number of customers. For
example, for the nine months ended July 31, 1999, two custom development
customers accounted for 34% of our total revenues in the aggregate. We expect
that a limited number of customers will continue to account for a substantial
portion of these revenues for the foreseeable future. As a result, if we lose a
major customer or if a contract is delayed, cancelled or deferred, our revenues
would be adversely affected.
CERTAIN CUSTOM DEVELOPMENT CONTRACTS MAY RESULT IN LOWER NET INCOME OR A LOSS
BECAUSE THE CONTRACTS ARE ON A FIXED-PRICE BASIS
Some of our revenues from custom development services are derived from
fixed-price contracts. Because these service contracts relate to complex, custom
systems, it can be difficult to estimate the time and resources necessary to
complete a contract. If we are required to provide more services under those
fixed-priced contracts than anticipated, we may experience lower net income or a
loss.
8
<PAGE> 13
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES
We license technology from a small number of software providers for use
with our products. We anticipate that we will continue to license technology
from third parties in the future. This technology may not continue to be
available on commercially reasonable terms, if at all. Some of the technology we
license from third parties would be difficult to replace. The loss of any of
these technology licenses would result in delays in the license of our products
until equivalent technology, if available, is identified, licensed and
integrated. In addition, the effective implementation of our products depends
upon the successful operation of third-party licensed technology in conjunction
with our products. Therefore, any undetected errors in this licensed technology
could prevent the implementation or impair the functionality of our products,
delay new product introductions and/or injure our reputation. The use of
replacement technology from other third parties would require us to enter into
license agreements with these third parties, which could result in higher
royalty payments and a loss of product differentiation.
WE DEPEND ON KEY PERSONNEL AND MUST ATTRACT AND RETAIN ADDITIONAL QUALIFIED
PERSONNEL
Our success depends to a significant degree upon the continued
contributions of our senior sales, engineering and management personnel, who
perform important management functions, and would be difficult to replace.
Specifically, we believe that our future success is highly dependent on Klaus P.
Besier, our Chairman, President and Chief Executive Officer, and other senior
management personnel. The loss of the services of any key personnel,
particularly senior management and engineers, could materially adversely affect
our business, financial condition and results of operations.
The demand for qualified personnel is particularly acute due to the large
number of software companies and the low unemployment rate. Our success depends
in large part upon our ability to attract, train, motivate and retain highly
skilled employees, particularly marketing personnel, software engineers 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.
CLAIMS MAY BE BROUGHT AGAINST US IF WE HIRE FORMER EMPLOYEES OF OUR COMPETITORS
Companies in the software industry, whose employees accept positions with
competitors, frequently claim that such competitors have breached, or encouraged
the breach of, noncompetition and nondisclosure agreements. Such claims have
been made against us in the past, and we may receive claims in the future as we
hire additional qualified personnel. If a claim were to be made against us, it
could result in material litigation. We could incur substantial costs in
defending ourselves against any of these claims, regardless of the merits of
these claims.
OUR ABILITY TO SUSTAIN OR GROW OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO
PROVIDE ADEQUATE PROFESSIONAL SERVICE AND CUSTOMER SUPPORT
Our ability to continue to grow, to retain current and future customers and
to recognize revenues from our licenses depends in part upon the quality of our
professional service and customer support operations. Failure to offer adequate
integration, consulting and other professional services in connection with the
implementation of our products, and ongoing customer support, either directly or
through third parties, could materially and adversely affect our operating
results and reputation, and could cause demand for our products to decline.
OUR BUSINESS WOULD 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 customer expectations. Our products may be particularly
susceptible to bugs or performance degradation because of the evolving nature of
Internet technologies and the stress that may be placed on our products by the
full deployment of our products over
9
<PAGE> 14
the Internet to thousands of end-users. In addition, our primary product, the
FirePond Application Suite, has only recently been generally released and is
built with a new technical architecture. As such, this product may be
particularly susceptible to bugs. 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 would materially adversely affect our business, operating results and
financial condition.
WE COULD INCUR SUBSTANTIAL COSTS AS A RESULT OF PRODUCT LIABILITY CLAIMS
RELATING TO OUR CUSTOMERS' CRITICAL BUSINESS OPERATIONS
Our products are critical to the business operations of our customers. If
one of our products fails, a customer may assert a claim for substantial damages
against us, regardless of our responsibility for such failure. Product liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. Our agreements with customers typically contain
provisions intended to limit our exposure to liability claims. These limitations
may not, however, preclude all potential claims resulting from a defect in one
of our products. Although we maintain product liability insurance covering
certain damages arising from the implementation and use of our products, our
insurance may not cover any claims sought against us. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. Any such claims, whether or not successful, could seriously
damage our reputation and our business.
IF WE OR OUR KEY SUPPLIERS OR CUSTOMERS FAIL TO BE YEAR 2000 COMPLIANT, OUR
BUSINESS MAY BE SEVERELY DISRUPTED AND OUR RESULTS OF OPERATIONS MAY BE
MATERIALLY ADVERSELY AFFECTED
The year 2000 problem creates a risk for us. The risk exists primarily in
five areas:
- potential warranty or other claims from our customers, which may result
in significant expense to us;
- failures of systems we use to run our business, which could disrupt our
business operations;
- failures of systems used by our suppliers, which could delay or affect
the quality of our products;
- potential failures of our products, particularly our central office-based
systems, due to year 2000 problems associated with products manufactured
by other equipment vendors used in conjunction with our products, which
may require that we incur significant unexpected expenses; and
- the possibility that our potential customers will reduce spending on
e-business software products such as ours as a result of significant
spending on year 2000 remediation.
Our products are generally integrated into computer systems involving
sophisticated hardware and complex software products, which may not be year 2000
compliant. The failure of our customers' systems to be year 2000 compliant could
impede the success of applications that we or our partners have developed for
them. Accordingly, known or unknown defects that affect the operation of our
software, including any defects or errors in applications that include our
products, could result in delay or loss of revenues, diversion of development
resources, damage to our reputation, or increased service or warranty costs and
litigation costs, any of which could harm our business.
We need to ensure year 2000 compliance of our own internal computer and
other systems, to continue testing our software products and to audit the year
2000 compliance status of our suppliers and business partners. We have not
completed our year 2000 investigation and overall compliance initiative, and the
total cost of our year 2000 compliance may be substantial and may harm our
business. We may experience material unanticipated problems and costs caused by
undetected errors or defects in the technology used in our internal systems.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY ADVERSELY AFFECT
OUR ABILITY TO COMPETE
Our success and ability to compete is dependent in part upon our
proprietary technology. Any infringement of our proprietary rights could result
in significant litigation costs, and any failure to adequately
10
<PAGE> 15
protect our proprietary rights could result in our competitors offering similar
products, potentially resulting in loss of a competitive advantage and decreased
revenues. We rely on a combination of patent, copyright, trademark, trade secret
and other intellectual property laws, as well as confidentiality agreements and
licensing arrangements, to establish and protect our proprietary rights.
However, existing patent, copyright, trademark and trade secret laws afford only
limited protection. In addition, the laws of some foreign countries do not
protect our proprietary rights to the same extent as do the laws of the United
States. Attempts may be made to copy or reverse engineer aspects of our products
or to obtain and use information that we regard as proprietary. Accordingly, we
may not be able to protect our proprietary rights against unauthorized
third-party copying or use. Furthermore, policing the unauthorized use of our
products is difficult. Some of our contractual arrangements provide third
parties with access to our source code and other intellectual property upon the
occurrence of specified events. Such access could enable these third parties to
use our intellectual property and source code to develop and manufacture
competing products, which would adversely affect our performance and ability to
compete. Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets or to determine the validity and
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of resources and could materially adversely
affect our future operating results.
CLAIMS ALLEGING INFRINGEMENT OF A THIRD PARTY'S INTELLECTUAL PROPERTY COULD
RESULT IN SIGNIFICANT EXPENSE TO US AND RESULT IN OUR LOSS OF SIGNIFICANT RIGHTS
The software and other Internet-related industries are characterized by the
existence of frequent litigation of intellectual property rights. From time to
time, third parties may assert patent, copyright, trademark and other
intellectual property rights to technologies that are important to our business.
This risk may increase as the number of entrants in our market increases and the
functionality of our products is enhanced and overlaps with the products of
other companies. Any claims against us or any purchaser or user of our products
asserting that our products infringe or may infringe proprietary rights of third
parties, if determined adversely to us, could have a material adverse effect on
our business, financial condition and results of operations. Any claims, with or
without merit, could be time-consuming, result in costly litigation, divert the
efforts of our technical and management personnel, cause product shipment
delays, disrupt our relationships with our customers or require us to enter into
royalty or licensing agreements, any of which could have a material adverse
effect upon our operating results. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to us, if at all. In the
event a claim against us is successful and we cannot obtain a license to the
relevant technology on acceptable terms, license a substitute technology or
redesign our products to avoid infringement, our business, financial condition
and results of operations would be materially adversely affected.
INCREASING GOVERNMENT REGULATION OF THE INTERNET COULD HARM OUR BUSINESS
As e-commerce and the Internet continue to evolve, we expect that federal,
state and foreign governments will adopt laws and regulations covering issues
such as user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. If enacted, these laws
and regulations could limit the market for e-commerce, and therefore the market
for our products and services. Although many of these regulations may not apply
directly to our business, we expect that laws regulating the solicitation,
collection or processing of personal or consumer information could indirectly
affect our business.
The Telecommunications Act of 1996 prohibits certain types of information
and content from being transmitted over the Internet. The prohibition's scope
and the liability associated with a Telecommunications Act violation are
currently unsettled. The imposition upon us and other software and service
providers of potential liability for information carried on or disseminated
through our applications could require us to implement measures to reduce our
exposure to this liability. These measures could require us to expend
substantial resources or discontinue certain services. In addition, although
substantial portions of the Communications Decency Act (the Act through which
the Telecommunications Act of 1996 imposes criminal penalties) were held to be
unconstitutional, similar legislation may be enacted and upheld in the future.
It is
11
<PAGE> 16
possible that this legislation could expose companies involved in e-commerce to
liability, which could limit the growth of e-commerce generally. Legislation
like the Telecommunications Act and the Communications Decency Act could slow
the growth of Internet usage and decrease its acceptance as a communications and
commercial medium.
WE HAVE DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS OFFERING
Our management has complete discretion as to how to spend the proceeds from
this offering and may spend these proceeds in ways with which our stockholders
may not agree. We cannot predict that investment of the proceeds will yield a
favorable return.
ACQUISITIONS COULD HARM OUR BUSINESS
Although acquisitions are not an integral part of our current business
strategy, we may consider acquiring complementary businesses and technologies in
the future. In the event we make an acquisition, we could issue equity
securities which would dilute current stockholders' percentage ownership, incur
substantial debt, assume contingent liabilities, incur a one-time charge or be
required to amortize goodwill. Additionally, we may not be able to successfully
integrate any technologies, products, personnel or operations of companies that
we may acquire in the future. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses. If we
are unable to successfully address any of these risks, our business, financial
condition and operating results could be materially adversely affected.
CONTROL BY OUR EXECUTIVE OFFICERS, DIRECTORS AND THEIR AFFILIATES MAY LIMIT YOUR
ABILITY TO INFLUENCE THE OUTCOME OF DIRECTOR ELECTIONS AND OTHER MATTERS
REQUIRING STOCKHOLDER APPROVAL
Upon completion of this offering, our executive officers, directors and
their affiliates will own shares, or approximately % of the
outstanding shares of common stock ( % if the underwriters' over-allotment
option is exercised in full). These stockholders can control substantially all
matters requiring approval by our stockholders, including the election of
directors and the approval of mergers or other business combination
transactions. This concentration of ownership could have the effect of delaying
or preventing a change in our control or otherwise discouraging a potential
acquiror from attempting to obtain control of us, which in turn could have a
material adverse effect on the market price of the common stock or prevent our
stockholders from realizing a premium over the market prices for their shares of
common stock. For information about the ownership of common stock by our
executive officers, directors and principal stockholders please refer to
"Principal Stockholders."
OUR STOCK PRICE MAY BE VOLATILE WHICH MAY LEAD TO LOSSES BY INVESTORS AND RESULT
IN SECURITIES LITIGATION
There has previously not been a public market for our common stock. We
cannot predict the extent to which investor interest will lead to the
development of a trading market for our common stock or how liquid that market
might become. The initial public offering price for the shares will be
determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market. The trading price of our common stock could be subject to wide
fluctuations.
In addition, the stock market in general, the Nasdaq National Market, and
securities of Internet and software companies in particular, have experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. The trading
prices of many Internet and software companies' stocks are at or near historical
highs and these trading prices are substantially above historical levels. These
trading prices may not be sustained. These broad market and industry factors may
materially adversely affect the market price of our common stock, regardless of
our actual operating performance. In the past, following periods of volatility
in the market price of a company's securities, securities class-action
litigation has often been instituted against such companies. Such litigation, if
instituted, could result in substantial costs and a diversion of management's
attention and resources, which would materially adversely affect our business,
financial condition and results of operations.
12
<PAGE> 17
FUTURE SALES OF OUR STOCK COULD CAUSE OUR STOCK PRICE TO FALL
Sales of a substantial number of shares of our common stock in the public
market after this offering could cause the market price of our common stock to
decline. In addition, the sale of these shares could impair our ability to raise
capital through the sale of additional equity securities.
PROVISIONS OF DELAWARE LAW AND OF OUR CHARTER AND BY-LAWS MAY MAKE A TAKEOVER
MORE DIFFICULT
Provisions in our certificate of incorporation and by-laws and in Delaware
corporate law may make it difficult and expensive for a third party to pursue a
tender offer, change in control or takeover attempt that is opposed by our
management. Public stockholders who might desire to participate in such a
transaction may not have an opportunity to do so, and the ability of public
stockholders to change our management could be substantially impeded by these
anti-takeover provisions. For example, we have a staggered board of directors
and the right under our charter documents to issue preferred stock without
further stockholder approval, which provisions could adversely affect the
holders of our common stock.
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<PAGE> 18
NOTE ON FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify
forward-looking statements. This prospectus also contains forward-looking
statements attributed to third parties relating to their estimates regarding the
growth in the demand for interactive e-business solution software. You should
not place undue reliance on these forward-looking statements, which apply only
as of the date of this prospectus. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks faced by us and described in the preceding pages and
elsewhere in this prospectus.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the common stock
in this offering will be approximately $ million, at an assumed initial
offering price of $ per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by us in connection with
the offering. If the underwriters' over-allotment option is exercised in full,
we estimate that our net proceeds will be approximately $ million. We expect
to use the estimated net proceeds for the following purposes:
- to repay the outstanding principal balance of up to $5.0 million plus
accrued interest on our revolving line of credit, which line of credit
bears interest payable monthly at a rate equal to the prime rate plus
2.0%, currently 10.25%, and is due October 31, 2000;
- to repay a $2.0 million term loan, plus accrued interest, which loan
bears interest payable monthly at 10.25% and is due October 31, 2000; and
- to repay $6.0 million of subordinated promissory notes plus accrued
interest of approximately $160,000, assuming a repayment date of January
31, 2000, which notes bear interest at 12.0% and are due upon the earlier
of the closing of this offering and November 12, 2000.
The remainder of the net proceeds will be used for working capital and general
corporate purposes.
As of the date of this prospectus, other than the repayment of debt as
described above, we have not made any specific expenditure plans with respect to
the proceeds of this offering. Therefore, we cannot specify with certainty the
particular uses for the net proceeds to be received upon completion of this
offering. Accordingly, our management will have significant flexibility in
applying the net proceeds of the offering.
DIVIDEND POLICY
Since we became a C corporation in May 1997, we have never declared or paid
cash dividends on our capital stock. We currently intend to retain any future
earnings to fund the development and growth of our business and do not currently
anticipate paying any cash dividends in the foreseeable future. Future
dividends, if any, will be determined by our Board of Directors after taking
into account various factors, including our financial condition, operating
results, and current and anticipated cash needs. Under the terms of our current
line of credit, there are restrictions on our ability to declare and pay
dividends.
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<PAGE> 19
CAPITALIZATION
The following table sets forth our capitalization as of July 31, 1999:
- - on an actual basis;
- - on a pro forma basis to reflect the conversion of all outstanding shares of
convertible preferred stock into shares of common stock and the payment of
stock dividends due to certain common and preferred stockholders upon
completion of this offering; and
- - on a pro forma as adjusted basis to reflect the sale of the common stock in
this offering at an assumed initial public offering price of $ per share,
after deduction of estimated underwriting discounts and commissions and our
estimated offering expenses and the use of net proceeds as described in "Use
of Proceeds."
The adjusted information set forth below is unaudited and should be read in
conjunction with our Consolidated Financial Statements and Notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JULY 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt............................................. $ 2,933
Long-term debt, less current portion........................ 1,130
Stockholders' equity:
Preferred stock, par value $0.01 per share; 50,000,000
shares authorized:
Series A convertible participating preferred stock, par
value $0.01 per share; 4,188,880 shares designated,
issued and outstanding, actual; no shares designated,
issued and outstanding, pro forma and pro forma as
adjusted................................................ 42
Series B convertible preferred stock, par value $0.01 per
share; 190,438 shares designated, no shares issued and
outstanding, actual; no shares designated, issued and
outstanding, pro forma and pro forma as adjusted........ --
Series C convertible participating preferred stock, par
value $0.01 per share; 570,342 shares designated, issued
and outstanding, actual; no shares designated, issued
and outstanding, pro forma and pro forma as adjusted.... 6
Series F convertible preferred stock, par value $0.01 per
share; 7,407,409 shares designated, 6,734,008 shares
issued and outstanding, actual; no shares designated,
issued and outstanding, pro forma and pro forma as
adjusted................................................ 67
Series G convertible participating preferred stock of
subsidiary, par value $0.01 per share; 7,604,563 shares
designated, issued and outstanding, actual; no shares
designated, issued and outstanding, pro forma and pro
forma as adjusted....................................... 76
Common stock, par value $0.01 per share, 100,000,000
shares authorized; 10,024,526 shares issued and
outstanding, actual; 100,000,000 shares authorized,
shares issued and outstanding, pro forma; and
100,000,000 shares authorized, shares issued
and outstanding, pro forma as adjusted.................. 100
Additional paid-in capital.................................. 55,839
Accumulated deficit....................................... (54,232)
Deferred compensation..................................... (1,464)
Cumulative translation adjustment........................... (139)
Subscription receivables.................................. (66)
--------
Total stockholders' equity................................ 229
--------
Total capitalization.................................. $ 1,359
========
</TABLE>
The table above excludes as of July 31, 1999:
- 6,512,217 shares of common stock issuable upon exercise of outstanding
stock options at a weighted average exercise price of $4.04 per share
under our 1997 Stock Option Plan;
- 200,000 shares of common stock subject to outstanding warrants at a
weighted average exercise price of $3.95 per share; and
- warrants to purchase 190,438 shares of Series B convertible preferred
stock at an exercise price of $19.69 per share, which will convert into
warrants to purchase 634,794 shares of common stock at an exercise price
of $5.91 per share upon completion of this offering.
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<PAGE> 20
DILUTION
As of July 31, 1999, we had a pro forma net tangible book deficit of $
million, or $ per share. Pro forma net tangible book deficit per share is
equal to our total tangible assets less total liabilities, divided by the number
of outstanding shares of our common stock, after giving effect to the conversion
of all outstanding shares of our convertible preferred stock into common stock.
Without taking into account any other changes in pro forma net tangible book
value after July 31, 1999, other than to give effect to our receipt of the
estimated net proceeds from the sale of the shares of common stock in this
offering at an assumed initial public offering price of $ per share and
after deducting the estimated underwriting discounts and commissions and the
estimated expenses relating to this offering, our pro forma net tangible book
value as of July 31, 1999 would have been $ , or $ per share. This
represents an immediate increase in pro forma net tangible book value of $
per share to existing stockholders and an immediate dilution of $ per share
to new investors. If the initial public offering price is higher or lower than
$ per share, the dilution to new investors will be higher or lower,
respectively. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $
Pro forma net tangible book deficit per share as of July
31, 1999.................................................. $
Increase per share attributable to new investors..........
-------
Pro forma net tangible book value per share after the
offering................................................
------
Dilution per share to new investors.......................
======
</TABLE>
The following table summarizes, as of July 31, 1999, on the pro forma basis
described above, the difference between the number of shares of common stock
purchased from us, the total consideration paid and the average price per share
paid by the existing stockholders and by new public investors purchasing shares
from us in this offering before deducting estimated underwriting discounts and
commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... % $ % $
New investors..................
-------- ----- -------- ------
Total..................... 100.0% $ 100.0%
======== ===== ======== ======
</TABLE>
The foregoing computations are based on the number of common shares
outstanding as of July 31, 1999 and exclude:
- 6,512,217 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $4.04 per share under our
1997 Stock Option Plan;
- 200,000 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $3.95 per share; and
- Warrants to purchase 190,438 shares of Series B convertible preferred
stock at an exercise price of $19.69 per share, which will convert into
warrants to purchase 634,794 shares of common stock at an exercise price
of $5.91 per share upon completion of this offering.
To the extent stock is issued upon the exercise of outstanding warrants or
outstanding stock options under our stock option plans, there will be further
dilution to new investors. See "Management -- 1997 Stock Option Plan," "-- 1999
Director Plan" and "-- 1999 Stock Option and Grant Plan" and "Description of
Capital Stock -- Warrants."
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<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data are derived from our consolidated and
combined financial statements. The consolidated statement of operations data for
fiscal 1997 and fiscal 1998 and the nine months ended July 31, 1999, and the
consolidated balance sheet data at October 31, 1997 and 1998 and July 31, 1999,
are derived from our audited consolidated financial statements and are included
in this prospectus. The combined statement of operations data for fiscal 1996,
are derived from our audited combined financial statements and are included in
this prospectus. The combined statements of operations data for fiscal 1995, and
the combined balance sheet data at October 31, 1995 and 1996 are derived from
our audited combined financial statements and are not included in this
prospectus. The selected consolidated financial data for the nine months ended
July 31, 1998 have been derived from unaudited consolidated financial statements
included elsewhere in this prospectus. In our opinion, our unaudited financial
statements have been prepared on a basis consistent with our audited financial
statements and contain all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our financial
position and results of operations for those periods. When you read this
selected financial data, it is important that you also read the historical
consolidated financial statements and related notes included in this prospectus,
as well as the section of this prospectus entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The historical
results are not necessarily indicative of the operating results to be expected
in the future.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED OCTOBER 31, ENDED JULY 31,
-------------------------------------- ------------------
1995 1996 1997 1998 1998 1999
------- ------- -------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
Revenues:
Product-related revenues:
License................................................. $ -- $ -- $ 416 $ 1,580 $ 989 $ 6,632
Services and maintenance................................ -- -- -- 6,701 4,912 5,605
------- ------- -------- ------- ------- --------
Total product-related revenues........................ -- -- 416 8,281 5,901 12,237
Custom development services............................... 31,150 34,158 26,114 22,354 18,272 12,061
------- ------- -------- ------- ------- --------
Total revenues........................................ 31,150 34,158 26,530 30,635 24,173 24,298
Cost of revenues:
License................................................... -- -- -- 15 9 6
Product-related services and maintenance.................. -- -- -- 3,061 2,381 3,890
Custom development services............................... 19,749 20,036 27,173 9,230 7,170 8,622
------- ------- -------- ------- ------- --------
Total cost of revenues................................ 19,749 20,036 27,173 12,306 9,560 12,518
------- ------- -------- ------- ------- --------
Gross profit (loss)......................................... 11,401 14,122 (643) 18,329 14,613 11,780
Operating expenses:
Sales and marketing....................................... 3,643 5,290 8,080 13,680 9,765 17,035
Research and development.................................. 723 2,601 3,634 8,199 5,930 6,372
General and administrative................................ 4,354 3,081 3,188 3,516 2,606 5,062
Stock-based compensation.................................. -- -- 450 672 316 798
Restructuring charge...................................... -- -- 11,203 -- -- 2,625
------- ------- -------- ------- ------- --------
Total operating expenses.............................. 8,720 10,972 26,555 26,067 18,617 31,892
------- ------- -------- ------- ------- --------
Income (loss) from operations............................... 2,681 3,150 (27,198) (7,738) (4,004) (20,112)
Other expense, net.......................................... 1,039 1,306 1,591 326 294 405
------- ------- -------- ------- ------- --------
Net income (loss)........................................... $ 1,642 $ 1,844 $(28,789) $(8,064) $(4,298) $(20,517)
======= ======= ======== ======= ======= ========
Net income (loss) per share:
Basic and diluted net income (loss) per share............. $ 0.16 $ 0.18 $ (2.79) $ (0.81) $ (0.43) $ (2.05)
======= ======= ======== ======= ======= ========
Basic weighted average common shares outstanding.......... 10,348 10,401 10,319 9,925 9,908 10,017
Diluted weighted average common shares outstanding........ 10,379 10,432 10,319 9,925 9,908 10,017
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
-------------------------------------- ------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 467 $ 450 $10,147 $ 2,324 $ 1,936
Working capital (deficit)................................... (553) (3,417) (8,519) (6,840) (4,403)
Total assets................................................ 19,863 23,342 25,574 18,609 20,086
Long-term debt, net of current portion...................... 7,290 7,685 3,991 1,727 1,130
Total stockholders' equity (deficit)........................ 2,836 4,200 (2,740) 254 229
</TABLE>
17
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with
"Selected Financial Data" and our financial statements and the notes to those
statements included elsewhere in this prospectus.
OVERVIEW
We are a leading provider of integrated e-business sales and marketing
solutions that enable companies to optimize customer relationships and maximize
the effectiveness of their Internet-based and traditional sales channels. From
our inception in 1983 through 1997, we generated revenues primarily through
providing custom development services. In early fiscal 1997, we undertook a plan
to change the strategic focus of our company from a custom development services
company to a software product company providing more standardized solutions. As
a result, we exited certain unrelated business activities, changed our
management team and reduced our workforce to be in line with our newly defined
business strategy. Our first software product was introduced in May 1997 and we
released the FirePond Application Suite in October 1999. As a result of these
efforts, product-related revenues as a percentage of total revenues increased
from 1.6% in fiscal 1997 to 27.0% in fiscal 1998 and to 50.4% in the nine months
ended July 31, 1999. We anticipate that product-related revenues from perpetual
product licenses will continue to grow as result of increased market acceptance
of our products, the recent introduction of the FirePond Application Suite, and
increases in both the size and productivity of our sales force. Therefore, we
expect that a higher percentage of total revenues will be attributable to
product-related revenues in the future. We also anticipate a decline in custom
development services revenues, as we have strategically de-emphasized that
business and do not plan to accept new custom development contracts. We will
continue to have custom development services revenues until existing custom
development contracts and related maintenance agreements are completed.
We derive revenues principally from the following sources:
- software product licenses;
- product-related consulting and training, support and maintenance
services; and
- custom development services and related support and maintenance.
We recognize revenues under Statement of Position (SOP) No. 97-2, "Software
Revenue Recognition," as amended by SOP 98-4. We generally recognize revenues
from license agreements over the implementation period. We recognize these
revenues following the percentage-of-completion method over the implementation
period because we have concluded that the implementation services are essential
to our customers' use of our software products. Percentage of completion is
measured by the percentage of implementation hours incurred to date to total
estimated implementation hours.
We recognize revenues from product-related support and maintenance services
ratably over the term of the contract, typically one year. Product-related
support and maintenance services include technical support and unspecified
upgrade and maintenance rights. We recognize consulting and training revenues as
the services are performed. Consulting and training revenues are primarily
related to implementation services performed on a time-and-materials basis under
separate service arrangements.
Revenues from custom software development projects can be either
fixed-price or on a time-and-materials basis. We recognize revenues as the
services are performed when the project is based on time-and-materials. We
recognize revenues on a percentage-of-completion method when the project is a
fixed-price contract. Percentage-of-completion is determined based on hours
incurred to date compared to total estimated hours. During fiscal 1997, we
estimated that remaining costs on certain fixed-priced contracts exceeded
remaining contract revenues and recorded a $5.0 million provision for loss
contracts, all of which was accrued as of October 31, 1997. In fiscal 1998, $1.9
million was charged against the accrual for loss contracts when the obligations
to the customers were fulfilled and $1.5 million of the loss reserve was
reversed when the estimated losses were revised. In the nine months ended July
31, 1999, an additional
18
<PAGE> 23
$500,000 was charged against the accrual for loss contracts when the obligations
to the customers were fulfilled.
Since May 1998, we have been investing heavily in the infrastructure
necessary to expand our global operations, including the formation and staffing
of international subsidiaries. We expect to continue to invest in our
international operations as we expand our international direct sales channel and
enhance our marketing effort to increase our worldwide market share.
We have invested heavily in research and development. Research and
development expenses have been increasing since early fiscal 1997 when we began
the development of our software products. During fiscal 1996 and fiscal 1997, we
capitalized software development costs and amortized these costs over a period
of 18 to 36 months. During fiscal 1997, in connection with our change in focus
from providing custom development services to providing more standardized
software products, we reviewed the software development costs capitalized to
date, which principally related to components of custom solutions, and
determined that these costs were not realizable. Accordingly, we wrote off all
$4.5 million of our capitalized software development costs in fiscal 1997.
We have determined that technological feasibility of our software products
occurs late in the development cycle and close to general release of the
products, and that the development costs incurred between the time technological
feasibility is established and general release of the product are not material.
Therefore, we expense these costs as incurred to research and development
expense. To enhance our product offering and market position, we believe it is
essential for us to continue to make significant investment in research and
development. As a result, we anticipate our research and development expenses
will increase in the future.
We have granted stock options to employees and consultants that require us
to record stock-based compensation expense. With respect to grants to employees,
stock-based compensation represents the amortization, over the vesting period of
the option, of the difference between the exercise price of options granted to
employees and the deemed fair market value of our common stock for financial
reporting purposes. Regarding grants to consultants, stock-based compensation
represents the fair market value of the options granted as computed using an
established option valuation formula. We recorded stock-based compensation
expense of approximately $450,000 in fiscal 1997, $672,000 in fiscal 1998 and
$798,000 in the nine months ended July 31, 1999. As of July 31, 1999, the
deferred compensation balance was approximately $1.5 million and will be
amortized over the remaining vesting period of the options.
We have incurred quarterly and annual losses intermittently since we were
formed, and regularly since we began transitioning to a software product
business in early fiscal 1997. In addition, we moved our headquarters from
Mankato, Minnesota to Waltham, Massachusetts in the third quarter of fiscal
1999, and incurred increased costs associated with that relocation. We incurred
net losses of $28.8 million for fiscal 1997, $8.1 million for fiscal 1998, and
$20.5 million for the nine months ended July 31, 1999. We expect to continue to
incur losses on both a quarterly and annual basis for the foreseeable future.
Our Series A, Series C and Series G preferred stock, as well as certain
shares of common stock, have rights that allow holders to receive a priority
payment upon the completion of this offering. These priority payments total
$35.8 million for the Series A, Series C and Series G preferred stockholders and
$10.0 million for certain common stockholders. While we have the option of
settling this obligation either in cash or in shares of our common stock, we
will settle this obligation in shares of our common stock. This payment will be
accounted for as a stock dividend payment. In the period in which this offering
is completed and the payment is made, we will charge our accumulated deficit
account for the fair value of the shares of common stock issued. To the extent
that the payment relates to the preferred stock, we will also increase our net
loss and basic and diluted net loss per share attributable to common
stockholders.
Prior to May 1997, we had elected to be treated as an S corporation under
the Internal Revenue Code. As an S corporation, federal and certain state income
tax consequences of our company were passed through to the individual
stockholders and dividend distributions were made to the stockholders for
payments of their individual taxes related to our income. Accordingly, no
provision for income taxes had been provided prior to fiscal 1997. In May 1997,
we reorganized from an S corporation to a C corporation and, as such, taxes are
19
<PAGE> 24
payable at the corporate level. As of July 31, 1999, we had available a net
operating loss carryforward of approximately $33.0 million to reduce future
federal and state income taxes, if any. This carryforward expires beginning in
2012 and may be subject to review and possible adjustment by the Internal
Revenue Service. The Tax Reform Act of 1986 contains provisions that may limit
the amount of net operating loss carryforwards that we may utilize in any one
year in the event of certain cumulative changes in ownership over a three-year
period in excess of 50%. See Note 7 of "Notes to Consolidated Financial
Statements."
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, selected
consolidated financial data as a percentage of total net revenues:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED OCTOBER 31, JULY 31,
------------------------ --------------
1996 1997 1998 1998 1999
----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Product-related revenues:
License....................................... 0.0% 1.6% 5.1% 4.1% 27.3%
Services and maintenance...................... -- -- 21.9 20.3 23.1
----- ------ ----- ----- -----
Total product-related revenues.............. -- 1.6 27.0 24.4 50.4
Custom development services...................... 100.0 98.4 73.0 75.6 49.6
----- ------ ----- ----- -----
Total revenues.............................. 100.0 100.0 100.0 100.0 100.0
----- ------ ----- ----- -----
Cost of revenues:
License.......................................... -- -- -- -- --
Product-related services and maintenance......... -- -- 10.0 9.8 16.0
Custom development services...................... 58.7 102.4 30.1 29.7 35.5
----- ------ ----- ----- -----
Total cost of revenues...................... 58.7 102.4 40.1 39.5 51.5
----- ------ ----- ----- -----
Gross profit (loss)................................ 41.3 (2.4) 59.9 60.5 48.5
Operating expenses:
Sales and marketing.............................. 15.5 30.5 44.7 40.4 70.1
Research and development......................... 7.6 13.7 26.8 24.6 26.2
General and administrative....................... 9.0 12.0 11.5 10.8 20.9
Stock-based compensation......................... -- 1.7 2.2 1.3 3.3
Restructuring charge............................. -- 42.2 -- -- 10.8
----- ------ ----- ----- -----
Total operating expenses.................... 32.1 100.1 85.2 77.1 131.3
----- ------ ----- ----- -----
Income (loss) from operations...................... 9.2 (102.5) (25.3) (16.6) (82.8)
Other expense, net................................. 3.8 6.0 1.0 1.2 1.6
----- ------ ----- ----- -----
Net income (loss).................................. 5.4% (108.5)% (26.3)% (17.8)% (84.4)%
===== ====== ===== ===== =====
</TABLE>
COMPARISON OF NINE MONTHS ENDED JULY 31, 1999 AND 1998
Revenues. Total revenues increased $125,000, or 0.5%, to $24.3 million in
the nine months ended July 31, 1999 from $24.2 million in the nine months ended
July 31, 1998. This increase is attributable to a 107.4% increase in
product-related revenues, offset by a planned decrease in custom development
services revenues, associated with our change in focus from providing custom
development services to providing more standardized software products.
License. License revenues increased $5.6 million, or 570.6%, to $6.6
million in the nine months ended July 31, 1999 from $989,000 in the period
ended July 31, 1998. License revenues as a percentage of total revenues
increased to 27.3% in the nine months ended July 31, 1999 from 4.1% in the
nine
20
<PAGE> 25
months ended July 31, 1998. The increase in license revenues in absolute
dollars and as a percentage of total revenues is attributable to an
increase in user license sales and average license fees recognized during
the period. We anticipate that license revenues will continue to grow as a
result of more user license sales and increased average transaction size
resulting from increased market acceptance of our new products, a growing
customer reference base, increased marketing efforts, and increases in both
the size and productivity of our sales force.
Product service and maintenance. Product service and maintenance
revenues increased $693,000, or 14.1%, to $5.6 million in the nine months
ended July 31, 1999 from $4.9 million in the nine months ended July 31,
1998. Product services revenues as a percentage of total revenues increased
to 23.1% in the nine months ended July 31, 1999 from 20.3% in the nine
months ended July 31, 1998. The increase in absolute dollars and as a
percentage of total revenues is attributable to the increase in the number
of consulting engagements and maintenance agreements related to the
increased license sales in fiscal 1999.
Custom development services. Custom development services revenues
decreased $6.2 million, or 34.0%, to $12.1 million in the nine months ended
July 31, 1999 from $18.3 million in the nine months ended July 31, 1998.
Custom development services revenues as a percentage of total revenues
decreased to 49.6% in the nine months ended July 31, 1999 from 75.6% in the
nine months ended July 31, 1998. The decrease in absolute dollars and as a
percentage of total revenues is due to the change of our strategic focus.
We expect custom development services revenues to continue to decline in
absolute dollars and as a percentage of total revenues.
Cost of revenues. Total cost of revenues increased $3.0 million, or 30.9%,
to $12.5 million in the nine months ended July 31, 1999 from $9.6 million in the
nine months ended July 31, 1998. Total cost of revenues as a percentage of total
revenues increased to 51.5% in the nine months ended July 31, 1999 from 39.5% in
the nine months ended July 31, 1998.
Cost of license revenues. Cost of license revenues consists primarily
of costs of media, product packaging, documentation, and other production
costs. Cost of license revenues decreased $3,000 or 33.3%, to $6,000 in the
nine months ended July 31, 1999 from $9,000 in the nine months ended July
31, 1998. Cost of license revenues as a percentage of license revenues was
less than 1% in both periods.
Cost of product-related services and maintenance revenues. Cost of
product-related services and maintenance revenues consists primarily of
salaries and related costs for consulting, training and customer support
personnel, including cost of services provided by third-party consultants
engaged by us. Cost of product-related services and maintenance revenues
increased $1.5 million, or 63.4%, to $3.9 million in the nine months ended
July 31, 1999 from $2.4 million in the nine months ended July 31, 1998.
Cost of product-related services and maintenance revenues as a percentage
of product-related services and maintenance revenues increased to 69.4% in
the nine months ended July 31, 1999 from 48.5% in the nine months ended
July 31, 1998. The increase was primarily due to increased staff to support
a higher number of product-related engagements as well as associated hiring
and training costs.
Cost of custom development services revenues. Cost of custom
development services revenues consists primarily of salaries and related
costs for development, consulting, training and customer support personnel
as it relates to our custom development projects, including cost of
services provided by third-party consultants engaged by us. Cost of custom
development services revenues increased $1.5 million, or 20.3%, to $8.6
million in the nine months ended July 31, 1999 from $7.2 million in the
nine months ended July 31, 1998. Cost of custom development services as a
percentage of custom development services revenues increased to 71.5% in
the nine months ended July 31, 1999 from 39.2% in the nine months ended
July 31, 1998. The increase resulted primarily from the following factors:
(1) in fiscal 1999 we incurred higher payroll and related costs associated
with professional services personnel, (2) due to uncertainties with a
contract in fiscal 1997, we recorded approximately $2.0 million of revenues
in fiscal 1998 related to work that had been performed and charged to cost
of custom development services in fiscal 1997, (3) we reduced the estimated
losses on contracts in fiscal 1998, and (4) we charged costs incurred in
fiscal 1998 to the accrual for loss contracts.
21
<PAGE> 26
Sales and marketing expenses. Sales and marketing expenses consist
primarily of salaries, commissions and bonuses for sales and marketing personnel
and promotional expenses. Sales and marketing expenses increased $7.3 million,
or 74.4%, to $17.0 million in the nine months ended July 31, 1999 from $9.8
million in the nine months ended July 31, 1998. Sales and marketing expenses as
a percentage of total revenues increased to 70.1% in the nine months ended July
31, 1999 from 40.4% in the nine months ended July 31, 1998. Sales and marketing
expenses increased in absolute dollars and as a percentage of total revenues
primarily due to increased headcount in our sales operations, particularly our
international direct sales channel and the infrastructure of our global
operations, as well as increased marketing programs to promote the new FirePond
Application Suite. We believe sales and marketing expenses will continue to
increase as we expand our sales and marketing organization and initiate
additional marketing programs.
Research and development expenses. Research and development expenses
consist primarily of salaries and personnel-related costs and cost of
contractors associated with the development of new products, the enhancement of
existing products, and the performance of quality assurance and documentation
activities. Research and development expenses increased $442,000, or 7.5% to
$6.4 million in the nine months ended July 31, 1999 from $5.9 million in the
nine months ended July 31, 1998. Research and development expenses as a
percentage of total revenues increased to 26.2% in the nine months ended July
31, 1999 from 24.6% in the nine months ended July 31, 1998. These expenses
increased in absolute dollars and as a percentage of total revenues as a result
of increased engineering and product development activity associated with our
investment in the FirePond Application Suite, partially offset by our increased
use of a lower-cost offshore development organization.
General and administrative expenses. General and administrative expenses
consist primarily of salaries, and other personnel-related cost for executive,
financial, human resource, information services, and other administrative
functions, as well as legal and accounting costs. General and administrative
expenses increased $2.5 million, or 94.2%, to $5.1 million in the nine months
ended July 31, 1999 from $2.6 million in the nine months ended July 31, 1998.
General and administrative expenses as a percentage of total revenues increased
to 20.9% in the nine months ended July 31, 1999 from 10.8% in the nine months
ended July 31, 1998. These expenses increased in absolute dollars and as a
percentage of total revenues as a result of increased costs, including moving
costs, resulting from the relocation of our corporate headquarters from
Minnesota to Massachusetts and associated expenses necessary to manage and
support the growth in our operations.
Stock-based compensation expense. Stock-based compensation expense
increased $482,000, or 152.5%, to $798,000 in the nine months ended July 31,
1999 from $316,000 in the nine months ended July 31, 1998. Stock-based
compensation expense as a percentage of total revenues increased to 3.3% in the
nine months ended July 31, 1999 from 1.3% in the nine months ended July 31,
1998. This expense increased primarily as a result of stock option grants to
employees during fiscal 1999 at exercise prices less than deemed fair market
value of our common stock for financial reporting purposes.
Restructuring charge. During fiscal 1999, we undertook a plan to relocate
our corporate offices from Minnesota to Massachusetts. In connection with this
plan, we incurred $2.6 million of restructuring charges, which included $1.5
million for asset impairments, $1.0 million for idle lease space and $100,000
primarily for employee severance costs.
Other expense, net. Other expense, net consists of interest expense,
interest income, bank fees, and foreign currency transaction gains/losses. Other
expense, net increased $111,000, or 37.8%, to $405,000 in the nine months ended
July 31, 1999 from $294,000 in the nine months ended July 31, 1998 and
represented less than 2.0% of total revenues in each period.
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 1998 AND 1997
Revenues. Total revenues increased $4.1 million, or 15.5%, to $30.6
million in fiscal 1998 from $26.5 million in fiscal 1997. The increase in total
revenues from fiscal 1997 to fiscal 1998 was primarily due to the increased
number of user license sales and related consulting and training engagements
related to the release of our first software product in May 1997.
22
<PAGE> 27
License. License revenues increased $1.2 million, or 279.8%, to $1.6
million in fiscal 1998 from $416,000 in fiscal 1997. License revenues as a
percentage of total revenues increased to 5.1% in fiscal 1998 from 1.6% in
fiscal 1997. The increase in absolute dollars and as a percentage of total
revenues was primarily due to the introduction of our first software
product in May 1997, and the subsequent market acceptance of these
products.
Product service and maintenance. Product service and maintenance
revenues increased to $6.7 million in fiscal 1998 from $0 in fiscal 1997.
Product service and maintenance revenues as a percentage of total revenues
was 21.9% in fiscal 1998. The increase in absolute dollars and as a
percentage of total revenues was primarily due to the increased customer
support, consulting services and training programs we provided for our
customers as we increased the number of software license sales upon the
release of our new product.
Custom development services. Custom development services revenues
decreased $3.8 million, or 14.4%, to $22.4 million in fiscal 1998 from
$26.1 million in fiscal 1997. Custom development services revenues as a
percentage of total revenues decreased to 73.0% in fiscal 1998 from 98.4%
in fiscal 1997. The decrease in absolute dollars and as a percentage of
total revenues is due to the change of our strategic focus.
Cost of revenues. Total cost of revenues decreased $14.9 million, or
54.7%, to $12.3 million in fiscal 1998 from $27.2 million in fiscal 1997. Total
cost of revenues as a percentage of total revenues decreased to 40.1% in fiscal
1998 from 102.4% in fiscal 1997.
Cost of license revenues. Cost of license revenues increased to
$15,000 in fiscal 1998 from $0 in fiscal 1997. Cost of license revenues as
a percentage of license revenues was less than 1.0% in fiscal 1998.
Cost of product-related services and maintenance revenues. Cost of
product-related services and maintenance revenues increased to $3.1 million
in fiscal 1998 from $0 in fiscal 1997. Cost of product-related services and
maintenance revenues as a percentage of product-related service and
maintenance revenues was 45.7% in fiscal 1998. The increase was primarily
due to the increased number of contracts for our new software product in
fiscal 1998.
Cost of custom development services revenues. Cost of custom
development services revenues decreased $17.9 million, or 66.0%, to $9.2
million in fiscal 1998 from $27.2 million in fiscal 1997. Cost of custom
development services as a percentage of custom development services
revenues decreased to 41.3% in fiscal 1998 from 104.1% in fiscal 1997. This
decrease is partially because cost of custom development services revenues
in fiscal 1997 included a $5.0 million provision for loss contracts
reserve. In addition, due to uncertainties with a contract in fiscal 1997,
we recorded approximately $2.0 million of revenues in fiscal 1998 related
to work that had been performed and charged to cost of custom development
services in fiscal 1997.
Sales and marketing expenses. Sales and marketing expenses increased $5.6
million, or 69.3%, to $13.7 million in fiscal 1998 from $8.1 million in fiscal
1997. Sales and marketing expenses as a percentage of total revenues increased
to 44.7% in fiscal 1998 from 30.5% in fiscal 1997. These expenses increased in
absolute dollars and as a percentage of total revenues primarily due to
increased headcount in our sales operations, especially as we began to increase
the size of our international direct sales channel and the infrastructure of our
global operations in fiscal 1998.
Research and development expenses. Research and development expenses
increased $4.6 million, or 125.6%, to $8.2 million in fiscal 1998 from $3.6
million in fiscal 1997. Research and development expenses as a percentage of
total revenues increased to 26.8% in fiscal 1998 from 13.7% in fiscal 1997.
These expenses increased in absolute dollars and as a percentage of total
revenues as a result of increased engineering and product development activity
associated with our investment in our new products. In addition, all development
costs were expensed as incurred in fiscal 1998; while in fiscal 1997, $2.6
million of software development costs were capitalized.
23
<PAGE> 28
General and administrative expenses. General and administrative expenses
increased $328,000, or 10.3%, to $3.5 million in fiscal 1998 from $3.2 million
in fiscal 1997. General and administrative expenses as a percentage of total
revenues decreased to 11.5% in fiscal 1998 from 12.0% in fiscal 1997. The
increase in absolute dollars was largely due to additional costs necessary to
support the growth in our operations.
Stock-based compensation expense. Stock-based compensation expense
increased $222,000, or 49.3%, to $672,000 in fiscal 1998 from $450,000 in fiscal
1997. Stock-based compensation expense as a percentage of total revenues
increased to 2.2% in fiscal 1998 from 1.7% in fiscal 1997. This expense
increased primarily due to a higher number of stock options granted to
non-employees in fiscal 1998.
Restructuring charge. In May 1997, we undertook a plan to change the
strategic focus of our company, and, in connection with this change, decided to
exit certain unrelated business activities, change our management team and
reduce our workforce. In connection with this plan, we incurred $11.2 million of
restructuring charges in fiscal 1997, which includes $2.7 million of employee
severance costs, $1.2 million of costs to exit certain business activities, and
$7.3 million of asset impairments.
Other expense, net. Other expense, net decreased $1.3 million, or 79.5%,
to $326,000 in fiscal 1998 from $1.6 million in fiscal 1997. Other expense, net
as a percentage of total revenues decreased to 1.0% in fiscal 1998 from 6.0% in
fiscal 1997 due primarily to a $920,000 decrease in interest expense resulting
from a decrease in outstanding borrowings.
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 1997 AND 1996
Revenues. Total revenues decreased $7.6 million, or 22.3%, to $26.5
million in fiscal 1997 from $34.2 million in fiscal 1996. The decrease in total
revenues from fiscal 1996 to fiscal 1997 was primarily due to the decrease in
the average size and number of custom development engagements, prior to a
significant contribution of product license revenues, resulting from the change
of our strategic focus.
License. License revenues increased to $416,000 in fiscal 1997 from
$0 in fiscal 1996. License revenues as a percentage of total revenues were
1.6% in fiscal 1997. The increase in absolute dollars and as a percentage
of total revenues was due to sales of our new software product which was
first introduced in May 1997.
Product service and maintenance. We had no product service and
maintenance revenues in either fiscal 1997 or fiscal 1996. We first
recognized license revenues in fiscal 1997, and product service and
maintenance revenues in fiscal 1998.
Custom development services. Custom development services revenues
decreased $8.0 million, or 23.5%, to $26.1 million in fiscal 1997 from
$34.2 million in fiscal 1996. Custom development services revenues as a
percentage of total revenues decreased to 98.4% in fiscal 1997 from 100% in
fiscal 1996. The decrease in absolute dollars and in percentage of total
revenues was primarily due to the change of our strategic focus.
Cost of custom development services revenues. Total cost of custom
development services revenues increased $7.1 million, or 35.6%, to $27.2 million
in fiscal 1997 from $20.0 million in fiscal 1996. Cost of custom development
services revenues as a percentage of total revenues increased to 102.4% in
fiscal 1997 from 58.7% in fiscal 1996. Fiscal 1997 included a $5.0 million
provision for loss contracts reserve and, due to uncertainties with a contract
in fiscal 1997, we deferred $2.0 million of revenues until fiscal 1998 related
to work that had been performed and charged to custom development services
revenues in fiscal 1997. These factors lead to the high cost of revenues as a
percentage of revenues in fiscal 1997.
Sales and marketing expenses. Sales and marketing expenses increased $2.8
million, or 52.7%, to $8.1 million in fiscal 1997 from $5.3 million in fiscal
1996. Sales and marketing expenses as a percentage of total revenues increased
to 30.5% in fiscal 1997 from 15.5% in fiscal 1996. These expenses increased in
absolute dollars and in percentage of total sales primarily due to the cost
incurred as we expanded our sales and marketing operations and our increased
marketing program expenditures associated with our new products and services.
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<PAGE> 29
Research and development expenses. Research and development expenses
increased $1.0 million, or 39.7%, to $3.6 million in fiscal 1997 from $2.6
million in fiscal 1996. Research and development expenses as a percentage of
total revenues increased to 13.7% in fiscal 1997 from 7.6% in fiscal 1996.
Research and development expenses increased in absolute dollars and in
percentage of total sales primarily due to the increased investment in our
product research and development as we changed the strategic focus of the
company. During fiscal 1996 and fiscal 1997, we capitalized $2.5 million and
$2.6 million of software development costs, respectively, and were amortizing
these costs over a period of 18 to 36 months. These capitalized costs were
expensed in fiscal 1997 as part of the fiscal 1997 restructuring charge.
General and administrative expenses. General and administrative expenses
increased $107,000, or 3.5%, to $3.2 million in fiscal 1997 from $3.1 million in
fiscal 1996. General and administrative expenses as a percentage of total
revenues increased to 12.0% in fiscal 1997 from 9.0% in fiscal 1996. These
expenses increased in absolute dollars and in percentage of total revenues
primarily due to increased costs necessary to support our anticipated growth.
Stock-based compensation expense. Stock-based compensation expense
increased to $450,000 in fiscal 1997 from $0 in fiscal 1996. Stock-based
compensation expense as a percentage of total revenues was 1.7% in fiscal 1997.
Other expense, net. Other expense, net increased $285,000, or 21.8%, to
$1.6 million in fiscal 1997 from $1.3 million in fiscal 1996. Other expense, net
as a percentage of total revenues increased to 6.0% in fiscal 1997 from 3.8% in
fiscal 1996 due to a $267,000 increase in interest expense.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited consolidated statement of
operations data for the seven quarters in the period ended July 31, 1999, as
well as the percentage of our total revenues represented by each item. We have
prepared this unaudited consolidated information on a basis consistent with our
audited consolidated financial statements, and in the opinion of our management,
this information reflects all normal recurring adjustments necessary for a fair
presentation of our operating results for the quarters presented. You should
read this information in conjunction with our consolidated financial statements
and related notes included elsewhere in this prospectus.
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<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31,
1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product-related revenues:
License........................... $ 24 $ 259 $ 706 $ 591 $ 1,607 $ 2,410 $ 2,615
Services and maintenance.......... 1,828 1,424 1,660 1,789 1,296 1,950 2,359
------- ------- ------- ------- ------- ------- -------
Total product-related
revenues..................... 1,852 1,683 2,366 2,380 2,903 4,360 4,974
Custom development services....... 5,141 8,448 4,683 4,082 4,283 4,066 3,712
------- ------- ------- ------- ------- ------- -------
Total revenues.................. 6,993 10,131 7,049 6,462 7,186 8,426 8,686
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Licenses............................ -- 2 7 6 2 3 1
Product-related services and
maintenance....................... 890 749 742 680 998 1,405 1,487
Custom development services......... 2,669 2,253 2,248 2,060 3,001 2,733 2,888
------- ------- ------- ------- ------- ------- -------
Total cost of revenues.......... 3,559 3,004 2,997 2,746 4,001 4,141 4,376
------- ------- ------- ------- ------- ------- -------
Gross profit.......................... 3,434 7,127 4,052 3,716 3,185 4,285 4,310
Operating expenses:
Sales and marketing................. 3,098 3,211 3,456 3,915 4,758 6,541 5,736
Research and development............ 1,933 1,950 2,047 2,269 1,997 1,828 2,547
General and administrative.......... 907 704 995 910 1,531 1,717 1,814
Stock-based compensation............ 36 36 244 356 232 423 143
Restructuring charge................ -- -- -- -- -- -- 2,625
------- ------- ------- ------- ------- ------- -------
Total operating expenses........ 5,974 5,901 6,742 7,450 8,518 10,509 12,865
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations......... (2,540) 1,226 (2,690) (3,734) (5,333) (6,224) (8,555)
Other expense, net.................... 34 209 51 32 235 78 92
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... $(2,574) $ 1,017 $(2,741) $(3,766) $(5,568) $(6,302) $(8,647)
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31,
1998 1998 1998 1998 1999 1999 1999
-------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product-related revenues:
License............................. 0.3% 2.6% 10.0% 9.1% 22.4% 28.6% 30.1%
Services and maintenance............ 26.2 14.0 23.6 27.7 18.0 23.1 27.2
----- ----- ----- ----- ----- ----- -----
Total product-related revenues.... 26.5 16.6 33.6 36.8 40.4 51.7 57.3
Custom development services......... 73.5 83.4 66.4 63.2 59.6 48.3 42.7
----- ----- ----- ----- ----- ----- -----
Total revenues.................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Licenses.............................. -- -- 0.1 0.1 -- -- --
Product-related services and
maintenance......................... 12.7 7.4 10.5 10.5 13.9 16.7 17.1
Custom development services........... 38.2 22.3 31.9 31.9 41.8 32.4 33.3
----- ----- ----- ----- ----- ----- -----
Total cost of revenues............ 50.9 29.7 42.5 42.5 55.7 49.1 50.4
----- ----- ----- ----- ----- ----- -----
Gross profit............................ 49.1 70.3 57.5 57.5 44.3 50.9 49.6
Operating expenses:
Sales and marketing................... 44.3 31.7 49.0 60.6 66.2 77.6 66.0
Research and development.............. 27.6 19.2 29.0 35.1 27.8 21.7 29.3
General and administrative............ 13.0 6.9 14.1 14.1 21.3 20.4 20.9
Stock-based compensation.............. 0.5 0.4 3.5 5.5 3.2 5.0 1.6
Restructuring charge.................. -- -- -- -- -- -- 30.3
----- ----- ----- ----- ----- ----- -----
Total operating expenses.......... 85.4 58.2 95.6 115.3 118.5 124.7 148.1
----- ----- ----- ----- ----- ----- -----
Income (loss) from operations........... (36.3) 12.1 (38.1) (57.8) (74.2) (73.8) (98.5)
Other expense, net...................... 0.5 2.1 0.8 0.5 3.3 1.0 1.1
----- ----- ----- ----- ----- ----- -----
Net income (loss)....................... (36.8)% 10.0% (38.9)% (58.3)% (77.5)% (74.8)% (99.6)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
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Our operating results have varied significantly from quarter to quarter in
the past and may continue to fluctuate in the future. The quarterly fluctuations
are caused by a number of factors, including demand for our products and
services, size and timing of specific sales, level of product and price
competition, timing and market acceptance of new product introductions and
product enhancements by us and our competitors, the length of our sales cycle,
personnel changes, budgeting cycles of our customers, the impact of our revenue
recognition policies, changes in technology and changes caused by the rapidly
evolving e-business market and the impact of year 2000 investments by us and our
customers. Many of these factors are beyond our control. Therefore, we believe
that results of operations for interim periods should not be relied upon as any
indication of the results to be expected in any future period.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and met our capital
expenditure requirements primarily through the sale of private equity
securities, borrowings on our line of credit and capital equipment leases.
As of July 31, 1999, we had $1.9 million of cash and cash equivalents,
compared with $2.3 million as of October 31, 1998, $10.1 million as of October
31, 1997, and $450,000 as of October 31, 1996. Our working capital deficit at
July 31, 1999 was $4.4 million, compared to a working capital deficit of $6.8
million at October 31, 1998.
Net cash used in operating activities was $18.0 million in the nine months
ended July 31, 1999, $10.5 million in fiscal 1998, and $3.0 million in fiscal
1997. Net cash provided by operating activities was $5.6 million in fiscal 1996.
Cash used in operating activities in the nine months ended July 31, 1999 was
primarily attributable to our net loss and increases in accounts receivable,
unbilled services and prepaid expense, offset in part by an increase in deferred
revenues and non-cash expenses including depreciation, amortization, stock-
based compensation expense and a restructuring charge.
Net cash used in investing activities was $758,000 in the nine months ended
July 31, 1999, $1.5 million for fiscal 1998, $6.6 million for fiscal 1997, and
$6.8 million for fiscal 1996. Net cash used in investing activities in the nine
months ended July 31, 1999 was primarily attributable to purchases of property
and equipment to support our expanding operations, offset in part by proceeds
from the sale of our Mankato, Minnesota facility.
Net cash provided by financing activities provided net cash of $18.4
million in the nine months ended July 31, 1999, $4.1 million in fiscal 1998,
$19.3 million for fiscal 1997, and $1.1 million for fiscal 1996. Proceeds from
financing activities for the nine months ended July 31, 1998 were primarily from
the sale of our Series F preferred stock and net borrowings on our line of
credit, offset in part by payments on long-term debt.
On July 31, 1998, we established a $5.0 million line of credit with a
financial institution to replace our $4,300,000 line of credit which expired on
April 1, 1998. Effective September 29, 1999, we amended our line of credit
agreement to increase the commitment by $2.0 million. This additional commitment
was reached through the conversion of outstanding borrowings on the existing
line of credit to a term loan. The entire unpaid principal balance of the term
loan is payable upon the termination of the agreement. The line of credit
expires on October 31, 2000. The amount available for borrowing is based on 80%
of qualifying accounts receivable, as defined. Interest on the line of credit is
at the prime rate plus 2.0% limited to a minimum of 8.0% per annum, and is
payable monthly. We also pay a monthly fee of 0.5% per year on the unused line
of credit. As of July 31, 1999, we had $2.9 million outstanding under the line
of credit and available borrowing capacity of $614,000.
On November 12, 1999, we borrowed $6.0 million of subordinated indebtedness
from an outside investor and two of our existing stockholders. The indebtedness
bears interest at 12.0% and is due upon the earlier of the closing of this
offering and November 12, 2000. We also issued to these lenders warrants to
purchase an aggregate of 360,000 shares of our common stock at an exercise price
of $5.25 per share.
We anticipate a substantial increase in our capital expenditures consistent
with anticipated growth in operations, infrastructure and personnel. We believe
that existing cash and cash equivalents, together with the
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<PAGE> 32
net proceeds of this offering, will be sufficient to meet our anticipated cash
need for working capital and capital expenditures for at least the next 12
months. However, we may need to raise additional funds in order to support more
rapid expansion of our sales force, develop new or enhanced products or
services, respond to competitive pressures, acquire complementary businesses or
technologies or respond to unanticipated requirements. If we seek to raise
additional funds, we may not be able to obtain funds on terms which are
favorable or otherwise acceptable to us. If we raise additional funds through
the issuance of equity securities, the percentage ownership of our stockholders
would be reduced. Furthermore, these securities may have rights, preferences or
privileges senior to our common stock.
YEAR 2000 READINESS
Background of Year 2000 Issue
The "year 2000 issue" refers generally to the problems that some software
may have in determining the correct date as a result of the millennium change.
We define "Year 2000 Ready" to mean that testing has revealed that the
electronic components at issue will recognize and properly perform date
sensitive functions into and beyond the year 2000. Software with date sensitive
information that is not Year 2000 Ready may not be able to distinguish whether
"00" means 1900 or 2000, which may result in system failures or the creation of
erroneous results. We are subject to potential year 2000 issues affecting our
products, our internal systems and the systems of our suppliers and customers,
any of which could harm our business.
State of Readiness
Our new software product, the FirePond Application Suite, is coded Year
2000 Ready and is designed to be Year 2000 Ready upon implementation provided it
is configured and used in accordance with our specifications, and provided that
the underlying operating systems and any other software used with the product
are also Year 2000 Ready. Substantial preliminary testing of the FirePond
Application Suite to date has confirmed that there are no year 2000 issues which
we are currently aware of. We plan to supplement and confirm this initial
testing with follow up testing prior to January 1, 2000.
We have tested our previous product line, Signature Plus, for year 2000
issues and have developed service packs designed to remediate year 2000 issues
associated with this product line. We have also tested customer implementations
of Signature Plus and our testing has revealed that the majority of such
implementations, including those which have implemented the service packs above,
are Year 2000 Ready. However, we have not tested independently installed
third-party software which may be integrated within our customers' systems. Such
integrated software could be susceptible to year 2000 issues and the failure of
our customers' systems to be Year 2000 Ready could impede the success of our
applications in their systems. Accordingly, any year 2000 issues inherent within
our software or within systems which contain our software could result in harm
to our business by way of delay or loss of revenues, diversion of development
resources, damage to our reputation, or increased service or warranty costs, any
of which could harm our business.
Many implementations of our current and prior products and custom
development projects are extended or enhanced through the use of custom software
modules developed by our professional service organization. We have completed or
initiated year 2000 testing of all such modules for which we are responsible. We
continue to work with our customers on a case by case basis to define readiness
tests, perform an assessment of each system, define remediation plans, and
develop and deploy required fixes as requested or as specified in customers'
agreements.
Risks Related to Year 2000 Issues
Our current or future customers may incur significant expenses to achieve
year 2000 readiness. If our customers are not Year 2000 Ready, they may
experience material costs to remedy problems, they may face litigation costs and
they may delay purchases or implementation of our products. Year 2000 issues
could reduce or eliminate the budgets that current or potential customers could
have for purchases of our products and services. Also, customers may look to us
to remediate any year 2000 issues associated with their systems. As a result,
our business, financial condition and results of operations could be seriously
harmed.
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We have also completed an assessment of our internal systems, including
software and hardware technology utilized by us, as well as third-party vendors
related to our facilities or otherwise related to our business. To the extent
that we are not able to test the technology provided by third-party vendors, we
are seeking assurances from such vendors that their systems are Year 2000 Ready.
We are not currently aware of any unresolved material operational issues or
costs associated with preparing our internal systems for the year 2000. However,
we may experience material unanticipated problems and costs caused by undetected
errors, defects in the technology used in our internal systems or by outside
occurrences beyond our control.
We have developed and continue to refine contingency plans designed to
address year 2000 issues that may result if our products, our internal systems,
or the systems of our suppliers or customers are not Year 2000 Ready.
We have funded our year 2000 remediation efforts from available cash and
have not separately accounted for these costs. To date, these costs have not
been material and are not expected to be material. However, we may experience
unanticipated problems and material costs with unknown year 2000 issues that
could harm our business.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. SFAS No. 133 is not expected to
have a material impact on our consolidated financial statements.
In December 1998, the AICPA issued Statement of Position 98-9,
"Modification of SOP 97-2 Software Revenue Recognition, With Respect to Certain
Transactions." SOP 98-9 requires use of the residual method of recognition of
revenues when vendor-specific objective evidence exists for undelivered elements
but does not exist for delivered elements of a software arrangement. We will be
required to comply with the provisions of SOP 98-9 for transactions entered into
beginning January 1, 2000. We do not expect the adoption of SOP 98-9 will have a
material effect on our financial position or operating results.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We develop products in the United States and Belarus and sell them
worldwide. As a result, our financial results could be affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. Since our sales are currently priced in U.S. dollars and are
translated to local currency amounts, a strengthening of the dollar could make
our products less competitive in foreign markets. Interest income and expense
are sensitive to changes in the general level of U.S. interest rates,
particularly since our investments are in short-term instruments and our
long-term debt and available line of credit require interest payments calculated
at variable rates. Based on the nature and current levels of our investments and
debt, however, we have concluded that there is no material market risk exposure.
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BUSINESS
INDUSTRY BACKGROUND
In today's highly competitive global marketplace, it is increasingly
critical for companies to prioritize their businesses around the attraction,
conversion and retention of customers. As a result, many companies are
redirecting their technology investments toward systems that will maximize their
long-term revenue streams by increasing the lifetime value of individual
customer relationships. Within industries that are characterized by complex
products, services, or channel relationships, competitive advantage often
results from a company's ability to provide products, services and content that
are specific to the preferences of individual customers, particularly when they
are making a buying decision. Companies are also realizing that existing and
potential customers often access their organization via multiple business
channels, including e-commerce channels, traditional direct sales forces, and
indirect channel partners. It is therefore important that companies not only
equip these channels with systems that provide competitive differentiation when
a customer's buying decision is being made, but that they provide the customer
with consistent, valuable service across all channels.
In response to this shift toward customer-oriented systems, companies
originally invested heavily in traditional Customer Relationship Management, or
CRM, software, which was designed to automate administrative support for
traditional corporate sales, call center, and service employees in order to more
effectively manage customer relationships. These solutions, which traditionally
have included functionality such as customer contact management, sales force
administration, call center service and support, and marketing automation, have
helped to eliminate cost inefficiencies within a company's sales and marketing
organization by streamlining and consolidating customer information and other
internal administrative tasks. However, because these applications are focused
on administrative aspects of a company's sales and marketing efforts, they
generally have not directly enhanced the customer's buying experience.
Traditional CRM solutions are further prevented from providing value directly to
customers because they were typically designed prior to the widespread
commercial use of the Internet, and were not intended for large scale,
Internet-based customer-driven transactions. Many companies that implemented
traditional CRM systems therefore have found themselves with systems that do not
interactively engage the customer in ways that add value to those relationships
or enhance individual buying decisions.
The rapid evolution and acceptance of the Internet as a means for
communicating, sharing information, and transacting directly with customers
worldwide has dramatically changed the focus of customer relationship
management. The Internet offers new opportunities for increased interactivity
and self-service, enabling companies to create new approaches for initiating,
developing and managing customer relationships over time. The Internet enables
the creation of powerful new revenue channels, while simultaneously improving
the effectiveness with which existing distribution channels market, sell and
support product and service offerings. Forrester Research, Inc. estimates that
the total value of U.S. business trade on the Internet will grow to
approximately $1.3 trillion in 2003. International Data Corporation (IDC)
estimates that the market for Internet Commerce applications will grow 280% to
$1.7 billion in 1999 and projects the market to top $13 billion by 2003.
(Source: Internet Commerce Software Applications Market Review and Forecast,
1998-2003, April 1999).
As a result of these developments, the market for sales and marketing
oriented e-business software offerings has also evolved rapidly. The first
generation of e-business software was primarily focused on providing the back
office infrastructure to enable secure commerce transactions. More recently, a
variety of niche e-business software applications have been introduced,
including Internet content management and personalization offerings, which
target a specific aspect of the customer relationship or buying process. These
point solutions have provided tactical value in encouraging the adoption of the
Internet for the purchase of more basic, consumer-oriented goods. However, they
have typically not provided the advanced, integrated functionality necessary to
offer targeted products, services and content based upon a customer's individual
profile or stated requirements, which we believe is a critical success factor
for companies using e-commerce to sell complex products and services. In
addition, these Internet applications typically do not interact with a company's
traditional sales and distribution channels. Because these applications were
designed to support only Internet-based interactions, they typically are unable
to capture and deliver more complete customer
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<PAGE> 35
information throughout a company and all of its established sales channels. This
inability to enable a common view of a customer limits a company's ability to
consistently service individual customers and to maximize the value of those
relationships.
Companies that sell complex products and services require a new generation
of e-business sales and marketing applications to offer targeted products,
services, and content to individual customers. Without these applications,
companies with complex selling activities may not be able to execute successful
e-commerce strategies, and may be forced to rely exclusively on traditional
human-assisted selling channels for their revenue streams. To achieve effective
management of individual customer relationships, these companies must utilize
advanced, Internet-based technologies that offer enhanced customer interactivity
and can support the creation of personalized solutions in a highly scalable and
reliable fashion at the time of customer buying decisions. These capabilities
must support the rapid deployment of an effective e-commerce channel, and must
also support traditional direct and indirect selling channels, so that the
effectiveness of all revenue channels is maximized and a common view of the
customer can be established. This next-generation software must also capitalize
on the highly interactive nature of the Internet to capture and provide
real-time customer information throughout the enterprise, enabling
customer-focused processes that maximize the lifetime value of each customer
relationship.
THE FIREPOND SOLUTION
FirePond is a leading provider of integrated e-business sales and marketing
solutions that enable companies to optimize customer relationships and maximize
the effectiveness of their Internet-based and traditional sales channels. The
FirePond Application Suite enables companies to increase customer conversion and
retention by delivering highly consistent and personalized interactive buying
experiences to their customers over the Internet, as well as through more
traditional selling channels. Using our software applications, companies are
able to link information obtained from business-to-business or
business-to-consumer e-commerce transactions into traditional sales channels,
where it can dramatically improve the effectiveness of each sales model. Our
products can also deliver real-time information from these interactive,
Internet-based transactions across the enterprise, and thus enable more
responsive and targeted sales efforts and business planning. These capabilities
allow companies to effectively manage their ongoing sales, marketing, product
planning and fulfillment activities in a fashion that maximizes the lifetime
value of each customer relationship.
Using our integrated e-business sales and marketing solutions, companies
that offer complex products and services are able to:
- quickly develop an effective e-commerce sales channel by delivering
interactive, personalized, guided selling capabilities to
business-to-business and business-to-consumer e-commerce sites;
- provide powerful assisted selling functionality to direct and indirect
selling channels to maximize the effectiveness of each customer
interaction with those channels;
- develop a common view of each customer across all Internet and
traditional sales channels to bring intelligence and consistency to every
customer interaction;
- leverage the interactivity of the Internet to capture and deliver to the
entire enterprise real-time customer transaction information, enabling a
true customer-centric business model; and
- achieve high reliability, performance and scalability in e-commerce
environments, as well as in broader enterprise environments that support
multiple selling channels.
STRATEGY
Our goal is to be the leading provider of integrated e-business sales and
marketing solutions. To achieve this goal, key elements of our strategy include:
Leverage Targeted Vertical Market Focus. We currently focus on industries
that are typically characterized by complex products, services or channel
relationships, including health care/insurance, financial
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services, high technology, telecommunications, automotive/trucking and
manufacturing. We believe that our focused pursuit of these targeted markets
allows us to tailor robust industry-specific solutions that best address the
needs of our customers and ensure customer satisfaction. To further our vertical
market focus, our sales efforts are organized around complementary industry
verticals so that we may offer more specialized, consultative expertise when
customers evaluate and license our products. We will continue to deepen our
penetration of our target markets and utilize our customer-focused development
organization to quickly and effectively translate customer requirements into
industry-specific product features and functions. We plan to expand into new
vertical industries with similar characteristics and will target leading
companies in those industries.
Exploit Established International Infrastructure to Gain Global Market
Share. We have invested heavily in a global infrastructure in order to target
leading businesses worldwide. We have increased the number of FirePond employees
internationally to 74 as of October 31, 1999 from 24 on October 31, 1998. Our
international revenues as a percentage of total revenues grew to 14% in the nine
months ended July 31, 1999 from 12% in the nine months ended July 31, 1998 as we
obtained leading international customers such as Ford Motor Company-Europe,
Hitachi, and Renault V.I. We plan to use customer wins and existing and new
partner relationships to leverage our infrastructure and grow market share in
international markets.
Utilize Unique Development Model to Aggressively Expand Our E-Business
Solutions. Our internal development organization, combined with our strategic
relationship with an offshore development organization, creates a highly
scalable product delivery model that allows us to rapidly introduce significant
new product features and functionality. We believe these combined resources
provide us with significant advantages, including ready access to a
highly-skilled labor pool, reduced turnover and rapid development cycles. The
use of this model was integral to the rapid development and timely release of
the FirePond Application Suite, which includes functionality, features, and
underlying architecture not available in our prior product offerings. We intend
to continue to use this combined organization to aggressively expand the
functionality of our products and incorporate new technologies to meet the
demands of the marketplace.
Expand Relationships with Partners. We have established strategic
marketing alliances with industry leading systems integrators, including Ernst &
Young, Viant, EDS and Intelligroup, and with complementary software vendors,
such as E.piphany, Talus Software, Silverstream and Oberon Software and
application service providers such as GTE Internetworking. These alliances help
extend our market coverage and provide us with new business leads and access to
a large pool of highly trained implementation personnel. We are continually
seeking to expand the number of partners we work with to further penetrate the
market and accelerate our growth.
Leverage Packaging Flexibility to Strategically Penetrate Global 2000
Accounts. We offer a suite of e-business products, which may be purchased as
separate components or as an enterprise platform for integrated e-business sales
and marketing solutions. This has allowed us to penetrate accounts that differ
greatly with regard to their current stages of developing and implementing their
e-business strategies. We intend to leverage our success in selling our
independent component offerings to create future opportunities for up-selling
customers to our enterprise platform. In addition, we offer a migration path to
an enterprise platform for integrated e-business sales and marketing solutions
to increase the likelihood that we will successfully sell our independent
components to accounts that are not yet ready for enterprise-wide solutions. We
also offer innovative pricing alternatives such as annual licensing and
transaction-based pricing that provide our customers with a wide variety of
licensing options. We will continue to package and price our product offerings
in a fashion designed to remove sales barriers and create recurring revenue
streams.
Capitalize on Expertise from Prior Custom Development Business. We have
been engaged for 16 years in the development of custom interactive selling
solutions for Global 2000 companies and have leveraged that expertise in
developing and implementing the FirePond Application Suite. We have successfully
transitioned the majority of our business from providing custom development
services to providing more standardized software products, while maintaining the
technical expertise and knowledge developed in providing customized solutions.
We believe that our historical expertise in this area represents a significant
competitive
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advantage, and we intend to expand upon this expertise to provide optimized
solutions to companies in our targeted markets.
FIREPOND PRODUCTS
The FirePond Application Suite provides Internet-based guided selling and
customer information management capabilities, enabling companies to deploy
integrated e-business sales and marketing initiatives. These companies can use
the FirePond Application Suite to offer intelligently targeted products,
services, and content to customers across e-commerce and traditional selling
channels. With our software, companies can record customer interactions that
occur in an e-commerce channel and apply that information to traditional sales
channels, where it can dramatically improve selling effectiveness. Our products
also take advantage of a process workflow architecture that enables customer
information and transactional events to be distributed across the larger
enterprise in real time, linking systems and organizations to enable
coordinated, customer-focused processes. By coordinating a company's
organizational strategies around a common view of its customers, our software
enables companies to maximize the lifetime value of each customer relationship.
The table below describes the components of the FirePond Application Suite:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
FIREPOND APPLICATION SUITE
COMPONENT COMPONENT DESCRIPTION
- ---------------------------------------------------------------------------------------------------
<S> <C>
FirePond Business Rule Engine Industry-leading business intelligence engine for
rules-based product configuration, pricing, customer needs
analysis and transactional personalization across every
customer interaction
- ---------------------------------------------------------------------------------------------------
FirePond Commerce Guided selling application for business-to-business or
business-to-consumer e-commerce, leveraging capabilities of
the FirePond Business Rule Engine
- ---------------------------------------------------------------------------------------------------
FirePond Sales Guided selling application for assisted direct and indirect
selling channels, leveraging capabilities of the FirePond
Business Rule Engine
- ---------------------------------------------------------------------------------------------------
FirePond Sales Manager Sales administration and customer information management
system
- ---------------------------------------------------------------------------------------------------
FirePond Process Server Transaction-based process workflow engine, enabling
companies to coordinate connected systems and individuals in
organized, customer driven processes
- ---------------------------------------------------------------------------------------------------
FirePond Enterprise Workbench Application administration platform, including tools for
managing functionality, content, business rules, enterprise
process flows and system administration activities
- ---------------------------------------------------------------------------------------------------
</TABLE>
FirePond Product Packaging and Pricing
In order to achieve flexibility in aligning our technology with companies
in different stages of executing their e-business strategies, we offer a variety
of packaging and pricing options for the FirePond Application Suite. Customers
seeking an enterprise platform for integrated e-business sales and marketing may
license the entire FirePond Application Suite, including all associated
components. Those companies pursuing less comprehensive initiatives, but which
are still focused on making strategic investments in guided selling, channel
management or customer information management solutions, may license FirePond
Commerce or FirePond Sales, each bundled with the FirePond Business Rule Engine,
as well as FirePond Sales Manager, as standalone applications. Companies
interested in making a strategic investment in configuration or business rule
engine technology to serve a variety of enterprise requirements may license the
FirePond Business Rule Engine as a standalone application. By offering this
variety of packaging options, we allow our customers to make strategic
investments in our technology, without necessarily committing to a larger
enterprise platform.
We also offer a wide variety of pricing options to our customers. We
currently offer our packaged software on a price per user or group of concurrent
users basis, which customers can then license on a
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<PAGE> 38
perpetual or annual basis. We also offer transaction-based pricing that ties the
overall cost of owning our software to the value provided to the company.
License fees for our products typically range from approximately several hundred
thousand dollars to several million dollars.
FirePond Business Rule Engine
The FirePond Business Rule Engine, or FirePond BRE, is an industry-leading
business intelligence engine for executing rules-based product configuration,
pricing, customer needs analysis and transactional personalization across every
customer interaction. The FirePond BRE was originally utilized in our previous
business model, as the centerpiece of custom software developments, and was
incorporated in the FirePond Application Suite. As such, the FirePond BRE has
proven highly scalable in large-scale enterprise environments. The FirePond BRE
evaluates customer requirements and characteristics, then matches them to
specific products, pricing and content, all at the time of purchase. Using
accompanying tools in the FirePond Enterprise Workbench, companies create
multi-tiered business rule models that govern how products are configured,
offered and sold to individual customers, customer types, or market segments, in
both e-commerce and traditional channels. At the time of evaluation or purchase,
the FirePond BRE will evaluate customer input, draw from the underlying business
rule models, dynamically configure targeted products, generate customer-specific
pricing, and offer relevant content to facilitate the customer buying decision.
This interactive information exchange, or customer needs analysis, shields
customers from the complexity of the product being sold, allowing targeted
solutions to be configured based on customers' high level descriptions of
intended use, personal preferences, business priorities, or price sensitivities,
rather than detailed option selection.
FirePond Commerce
FirePond Commerce allows companies to quickly deploy highly interactive,
consultative e-commerce web sites. Companies receive the base version of
FirePond Commerce, then collaborate with FirePond or third-party implementation
partners, to brand the application and assemble the selling functionality in
ways that reflect their strategies and best practices for selling. Associated
tools allow for the tailoring of this functionality in rapid time frames. Using
the FirePond Business Rule Engine to apply intelligence to independent
components of functionality, companies can easily construct comprehensive
e-commerce selling sites that emulate the consultative nature of traditional
sales channels. Customers accessing a FirePond Commerce-enabled site can
navigate through an entire sales process, beginning with an interactive needs
analysis session, create a targeted product configuration with a personalized
price quote, explore optimal financing recommendations, compare relevant
competitive offerings, obtain individualized product content, generate a
company-branded proposal, and complete the order. FirePond Commerce then logs
these interactions to share real-time information with other FirePond
applications as well as with the larger enterprise.
FirePond Sales
FirePond Sales is a comprehensive guided selling application targeted for
use by sales people in traditional selling channels, including direct sales
forces, distributors, dealers, agents and others who deal interactively with
customers. Similar to FirePond Commerce, companies receive the base version of
FirePond Sales, then use associated tools to tailor the application to represent
their unique branding and best practices for selling. FirePond Sales draws from
the same functionality offered in FirePond Commerce to offer targeted products,
services and content to individual customers when they are ready to buy.
However, the functionality is utilized differently due to the presence of human
interaction in the sales process. The underlying data model and process
architecture that supports FirePond Sales are also the same as that which
supports FirePond Commerce, allowing for collaboration between the two
applications. For example, when a customer creates and saves a solution on a
FirePond Commerce-enabled site, a sales person can access that solution and use
FirePond Sales to optimize the solution and further develop the opportunity.
34
<PAGE> 39
FirePond Sales Manager
FirePond Sales Manager is an integrated, web-based sales administration and
customer information management system. FirePond Sales Manager allows sales
people and their managers to perform a wide variety of customer information
management activities, including managing customer contacts and profiles,
coordinating activities, defining and assessing opportunities, managing a sales
pipeline, aligning sales territories, and generating and analyzing forecasts.
Because it is typically linked to FirePond Commerce and FirePond Sales, FirePond
Sales Manager can be automatically populated with data from real-time customer
events and interactions, rather than rely solely on the salesperson to populate
it with meaningful data. For example, if a customer engages in a buying session
on a FirePond Commerce-enabled web site, that event, along with all of the
customer profile information associated with that session, is delivered to
FirePond Sales Manager, where assigned next steps will be presented to the sales
person for effective pursuit of the sale.
FirePond Process Server
FirePond Process Server is a transaction-based workflow engine that enables
companies to coordinate connected systems and individuals in organized,
customer-driven processes. Using drag and drop tools in FirePond Enterprise
Workbench, companies can design high-level processes for addressing real-time
events generated from interactive sessions occurring within FirePond Commerce or
FirePond Sales. Using FirePond Process Server and its related tools, companies
can identify organizational roles, assign tasks, and connect systems to each
process. Companies then apply logic that defines how and when these
organizational roles, tasks, and systems will be invoked, based on different
events. When events trigger these processes, FirePond Process Server ensures
that the process unfolds across the enterprise, while maintaining the integrity
of underlying corporate databases. Companies then use FirePond Process Server
tools to test, analyze and optimize these processes for maximum benefit. For
example, companies use FirePond Process Server to define the processes that will
be triggered when an individual customer creates a solution on a FirePond
Commerce-enabled web site. Using the associated tools, companies may create
processes that inform the appropriate sales person of this event, attach
relevant customer information from the session, update the corporate database,
or send an e-mail to that customer's service team.
FirePond Enterprise Workbench
FirePond Enterprise Workbench is a maintenance and development platform for
defining, analyzing, and managing functions, data, content and processes within
the FirePond Application Suite. FirePond Enterprise Workbench is comprised of
several tools, which allow companies to:
- visually create, manage, and monitor transaction-based business processes
that span multiple applications;
- author and manage business rules that support product configuration,
pricing and transactional personalization in the FirePond Business Rule
Engine;
- assemble and tailor packaged FirePond selling functionality to comply
with their strategies and best practices for selling;
- develop and deploy e-business functionality that complements the packaged
application functions of the FirePond Application Suite;
- define connectivity and data flows between the FirePond Application Suite
and third-party applications via the use of standardized connectors; and
- assign users, manage security, and troubleshoot the distributed
components of a FirePond Application Suite deployment.
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<PAGE> 40
PROFESSIONAL SERVICES AND SUPPORT
We offer a range of professional services that help companies create unique
deployments of the FirePond Application Suite that are highly specific to their
businesses. Our professional services personnel typically have extensive
experience in the deployment of enterprise-scale selling systems, as many have
participated in projects associated with our prior custom development services
business model. When we assist companies in the implementation of the FirePond
Application Suite, or one of its components, we help them map their individual
strategies to our technology, then provide targeted resources that assist in the
development of a functional application workflow, data models, automated
enterprise processes, highly branded user interfaces, and functional extensions
to our applications, in order to support those strategies. Our professional
services implementation teams are organized around the following roles:
- Project Manager -- Business manager of the FirePond Application Suite
implementation, responsible for leading project strategies and
coordinating our resources in support of those strategies
- Business Analyst -- Strategic business consultant responsible for mapping
a company's corporate selling strategies to product functionality in the
FirePond Commerce and FirePond Sales applications, and for architecting
customer-focused business processes within FirePond Process Server
- Product Architect -- Technical architecture specialist responsible for
tailoring the FirePond Application Suite to the technical infrastructure
of individual companies, including strategies for data management,
communication, and integration between the FirePond Application Suite and
third party applications
- BRE Engineer -- Highly specialized resource responsible for implementing
business rule models within the FirePond Business Rule Engine that
reflect a company's product configuration, pricing and transactional
personalization strategies
- Interactive Consultant -- Graphic design specialist responsible for
creating a user interface for the FirePond Application Suite, which
reflects both a company's individual brand identity, as well as the best
practices for selling developed in conjunction with the company
We may also involve third-party systems integrators to perform these roles
and supplement our professional services personnel on particular accounts.
We provide support services, as well as software upgrades, under annual
software maintenance contracts. These annual maintenance contracts are renewable
at the company's option. Our support services are available seven days per week,
24 hours per day, and 365 days per year.
In addition to the services provided in connection with the FirePond
Application Suite, we also provide custom development and support services. From
our inception through 1997, we generated revenues primarily through custom
development services, and the ongoing support of the implementations from our
prior business model continues to represent a significant portion of our
revenues. Although we do not offer custom development services to new customers
and we expect revenues from our custom development services to decline as a
percentage of overall revenues over time, we intend to continue to provide these
services for the foreseeable future in support of our established custom
development services contracts.
SALES AND MARKETING
We market and sell our products primarily through our direct sales force,
which is located throughout North America, Europe and Asia. In North America,
the FirePond sales organization is focused on our targeted vertical markets,
with resources assigned to health care/insurance, financial services, high
technology, telecommunications, automotive/trucking and manufacturing. In Europe
and Asia, the FirePond sales organization is deployed by geographic region, but
focuses on the same vertical markets that we target in North America, leveraging
our local implementation expertise as well as our global industry knowledge.
We have multi-disciplined sales teams that consist of sales, technical and
support professionals. Our senior management also takes an active role in our
sales efforts. Because our applications have rich out-of-the-box functionality,
we can easily develop custom demonstrations which we or our partners then use to
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<PAGE> 41
design models for full-scale implementations. We typically direct our sales
efforts to the chief executive officer, the chief information officer, the vice
presidents of sales and marketing and other senior executives responsible for
e-business strategy at our customers' organizations.
FirePond has sales offices in the Boston, Chicago, Detroit, Minneapolis,
Pittsburgh, San Francisco, St. Louis, Amsterdam, Dusseldorf, London, Paris,
Stockholm, Hong Kong and Tokyo areas. As of October 31, 1999, our world-wide
sales organization consisted of 62 employees.
FirePond's marketing organization utilizes a variety of programs to support
our sales efforts, including:
- market and product research and analysis;
- product and strategy updates with industry analysts;
- public relations activities and speaking engagements;
- internet-based and direct mail marketing programs;
- seminars and trade shows;
- brochures, data sheets and white papers; and
- web site marketing.
As of October 31, 1999, FirePond's marketing organization consisted of 11
employees.
CUSTOMERS
FirePond has targeted and will continue to target selected vertical
industries with complex products, services or channel relationships, including
health care/insurance, financial services, high technology, telecommunications,
automotive/trucking and manufacturing. The following is a list of some of our
better-known customers to whom we have provided our products or services in
fiscal 1998 or fiscal 1999:
ADP
American Isuzu Motors*
Bell Atlantic Network Integration
Blue Cross Blue Shield
Minnesota
Compaq
Cummins Power Generation Group
DAF Trucks N.V.*
Empire Blue Cross Blue Shield
Ford Motor Company -- Europe
Freightliner*
General Motors
Hitachi
IBM*
Ingersoll-Rand
Isuzu-General Motors Australia*
JI Case*
John Deere*
Johnson Controls*
KLA-Tencor
Norwest Services
Peugeot SA
Renault V.I.
Savings Bank Life Insurance
Sprint
Subaru
Sunds Defibrator
- ------------
* Customer relationships based on custom development services exclusively
RESEARCH AND DEVELOPMENT
As of October 31, 1999, FirePond employed 84 people in research and
development throughout its U.S. offices. This team is responsible for product
planning and design, development of particular functionality within the FirePond
Application Suite and general release and quality assurance functions.
We contract with a third party, Soft OS, to provide software development
and implementation services on an outsourced basis. Soft OS subcontracts to have
these services provided to us by Effective Programming, a development
organization located in Minsk, Belarus, and EPAM Systems, a related development
organization located in New Jersey. Under this arrangement, Effective
Programming and EPAM Systems provide software developers dedicated to our
projects to develop products and application functionality pursuant to
specifications provided by us and to provide implementation services to our
customers. The agreement expires in February 2002. As of October 31, 1999,
approximately 85 employees and contractors of Effective Programming and EPAM
Systems were performing services for us. Each of Effective Programming and EPAM
Systems is majority owned by one of our employees, Arkadiy Dobkin, our Vice
President of Product Research and Development. We believe our relationship with
Effective Programming and EPAM Systems is a significant competitive advantage
and provides us with ready access to
37
<PAGE> 42
a highly-skilled labor pool, reduced turnover, rapid development cycles and a
cost-effective solution to our research and development needs.
Our research and development expenses were $6.4 million for the nine months
ended July 31, 1999, $8.2 million for fiscal 1998 and $3.6 million for fiscal
1997. We expect to continue to invest significantly in research and development
in the future.
COMPETITION
The market for e-business sales and marketing solutions is intensely
competitive, fragmented and subject to rapid technological change. The principal
competitive factors in this market include:
- adherence to emerging Internet-based technology standards;
- comprehensiveness of applications;
- adaptability, flexibility and scalability;
- real-time, interactive capability with customers, partners, vendors and
suppliers;
- ability to support vertical industry requirements;
- ease of application use and deployment;
- speed of implementation;
- customer service and support; and
- initial price and total cost of ownership.
Because we offer both independent packaged applications, as well as an
enterprise platform for integrated e-business sales and marketing solutions, we
consider a number of companies in different market categories to be our
competitors. Companies focused on providing advanced selling applications for
e-commerce and traditional sales channels include Calico Commerce, Selectica and
Trilogy Software. Companies offering e-commerce software that focuses on a
specific aspect of the customer relationship or buying process, including
personalization, content management or self-service applications, include
BroadVision, Vignette, and Silknet. Finally, companies that offer enterprise
platforms for customer information management include Siebel Systems and Oracle
Corporation. There are a substantial number of other companies focused on
providing Internet-based software applications for customer relationship
management that may offer competitive products in the future.
We expect competition to increase as a result of software industry
consolidation. For example, a number of enterprise software companies have
acquired point solution providers to expand their product offerings. Our
competitors may also package their products in ways which may discourage users
from purchasing our products. Current and potential competitors may establish
alliances among themselves or with third parties or adopt aggressive pricing
policies to gain market share. In addition, new competitors could emerge and
rapidly capture market share.
Although we believe we have advantages over our competitors in terms of the
comprehensiveness of our solution, as well as our targeted vertical focus, there
can be no assurance that we can maintain our competitive position against
current and potential competitors, especially those with longer operating
histories, greater name recognition and substantially greater financial,
technical, marketing, management, service, support and other resources.
INTELLECTUAL PROPERTY
We believe our intellectual property rights are significant and that the
loss of all or a substantial portion of such rights could seriously harm our
success and ability to compete. We rely on a combination of copyright, patent,
trade secret, trademark, and other intellectual property law, nondisclosure
agreements and other protective measures to protect our proprietary rights.
There can be no assurance that our intellectual property protection measures
will be sufficient to prevent misappropriation of our technology. Some of our
contracts with our customers contain escrow arrangements with a third party
escrow agent which provide these companies with access to our source code, and
other intellectual property upon the occurrence of
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<PAGE> 43
specified events. Such access could enable these companies to use our
intellectual property and source code creating a risk of disclosure or other
inappropriate use. Our third-party development organization located in Minsk,
Belarus and New Jersey has access to our source code and other intellectual
property rights. Despite our contractual protections, such access could enable
them to use our intellectual property and source code to wrongfully develop and
manufacture competing products, which would adversely affect our performance and
ability to compete. In addition, we cannot be certain that others will not
independently develop substantially equivalent intellectual property, gain
access to our trade secrets or intellectual property, or disclose our
intellectual property or trade secrets. Furthermore, the laws of many foreign
countries do not protect our intellectual property to the same extent as the
laws of the United States. From time to time, we may desire or be required to
renew or to obtain licenses from others in order to develop and market
commercially viable products effectively. There can be no assurances that any
necessary licenses will be available on reasonable terms, if at all.
From time to time, third parties may assert claims or initiate litigation
against us or our technology partners alleging infringement of their proprietary
rights with respect to our existing or future products. We could be increasingly
subject to infringement claims as the number of products and competitors in the
market for our technology grows and the functionality of products overlaps. In
addition, we may in the future initiate claims or litigation against third
parties for infringement of our proprietary rights to determine the scope and
validity of our proprietary rights. Any claims, with or without merit, could be
time-consuming, result in costly litigation and diversion of technical and
management personnel or require us to develop non-infringing technology or enter
into royalty or licensing agreements. Such royalties or licensing agreements, if
required, may not be available on acceptable terms, if at all.
EMPLOYEES
At October 31, 1999, we had a total of 347 employees, of which 84 were in
research and development, 73 were in sales and marketing, 56 were in finance and
administration, and 134 were in professional services and support. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and consider our relations with our employees to be good.
FACILITIES
Our corporate headquarters are located in Waltham, Massachusetts and occupy
approximately 29,500 square feet. Our lease for this facility expires on
December 31, 2004. In addition, we have two facilities located in Minnesota. Our
facility in Mankato, Minnesota currently occupies approximately 63,250 square
feet. Our lease for this facility expires on December 1, 2008. In connection
with the relocation of our corporate headquarters in fiscal 1999, we will take
actions to reduce the lease commitment by 50% as of December 1, 2000 and
terminate the lease as of December 1, 2003. We are currently operating under two
separate leases in Bloomington, Minnesota. Both of these suites are in the same
building. One occupies approximately 12,100 square feet and our lease for this
facility expires on January 31, 2002. The other suite occupies approximately
2,500 square feet and our lease for this facility expires on March 31, 2002. We
believe these existing facilities will be adequate to meet our needs for the
next 12 months. If our growth continues, we may need larger facilities after
that time. Suitable additional facilities may not be available as needed on
commercially reasonable terms. We also lease sales offices in Chicago, Illinois;
Bloomfield Hills, Michigan; Oakland, California; Sewickly, Pennsylvania;
Chesterfield, Missouri; Hoofddorp, The Netherlands; Duesseldorf, Germany; Fleet,
England; Paris, France; Stockholm, Sweden; Hong Kong and Tokyo, Japan.
LEGAL PROCEEDINGS
We are engaged in legal proceedings incidental to the normal course of
business. Although the ultimate outcome of these matters cannot be determined,
we believe that the final outcome of these proceedings will not seriously harm
our business.
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<PAGE> 44
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of October 31, 1999,
are as follows:
<TABLE>
<CAPTION>
AGE POSITION
--- --------
<S> <C> <C>
Klaus P. Besier........................... 48 Chairman, President, Chief Executive Officer and
Director
Ilya G. Gorelik........................... 38 Senior Vice President of Product Strategy and
Development
Edwin B. Lange............................ 43 Senior Vice President of North American Sales
Graham S. Williams........................ 44 Senior Vice President and Managing Director of
Europe and Asia
Paul K. McDermott......................... 38 Chief Financial Officer and Vice President of
Finance and Administration
Steven J. Waters.......................... 31 Vice President of Marketing
Thomas F. Carretta........................ 41 General Counsel and Secretary
Paul R. Butare (1)........................ 48 Director
J. Michael Cline (1)(2)................... 39 Director
William O. Grabe (2)...................... 61 Director
</TABLE>
- ------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Klaus P. Besier has served as Chairman of our Board of Directors since
October 1999 and has served as our President, Chief Executive Officer and a
director since June 1997. Prior to joining FirePond, from February 1996 to May
1997, Mr. Besier was Chairman, President and Chief Executive Officer of Primix
Solutions, Inc., an internet-enabled software company. From 1994 to 1996, Mr.
Besier was the Chief Executive Officer of SAP America, Inc., a subsidiary of SAP
AG, a leading provider of business application software. From 1992 to 1993, he
was the President of SAP America, Inc. From 1991 to 1992, Mr. Besier was Vice
President of Sales of SAP America, Inc. From 1977 to 1990, Mr. Besier held
various senior management positions including General Manager and Corporate Vice
President with various affiliates of Hoechst Celanese, a specialty chemicals
company.
Ilya G. Gorelik has served as our Senior Vice President of Product Strategy
and Development since October 1998. Prior to joining FirePond, from 1989 to 1998
Mr. Gorelik held various senior management positions with Parametric Technology
Corporation, most recently as Senior Vice President of Product Engineering, and
Chief Technology Officer from 1989 to 1998 for Parametric Technology
Corporation, a leading software supplier for the mechanical design automation
market. From 1989 to 1998,.
Edwin B. Lange has served as our Senior Vice President of North American
Sales since September 1999. Prior to joining FirePond, from 1993 to 1999, Mr.
Lange held various senior management positions with SAP America, Inc., most
recently Senior Vice President and General Manager of the Discrete Manufacturing
Sector. From 1990 to 1993 he was Sales Director of Andersen Consulting Software
Products.
Graham S. Williams has served as our Senior Vice President and Managing
Director of Europe and Asia since June 1998. Prior to joining FirePond, from
1996 to June 1998, Mr. Williams was President and Chief Executive Officer of
SuperNova, an application and component development tool firm. From 1993 to
1996, Mr. Williams was Vice President, European Operations and Vice President,
European and Asia Pacific Operations for Compuware Corp/Uniface International, a
provider of enterprise and client/server systems. From 1992 to 1993 he was the
Vice President and Managing Director, Europe of Seer Technologies, a provider of
integrated CASE systems.
Paul K. McDermott has served as our Chief Financial Officer since January
1999. Prior to joining FirePond, from 1995 to 1999, Mr. McDermott was Chief
Financial Officer, Treasurer, and Secretary of ServiceWare, Inc., an Internet
software company specializing in knowledge management. From 1990 to 1995,
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<PAGE> 45
he held various positions in finance, including Controller, with Legent
Corporation, a supplier of software and services for distributed enterprise
computing.
Steven J. Waters has served as our Vice President of Marketing since
September of 1997. Prior to joining FirePond, from 1993 to 1997, he held various
marketing positions at Trilogy Development Group, a sales technology company,
including Director of Sales and Marketing from 1996 to 1997. Prior to Trilogy,
Mr. Waters worked in the national high-technology group of Bear, Stearns & Co.,
Inc.
Thomas F. Carretta has served as our General Counsel since May 1998. He was
elected to serve in the additional capacity of Secretary in November 1998. Prior
to joining FirePond, from 1988 to 1998, Mr. Carretta was General Counsel for
Comtrol Corporation and affiliated companies.
Paul R. Butare has been a director of FirePond since July 1999. Mr. Butare
is the Chairman and Chief Executive Officer of Richter Systems International
Inc., a leader in global supply chain enterprise solutions. Prior to joining
Richter, Mr. Butare served as Executive Vice President for Policy Management
Systems Corporation, a developer of insurance industry software, which he joined
in 1984, and President of CYBERTEK, a life insurance financial systems and
services company of Policy Management Systems.
J. Michael Cline has been a director of FirePond since May 1997. Mr. Cline
is a private investor. From 1989 to 1999, Mr. Cline was a managing member of
General Atlantic Partners, LLC (or its predecessor), a private equity firm that
invests globally in software, Internet services and related information
technology companies. Prior to joining General Atlantic, Mr. Cline helped found
AMC, a software company subsequently sold to Legent Corporation. Prior to
founding AMC, Mr. Cline was an associate at McKinsey and Company. Mr. Cline is a
Trustee of the Wildlife Conservation Society and a director of Brio Technology,
Manugistics, OptiMark Technologies, EXE, Richter Systems, XChanging, Talus and
Rebus.
William O. Grabe has been a director of FirePond since May 1997. Mr. Grabe
is a managing member of General Atlantic Partners, LLC and has been with General
Atlantic since April 1992. Prior to joining General Atlantic, Mr. Grabe was
Corporate Vice President and General Manager, Marketing & Services for IBM US.
His outside affiliations include being a member of the UCLA Foundation Board of
Trustees and a Trustee of Outward Bound USA. He is also a director of Baan
Company, N.V., LHS Group, Inc., Compuware Corporation, Gartner Group Inc., Exact
Holdings N.V., Meta4, TDS AG and several other private software and services
companies.
Following this offering, the Board of Directors will consist of four
directors divided into three classes, with each class serving for a term of
three years. At each annual meeting of stockholders, directors will be elected
by the holders of common stock to succeed the directors whose terms are
expiring. Mr. Cline is a Class I director whose term will expire in 2000. Mr.
Grabe is a Class II director whose term will expire in 2001, and Messrs. Besier
and Butare are Class III directors whose terms will expire in 2002.
BOARD COMMITTEES
The Board of Directors has a Compensation Committee composed of Messrs.
Butare and Cline, which makes recommendations concerning salaries and incentive
compensation for our employees and administers the 1997 Stock Option Plan, the
1999 Director Plan and the 1999 Stock Option and Grant Plan. The Board of
Directors also has an Audit Committee composed of Messrs. Cline and Grabe, which
recommends the engagement of our outside auditors and reviews our accounting
controls, the results and scope of the audit and other services provided by our
outside auditors. The Board of Directors may establish, from time to time, other
committees to facilitate the management of our business.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable and necessary expenses
incurred in connection with attendance at meetings of the Board of Directors or
its committees. Members of the Board who are not employees receive stock options
under our 1999 Director Plan. Our directors are also eligible to participate in
our 1997 Stock Option Plan and 1999 Stock Option and Grant Plan.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of our Board of Directors or Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
earned for services rendered to us by our current Chief Executive Officer and
each of our four other most highly compensated executive officers whose salary
and bonus compensation for fiscal 1999 exceeded $100,000, collectively referred
to below as the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
GRANTED
------------
ANNUAL COMPENSATION NUMBER OF
---------------------------------- SHARES
OTHER ANNUAL UNDERLYING
NAME & PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS
- ------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Klaus P. Besier............................... $200,000 $ -- --
Chairman, President and Chief Executive
Officer
Graham S. Williams............................ 213,816 8,910 19,740(1) 100,000
Senior Vice President and Managing Director
of Europe and Asia
Ilya G. Gorelik............................... 175,000 -- -- 133,334
Senior Vice President of Product Strategy
and Development
Paul K. McDermott............................. 132,060 25,000 36,674(2) 340,001
Chief Financial Officer and Vice President
of Finance and Administration
Steven J. Waters.............................. 156,766 -- 41,429(2) 133,334
Vice President of Marketing
</TABLE>
- ---------------
(1) Represents a car allowance of $1,645 per month paid on behalf of Mr.
Williams.
(2) Represents amounts paid to the executive officer as reimbursement for
relocation expenses.
42
<PAGE> 47
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
during fiscal 1999 to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
NUMBER OF SHARES PERCENT OF TOTAL STOCK PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE 0%($) 5%($) 10%($)
- ---- ---------------- ------------------ -------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Klaus P. Besier........ -- -- -- --
Graham S. Williams..... 100,000(3) 2.8% 4.46 6/1/09
Ilya G. Gorelik........ 133,334(4) 3.7 4.46 6/16/09
Paul K. McDermott...... 283,334(3) 7.9 3.95 1/11/09
56,667(3) 1.6 7.22 10/27/09
Steven J. Waters....... 100,000(3) 2.8 3.95 11/1/08
33,334(5) 0.9 4.46 6/16/09
</TABLE>
- ------------
(1) Based on options to purchase an aggregate of 3,567,808 shares granted to
officers and employees during fiscal 1999.
(2) The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately prior to expiration of the option term
using the 0%, 5% and 10% appreciation rates above the exercise price
established in regulations of the SEC, compounded annually. The potential
realizable value is not intended to predict future appreciation of the price
of our common stock and do not give effect to any actual appreciation after
the date of grant.
(3) Vest as to 25% of the underlying shares on the first anniversary of the date
of grant and 25% of the underlying shares each year thereafter, so long as
the optionee remains as an employee.
(4) Vest upon the occurrence of certain preestablished performance goals related
to the development of our new product, the FirePond Application Suite.
(5) Vest as to 100% of the underlying shares immediately upon grant.
43
<PAGE> 48
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the number and value
of unexercised options to purchase common stock held by the Named Executive
Officers. The Named Executive Officers did not exercise any stock options during
fiscal 1999. There was no public trading market for our common stock as of
October 31, 1999. Accordingly, the values of the unexercised in-the-money
options have been calculated on the basis of the fair market value at that time
of $ per share, as determined by the Board of Directors.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Klaus P. Besier............................ 986,163 938,839 $
Graham S. Williams......................... 54,167 262,500
Ilya G. Gorelik............................ 241,667 325,000
Paul K. McDermott.......................... -- 340,001
Steven J. Waters........................... 100,000 133,334
</TABLE>
1999 STOCK OPTION AND GRANT PLAN
Our 1999 Stock Option and Grant Plan was adopted by our Board of Directors
in September 1999 and received stockholder approval in , 1999.
The 1999 Stock Option and Grant Plan permits us to grant incentive stock
options, non-qualified stock options and restricted and unrestricted stock.
These grants may be made to our officers, employees, directors, consultants,
advisors and key persons. The 1999 Stock Option and Grant Plan allows for the
issuance of 3,000,000 shares of common stock. No shares have been issued under
the 1999 Stock Option and Grant Plan.
The 1999 Stock Option and Grant Plan is administered by the Board of
Directors or a committee designated by the Board of Directors. Subject to the
provisions of the 1999 Stock Option and Grant Plan, the Board of Directors or
the committee may select the individuals eligible to receive awards, determine
the terms and conditions of the awards granted, accelerate the vesting schedule
of any award and generally administer and interpret the plan.
The exercise price of options granted under the 1999 Stock Option and Grant
Plan is determined by the Board of Directors or the committee. Under present
law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986, as amended, 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% of the
fair market value in the case of incentive stock options granted to optionees
holding more than 10% of the voting power. Non-qualified stock options may be
granted at prices which are less than the fair market value of the underlying
shares on the date granted. Options are typically subject to vesting schedules,
terminate ten years from the date of grant and may be exercised for specified
periods after the termination of the optionee's employment or other service
relationship with us. Upon the exercise of options, the option exercise price
must be paid in full either in cash or by certified or bank check or other
instrument acceptable to the Board of Directors or the committee or, in the sole
discretion of the Board of Directors or the committee, by delivery of shares of
common stock that have been owned by the optionee free of restrictions for at
least six months. The exercise price may also be delivered to us (a) by the
optionee in the form of a promissory note if the loan of such funds to the
optionee has been authorized by the Board of Directors and the optionee pays so
much of the exercise price as represents the par value of the common stock
acquired in a form other than a promissory note and (b) by a broker under
irrevocable instructions to the broker selling the underlying shares from the
optionee.
The purchase price, and vesting dates and/or requirements of restricted
stock awards are determined by the Board of Directors or the committee. The
Board of Directors or the committee may place conditions on the restricted stock
awards, such as continued employment and/or the achievement of performance goals
or
44
<PAGE> 49
objectives in a grant document. Restricted stock may not be sold, assigned,
transferred or pledged except as specifically provided in the grant document. If
a restricted stock award recipient's employment or other relationship with us
terminates or other events specified in the grant document occur, we have the
right to repurchase some or all of the shares of stock subject to the award at
the purchase price of such stock.
When we become subject to Section 162(m) of the Internal Revenue Code,
which denies a deduction to publicly held corporations for certain compensation
paid to specified employees in a taxable year to the extent that the
compensation exceeds $1,000,000 for any covered employee, no person may be
granted options under the 1999 Stock Option and Grant Plan covering more than
1,500,000 shares of common stock in any calendar year.
In the event of any such merger, reorganization or sale in which the
outstanding awards issued under the 1999 Stock Option and Grant Plan are
generally not assumed by the surviving entity, or equivalent substitute awards
are not issued by such issuing entity, all of the outstanding awards issued
under the 1999 Stock Option and Grant Plan that are not then vested will become
fully vested and exercisable upon the closing of the transaction. In such event,
all awards issued under the 1999 Stock Option and Grant Plan will terminate upon
closing of such transactions. All participants under the 1999 Stock Option and
Grant Plan will be permitted to exercise, for a period of 15 days before any
such termination, all awards held by them which are then exercisable or will
become exercisable upon the closing of the transaction.
1999 DIRECTOR PLAN
Our 1999 Director Plan was adopted by our Board of Directors in September
1999 and received stockholder approval in 1999. A total of 500,000
shares of common stock have been authorized of issuance under the 1999 Director
Plan.
The Director Plan is administered by our compensation committee. Under the
1999 Director Plan, each non-employee director who is or becomes a member of the
Board of Directors is automatically granted on September 9, 1999 or, if not a
director on that date, the date first elected to the Board of Directors, an
option to purchase 50,000 shares of our common stock. In addition, provided that
the director continues to serve as a member of the Board of Directors, each
non-employee director will be automatically granted on the fourth anniversary of
his or her initial option grant date and each year thereafter an option to
purchase 12,500 shares of our common stock. Provided that the director continues
to serve as a member of the Board of Directors, 25% of the shares included in
each grant will become exercisable on each of the first, second, third and
fourth anniversaries of the date of grant. All options granted under the 1999
Director Plan will have an exercise price equal to the fair market value of the
common stock on the date of grant and a term of ten years from the date of
grant. Unexercisable options terminate when the director ceases to be a director
for any reason other than death or permanent disability. Exercisable options may
be exercised at any time during the option term. In the event of a "change in
control" transaction in which a director is not retained as a director of the
surviving corporation, options granted to that director will become 100% vested
and exercisable in full. The terms of the 1999 Director Plan is ten years,
unless sooner terminated by vote of the Board of Directors.
1997 STOCK OPTION PLAN
Our Board of Directors and stockholders adopted the 1997 Stock Option Plan
in May 1997. The 1997 Stock Option Plan permits us to grant incentive stock
options, non-qualified stock options, stock appreciation rights, restricted
stock and deferred stock awards to our officers, employees, directors,
consultants, and advisors. The 1997 Stock Option Plan allows for the issuance of
9,396,815 shares of common stock. Of the shares reserved for issuance under the
1997 Stock Option Plan, 334,208 shares remain available for future issuance as
of October 31, 1999.
The 1997 Stock Option Plan may be administered by the Board of Directors or
a committee designated by the Board of Directors. Subject to the provisions of
the 1997 Stock Option Plan, the Board of Directors or the committee may select
the individuals eligible to receive awards, determine the terms and conditions
of the awards granted, accelerate the vesting schedule of any award and
generally administer and interpret the 1997 Stock Option Plan.
45
<PAGE> 50
The exercise price of options granted under the 1997 Stock Option Plan
shall be determined by the Board of Directors or the committee. Under present
law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986, as amended, 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% of the
fair market value in the case of incentive stock options granted to optionees
holding more than 10% of the voting power of outstanding capital stock.
Non-qualified stock options may be granted at prices which are less than the
fair market value of the underlying shares on the date granted. Options are
typically subject to vesting schedules, terminate ten years from the date of
grant and may be exercised for specified periods after the termination of the
optionee's employment or other service relationship with us. Upon the exercise
of options, the option exercise price must be paid in full either in cash or by
certified or bank check or other instrument acceptable to the Board of Directors
or committee or, in the sole discretion of the Board of Directors or committee,
by delivery of shares of common stock that have been owned by the optionee free
of restrictions for at least six months. The exercise price may also be
delivered to us by the optionee in the form of a promissory note if the loan of
such funds to the optionee has been authorized by the Board of Directors and the
optionee pays that part of the exercise price that represents the par value of
the common stock acquired in a form other than a promissory note.
The purchase price, and vesting dates and/or requirements of restricted
stock awards are determined by the Board of Directors or the committee. The
Board of Directors or the committee may place conditions on the restricted stock
awards, such as continued employment and/or the achievement of performance goals
or objectives in a grant document. Restricted stock may not be sold, assigned,
transferred or pledged except as specifically provided in the grant document. If
a restricted stock award recipient's employment or other relationship with us
terminates or other events specified in the grant document occur, we have the
right to repurchase some or all of the shares of stock subject to the award at
the purchase price of such stock.
When we become subject to Section 162(m) of the Internal Revenue Code, no
person may be granted options under the 1997 Stock Option Plan covering more
than 1,750,000 shares of common stock in any calendar year.
EMPLOYMENT AGREEMENTS
Mr. Besier's employment agreement, dated April 2, 1998, provides for an
initial annual salary of $200,000 and an annual bonus of up to $150,000 based on
FirePond's achievement, during the applicable fiscal year, of certain
performance goals agreed upon by Mr. Besier and our Board of Directors prior to
the beginning of each fiscal year. The agreement also provides that he will be
eligible to earn an additional bonus of up to $100,000 if FirePond achieves or
surpasses performance targets in excess of the performance goals. Mr. Besier
received stock options under our 1997 Stock Option Plan to purchase 1,417,960
shares of our common stock at an exercise price of approximately $3.95 per
share. These options vest as to 29,494 shares monthly commencing on August 7,
1997 and shall be fully vested on July 7, 2001. Upon the occurrence of specified
liquidity events, such as a merger or acquisition of FirePond, 80% of the then
unvested options will become vested at the time of the event, increasing to 100%
if there shall be a reduction in the scope of Mr. Besier's employment
responsibilities in connection with the liquidity event. Mr. Besier was also
granted piggyback registration rights for all shares of our common stock which
he acquires. In the event of Mr. Besier's death during the terms of his
employment, his legal representative will receive Mr. Besier's annual salary for
12 months, an amount equal to his most recent annual bonus, payable in quarterly
installments, and 75% of Mr. Besier's options to purchase shares of our common
stock shall become fully vested and exercisable, with the remaining 25% percent
terminating. If Mr. Besier is terminated without cause, or he voluntarily
resigns due to a constructive termination, he shall receive severance payments
equal to his annual salary payable in equal monthly installments for a period of
12 months and the term of his vested options shall be extended until the earlier
of three months following the termination, the effectiveness of specified
liquidity events, or nine months after an initial public offering.
Mr. Williams' offer letter, dated May 11, 1998, provides for an initial
annual salary of $208,000 commencing on June 1, 1998 and an annual bonus of up
to 50% of his annual salary based on company performance and individual
performance objectives. Mr. Williams received stock options to purchase 216,667
shares of our common stock at an exercise price of approximately $3.95 per share
under the 1997 Stock
46
<PAGE> 51
Option Plan, which options shall vest annually over four years commencing on
June 1, 1998. Upon the occurrence of a change of control event, 50% of the then
unvested options will become immediately vested and exercisable.
Mr. Gorelik's offer letter, dated October 21, 1998, provides for an initial
annual salary of $175,000 commencing on October 2, 1998 and an annual bonus of
up to 50% of his annual salary based on company performance and individual
performance objectives. Mr. Gorelik received stock options to purchase 433,334
shares of our common stock at an exercise price of approximately $3.95 per share
under the 1997 Stock Option Plan, which options shall vest annually over four
years commencing on October 2, 1998. Upon the occurrence of a change of control
event, if Mr. Gorelik is not retained as an employee of the surviving company,
with responsibilities similar to his responsibilities with FirePond, 80% of the
then unvested options will become immediately vested and exercisable.
Mr. McDermott's offer letter, dated December 11, 1998, provides for an
initial annual salary of $160,000 commencing on January 4, 1998, an initial
bonus of $25,000 and an annual bonus of up to $50,000 based on company
performance and individual performance objectives. Mr. McDermott received stock
options to purchase 283,334 shares of our common stock at an exercise price of
approximately $3.95 per share under the 1997 Stock Option Plan, which options
shall vest annually over four years commencing on January 4, 1998. In addition,
in accordance with the offer letter, Mr. McDermott was granted an additional
stock option to purchase 56,667 shares of our common stock on similar terms,
upon the achievement of performance objectives related to this initial public
offering. Upon the occurrence of a change of control event, if Mr. McDermott is
not retained as an employee of the surviving company, with responsibilities
similar to his responsibilities with FirePond, 80% of the unvested portion of
these options will become immediately vested and exercisable.
Mr. Waters' offer letter, dated September 5, 1997, provides for an initial
annual salary of $120,000 commencing on September 10, 1997. Mr. Waters received
stock options to purchase 16,667 shares of our common stock at an exercise price
of approximately $3.95 per share under the 1997 Stock Option Plan, which options
shall vest annually over four years commencing on September 16, 1997. In
addition, in accordance with the offer letter, Mr. Waters received a cash
payment of $50,000 and stock options to purchase 33,334 shares of our common
stock in substitution for commissions Mr. Waters would have received from his
previous employer.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation contains a provision permitted by Delaware
law that generally eliminates the personal liability of directors to FirePond or
our stockholders for monetary damages for breaches of their fiduciary duty,
including breaches involving negligence or gross negligence in business
combinations, unless the director has breached his or her duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or a knowing
violation of law, paid a dividend or approved a stock repurchase in violation of
the Delaware General Corporation Law or obtained an improper personal benefit.
This provision does not alter a director's liability under the federal
securities laws or to parties other than FirePond or our stockholders and does
not affect the availability of equitable remedies, such as an injunction or
rescission, for breach of fiduciary duty.
Our by-laws provide that directors and officers shall be, and in the
discretion of the Board of Directors, non-officer employees may be, indemnified
by us to the fullest extent authorized by Delaware law, as it now exists or may
in the future be amended, against all expenses and liabilities reasonably
incurred in connection with service for or on our behalf. The by-laws also
provide that the right of directors and officers to indemnification shall be a
contract right and shall not be exclusive of any other right now possessed or
hereafter acquired under any by-law, agreement, vote of stockholders or
otherwise. We also have directors' and officers' insurance against certain
liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers or controlling persons of FirePond
as described above, we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
47
<PAGE> 52
CERTAIN TRANSACTIONS
PRIVATE PLACEMENT TRANSACTIONS
We have issued preferred stock in private placement transactions as
follows. The tables below gives effect to a five-for-one stock split which
occurred in July 1997 and affected only the Series A Convertible Participating
Preferred Stock.
<TABLE>
<CAPTION>
NUMBER OF PRICE PER AGGREGATE
DATE OF ISSUANCE SERIES SHARES SHARE CONSIDERATION
- ---------------- ------ --------- --------- -------------
<S> <C> <C> <C> <C>
May 1997........................... Series A Convertible 4,188,880 $ 2.63 $11,000,000(1)
Participating Preferred
July 1997.......................... Series C Convertible 570,342 2.63 1,500,000
Participating Preferred
October 1997....................... Series D Convertible 100,000 100.00 10,000,000
Participating Preferred
April 1998......................... Series E Convertible 7,604,563 2.63 20,000,000(2)
Participating Preferred
February 1999...................... Series F Convertible 6,734,008 2.97 20,000,000(3)
Preferred
February 1999...................... Series G Convertible 7,604,563 2.63 20,000,000(4)
Participating Preferred
</TABLE>
- ------------
(1) Warrants to purchase 190,438 shares of Series B preferred stock, at an
exercise price of $19.69 per share, were issued to the purchasers of our
Series A preferred stock in connection with the sale of Series A preferred
stock. The aggregate consideration received for these warrants was $1,000.
(2) The aggregate consideration received for the Series E preferred stock
consisted of the exchange of all of the outstanding shares of Series D
preferred stock and the payment of an additional $10,000,000.
(3) Warrants to purchase 673,401 shares of Series F preferred stock, at an
exercise price of $3.56 per share, were issued to the purchasers of our
Series F preferred stock in connection with the sale of our Series F
preferred stock. The aggregate consideration received for the warrants was
$1,000.
(4) The aggregate consideration received for the Series G preferred stock
consisted only of the exchange of all of the outstanding shares of Series E
preferred stock.
The following table summarizes the shares of our preferred stock purchased
by our Named Executive Officers, directors and 5% stockholders, and persons and
entities associated with them.
<TABLE>
<CAPTION>
SERIES A SERIES D SERIES E SERIES G
CONVERTIBLE CONVERTIBLE CONVERTIBLE SERIES F CONVERTIBLE
PARTICIPATING PARTICIPATING PARTICIPATING CONVERTIBLE PARTICIPATING
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED
INVESTOR STOCK STOCK STOCK STOCK STOCK
- -------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
General Atlantic Partners..... 4,188,880 100,000 7,604,563 841,751 7,604,563
Technology Crossover
Ventures...................... -- -- -- 4,208,755 --
Lehman Brothers............... -- -- -- 1,683,502 --
</TABLE>
For more detailed information regarding the investors, see "Principal
Stockholders."
In connection with the sale of our Series F Convertible Preferred Stock, we
agreed to use our reasonable best efforts to cause the underwriter of our
initial public offering to offer to sell to the Series F stockholders 7.5% of
the shares sold to the public in the offering. The shares are to be allocated
among the Series F stockholders on a pro rata basis based upon the number of
Series F shares held. General Atlantic Partners, Technology Crossover Ventures
and Lehman Brothers are the Series F stockholders.
On September 30, 1999, we sold 33,334 shares of common stock to Edwin B.
Lange, our Senior Vice President of North American Sales, for an aggregate
purchase price of $148,500.
48
<PAGE> 53
On November 12, 1999, we borrowed $6.0 million of subordinated indebtedness
from an outside investor, and General Atlantic Partners and Technology Crossover
Ventures, existing stockholders of FirePond. The indebtedness bears interest at
12.0% and is due upon the earlier of the closing of this offering and November
12, 2000. If we have not closed an initial public offering of our stock by June
12, 2000 or in the event we enter into a sale transaction prior to June 12,
2000, the subordinated indebtedness is convertible into shares of our preferred
stock having rights equivalent to our existing Series F preferred stock at a
rate of $2.97 per share. The Company also issued to these lenders warrants to
purchase an aggregate of 360,000 shares of our common stock at an exercise price
of $5.25 per share.
PAYMENTS TO STOCKHOLDERS
In connection with the sales of our preferred stock, we agreed to make
payments to certain of our stockholders upon consummation of this offering as
follows:
- an aggregate amount of $10,000,000 to certain holders of our common
stock;
- an aggregate amount of $15,000,000 to holders of our Series A preferred
stock;
- an aggregate amount of $750,000 to holders of our Series C preferred
stock; and
- an aggregate of up to $20,000,000 to holders of our Series G preferred
stock.
These amounts are payable in cash, or, at our option, shares of our common
stock with an aggregate value, based upon the offering price for our stock
assumed in our registration statement as filed with the SEC, equal to the amount
payable. Our Board of Directors has elected to make these payments in
shares of common stock upon consummation of this offering.
REGISTRATION RIGHTS AGREEMENTS
Certain holders of our common stock and preferred stock have certain
registration rights with respect to their shares of common stock, including
shares of common stock issuable upon conversion of their preferred stock. See
"Description of Capital Stock -- Registration Rights of Certain Holders."
49
<PAGE> 54
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of October 31, 1999 and as adjusted to reflect the
sale of the common stock offered hereby, by:
- all persons who own beneficially 5% or more of our common stock;
- each of the Named Executive Officers;
- each of our directors; and
- all directors and executive officers as a group.
Unless otherwise indicated, each of the stockholders has sole voting and
investment power with respect to the shares of common stock beneficially owned,
subject to community property laws, where applicable. Beneficial ownership is
determined in accordance with the rules issued by the SEC. Under these rules,
beneficial ownership includes any shares which the individual or entity has sole
or shared voting or investment power and shares of common stock subject to
options held that are currently exercisable or exercisable within 60 days of
October 31, 1999. The applicable percentage of "beneficial ownership" after the
offering is based upon shares of common stock outstanding, which includes
shares issuable upon conversion of all outstanding shares of convertible
preferred stock upon completion of this offering, plus any shares subject to
such options held by that individual or entity.
The address of General Atlantic is General Atlantic Partners, LLC, 3
Pickwick Plaza, Greenwich, Connecticut 06830. The address of Technology
Crossover Ventures is Technology Crossover Ventures, 575 High Street, Suite 400,
Palo Alto, California 54301. The address of Lehman Brothers is Lehman Brothers,
3 World Financial Center, New York, New York 10285.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
NUMBER OF SHARES ----------------------
BENEFICIALLY BEFORE THE AFTER THE
OWNED OFFERING OFFERING
---------------- ---------- ---------
<S> <C> <C> <C>
General Atlantic Partners (1)...........................
Technology Crossover Ventures (2).......................
Lehman Brothers (3).....................................
Jerome D. Johnson (4)...................................
Klaus P. Besier (5).....................................
Ilya G. Gorelik (6).....................................
Graham S. Williams (7)..................................
Paul K. McDermott (8)...................................
Steven J. Waters (9)....................................
Paul R. Butare (10).....................................
J. Michael Cline........................................
William O. Grabe (11)...................................
All executive officers and directors as a group (10
persons) (12).........................................
</TABLE>
- ------------
* Less than 1%
(1) Represents shares held by GAP Coinvestment Partners, L.P.,
shares held by GAP Coinvestment Partners II L.P., shares held by
General Atlantic Partners 40, L.P. shares held by General Atlantic
Partners 46, L.P. and shares held by General Atlantic Partners 52,
L.P. GAP Coinvestment Partners, L.P., GAP Coinvestment Partners II, L.P.,
General Atlantic Partners 40, L.P., General Atlantic Partners 46, L.P. and
General Atlantic Partners 52, L.P. are part of an affiliated group of
investment partnerships referred to, collectively, as General Atlantic
Partners.
(2) Represents shares held by TCV III (GP), shares held by TCV
III, L.P., shares held by TCV III (Q), L.P., and shares held
by TCV III Strategic Partners, L.P. TCV III (GP), TCV III, L.P., TCV III
(Q), L.P. and TCV III Strategic Partners L.P. are part of an affiliated
group of investment partnerships referred to, collectively, as Technology
Crossover Ventures.
50
<PAGE> 55
(3) Represents shares held by Lehman Brothers VC Partners, L.P.
and shares held by Lehman Brothers Venture Capital Partners I, L.P.
Lehman Brothers VC Partners, L.P. and Lehman Brothers Venture Capital
Partners I, L.P. are part of an affiliated group of investment partnerships
referred to, collectively, as Lehman Brothers.
(4)
(5) Includes shares underlying options granted to Mr. Besier exercisable
within 60 days of October 31, 1999.
(6) Includes shares underlying options granted to Mr. Gorelik exercisable
within 60 days of October 31, 1999.
(7) Includes shares underlying options granted to Mr. Williams
exercisable within 60 days of October 31, 1999.
(8) Includes shares underlying options granted to Mr. McDermott
exercisable within 60 days of October 31, 1999.
(9) Includes shares underlying options granted to Mr. Waters exercisable
within 60 days of October 31, 1999.
(10) Includes shares underlying options granted to Mr. Butare exercisable
within 60 days of October 31, 1999.
(11) Represents shares described in Note (1) above, beneficially owned by
General Atlantic Partners. Mr. Grabe disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein. Includes
shares underlying options granted to Mr. Grabe exercisable within 60
days of October 31, 1999.
(12) Includes shares underlying options granted to exercisable within
60 days of October 31, 1999.
DESCRIPTION OF CAPITAL STOCK
Immediately following the offering, our authorized capital stock will
consist of shares of common stock of which will be issued and
outstanding; and shares of undesignated preferred stock issuable in one
or more series to be designated by our Board of Directors, of which no shares
will be issued and outstanding.
As of October 31, 1999, there were outstanding:
- 10,039,484 shares of common stock held by approximately 70 stockholders
of record;
- 19,097,793 shares of convertible preferred stock (convertible into
shares of common stock upon completion of this offering);
- warrants to purchase 190,438 shares of convertible preferred stock
(convertible into 634,794 shares of common stock upon completion of this
offering);
- warrants to purchase 504,867 shares of common stock; and
- options to purchase an aggregate of 7,504,871 shares of common stock.
In addition, warrants to purchase 360,000 shares of common stock with an
exercise price of $5.25 per share were issued to lenders in November 1999.
COMMON STOCK
The holders of common stock have one vote per share. Holders of common
stock are not entitled to vote cumulatively for the election of directors.
Generally, all matters to be voted on by stockholders must be approved by a
majority, or, in the case of election of directors, by a plurality, subject to
any voting rights granted to holders of any then outstanding preferred stock.
Except as otherwise provided by law, amendments to our certificate of
incorporation, which will be effective upon consummation of the offering, must
be approved by a majority of the voting power of the common stock.
Holders of common stock share ratably in any dividends declared by the
Board of Directors, subject to the preferential rights of any preferred stock
then outstanding. Dividends consisting of shares of common stock may be paid to
holders of shares of common stock. In the event of our merger or consolidation
with or into another company as a result of which shares of common stock are
converted into or exchangeable for shares of stock, other securities or
property, including cash, all holders of common stock will be entitled to
receive the same kind and amount, on a per share of common stock basis, of such
shares of stock and other securities and property, including cash. On our
liquidation, dissolution or winding up, all holders of common stock are entitled
to share ratably in any assets available for distribution to the holders of
shares of common stock. No shares of common stock are subject to redemption or
have preemptive rights to purchase additional shares of common stock.
51
<PAGE> 56
PREFERRED STOCK
Our certificate of incorporation provides that shares of preferred stock
may be issued from time to time in one or more series. Our Board of Directors is
authorized to establish the voting rights, if any, and the designations, powers,
preferences, qualifications, limitations and restrictions applicable to the
shares of each series. Our Board of Directors may, without stockholder approval,
issue preferred stock with voting and other rights that could adversely affect
the voting power and other rights of the holders of the common stock and could
have anti-takeover effects. The ability of our Board of Directors to issue
preferred stock without stockholder approval could have the effect of delaying,
deferring or preventing a change of control or the removal of our existing
management. We have no present plans to issue any shares of preferred stock.
WARRANTS
As of October 31, 1999, there were outstanding:
- warrants to purchase up to 190,438 shares of Series B preferred stock at
an exercise price of approximately $19.69 per share that were issued to
General Atlantic Partners, which will be automatically converted upon the
closing of this offering into a warrant to purchase 634,794 shares of
common stock at an exercise price of $5.91 per share;
- a warrant to purchase up to 200,000 shares of common stock at an exercise
price of approximately $3.95 per share that was issued to a vendor; and
- warrants to purchase an aggregate of up to 304,867 shares of common stock
at an exercise price of $7.22 per share that were issued to strategic
partners and a customer.
In addition, warrants to purchase 360,000 shares of common stock with an
exercise price of $5.25 per share were issued to lenders in November 1999. We
plan to issue additional warrants to purchase up to 500,000 shares of our common
stock over the next 12 months in connection with future sales of our products as
well as to our present and future strategic partners.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Under the terms of our Registration Rights Agreement certain of our
shareholders may demand that we file a registration statement for the
registration of all or any portion of their shares, subject to certain minimum
thresholds, under the Securities Act. We are not required to effect more than a
total of two of these demand registrations per year. Upon completion of this
offering, holders of an aggregate of shares will be party to the
Registration Rights Agreement.
In addition, after the closing of the offering, these stockholders will be
entitled to piggyback registration rights in connection with any registration by
us of securities for our own account or the account of other stockholders. If we
propose to register any shares of common stock under the Securities Act, we are
required to give those stockholders notice of the registration and to include
their shares in the registration statement. At any time after we become eligible
to file a registration statement on Form S-3, these stockholders may require us
to file up to two registration statements on Form S-3 in any given 12-month
period under the Securities Act with respect to their shares of common stock.
The registration rights of these stockholders, subject to certain
limitations, will terminate when the shares held by them may be sold under Rule
144 under the Securities Act. We are generally required to bear all of the
expenses of all demand and piggyback registrations, except underwriting
discounts and commissions. We also have agreed to indemnify those stockholders
under the terms of the Registration Rights Agreement.
52
<PAGE> 57
AMENDMENT OF THE CERTIFICATE OF INCORPORATION
Any amendment to our certificate of incorporation must first be approved by
a majority of the Board of Directors and thereafter approved by a majority of
the total votes eligible to be cast by holders of voting stock with respect to
such amendment.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Statutory Business Combination Provision. Following the offering, we will
be subject to Section 203 of the Delaware General Corporation Law, which
prohibits a publicly held Delaware corporation from consummating a "business
combination" with an "interested stockholder" for a period of three years after
the date such person became an interested stockholder unless:
- before such person became an interested stockholder, the Board of
Directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination;
- upon the closing of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding shares held
by directors who are also officers of the corporation and shares held by
employee stock plans; or
- following the transaction in which such person became an interested
stockholder, the business combination is approved by the Board of
Directors of the corporation and authorized at a meeting of stockholders
by the affirmative vote of the holders of 66.67% of the outstanding
voting stock of the corporation not owned by the interested stockholder.
The term "interested stockholder" generally is defined as a person who,
together with affiliates and associates, owns, or, within the prior three years,
owned 15% or more of a corporation's outstanding voting stock. The term
"business combination" includes mergers, asset sales and other similar
transactions resulting in a financial benefit to an interested stockholder.
Section 203 makes it more difficult for an interested stockholder to effect
various business combinations with a corporation for a three-year period. A
Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate of incorporation or by-laws resulting from an amendment approved by
holders of at least a majority of the outstanding voting stock. Neither our
certificate of incorporation nor our by-laws contains any such exclusion.
Charter and By-law Provisions. Our Certificate of Incorporation provides
that any action required or permitted to be taken by our stockholders at an
annual 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 by-laws provide that a special meeting of stockholders may be
called only by the President or the Board of Directors unless otherwise required
by law. Our by-laws provide that only those matters included in the notice of
the special meeting may be considered or acted upon at that special meeting
unless otherwise provided by law. In addition, our by-laws include advance
notice and informational requirements and time limitations on any director
nomination or any new proposal which a stockholder wishes to make at an annual
meeting of stockholders.
Ability to Adopt Stockholder Rights Plan. The Board of Directors may in
the future resolve to issue shares of preferred stock or rights to acquire such
shares to implement a stockholder rights plan. A stockholder rights plan
typically creates voting or other impediments that would discourage persons
seeking to gain control of FirePond by means of a merger, tender offer, proxy
contest or otherwise if the Board of Directors determines that such change in
control is not in the best interests of our stockholders. The Board of Directors
has no present intention of adopting a stockholder rights plan and is not aware
of any attempt to obtain control of FirePond.
53
<PAGE> 58
TRADING ON THE NASDAQ NATIONAL MARKET SYSTEM
The shares being sold in the offering have been approved for quotation on
the Nasdaq National Market under the symbol "FIRE."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock will be
.
54
<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of shares of our common stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of certain contractual and legal restrictions on resale,
as described below, sales of substantial amounts of common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price.
After this offering, shares of common stock will be
outstanding, assuming the issuance of an aggregate of shares of common
stock. The number of shares outstanding after this offering is based on the
number of shares outstanding as of , 1999, and assumes no
exercise of outstanding options. The shares sold in this offering will
be freely tradable without restriction under the Securities Act. The remaining
shares of common stock outstanding upon completion of the offering are
restricted securities in that they may be sold in the public market only if
registered or if they qualify for an exemption from registration under the
Securities Act or Rules 144 or 701 of the Securities Act.
The remaining shares of common stock held by existing
stockholders are restricted shares or are subject to the contractual
restrictions described below. Restricted shares may be sold in the public market
only if registered or if they qualify for an exception from registration under
Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Of these restricted shares, shares will be
available for resale in the public market in reliance on Rule 144(k) immediately
following this offering, of which shares are subject to lock-up
agreements described below. An additional shares will be available for
resale in the public market in reliance on Rule 144 beginning 90 days following
this offering, of which shares are subject to lock-up agreements. The
remaining shares become eligible for resale in the public market at
various dates thereafter, all of which shares are subject to lock-up agreements.
Each of our executive officers and directors, and certain of our other
stockholders, who will own in the aggregate shares of common stock
after the offering, have entered into lock-up agreements generally providing
that they will not 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, any options or warrants to purchase, any of the shares of common stock or
any securities convertible into, or exercisable or exchangeable for, common
stock owned by them, or enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the common stock, for a period of 180 days after the date of this prospectus,
without the prior written consent of BancBoston Robertson Stephens Inc.
BancBoston Robertson Stephens Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. When determining whether or not to release shares from the
lock-up agreements, BancBoston Robertson Stephens Inc. will consider, among
other factors, the stockholder's reasons for requesting the release, the number
of shares for which the release is being requested and market conditions at the
time. Following the expiration of the 180 day lock-up period, additional shares
of common stock will be available for sale in the public market subject to
compliance with Rule 144 or Rule 701.
In general, under Rule 144 as currently in effect, an affiliate of FirePond
or a person, or persons whose shares are aggregated, who has beneficially owned
restricted securities for at least one year, including the holding period of any
prior owner except an affiliate of FirePond, would be entitled to sell within
any three month period a number of shares that does not exceed the greater of 1%
of our then outstanding shares of common stock or the average weekly trading
volume of our common stock on the Nasdaq National Market during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about FirePond. Any person, or persons whose shares
are aggregated, who is not deemed to have been an affiliate of FirePond at any
time during the 90 days preceding a sale, and who has beneficially owned shares
for at least two years including any period of ownership of preceding
non-affiliated holders, would be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.
55
<PAGE> 60
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from FirePond by its employees,
directors, officers, consultants or advisors prior to the date the issuer
becomes subject to the reporting requirements of the Exchange Act. To be
eligible for resale under Rule 701, shares must have been issued in connection
with written compensatory benefit plans or written contracts relating to the
compensation of such persons. In addition, the Securities and Exchange
Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act, along with the shares acquired upon exercise of such options,
including exercises after the date of this offering. Securities issued in
reliance on Rule 701 are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the date of this
prospectus, may be sold by persons other than affiliates, subject only to the
manner of sale provisions of Rule 144, and by affiliates, under Rule 144 without
compliance with its one-year minimum holding period.
At November 12, 1999, we had reserved an aggregate of 9,339,079 shares of
common stock for issuance pursuant to the 1997 Stock Option Plan, and options to
purchase approximately shares were outstanding under the 1997 Stock
Option Plan, we had reserved an aggregate of 3,000,000 shares of common stock
for issuance pursuant to the 1999 Stock Option and Grant Plan, and no options
were outstanding under the 1999 Stock Option and Grant Plan, and we had reserved
an aggregate of 500,000 shares of common stock for issuance pursuant to the 1999
Director Plan, and options to purchase shares were outstanding under
the 1999 Director Plan. As soon as practicable following the offering, we intend
to file a registration statement under the Securities Act to register shares of
common stock reserved for issuance under the 1997 Stock Option Plan and the 1999
Stock Option and Grant Plan. Such registration statement will automatically
become effective immediately upon filing. Any shares issued upon the exercise of
stock options will be eligible for immediate public sale, subject to the lock-up
agreements noted above.
We have agreed not to sell or otherwise dispose of any shares of common
stock during the 180-day period following the date of this prospectus, except we
may issue, and grant options to purchase, shares of common stock under the 1997
Stock Option Plan, the 1999 Director Plan and the 1999 Stock Option and Grant
Plan.
Following the offering, some of our stockholders will have rights 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. See "Description of Capital Stock -- Registration Rights of
Certain Holders."
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<PAGE> 61
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Dain Rauscher Incorporated, SG Cowen
Securities Corporation and E*OFFERING Corp., have severally agreed with us,
subject to the terms and conditions of the underwriting agreement, to purchase
from us the number of shares of common stock set forth opposite their names
below. The underwriters are committed to purchase and pay for all of the shares
if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ----------
<S> <C>
BancBoston Robertson Stephens Inc. .........................
Dain Rauscher Incorporated..................................
SG Cowen Securities Corporation.............................
E*OFFERING Corp. ...........................................
--------
Total..................................................
========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not in
excess of $ per share, of which $ may be reallowed to other
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed 5% of the total number of shares offered.
Over-Allotment Option. We and one of our stockholders have granted to the
underwriters an option, exercisable during the 30-day period after the date of
this prospectus, to purchase up to additional shares of common stock at
the same price per share as we will receive for the shares that the
underwriters have agreed to purchase. If the underwriters exercise the option in
full, we will sell additional shares and the selling stockholder will
sell additional shares. If the underwriters exercise this option only
in part, the option shares will be sold first by the selling stockholder, and we
will sell only if, and to the extent, the underwriters exercise the option to
purchase more than shares. To the extent that the underwriters
exercise this option, each of the underwriters will have a firm commitment to
purchase approximately the same percentage of 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 shares offered by this prospectus.
If purchased, the additional shares will be sold by the underwriters on the same
terms as those on which the shares are being sold. We and the selling
stockholder will be obligated, under this option, to sell shares to the extent
the option is exercised. The underwriters may exercise the option only to cover
over-allotments made in connection with the sale of the shares of
common stock offered by this prospectus.
The following table shows the per share and total underwriting discounts
and commissions to be paid by us to the underwriters. This information is
presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
PER WITHOUT OVER-ALLOTMENT WITH OVER-ALLOTMENT
SHARE OPTION OPTION
-------- ---------------------- -------------------
<S> <C> <C> <C>
Assumed public offering price.............. $ $ $
Underwriting discounts and commissions..... $
Proceeds, before expenses, to us...........
</TABLE>
The expenses of the offering payable by us are estimated at
$ . BancBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 2000.
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<PAGE> 62
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters, us and the selling stockholder against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Lock-Up Agreements. Each of our executive officers, directors and certain
of our other stockholders of record have agreed with the representatives, for a
period of 180 days after the date of this prospectus, 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, any options or warrants to
purchase any shares of common stock, or any securities convertible into or
exchangeable for shares of common stock owned as of the date of this prospectus
or acquired directly from us by these holders or with respect to which they have
or may acquire the power of disposition, without the prior written consent of
BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. There are no agreements
between the representatives and any of our stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the 180-day
lock-up period.
Future Sales. In addition, we have generally agreed that, during the
180-day lock-up period, we will not, without the prior written consent of
BancBoston Robertson Stephens Inc., (a) consent to the disposition of any shares
held by the stockholders prior to the expiration of the 180-day lock-up period
or (b) issue, sell, contract to sell or otherwise dispose of, any shares of
common stock, any options or warrants to purchase any shares of common stock, or
any securities convertible into, exercisable for or exchangeable for shares of
common stock, other than our sale of shares in the offering, our issuance of
common stock upon the exercise of currently outstanding options and warrants,
and our issuance of incentive stock awards under our stock incentive plans. See
"Shares Eligible for Future Sale."
Internet Distribution. E*OFFERING Corp. is the exclusive Internet
underwriter for this offering. E*OFFERING Corp. has agreed to allocate a portion
of the shares that it purchases to E*TRADE Securities, Inc., E*OFFERING Corp.
and E*TRADE will allocate shares to their respective customers in accordance
with usual and customary industry practices. A prospectus in electronic format
will be made available on Internet sites maintained by E*OFFERING Corp. and
E*TRADE. Other than the prospectus in electronic format, the information on
these Internet sites is not part of this prospectus or the registration
statement of which the prospectus forms a part.
Directed Shares. We have requested that the underwriters reserve up to 5%
of the shares of common stock for sale at the initial public offering price to
directors, officers, employees and other persons designated by us.
Listing. The shares being sold in the offering have been approved for
quotation on the Nasdaq National Market under the symbol "FIRE."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations between us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, 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.
Stabilization. The representatives have advised us that, under Regulation
M under the Securities Exchange Act, some participants in the offering may
engage in transactions, including stabilization 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 the common stock on behalf of the underwriters for
the purpose of fixing or maintaining the price of the common stock. A "syndicate
covering transaction" is the bid for or purchase of the common stock on behalf
of the underwriters to reduce a short position incurred by the underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or
58
<PAGE> 63
syndicate member in connection with the offering if the common stock originally
sold by the underwriter or syndicate member is purchased by the representatives
in a syndicate covering transaction and has therefore not been effectively
placed by the underwriter or syndicate member. The representatives have advised
us that these transactions may be effected on the Nasdaq National Market or
otherwise, and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for FirePond by McDermott, Will & Emery, Boston, Massachusetts. Various
legal matters related to the sale of the common stock offered hereby will be
passed upon for the underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated balance sheets as of October 31, 1997 and 1998 and July
31, 1999 and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for the years ended October 31, 1997 and 1998
and the nine months ended July 31, 1999 included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
The combined statements of operations, stockholders' equity (deficit), and
cash flows for the year ended October 31, 1996, included in this prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and elsewhere in the registration statement and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act and the rules and regulations thereunder, for the registration of
the common stock offered hereby. This prospectus, which forms a part of the
registration statement, does not contain all the information included in the
registration statement, parts of which have been omitted as permitted by the SEC
rules and regulations. For further information about us and our common stock,
you should refer to the registration statement. Statements contained in this
prospectus as to any contract or other document are not necessarily complete.
Where the contract or other document is an exhibit to the registration
statement, each statement is qualified by the provisions of that exhibit.
The registration statement can be inspected and copied at the public
reference facility maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the registration statement can be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the registration statement is publicly available
through the SEC's site on the Internet's World Wide Web, located at
http://www.sec.gov.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You can also request copies of these
documents, for a copying fee, by writing to the SEC.
59
<PAGE> 64
FIREPOND, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets as of October 31, 1997 and 1998
and July 31, 1999......................................... F-4
Consolidated Statements of Operations for the Fiscal Years
Ended October 31, 1996, 1997 and 1998 and the Nine Months
ended July 31, 1998 (Unaudited) and 1999.................. F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the Fiscal Years Ended October 31, 1996, 1997 and 1998
and the Nine Months Ended July 31, 1999................... F-6
Consolidated Statements of Cash Flows for the Fiscal Years
Ended October 31, 1996, 1997 and 1998 and the Nine Months
ended July 31, 1998 (Unaudited) and 1999.................. F-8
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 65
After the two-for-three stock split discussed in Note 9(b) to FirePond, Inc.'s
consolidated financial statements is effected, we expect to be in a position to
render the following audit report.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 12, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
FirePond, Inc.:
We have audited the accompanying consolidated balance sheets of FirePond,
Inc. (a Minnesota corporation) and subsidiaries as of October 31, 1997 and 1998
and July 31, 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years ended October 31,
1997 and 1998 and the nine-month period ended July 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The combined financial statements of FirePond,
Inc. for the year ended October 31, 1996 were audited by other auditors whose
report dated December 30, 1997 expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FirePond, Inc. and subsidiaries as of October 31, 1997 and 1998 and July 31,
1999, and the results of their operations and their cash flows for the years
ended October 31, 1997 and 1998 and the nine-month period ended July 31, 1999,
in conformity with generally accepted accounting principles.
Boston, Massachusetts
October 15, 1999
(except with respect to the
matters discussed in Notes 1(a) and 9(b) as
to which the date is November , 1999)
F-2
<PAGE> 66
After the two-for-three stock split discussed in Note 9(b) to FirePond, Inc.'s
consolidated financial statements is effected, we expect to be in a position to
render the following audit report.
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
November 12, 1999
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
FirePond, Inc.:
We have audited the accompanying combined statements of operations,
stockholders' equity (deficit), and cash flows of FirePond, Inc. (formerly Clear
With Computers, Inc.) (the Company) for the year ended October 31, 1996. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined results of operations and cash flows of
FirePond, Inc. for the year ended October 31, 1996, in conformity with generally
accepted accounting principles.
Minneapolis, Minnesota
December 30, 1997
(November , 1999 as to Note 9(b))
F-3
<PAGE> 67
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31,
--------------------
1997 1998 JULY 31, 1999
-------- -------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,147 $ 2,324 $ 1,936
Accounts receivable, net of allowance for doubtful
accounts of $100, $290 and $380 in 1997, 1998 and 1999,
respectively............................................ 4,515 6,214 8,716
Unbilled services......................................... 794 845 1,878
Prepaid expenses and other current assets................. 348 405 1,319
-------- -------- --------
15,804 9,788 13,849
Property and equipment, net................................. 9,384 8,443 5,126
Restricted cash............................................. -- -- 550
Other assets................................................ 386 378 561
-------- -------- --------
$ 25,574 $ 18,609 $ 20,086
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit............................................ $ 2,790 $ -- $ 2,933
Current portion of long-term debt......................... 5,786 4,769 1,260
Accounts payable.......................................... 1,694 1,832 1,494
Accrued liabilities....................................... 9,523 5,413 5,163
Deferred revenue.......................................... 2,225 4,614 7,402
Billings in excess of costs............................... 2,305 -- --
-------- -------- --------
24,323 16,628 18,252
Long-term debt, less current portion........................ 3,991 1,727 1,130
Restructuring accrual, less current portion................. -- -- 475
Commitments and contingencies (Note 8)
Stockholders' equity (deficit):
Preferred stock, $0.01 par value --
Authorized -- 50,000,000 shares;
Issued and outstanding -- 4,859,222, 12,363,785 and
19,097,793 shares in 1997, 1998 and 1999, respectively
(liquidation preference of $71,500,000 as of July 31,
1999)................................................. 49 124 191
Common stock, $0.01 par value --
Authorized -- 100,000,000 shares;
Issued and outstanding -- 9,905,787, 10,004,315 and
10,024,526 shares in 1997, 1998 and 1999,
respectively.......................................... 99 100 100
Additional paid-in capital................................ 22,775 33,745 55,839
Accumulated deficit....................................... (25,651) (33,715) (54,232)
Deferred compensation..................................... -- -- (1,464)
Cumulative translation adjustment......................... -- -- (139)
Subscription receivables.................................. (12) -- (66)
-------- -------- --------
Total stockholders' equity (deficit).................... (2,740) 254 229
-------- -------- --------
$ 25,574 $ 18,609 $ 20,086
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 68
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31, NINE MONTHS ENDED JULY 31,
-------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
---------- -------------- -------------- -------------- --------------
(COMBINED) (CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product-related revenues:
License.......................... $ -- $ 416 $ 1,580 $ 989 $ 6,632
Services and maintenance......... -- -- 6,701 4,912 5,605
------- -------- ------- ------- --------
Total product-related
revenues.................... -- 416 8,281 5,901 12,237
Custom development services........ 34,158 26,114 22,354 18,272 12,061
------- -------- ------- ------- --------
Total revenues................ 34,158 26,530 30,635 24,173 24,298
------- -------- ------- ------- --------
Cost of revenues:
License............................ -- -- 15 9 6
Product-related services and
maintenance...................... -- -- 3,061 2,381 3,890
Custom development services........ 20,036 27,173 9,230 7,170 8,622
------- -------- ------- ------- --------
Total cost of revenues........ 20,036 27,173 12,306 9,560 12,518
------- -------- ------- ------- --------
Gross profit (loss).................. 14,122 (643) 18,329 14,613 11,780
Operating expenses:
Sales and marketing................ 5,290 8,080 13,680 9,765 17,035
Research and development........... 2,601 3,634 8,199 5,930 6,372
General and administrative......... 3,081 3,188 3,516 2,606 5,062
Stock-based compensation........... -- 450 672 316 798
Restructuring charge............... -- 11,203 -- -- 2,625
------- -------- ------- ------- --------
Total operating expenses...... 10,972 26,555 26,067 18,617 31,892
------- -------- ------- ------- --------
Income (loss) from operations........ 3,150 (27,198) (7,738) (4,004) (20,112)
Interest expense..................... (1,269) (1,536) (616) (479) (526)
Other income (expense), net.......... (37) (55) 290 185 121
------- -------- ------- ------- --------
Net income (loss).................... $ 1,844 $(28,789) $(8,064) $(4,298) $(20,517)
======= ======== ======= ======= ========
Net income (loss) per share (Note
3(a)):
Basic and diluted net income (loss)
per share........................ $ 0.18 $ (2.79) $ (0.81) $ (0.43) $ (2.05)
======= ======== ======= ======= ========
Basic weighted average common
shares outstanding............... 10,401 10,319 9,925 9,908 10,017
======= ======== ======= ======= ========
Diluted weighted average common
shares outstanding............... 10,432 10,319 9,925 9,908 10,017
======= ======== ======= ======= ========
Pro forma net loss per share
(unaudited) (Note 3(b)):
Pro forma net loss per share....... $ (0.48) $ (0.99)
======= ========
Pro forma basic and diluted
weighted average common shares
outstanding...................... 16,900 20,754
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 69
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- ----------------------
$0.01 ADDITIONAL
PAR $0.01 PAR MEMBERSHIP PAID-IN
SHARES VALUE SHARES VALUE UNITS CAPITAL
----------- ------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1995 -- Combined....... -- $ -- 10,438,600 $104 -- $ 1,430
Issuance of common stock.................... -- -- 13,640 -- -- 8
Repurchase and retirement of common
stock.................................... -- -- (89,370) (1) -- (73)
Issuance of membership units............... -- -- -- -- 112,278 --
Advances to stockholders................... -- -- -- -- -- --
Distributions to stockholders.............. -- -- -- -- -- --
Net income................................. -- -- -- -- -- --
Comprehensive income for the year ended
October 31, 1996.........................
----------- ----- ---------- ---- -------- -------
Balance, October 31, 1996 -- Combined....... -- -- 10,362,870 103 112,278 1,365
Issuance of Series A preferred stock....... 4,188,880 42 -- -- -- 9,321
Issuance of warrants to purchase Series B
preferred stock.......................... -- -- -- -- -- 1
Issuance of Series C preferred stock....... 570,342 6 -- -- -- 1,494
Issuance of Series D preferred stock....... 100,000 1 -- -- -- 9,988
Issuance of common stock................... -- -- 69,167 1 -- 149
Repurchase and retirement of common
stock.................................... -- -- (172,633) (2) -- (146)
Elimination of subsidiaries, net of
issuances................................ -- -- (353,617) (3) (112,278) 3
Payments by stockholders................... -- -- -- -- -- --
Exchange of stockholder receivable for
consulting services...................... -- -- -- -- -- --
Distributions to stockholders.............. -- -- -- -- -- --
Stock-based compensation expense........... -- -- -- -- -- 600
Net loss................................... -- -- -- -- -- --
Comprehensive loss for the year ended
October 31, 1997.........................
----------- ----- ---------- ---- -------- -------
<CAPTION>
RETAINED TOTAL
EARNINGS CUMULATIVE STOCKHOLDERS'
(ACCUMULATED DEFERRED TRANSLATION SUBSCRIPTION EQUITY
DEFICIT) COMPENSATION ADJUSTMENT RECEIVABLES (DEFICIT)
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1995 -- Combined....... $ 1,846 $ -- $ -- $(545) $ 2,835
Issuance of common stock.................... -- -- -- -- 8
Repurchase and retirement of common
stock.................................... -- -- -- -- (74)
Issuance of membership units............... -- -- -- -- --
Advances to stockholders................... -- -- -- (28) (28)
Distributions to stockholders.............. (385) -- -- -- (385)
Net income................................. 1,844 -- -- -- 1,844
Comprehensive income for the year ended
October 31, 1996.........................
-------- ------- ----- ----- --------
Balance, October 31, 1996 -- Combined....... 3,305 -- -- (573) 4,200
Issuance of Series A preferred stock....... -- -- -- -- 9,363
Issuance of warrants to purchase Series B
preferred stock.......................... -- -- -- -- 1
Issuance of Series C preferred stock....... -- -- -- -- 1,500
Issuance of Series D preferred stock....... -- -- -- -- 9,989
Issuance of common stock................... -- -- -- -- 150
Repurchase and retirement of common
stock.................................... -- -- -- -- (148)
Elimination of subsidiaries, net of
issuances................................ -- -- -- -- --
Payments by stockholders................... -- -- -- 361 361
Exchange of stockholder receivable for
consulting services...................... -- -- -- 200 200
Distributions to stockholders.............. (167) -- -- -- (167)
Stock-based compensation expense........... -- -- -- -- 600
Net loss................................... (28,789) -- -- -- (28,789)
Comprehensive loss for the year ended
October 31, 1997.........................
-------- ------- ----- ----- --------
<CAPTION>
COMPREHENSIVE
INCOME (LOSS)
-------------
<S> <C>
Balance, October 31, 1995 -- Combined.......
Issuance of common stock....................
Repurchase and retirement of common
stock....................................
Issuance of membership units...............
Advances to stockholders...................
Distributions to stockholders..............
Net income................................. $ 1,844
--------
Comprehensive income for the year ended
October 31, 1996......................... $ 1,844
========
Balance, October 31, 1996 -- Combined.......
Issuance of Series A preferred stock.......
Issuance of warrants to purchase Series B
preferred stock..........................
Issuance of Series C preferred stock.......
Issuance of Series D preferred stock.......
Issuance of common stock...................
Repurchase and retirement of common
stock....................................
Elimination of subsidiaries, net of
issuances................................
Payments by stockholders...................
Exchange of stockholder receivable for
consulting services......................
Distributions to stockholders..............
Stock-based compensation expense...........
Net loss................................... $(28,789)
--------
Comprehensive loss for the year ended
October 31, 1997......................... $(28,789)
========
</TABLE>
F-6
<PAGE> 70
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- ----------------------
$0.01 ADDITIONAL
PAR $0.01 PAR MEMBERSHIP PAID-IN
SHARES VALUE SHARES VALUE UNITS CAPITAL
----------- ------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1997 -- Consolidated... 4,859,222 49 9,905,787 99 -- 22,775
Exercise of common stock options........... -- -- 20,067 -- -- 79
Issuance of common stock................... -- -- 86,061 1 -- 339
Repurchase and retirement of common
stock.................................... -- -- (7,600) -- -- (30)
Stock-based compensation expense........... -- -- -- -- -- 672
Series D preferred stock exchanged for
Series E preferred stock................. 3,702,281 37 -- -- -- (37)
Issuance of Series E preferred stock....... 3,802,282 38 -- -- -- 9,947
Payments by stockholders................... -- -- -- -- -- --
Net loss................................... -- -- -- -- -- --
Comprehensive loss for the year ended
October 31, 1998.........................
----------- ----- ---------- ---- -------- -------
Balance, October 31, 1998 -- Consolidated... 12,363,785 124 10,004,315 100 -- 33,745
Exercise of common stock options........... -- -- 20,211 -- -- 80
Issuance of Series F preferred stock....... 6,734,008 67 -- -- -- 19,774
Issuance of warrants to purchase Series F
preferred stock.......................... -- -- -- -- -- 1
Cost of exchanging Series E for Series G
preferred stock.......................... -- -- -- -- -- (23)
Deferred stock-based compensation.......... -- -- -- -- -- 2,262
Stock-based compensation expense........... -- -- -- -- -- --
Cumulative translation adjustment.......... -- -- -- -- -- --
Net loss................................... -- -- -- -- -- --
Comprehensive loss for the nine months
ended July 31, 1999......................
----------- ----- ---------- ---- -------- -------
Balance, July 31, 1999 -- Consolidated...... 19,097,793 $ 191 10,024,526 $100 -- $55,839
=========== ===== ========== ==== ======== =======
<CAPTION>
RETAINED TOTAL
EARNINGS CUMULATIVE STOCKHOLDERS'
(ACCUMULATED DEFERRED TRANSLATION SUBSCRIPTION EQUITY
DEFICIT) COMPENSATION ADJUSTMENT RECEIVABLES (DEFICIT)
------------ ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1997 -- Consolidated... (25,651) -- -- (12) (2,740)
Exercise of common stock options........... -- -- -- -- 79
Issuance of common stock................... -- -- -- -- 340
Repurchase and retirement of common
stock.................................... -- -- -- -- (30)
Stock-based compensation expense........... -- -- -- -- 672
Series D preferred stock exchanged for
Series E preferred stock................. -- -- -- -- --
Issuance of Series E preferred stock....... -- -- -- -- 9,985
Payments by stockholders................... -- -- -- 12 12
Net loss................................... (8,064) -- -- -- (8,064)
Comprehensive loss for the year ended
October 31, 1998.........................
-------- ------- ----- ----- --------
Balance, October 31, 1998 -- Consolidated... (33,715) -- -- -- 254
Exercise of common stock options........... -- -- -- (66) 14
Issuance of Series F preferred stock....... -- -- -- -- 19,841
Issuance of warrants to purchase Series F
preferred stock.......................... -- -- -- -- 1
Cost of exchanging Series E for Series G
preferred stock.......................... -- -- -- -- (23)
Deferred stock-based compensation.......... -- (2,262) -- -- --
Stock-based compensation expense........... -- 798 -- -- 798
Cumulative translation adjustment.......... -- -- (139) -- (139)
Net loss................................... (20,517) -- -- -- (20,517)
Comprehensive loss for the nine months
ended July 31, 1999......................
-------- ------- ----- ----- --------
Balance, July 31, 1999 -- Consolidated...... $(54,232) $(1,464) $(139) $ (66) $ 229
======== ======= ===== ===== ========
<CAPTION>
COMPREHENSIVE
INCOME (LOSS)
-------------
<S> <C>
Balance, October 31, 1997 -- Consolidated...
Exercise of common stock options...........
Issuance of common stock...................
Repurchase and retirement of common
stock....................................
Stock-based compensation expense...........
Series D preferred stock exchanged for
Series E preferred stock.................
Issuance of Series E preferred stock.......
Payments by stockholders...................
Net loss................................... $ (8,064)
--------
Comprehensive loss for the year ended
October 31, 1998......................... $ (8,064)
========
Balance, October 31, 1998 -- Consolidated...
Exercise of common stock options...........
Issuance of Series F preferred stock.......
Issuance of warrants to purchase Series F
preferred stock..........................
Cost of exchanging Series E for Series G
preferred stock..........................
Deferred stock-based compensation..........
Stock-based compensation expense...........
Cumulative translation adjustment.......... $ (139)
Net loss................................... (20,517)
--------
Comprehensive loss for the nine months
ended July 31, 1999...................... $(20,656)
========
Balance, July 31, 1999 -- Consolidated......
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 71
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31, NINE MONTHS ENDED JULY 31,
-------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
(COMBINED) (CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................ $1,844 $(28,789) $(8,064) $(4,298) $(20,517)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Noncash restructuring charges................ -- 8,475 -- -- 1,532
Exchange of stockholder receivable for
consulting services........................ -- 200 -- -- --
Stock-based compensation expense............. -- 450 672 316 798
Loss on disposal of property and equipment... -- 557 259 260 49
Depreciation and amortization................ 2,128 3,241 2,105 1,594 2,034
Changes in assets and liabilities:
Accounts receivables....................... 911 (171) (1,699) (1,490) (2,656)
Unbilled services.......................... (618) 2,339 (51) 133 (1,033)
Prepaid expenses and other current
assets................................... (38) (236) (57) 129 (914)
Accounts payable........................... 538 (352) 138 (484) (338)
Accrued liabilities........................ 167 8,599 (4,110) (1,814) 225
Deferred revenue........................... 32 1,982 2,639 1,404 2,788
Billings in excess of costs................ 624 717 (2,305) (2,295) --
------ -------- ------- ------- --------
Net cash provided by (used in) operating
activities............................. 5,588 (2,988) (10,473) (6,545) (18,032)
------ -------- ------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment............ (3,999) (3,606) (1,470) (1,393) (2,520)
Proceeds from sale of property and equipment... -- -- -- -- 2,557
Additions to trademarks and patents............ (56) (101) -- -- --
Additions to capitalized computer software
development costs............................ (2,483) (2,648) -- -- --
Increase in restricted cash.................... -- -- -- -- (550)
Increase in investments and deposits........... (215) (235) (16) (34) (245)
------ -------- ------- ------- --------
Net cash used in investing activities.... (6,753) (6,590) (1,486) (1,427) (758)
------ -------- ------- ------- --------
Cash flows from financing activities:
Net borrowings (payments) on line of credit.... 489 (877) (2,790) (2,790) 2,933
Payments on long-term debt..................... (2,520) (4,248) (3,460) (2,442) (4,379)
Proceeds from long-term debt................... 3,723 3,351 -- -- --
Proceeds from sale of preferred stock and
warrants..................................... -- 20,853 9,985 9,985 19,842
Proceeds from common stock issuance............ 8 150 419 79 80
Costs associated with exchange of preferred
stock........................................ -- -- -- -- (23)
Distributions to stockholders.................. (385) (167) -- -- --
Common stock repurchased....................... (74) (148) (30) (30) --
Decrease (increase) in subscription
receivables.................................. (93) 361 12 12 (66)
------ -------- ------- ------- --------
Net cash provided by financing
activities............................. 1,148 19,275 4,136 4,814 18,387
------ -------- ------- ------- --------
Effect of exchange rate changes on cash and cash
equivalents.................................... -- -- -- -- 15
Net increase (decrease) in cash and cash
equivalents.................................... (17) 9,697 (7,823) (3,158) (388)
Cash and cash equivalents, beginning of period... 467 450 10,147 10,147 2,324
------ -------- ------- ------- --------
Cash and cash equivalents, end of period......... $ 450 $ 10,147 $ 2,324 $ 6,989 $ 1,936
====== ======== ======= ======= ========
Supplemental cash flow information:
Interest paid.................................. $1,257 $ 1,552 $ 777 $ 479 $ 499
====== ======== ======= ======= ========
Noncash investing and financing activities:
Series D preferred stock exchanged for Series E
preferred stock.............................. $ -- $ -- $ 9,989 $ 9,989 $ --
====== ======== ======= ======= ========
Series E preferred stock exchanged for Series G
preferred stock.............................. -- -- -- -- 19,974
====== ======== ======= ======= ========
Equipment acquired under capital lease
obligations.................................. -- -- 179 -- 273
====== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 72
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
FirePond, Inc. and its wholly owned subsidiaries (collectively known as the
Company) is a leading provider of integrated e-business sales and marketing
solutions that enable companies to optimize their customer relationships and
maximize the effectiveness of their Internet-based and traditional sales
channels. The Company provides software and services that allow its customers to
merge their e-commerce selling, customer relationship management, and channel
management strategies on a single, Internet-based platform.
(a) Liquidity
On November 12, 1999, the Company issued subordinated notes payable
totaling $6,000,000 to an outside investor and certain existing stockholders of
the Company. The subordinated notes bear interest at 12.0% per annum and are due
upon the earlier of the closing of the Company's proposed initial public
offering and November 12, 2000. If an initial public offering is not completed
by June 12, 2000 or in the event of a sale transaction prior to June 12, 2000,
the subordinated notes are convertible into shares of the Company's preferred
stock having rights equivalent of the Company's existing Series F Preferred
Stock at a rate of $2.97 per share. The Company also issued to the holders of
the subordinated notes payable warrants to purchase an aggregate of 360,000
shares of common stock at an exercise price of $5.25 per share.
Subsequent to July 31, 1999, the Company modified its line of credit to
provide for additional borrowing availability (see Note 6).
The Company continues to incur losses from operations and had an
accumulated deficit and a working capital deficit of $54,232,000 and $4,403,000
at July 31, 1999, respectively. As a result of its significant research and
development, customer support, and selling and marketing efforts, the Company
has required substantial working capital to fund its operations. To date, the
Company has financed its operations principally through its equity offerings.
Management believes that under its current business plan, funds available from
borrowing arrangements are sufficient to fund its operations and capital
requirements through at least July 31, 2000. Any substantial inability to
achieve the current business plan could have a material adverse impact on the
Company's financial position, liquidity, or results of operations and may
require the Company to reduce expenditures to enable it to continue operations
through July 2000.
(b) Change in Control
In May 1997, investment funds associated with General Atlantic Partners
(GAP) acquired a majority interest in the Company through acquisition of shares
from the Company and shares directly from certain stockholders. In addition, the
Company granted warrants to purchase preferred stock from the Company and
options to purchase common stock from certain stockholders to these investment
funds. In October 1997, April 1998 and February 1999, these investment funds
acquired an additional equity interest in the Company through the purchase of
preferred stock (see Note 9).
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Presentation
The financial statements include the accounts of FirePond, Inc. and its
subsidiaries. In connection with the GAP investment in May 1997, FirePond, Inc.
acquired all of the outstanding stock of the subsidiaries in a stock-for-stock
exchange. Prior to this event, the entities were under common control. Since
this business combination involved companies under common control and their
operations were closely related through intercompany transactions, these
transactions were accounted for in a manner similar to a pooling of interests.
Accordingly, the accompanying statements of operations, stockholders' equity
(deficit) and cash flows for the year ended October 31, 1996 is presented on a
combined basis. All subsequent periods are reported on a consolidated basis. All
significant intercompany balances and transactions have been eliminated in the
accompanying combined and consolidated financial statements.
F-9
<PAGE> 73
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Upon the closing of the proposed initial public offering of the Company's
common stock, each outstanding share of Series A, Series C, Series F and Series
G preferred stock will convert into 0.67 shares of common stock. In addition,
the Series A, Series C and Series G preferred stockholders and certain common
stockholders are entitled to receive priority payments totaling $45,750,000 upon
the closing of the proposed initial public offering of the Company's common
stock. The Company anticipates that it will settle this priority payment through
the issuance of common stock. In addition, the Series F preferred stockholders
will receive additional shares of common stock upon the conversion of their
preferred stock based upon the amount of the priority payments made to the other
preferred stockholders and certain common stockholders. The Company has not
presented an unaudited pro forma balance sheet and statement of stockholders'
equity as of July 31, 1999 to reflect the conversion of all outstanding
preferred stock into common stock and the issuance of common stock in settlement
of the priority payments and Series F preferred stockholder rights, as the
number of shares of common stock issuable to settle the priority payments and
the additional shares of common stock issuable to the Series F preferred
stockholders is not currently determinable.
(b) Interim Financial Statements
The accompanying consolidated financial statements as of July 31, 1998 are
unaudited but, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of
results of operations for the interim period. Certain financial information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted with
respect to the nine-month period ended July 31, 1998, although the Company
believes that the disclosures included are adequate to make the information
presented not misleading. Interim results are not necessarily indicative of
results for a full year.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(d) Revenue Recognition
The Company recognizes revenue in accordance with the provisions of
Statement of Position (SOP) 97-2, Software Revenue Recognition, as amended by
SOP 98-4. Additionally, the American Institute of Certified Public Accountants
recently issued SOP 98-9, which provides certain amendments to SOP 97-2, which
is effective for transactions entered into beginning January 1, 2000. This
pronouncement is not expected to materially impact the Company's revenue
recognition practices.
The Company generates revenues from two primary sources: (1)
product-related license and service revenues and (2) custom development service
revenues.
Product-Related Revenues
Product-related license revenues are generated from licensing the rights to
the perpetual use of the Company's software products. Product-related service
revenues are generated from sales of maintenance, consulting and training
services performed for customers that license the Company's products.
Revenues from software license agreements are generally recognized over the
software implementation period if persuasive evidence of an arrangement exists,
collection is probable, the fee is fixed or determinable, and vendor-specific
objective evidence exists to allocate the total fee to all elements of the
arrangement. The Company has concluded that the implementation services are
essential to the software in arrangements where
F-10
<PAGE> 74
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
implementation services are provided. As such, the Company recognizes revenue
for these arrangements following the percentage-of-completion method over the
implementation period. Percentage of completion is measured by the percentage of
implementation hours incurred to date to estimated total implementation hours.
This method is used because management has determined that past experience has
shown expended hours to be the best measure of progress on these engagements.
Vendor-specific objective evidence is typically based on the price charged
when an element is sold separately or, in the case of an element not yet sold
separately, the price established by authorized management, if it is probable
that the price, once established, will not change before market introduction.
Elements included in multiple-element arrangements could consist of software
products, upgrades, enhancements, maintenance, consulting and training services.
Revenues from maintenance services are recognized ratably over the term of
the contract, typically one year. Consulting revenues are primarily related to
implementation services performed on a time-and-materials basis under separate
service arrangements. Revenues from consulting and training services are
recognized as services are performed.
Deferred revenue comprises amounts billed or collected by the Company prior
to satisfying the above revenue recognition criteria and relate principally to
product-related license fees, maintenance service contracts, and consulting and
training services.
Custom Development Services Revenues
The Company also performs custom development services under fixed-price
contracts, for which revenue is recognized in accordance with the
percentage-of-completion method. Percentage of completion is measured by the
percentage of implementation hours incurred to date to estimated total
implementation hours. This method is used because management considers expended
hours to be the best measure of progress on these engagements. When the current
estimates of total contract revenue and contract cost indicate a loss, a
provision for the entire loss on the contract is recorded (see Note 12).
Unbilled services represent amounts due to the Company under custom
development service agreements for work performed that had not been billed as of
the period-end. Billings in excess of costs represent the amounts billed under
custom development service agreements in advance of the performance of the work
as of the period-end.
(g) Cost of Revenues
Cost of licenses includes the cost of media, product packaging,
documentation and other production costs.
Cost of product-related services and maintenance and cost of custom
development services revenues consist primarily of salaries, related costs for
development, consulting, training and customer support personnel, including cost
of services provided by third-party consultants engaged by the Company and the
amortization of capitalized software development costs (see Note 2(k)).
(h) Cash and Cash Equivalents
The Company accounts for cash equivalents in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Cash equivalents are short-term,
highly liquid investments with original maturity dates of three months or less.
Cash equivalents are carried at cost, which approximates fair market value. Cash
equivalents at October 31, 1997 and 1998 and July 31, 1999 consist of
interest-bearing bank deposits.
F-11
<PAGE> 75
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(i) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
The Company provides for depreciation of its property and equipment using the
accelerated and straight-line methods over their estimated useful lives.
Property and equipment, at cost, and their estimated useful lives are as
follows:
<TABLE>
<CAPTION>
OCTOBER 31,
ESTIMATED ------------------ JULY 31,
USEFUL LIFE 1997 1998 1999
------------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer equipment...................... 2-5 years $ 7,956 $ 7,488 $ 6,769
Furniture and fixtures.................. 7 years 505 905 985
Leasehold improvements.................. Life of lease -- -- 226
Building................................ 30 years 3,624 3,624 --
------- ------- -------
12,085 12,017 7,980
Accumulated depreciation................ (2,701) (3,574) (2,854)
------- ------- -------
$ 9,384 $ 8,443 $ 5,126
======= ======= =======
</TABLE>
Depreciation expense for fiscal 1996, fiscal 1997 and fiscal 1998 and for
the nine-month periods ended July 31, 1998 and 1999 was $1,598,000, $1,748,000,
$2,081,000, $1,564,000 and $1,972,000, respectively.
(j) Other Assets
Other assets consist primarily of patents, which are being amortized using
the straight-line method over an estimated benefit period of ten years.
Accumulated amortization as of October 31, 1997 and 1998 and July 31, 1999
totaled $16,000, $40,000, and $58,000, respectively.
(k) Computer Software Development Costs and Research and Development Expenses
During fiscal 1996 and fiscal 1997, the Company capitalized software
development costs in accordance with SFAS No. 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed, and amortized these
costs over a period of 18 to 36 months. During fiscal 1997, in connection with
the Company's change in strategic focus from providing custom development
services to providing more standardized software solutions, the Company reviewed
the software development costs capitalized to date, which principally related to
components of custom development services, and determined that these costs were
not realizable. Accordingly, the Company wrote off all of its capitalized
software development costs of $4,491,000 as a component of the restructuring
charge in fiscal 1997.
The Company continues to incur software development costs associated with
its licensed products. In fiscal 1997, the Company determined that technological
feasibility occurs late in the development cycle and close to general release of
the products. The development costs incurred between the time technological
feasibility is established and general release of the product are not material;
accordingly, the Company expenses these costs as incurred.
Amortization of capitalized software development costs charged to cost of
custom development services was $514,000 and $1,080,000, for fiscal 1996 and
fiscal 1997, respectively.
(l) Impairment of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The Company's evaluation considers
nonfinancial data such as changes in the operating environment and business
strategy, competitive information, market trends and operating performance.
Based on this evaluation, the Company recorded a charge of approximately
$8,174,000 related to assets that were impaired as a result of the plan for
restructuring during fiscal 1997 (see Note 5(a)). In addition, the Company
recorded an
F-12
<PAGE> 76
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
impairment charge of $1,532,000 during the nine months ended July 31, 1999 in
connection with the relocation of the Company's corporate headquarters from
Minnesota to Massachusetts (see Note 5(b)).
(m) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet risks and credit
risk concentrations. The Company has no significant off-balance-sheet risks or
credit risk concentrations. Financial instruments that potentially subject the
Company to concentrations of credit risk are principally cash equivalents,
accounts receivable and unbilled services. The Company maintains its cash and
cash equivalents with established financial institutions. Concentration of
credit risk with respect to accounts receivable and unbilled services is limited
to certain customers to whom the Company makes substantial sales. The Company
performs periodic credit evaluations of its customers and has recorded
allowances for estimated losses.
The following table summarizes the number of customers that individually
comprise greater than 10% of total revenue and/or total accounts receivable and
their aggregate percentage of the Company's total revenues and accounts
receivable.
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
REVENUE -----------------------
----------------------- PERCENT OF
PERCENT OF TOTAL
NUMBER OF TOTAL NUMBER OF ACCOUNTS
CUSTOMERS REVENUE CUSTOMERS RECEIVABLE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended:
October 31, 1996........................ 1 17%
October 31, 1997...................... 1 28 3 42%
October 31, 1998...................... 4 54 3 48
Nine months ended:
July 31, 1998 (unaudited)............. 3 44 3 58
July 31, 1999......................... 2 39 3 53
</TABLE>
(n) Financial Instruments
The estimated fair values of the Company's financial instruments, which
include cash equivalents, accounts receivable, unbilled services, restricted
cash, line of credit and long-term debt, approximate their carrying value.
(o) Stock-Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
measurement of the fair value of employee and director stock options or warrants
to be included in the statement of operations or disclosed in the notes to
financial statements. The Company has determined that it will continue to
account for stock-based compensation for employees and directors under the
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and elect the disclosure-only alternative under SFAS No. 123 (see
Note 9(f)). The Company accounts for options and warrants granted to
non-employees using the fair-value method prescribed by SFAS No. 123.
(p) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS No. 133, as amended by SFAS No. 137,
is effective for all fiscal quarters of fiscal years beginning after June 15,
2000. SFAS No. 133 is not expected to have a material impact on the Company's
consolidated financial statements.
F-13
<PAGE> 77
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(q) Foreign Currency Translation
Assets and liabilities of the foreign subsidiaries are translated in
accordance with SFAS No. 52, Foreign Currency Translation. In accordance with
SFAS No. 52, assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at current exchange rates, and income and expense
items are translated at average rates of exchange prevailing during the year.
Gains and losses arising from translation are accumulated as a separate
component of stockholders' equity (deficit). Gains and losses arising from
transactions denominated in foreign currencies are included in other income and
were not material for the periods presented.
(r) Comprehensive Income (Loss)
As of November 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income. SFAS No. 130, requires disclosure of all components of
comprehensive income (loss) on an annual and interim basis. Comprehensive income
(loss) is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from nonowner
sources.
3. NET INCOME (LOSS) PER SHARE
(a) Net Income (Loss) Per Share
Net income (loss) per share is computed in accordance with SFAS No. 128,
Earnings per Share. SFAS No. 128 requires companies to report both basic income
(loss) per share, which is based on the weighted average number of common shares
outstanding, and diluted loss per share, which is based on the weighted average
number of common shares outstanding and the weighted average dilutive potential
common shares outstanding using the treasury stock method. As a result of the
losses incurred by the Company for fiscal 1997 and fiscal 1998 and the nine
months ended July 31, 1998 and 1999, all potential common shares were
antidilutive and were excluded from the diluted net loss per share calculations.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, common stock and convertible preferred stock issued or granted for
nominal consideration prior to the anticipated effective date of a company's
initial public offering must be included in the calculation of basic and diluted
net loss per share as if they had been outstanding for all periods presented.
The Company has determined that there were no issuances of common stock and
convertible preferred stock for nominal consideration.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED OCTOBER 31, JULY 31,
-------------------------------- ---------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- ------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Basic and diluted:
Weighted average common shares outstanding
used in computing basic net income (loss) per
share........................................ 10,401 10,319 9,925 9,908 10,017
Weighted average common shares issuable
upon the exercise of stock options and
warrants, net of repurchases............. 31 -- -- -- --
------ ------ ------ ------ ------
Weighted average common shares outstanding
used in computing diluted net income
(loss) per share......................... 10,432 10,319 9,925 9,908 10,017
====== ====== ====== ====== ======
</TABLE>
F-14
<PAGE> 78
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The following table summarizes securities outstanding as of each period-end
which were not included in the calculation of diluted net loss per share since
their inclusion would be antidilutive.
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
------------------------ --------------
1996 1997 1998 1998 1999
------ ----- ----- ----- -----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Common stock options and warrants......... -- 1,683 5,089 4,091 6,712
====== ===== ===== ===== =====
Convertible preferred stock............... -- 570 570 570 7,304
====== ===== ===== ===== =====
Preferred stock warrants (Note 9(d))...... -- 190 190 190 864
====== ===== ===== ===== =====
</TABLE>
(b) Pro Forma Net Loss Per Share
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of preferred stock that will convert upon the
completion of the Company's proposed initial public offering (using the
if-converted method) from the original date of issuance.
The following table reflects the reconciliation of the shares used in the
computation of pro forma loss per share.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
OCTOBER 31, JULY 31,
1998 1999
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Pro forma basic and diluted:
Weighted average common shares outstanding used in computing
basic and diluted net loss per share........................ 9,925 10,017
Weighted average common shares issuable upon the
conversion of preferred stock.......................... 6,975 10,737
------ ------
Weighted average common shares outstanding used in
computing basic and diluted net loss per share......... 16,900 20,754
====== ======
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------- JULY 31,
1997 1998 1999
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Loss contracts reserve................................... $5,005 $1,600 $1,100
Current portion of restructuring accrual................. 1,583 304 618
Payroll and related costs................................ 1,067 1,101 926
Other.................................................... 1,868 2,408 2,519
------ ------ ------
$9,523 $5,413 $5,163
====== ====== ======
</TABLE>
5. RESTRUCTURING CHARGE
(a) Change in Strategic Focus
During fiscal 1997, the Company undertook a plan to change the strategic
focus of the Company from a custom development services company to a software
product company providing more standardized solutions. In addition, the Company
decided to exit certain business activities, change its management team and
reduce
F-15
<PAGE> 79
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
its workforce to be in line with its newly defined business strategy. In
connection with this plan, the Company incurred significant charges associated
with employee severance costs, costs to exit certain business activities and
asset impairments (see Note 12). The Company does not anticipate any future
benefit from the costs incurred.
The significant components of the restructuring charge were as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Employee severance costs.................................... $ 2,729
Costs to exit business activities (including asset
impairments)................................................ 1,238
Other asset impairments --
Property and equipment.................................... 2,595
Capitalized software development costs.................... 4,491
Other costs............................................... 150
-------
$11,203
=======
</TABLE>
The employee severance cost component of the restructuring charge was
related to reductions in headcount. The plan included seven sales and marketing,
17 general and administrative and 27 software development personnel.
(b) Corporate Relocation
During fiscal 1999, the Company undertook a plan to relocate its corporate
offices from Mankato, Minnesota to Waltham, Massachusetts. In connection with
this plan, the Company incurred charges associated with asset impairments, idle
lease space and employee severance costs (see Note 12). The Company does not
anticipate any future benefit from the costs incurred.
The significant components of the restructuring charge were as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Impairment of property and equipment........................ $1,532
Idle lease space............................................ 993
Employee severance costs.................................... 100
------
$2,625
======
</TABLE>
The Company is subject to a ten-year lease arrangement on its Mankato,
Minnesota facility that permits (1) a 50% reduction in the monthly lease
obligation by providing notice one year in advance, and (2) early termination of
the lease agreement at the end of the fifth year by giving notice prior to the
fourth anniversary of the lease agreement. The Company has determined that
approximately 72% of the office space in Mankato was rendered idle as part of
the relocation plan. The idle lease space cost was determined in anticipation of
the Company exercising its option to reduce the lease obligation within one year
and terminating the remaining lease obligation at the end of the fifth year.
Accordingly, the present value of the portion of future lease payments for which
the Company does not anticipate any future benefit has been accrued as of July
31, 1999. As of July 31, 1999, approximately $475,000 of the restructuring
accrual relates to amounts reserved for idle lease space costs extending beyond
12 months and, accordingly, has been classified as a long-term obligation in the
accompanying consolidated balance sheet.
The employee severance cost component of the restructuring charge was
related to reductions in headcount. The plan included 11 general and
administrative personnel.
F-16
<PAGE> 80
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
6. FINANCINGS
As of July 31, 1999, the Company had a $5,000,000 line of credit with a
financial institution. The line of credit was scheduled to expire on October 31,
1999. The amount available for borrowing was based on 80% of qualifying accounts
receivable, as defined. At July 31, 1999, $2,933,000 was outstanding under the
line and the Company had approximately $614,000 available for future borrowings.
Effective September 29, 1999, the Company amended its line of credit
agreement with a financial institution to increase the total commitment to
$7,000,000. This additional commitment was reached through the conversion of
$2,000,000 outstanding borrowings on the existing line of credit to a term loan
and establishing a new line of credit. Borrowings under the new line of credit
will be limited to the lesser of $5,000,000 or 80% of qualifying accounts
receivable, as defined. The amended line of credit and term loan matures on
October 31, 2000 and is subject to automatic renewal for successive additional
one-year terms unless cancelled by either party. Interest on the original line
and the amended line is charged at the prime rate (8.0% at July 31, 1999) plus
2.0%, limited to a minimum of 8.0% per annum, and is payable monthly. The
Company also pays a fee of 0.5% per year on the unused line of credit.
Substantially all of the Company's tangible and intangible assets are pledged as
collateral against the line of credit.
Long-term debt obligations consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------- JULY 31,
1997 1998 1999
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage notes payable in varying monthly installments,
including interest at 8.0% to 9.0%..................... $2,809 $2,618 $ --
Notes payable in varying monthly installments, including
interest at 6.0% to 11.0%, through June 2001............. 6,968 3,708 2,118
Capital lease obligations payable in varying monthly
installments, including interest at 8.0% to 11.0%,
through April 2002..................................... -- 170 272
------ ------ ------
9,777 6,496 2,390
Less -- current portion.................................. 5,786 4,769 1,260
------ ------ ------
$3,991 $1,727 $1,130
====== ====== ======
</TABLE>
The mortgage notes were due to a municipality, secured by the building,
personally guaranteed by a stockholder of the Company and became due upon a
change in control which occurred in May 1997. On December 2, 1998, the Company
sold the building which secured the property and repaid the notes (see Note 8).
Scheduled annual maturities of long-term debt are as follows as of July 31,
1999:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
1999 (three-month period)............................... $ 700
2000.................................................. 1,334
2001.................................................. 626
2002.................................................. 8
------
2,668
Less -- amounts representing interest................... 278
------
$2,390
======
</TABLE>
F-17
<PAGE> 81
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
7. INCOME TAXES
Prior to May 1997, the Company had elected to be treated as an S
corporation under the Internal Revenue Code. As an S corporation, federal and
certain state income tax consequences of the Company were passed through to the
individual stockholders and dividend distributions were made to the stockholders
for payments of their individual taxes related to the Company's income.
Accordingly, no provision (benefit) for income taxes has been provided in fiscal
1996. In May 1997, the Company was reorganized from an S corporation to a C
corporation and, as such, taxes are payable at the corporate level.
Since conversion to a taxable corporation, income taxes are accounted for
in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No.
109, deferred income tax liabilities and assets are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities using currently enacted tax rates.
The income tax provisions, assuming that the Company was subject to income
taxes as a C corporation for the entirety of each period, are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED OCTOBER 31, ENDED
-------------------------------- JULY 31,
1996 1997 1998 1999
------------ ------- ------- -----------
(PRO FORMA)
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal...................................... $627 $(9,788) $(1,032) $(6,728)
State taxes, net of federal benefits......... 119 (1,862) (156) (1,217)
Other........................................ 2 60 216 361
Net operating loss not benefited............. -- 11,590 972 7,584
---- ------- ------- -------
$748 $ -- $ -- $ --
==== ======= ======= =======
</TABLE>
Deferred income taxes as of October 31, 1997 and 1998 and July 31, 1999
relate to the following temporary differences:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------- JULY 31,
1997 1998 1999
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net operating loss and credit carryforwards............. $ 4,614 $ 7,947 $ 12,743
Nondeductible reserves and accruals..................... 3,467 1,398 2,443
Depreciation and amortization........................... 279 (147) (1,769)
Valuation allowance..................................... (8,360) (9,198) (13,417)
------- ------- --------
$ -- $ -- $ --
======= ======= ========
</TABLE>
As of July 31, 1999, the Company has available a net operating loss
carryforward of approximately $33,000,000 to reduce future federal and state
income taxes, if any. This carryforward expires beginning in 2012 and may be
subject to review and possible adjustment by the Internal Revenue Service. The
Tax Reform Act of 1986 contains provisions that may limit the amount of net
operating loss carryforwards that the Company may utilize in any one year in the
event of certain cumulative changes in ownership over a three-year period in
excess of 50%, as defined. The Company has completed several equity financing
transactions since it became a C corporation. The Company has not assessed
whether these equity transactions have resulted in a cumulative ownership change
in excess of 50%.
F-18
<PAGE> 82
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
NINE
FISCAL YEARS ENDED MONTHS
OCTOBER 31, ENDED
----------------------------- JULY 31,
1996 1997 1998 1999
----------- ----- ----- --------
(PRO FORMA)
(UNAUDITED)
<S> <C> <C> <C> <C>
Income tax provision at federal statutory
rate......................................... 34.0% (34.0)% (34.0)% (34.0)%
Increase (decrease) in tax resulting from --
State tax provision, net of federal
benefit................................... 6.0 (6.0) (6.0) (6.0)
Other........................................ 0.6 -- -- --
Increase in valuation allowance.............. -- 40.0 40.0 40.0
---- ----- ----- -----
Effective tax rate........................ 40.6% 0.0% 0.0% 0.0%
==== ===== ===== =====
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
(a) Litigation
The Company is engaged in legal proceedings incidental to the normal course
of business. Although the ultimate outcome of these matters cannot be
determined, management believes that the final disposition of these proceedings
will not have a material adverse effect on the consolidated financial position
or the results of operations of the Company.
(b) Leases
The Company leases its office space under operating leases expiring at
various dates through December 2004. Rental expense under these agreements for
fiscal 1996, fiscal 1997 and fiscal 1998 and the nine months ended July 31, 1998
and 1999 totaled approximately $398,000, $406,000, $746,000, $452,000 and
$1,650,000, respectively.
At July 31, 1999, the minimum future obligations under operating leases are
as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------
(IN THOUSANDS)
<S> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
1999 (three-month period).............................. $ 795
2000................................................. 2,558
2001................................................. 2,402
2002................................................. 2,052
2003................................................. 1,935
Thereafter........................................... 5,033
-------
$14,775
=======
</TABLE>
On December 2, 1998, the Company sold its office building located in
Mankato, Minnesota, for $2,700,000 and entered into an agreement to lease the
facility back over ten years. The Company recognized an insignificant loss on
the sale. Proceeds from the sale were used to repay the notes payable as
described in Note 6.
(c) Letter of Credit
The Company is obligated to maintain an irrevocable standby letter of
credit of approximately $550,000, which would be payable upon default of the
Company's noncancelable facility lease that was entered into in
F-19
<PAGE> 83
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
May 1999. The letter of credit will be collateralized by cash, which has been
classified as restricted cash in the accompanying consolidated balance sheet as
of July 31, 1999.
(9) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Authorized Shares
As of July 31, 1999, the Company has authorized the issuance of 100,000,000
shares of $0.01 par value common stock and 50,000,000 shares of $0.01 par value
convertible preferred stock.
(b) Recapitalization
On November 8, 1999, the Company's Board of Directors approved a
two-for-three reverse stock split of its common stock. The stock split was
effective on , 1999. All shares and per-share amounts of common
stock for all periods presented have been retroactively adjusted to reflect the
stock split. Prior to the closing of the Company's proposed initial public
offering, its certificate of incorporation will be amended and restated to
change its authorized capital stock to shares of $0.01 par value
common stock and shares of $0.01 par value preferred stock.
(c) Reserved Shares
The Company has reserved the following number of shares of common stock for
the conversion of preferred stock and issuance of stock options and warrants:
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Series A Preferred Stock.................................... 2,792,587
Series B Preferred Stock.................................... 634,794
Series C Preferred Stock.................................... 380,228
Series F Preferred Stock.................................... 4,938,273
Series G Preferred Stock.................................... 5,069,709
Stock options and warrants.................................. 8,054,037
----------
21,869,628
==========
</TABLE>
(d) Preferred Stock
The following table summarizes the number of shares designated, issued and
outstanding:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------- JULY 31,
1997 1998 1999
--------- ---------- ----------
<S> <C> <C> <C>
Series A convertible preferred stock (Series A
Preferred Stock) -- 4,188,880 shares
designated.................................... 4,188,880 4,188,880 4,188,880
Series B convertible preferred stock (Series B
Preferred Stock) -- 190,438 shares designated... -- -- --
Series C convertible preferred stock (Series C
Preferred Stock) -- 570,342 shares
designated.................................... 570,342 570,342 570,342
Series D convertible preferred stock (Series D
Preferred Stock) -- 100,000 shares
designated.................................... 100,000 -- --
Series E convertible preferred stock (Series E
Preferred Stock) -- 7,604,563 shares
designated.................................... -- 7,604,563 --
Series F convertible preferred stock (Series F
Preferred Stock) -- 7,407,409 shares
designated.................................... -- -- 6,734,008
Series G convertible preferred stock (Series G
Preferred Stock) -- 7,604,563 shares
designated.................................... -- -- 7,604,563
--------- ---------- ----------
4,859,222 12,363,785 19,097,793
========= ========== ==========
</TABLE>
F-20
<PAGE> 84
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In May 1997, the Company sold 4,188,880 shares of Series A Preferred Stock
at $2.63 per share. In addition, the Company issued warrants to purchase 190,438
shares of Series B Preferred Stock at an exercise price of $19.69 per share.
In July 1997, the Company sold 570,342 shares of Series C Preferred Stock
at $2.63 per share.
In October 1997, the Company sold 100,000 shares of Series D Preferred
Stock at $100.00 per share.
In April 1998, the Company sold 3,802,282 shares of Series E Preferred
Stock at $2.63 per share. In connection with the Series E Preferred Stock
financing, the Company exchanged 100,000 outstanding shares of Series D
Preferred Stock for 3,802,281 shares of Series E Preferred Stock.
In February 1999, the Company sold 6,734,008 shares of Series F Preferred
Stock at $2.97 per share. In addition, the Company issued warrants to purchase
673,401 shares of Series F Preferred Stock at an exercise price of $3.56 per
share. In connection with the Series F Preferred Stock financing, the Company
exchanged 7,604,563 outstanding shares of Series E Preferred Stock for 7,604,563
shares of Series G Preferred Stock.
The rights and preferences of Series A, Series B, Series C, Series F and
Series G Preferred Stock (collectively, the Preferred Stock) are as follows:
Conversion
Each outstanding share of Series A, Series C, Series F and Series G
Preferred Stock is convertible at the option of the holder and shall
automatically be converted into 0.67 shares of common stock upon the closing of
a qualified initial public offering of the Company's common stock, subject to
adjustments. Upon a Liquidity Event, as defined below, the conversion rate of
Series F Preferred Stock will be adjusted for additional shares equal to their
pro rata percentage of the Priority Payments, as defined below. Each share of
Series B Preferred Stock is convertible at the option of the holder into 3.33
shares of common stock, subject to adjustments.
Dividends
Each outstanding share of Preferred Stock shall be entitled to dividends
when and if declared by the Company's Board of Directors.
Voting Rights
Each outstanding share of Preferred Stock is entitled to the number of
votes equal to the number of votes the share would be entitled to if converted
into common stock. Holders of Series A Preferred Stock are entitled to elect one
member to the Company's Board of Directors as long as GAP and its affiliates own
3% or greater of the number of common shares on a fully diluted basis.
Liquidation
In the event of liquidation, each share of Series A, Series B, Series C,
Series F and Series G Preferred Stock shall be entitled to be paid an amount
equal to $7.16, $19.69, $2.63, $2.97 and $2.63, respectively, per share plus all
declared and unpaid dividends prior to any payments to common stockholders. If
the amount is insufficient to pay all of the liquidation preferences, then
payments will be made to all remaining series of preferred stock based on the
relationship of the series' total liquidation value to the total of the
liquidation values of the Preferred Stock. As of July 31, 1999, the aggregate
liquidation value of all outstanding shares of preferred stock was $71,500,000.
Priority Payments
In the event of a sale of assets, a merger, or an initial public offering
(each a Liquidity Event), the holders of Series A and Series C Preferred Stock
and certain common stock shall be entitled to receive
F-21
<PAGE> 85
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
$15,000,000, $750,000 and $10,000,000 respectively. Holders of Series G
preferred stock shall be entitled to a priority payment not to exceed
$20,000,000 provided the liquidity event does not result in a certain minimum
company valuation. The Company does not expect that the proposed initial public
offering will satisfy the minimum valuation requirements and expects to accrue
the maximum priority payment obligation of $20,000,000. The Company intends to
pay the priority payments to holders of Series A, Series C, and Series G
Preferred Stock and certain common stock (the Priority Payments) in shares of
common stock.
If the amount available for the Priority Payments is insufficient, then
payments shall be made based on the relationship of the respective stockholder
group's total Priority Payments to the total of all remaining Priority Payments
if each were paid in full.
(e) Stock Options
In May 1997, the Company adopted the 1997 Stock Option Plan (the 1997 Plan)
for the grant of stock options to key employees, nonemployee directors and
consultants. The Company has reserved 7,896,815 shares of common stock for
issuance under the 1997 Plan. The exercise price and vesting are determined by
the Board of Directors at the date of grant. Options generally vest over two to
four years and expire ten years after the date of grant. As of July 31, 1999,
1,341,820 shares were available for future issuance under the 1997 Plan.
In August 1997, the Company granted an option to purchase 66,667 shares of
common stock to two individuals as a settlement of a claim. These options are
fully vested and expire in fiscal 2007. The estimated fair value of these
options totaling $150,000 has been included as a component of the restructuring
charge in the accompanying statement of operations for the fiscal 1997. The
Company granted options to purchase 159,579 shares of common stock to
consultants for services performed during fiscal 1998. The estimated fair value
of these options totaling $593,000 has been recorded as stock-based compensation
expense in the accompanying fiscal 1998 consolidated statement of operations.
In connection with stock option grants to employees and non-employees
during the nine months ended July 31, 1999, the Company recorded deferred
compensation of $2,262,000, which represents the aggregate difference between
the option exercise price and the deemed fair market value of the common stock
determined for financial reporting purposes for grants to employees and the fair
value of the options for the nonemployees. The deferred compensation will be
recognized as an expense over the vesting period of the underlying stock
options. The Company recorded stock-based compensation expense of $798,000 in
the nine months ended July 31, 1999, related to these options.
F-22
<PAGE> 86
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Option activity for the fiscal 1996, fiscal 1997 and fiscal 1998 and the
nine months ended July 31, 1999, was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF PRICE PER EXERCISE
SHARES SHARE PRICE
--------- ------------- --------
<S> <C> <C> <C>
Outstanding, October 31, 1995................... 88,140 $0.59 - $2.10 $1.73
Exercised..................................... (12,883) 0.59 0.59
Canceled...................................... (8,590) 0.59 0.59
--------- ------------- -----
Outstanding, October 31, 1996................... 66,667 2.10 2.10
Granted....................................... 1,490,701 3.95 3.95
Exercised..................................... (69,167) 2.10 - 3.95 2.16
Canceled...................................... (5,167) 3.95 3.95
--------- ------------- -----
Outstanding, October 31, 1997................... 1,483,034 3.95 3.95
Granted....................................... 3,961,213 3.95 3.95
Exercised..................................... (20,067) 3.95 3.95
Canceled...................................... (535,603) 3.95 3.95
--------- ------------- -----
Outstanding, October 31, 1998................... 4,888,577 3.95 3.95
Granted....................................... 2,346,656 3.95 - 4.46 4.20
Exercised..................................... (20,211) 3.95 3.95
Canceled...................................... (702,805) 3.95 - 4.46 3.95
--------- ------------- -----
Outstanding, July 31, 1999...................... 6,512,217 $3.95 - $4.46 $4.04
========= ============= =====
Exercisable, July 31, 1999...................... 1,948,459 $3.95 - $4.46 $3.99
========= ============= =====
Exercisable, October 31, 1998................... 804,119 $ 3.95 $3.95
========= ============= =====
Exercisable, October 31, 1997................... 286,845 $ 3.95 $3.95
========= ============= =====
</TABLE>
From August 1, 1999 to October 31, 1999, the Company has granted options to
employees and non-employees to purchase 1,221,152 shares of common stock at a
weighted-average exercise price of $4.85 per share. The options granted to
employees are subject to annual vesting over a four-year period. The Company
expects to record an additional $3,604,000 in deferred compensation in
connection with the granting of these options.
In connection with their May 1997 investment in the Company, the investment
funds affiliated with GAP purchased 1,538,460 shares of common stock directly
from certain common stockholders. In addition, these investment funds also
received options to purchase 634,793 shares of common stock at an exercise price
of $5.91 per share from existing stockholders. GAP exercised options to purchase
507,834 shares of common stock from these stockholders. The remaining options to
purchase 126,959 shares of common stock expired in May 1999.
(f) Pro Forma Stock-Based Compensation
Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the
Company is required to disclose the pro forma effects on net income (loss) and
net income (loss) per share as if the Company had elected to use the fair value
approach to account for all of its employee stock-based compensation plans
beginning in fiscal 1997.
The Company has computed the pro forma disclosures required under SFAS No.
123 for options granted during fiscal 1997 and fiscal 1998 and the nine months
ended July 31, 1998 and 1999 using the Black-
F-23
<PAGE> 87
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Scholes option pricing model prescribed by SFAS No. 123. The weighted average
assumptions used were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
OCTOBER 31, JULY 31,
------------------------ ------------------------
1997 1998 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Risk-free interest rate....... 5.8%-6.0% 4.2%-5.8% 5.4%-5.8% 4.5%-5.6%
Expected dividend yield....... -- -- -- --
Expected lives................ 5 years 5 years 5 years 5 years
Expected volatility........... 80% 80% 80% 80%
Weighted average grant date
fair value.................. $2.70 $2.67 $2.69 $2.88
Weighted average remaining
contractual life of options
outstanding................. 8.6 years 7.6 years 7.2 years 8.4 years
</TABLE>
There were no options granted in fiscal 1996.
Had compensation cost for the Company's plan been determined consistent
with the fair value approach enumerated in SFAS No. 123, the Company's pro forma
net income (loss) and net income (loss) per share would have been as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
OCTOBER 31, JULY 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------ -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net income (loss), as reported........ $1,844 $(28,789) $ (8,064) $(4,298) $(20,517)
Net income (loss), pro forma.......... 1,844 (29,998) (12,237) (7,428) (27,263)
Diluted net income (loss) per share,
as reported......................... $ 0.18 $ (2.79) $ (0.81) $ (0.43) $ (2.05)
Diluted net income (loss) per share,
pro forma........................... 0.18 (2.91) (1.23) (0.75) (2.72)
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option pricing models require the input of
highly subjective assumptions including expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
(g) Warrants
In connection with the Series A Preferred Stock financing in May 1997, the
Company issued warrants to the investment funds affiliated with GAP to purchase
190,438 shares of Series B Preferred Stock at an exercise price of $19.69 per
share, exercisable in full, through May 2002. The price paid for this warrant
was $1,000. Upon an initial public offering, these warrants will automatically
be converted into warrants to purchase 634,794 shares of common stock at an
exercise price of $5.91 per share.
In July 1997, the Company issued a warrant to purchase 200,000 shares of
common stock to a vendor at $3.95 per share, exercisable in full, through 2007.
The warrant was issued in consideration for services to be received from the
vendor. The estimated value of the warrant totaled $450,000 and has been
recorded in stock-based compensation expense in the accompanying statement of
operations for fiscal 1997. In addition, in July 1997, that vendor purchased
190,114 shares of Series C Preferred Stock for $500,000.
F-24
<PAGE> 88
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
In connection with the Series F Preferred Stock financing in February 1999,
the Company sold warrants to purchase 673,401 shares of Series F Preferred Stock
at an exercise price of $3.56 per share. The price paid for this warrant was
$1,000. Upon an initial public offering, these warrants will automatically be
exercised through the voluntary payment of the exercise price by the warrant
holder or through a cashless exercise.
All of the above-mentioned warrants were outstanding as of July 31, 1999.
(h) Stock Purchase Agreement
The Company had an agreement with a stockholder to repurchase 431,833
shares of common stock for $0.86 per share. The agreement provided for equal
monthly purchases over 60 months beginning in July 1993. Under the agreement,
the Company repurchased and retired approximately 86,667 shares of common stock
at a cost of approximately $74,000 in each of fiscal 1994, fiscal 1995 and
fiscal 1996. In fiscal 1997, the Company repurchased and retired the remaining
172,663 shares available under this agreement for approximately $148,000.
(i) Other Common Stock Issuances and Repurchases
During fiscal 1998, the Company sold 86,061 shares of its common stock at
$3.95 per share to a third party and also repurchased 7,600 shares of its
outstanding common stock from a stockholder for $3.95 per share.
10. PROFIT-SHARING PLAN
The Company sponsors a defined contribution profit-sharing plan which
conforms to Internal Revenue Service provisions for 401(k) plans. Employees must
be at least 21 years of age to be eligible to participate in the plan.
Participants may contribute up to 15% of their earnings. The Company matches 50%
of the first 2% and 25% of the next 4% of employee contributions and may make
additional contributions as determined by the Board of Directors. Operations
have been charged for contributions to the plan of approximately $248,000,
$321,000, $324,000, $311,000 and $399,000 for fiscal 1996, fiscal 1997 and
fiscal 1998 and the nine month periods ended July 31, 1998 and 1999,
respectively.
11. RELATED-PARTY TRANSACTIONS
(a) Transactions with Scopus Technology, Inc.
In June 1997, the Company entered into a $650,000 software license and
implementation services agreement with Scopus Technology, Inc. (Scopus), under
which it licensed Scopus' software product. In July 1997, the Company entered
into an agreement with Scopus, under which Scopus licensed the Company's
Signature Plus product for $350,000. Scopus was a related party through GAP. GAP
owned approximately 6% of Scopus and had Board of Director representation at
Scopus at that time. In addition, in October 1997, the Company entered into an
OEM arrangement with Scopus. The Company also entered into a development license
and obtained a prepaid license fee from Scopus valued at $250,000 in exchange
for outstanding liabilities owed to Scopus. In fiscal 1998, the Company made the
determination that it would not pursue its arrangements with Scopus and wrote
off the remaining book value of the software license purchased totaling
$469,000, net of deferred revenue related to the deferred development license
fee totaling $250,000, for a loss of $219,000.
(b) Transactions with Intelligroup, Inc.
In October 1997 and November 1997, the Company entered into a master
consulting agreement and an implementation partner agreement, with Intelligroup,
Inc. The CEO of the Company is a member of the Board of Directors of
Intelligroup, Inc.
F-25
<PAGE> 89
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(c) Contract Software Development
The Company contracts with a third party, Soft OS, to provide software
development and implementation services on an outsourced basis. Soft OS
subcontracts to have these services provided to us by Effective Programming, a
development organization located in Minsk, Belarus, and EPAM Systems, a related
development organization located in New Jersey. Under this arrangement,
Effective Programming and EPAM Systems provide software developers dedicated to
the Company's projects to develop products and application functionality
pursuant to specifications provided by the Company and to provide implementation
services to the Company's customer's. The agreement with Soft OS expires in
February 2002. As of October 31, 1999, approximately 85 employees and
contractors of Effective Programming and EPAM Systems were performing services
for the Company. Effective Programming and EPAM Systems are majority owned by
one of the Company's employees.
For the nine months ended July 31, 1999, the Company incurred a total of
$1,163,000 of software development costs under this contract and has been
charged to research and development expenses in the accompanying consolidated
statements of operations. The Company believes that the terms of this agreement
were negotiated on an arms-length basis.
12. VALUATION AND QUALIFYING ACCOUNTS
A summary of the allowance for doubtful accounts, reserve for loss
contracts and restructuring reserve is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED OCTOBER 31, ENDED
-------------------------------- JULY 31,
1996 1997 1998 1999
------ --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Balance, beginning of period................ $ 30 $ 221 $ 100 $ 290
Provision for doubtful accounts........ 191 76 318 90
Write-offs............................. -- (197) (128) --
---- ------- ------- -------
Balance, end of period.................... $221 $ 100 $ 290 $ 380
==== ======= ======= =======
Reserve for loss contracts:
Balance, beginning of period.............. $ -- $ -- $ 5,005 $ 1,600
Provision (reduction) for loss
contracts reserve.................... -- 5,005 (1,546) --
Payments and/or costs incurred......... -- -- (1,859) (500)
---- ------- ------- -------
Balance, end of period.................... $ -- $ 5,005 $ 1,600 $ 1,100
==== ======= ======= =======
Restructuring reserve:
Balance, beginning of period.............. $ -- $ -- $ 1,583 $ 304
Provision.............................. -- 11,203 -- 2,625
Asset impairment write-offs............ -- (8,324) -- (1,532)
Severance and other payments........... -- (1,296) (1,279) (304)
---- ------- ------- -------
Balance, end of period.................... $ -- $ 1,583 $ 304 $ 1,093
==== ======= ======= =======
</TABLE>
13. SEGMENT REPORTING
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information in the period ended July 31, 1999. SFAS No.
131 establishes standards for reporting information regarding operating segments
in annual financial statements and requires selected information for those
F-26
<PAGE> 90
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
segments to be presented in interim financial reports issued to stockholders.
SFAS No. 131 also establishes standards for related disclosures about products
and services and geographic areas. Operating segments are identified as
components of an enterprise about which separate, discrete financial information
is available for evaluation by the chief operating decision maker, or
decision-making group, in making decisions how to allocate resources and assess
performance. The Company's chief operating decision maker, as defined under SFAS
No. 131, is its Chief Executive Officer.
The Company views its operations and manages its business as two segments,
product-related licenses and services and custom development services. The
Company's reportable segments are strategic business units that provide distinct
services to the end customer. They are managed separately because each business
requires different marketing and management strategies. The Company's approach
is based on the way that management organizes the segments within the Company
for making operating decisions and assessing performance.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company does not allocate
operating expenses between its two reportable segments. Accordingly, the
Company's measure of performance for each reportable segment is based on total
net revenues and direct costs of services, which are reported separately in the
accompanying consolidated statements of operations. Accordingly, no additional
disclosure is required. The Company does not identify assets and liabilities by
segment. Accordingly, identifiable assets, capital expenditures and depreciation
and amortization are not reported by segment.
The Company's revenues by geographic destination to any single foreign
country did not exceed 10% of total revenues during any period presented.
14. SUBSEQUENT EVENTS (UNAUDITED)
On November 8, 1999, the Board of Directors and on the stockholders
approved (i) the adoption of the 1999 Stock Option and Grant Plan pursuant to
which 3,000,000 shares of the Company's common stock have been reserved for
future issuance, (ii) the adoption of the 1999 Director Stock Option Plan
pursuant to which 500,000 additional shares of the Company's common stock have
been reserved for future issuance and (iii) an increase in the number of shares
of the Company's common stock reserved for issuance under the 1997 Stock Option
Plan from 7,896,815 shares to 9,396,815 shares.
F-27
<PAGE> 91
(inside back cover)
DESCRIPTION OF ARTWORK
At the top of the page is the name "FirePond" with the company's
logo above it. The following caption is beneath the name of the company and its
logo: "Our customers and partners include:"
At the center of the page is a large shaded circle labeled "Customers" in large
print extending slightly beyond the boundary of the circle on the right on the
top half of the circle. Within the large circle in smaller print is a list of
customers: "KLA-Tencor, Savings Bank Life Insurance, Empire Blue Cross and Blue
Shield, General Motors, Cummins Power Generation Group, John Deere, Blue Cross
and Blue Shield of Minnesota, Sprint PCS, Ford Motor Company-Europe, Automatic
Data Processing, Subaru of America, Freightliner, Renault V.I., Hitachi."
Overlapping on top of the large shaded circle on its bottom-right quadrant
is a smaller circle labeled "Partners" in large print extending slightly beyond
the boundary of the smaller circle on the right on the lower half of the
circle. Within the smaller circle is a list of partners: "E.piphany, Talus
Solutions, Sun Microsystems, Oberon Software, Intelligroup, GTE, Ernst & Young
LLP, debis Systemhaus, Viant."
<PAGE> 92
[FIREPOND LOGO]
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses payable by us in
connection with the offering (excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
- ----------------- -------
<S> <C>
SEC Registration Fee........................................ $20,850
NASD Filing Fee............................................. 8,000
Nasdaq National Market Listing Fee.......................... *
Accounting Fees and Expenses................................ *
Legal Fees and Expenses..................................... *
Printing Expenses........................................... *
Blue Sky Qualification Fees and Expenses.................... *
Transfer Agent's Fee........................................ *
Miscellaneous............................................... *
-------
Total....................................................... *
=======
</TABLE>
- ------------
* To be completed by amendment.
The amounts set forth above, except for the Securities and Exchange
Commission, National Association of Securities Dealers, Inc. and Nasdaq National
Market fees, are in each case estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the Delaware General Corporation Law,
Article VII of our amended and restated certificate of incorporation provides
that no director of FirePond be personally liable to FirePond, its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to FirePond or
its stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) in respect of unlawful
dividend payments or stock redemptions or repurchases, or (4) for any
transaction from which the director derived an improper personal benefit. In
addition, the first amended and restated certificate of incorporation provides
that if the Delaware General Corporation Law is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
Article V of our amended and restated by-laws provides for indemnification
by FirePond of its officers and certain non-officer employees under certain
circumstances against expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any such person is involved by reason of the fact that such person is or was an
officer or employee of the registrant if such person acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of FirePond, and, with respect to criminal actions or proceedings, if
such person had no reasonable cause to believe his or her conduct was unlawful.
Under Section 7 of the underwriting agreement to be filed as Exhibit 1.1
hereto, the underwriters have agreed to indemnify, under certain conditions,
FirePond, its directors, certain officers and persons who control FirePond
within the meaning of the Securities Act against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of shares of capital stock issued by the Registrant during the past three years.
Further included is the consideration, if any, received by the Registrant for
such shares, and information relating to the section of the Securities Act or
rule of the Securities and Exchange Commission under which exemption from
registration was claimed.
II-1
<PAGE> 94
1. An aggregate of 837,776 shares of Series A preferred stock was issued in
a private placement in May 1997 to investment funds associated with
General Atlantic. In July 1997, an aggregate of 3,351,104 additional
shares of Series A preferred stock were issued to investment funds
associated with General Atlantic to account for a 5-for-1 stock split.
The Series A preferred stock is convertible into 2,792,587 shares of
common stock. The consideration received for such shares was
$11,000,000.
2. Warrants to purchase an aggregate of 190,438 shares of Series B
preferred stock (which are convertible into 634,794 shares of common
stock) were issued in a private placement in May 1997 to investment
funds associated with General Atlantic. The consideration received for
such warrants was $1,000.
3. An aggregate of 570,342 shares of Series C preferred stock (which are
convertible into 380,228 shares of common stock) was issued in a private
placement in July 1997 to Ramsey/Bierne Associates Incorporated and Ori
Sasson, pursuant to a Stock Purchase Agreement. The consideration
received for such shares was $1,500,000.
4. An aggregate of 100,000 shares of Series D preferred stock was issued in
a private placement in October 1997 to investment funds associated with
General Atlantic pursuant to a Stock Purchase Agreement. The
consideration received for such shares was $10,000,000. The shares of
Series D preferred stock were exchanged for 3,802,281 shares of Series E
preferred stock in April 1998.
5. An aggregate of 86,061 shares of common stock was issued in a private
placement in September 1998 to Loek van den Boog, a private investor.
The consideration received for such shares was $339,509.
6. An aggregate of 7,604,563 shares of Series E preferred stock was issued
in a private placement in April 1998 to investment funds associated with
General Atlantic pursuant to a Stock Purchase Agreement. The
consideration received for such shares was $10,000,000 and the exchange
of all of the outstanding shares of Series D preferred stock. These
shares of Series E preferred stock were exchanged for an equivalent
number of shares of Series G preferred stock in February 1999.
7. An aggregate of 6,734,008 shares of Series F preferred stock (which are
convertible into shares of common stock) was issued in a
private placement in February 1999 to investment funds associated with
Technology Crossover Ventures, General Atlantic and Lehman Brothers,
pursuant to a Stock Purchase Agreement. The consideration received for
such shares was $20,000,000.
8. Warrants to purchase an aggregate of 673,401 shares of Series F
preferred stock (which are convertible into shares of common
stock) were issued in a private placement in February 1999 to investment
funds associated with Technology Crossover Ventures, General Atlantic
and Lehman Brothers. The consideration received for such warrants was
$1,000.
9. An aggregate of 7,604,563 shares of Series G preferred stock (which are
convertible into 5,069,709 shares of common stock) was issued in
exchange for the outstanding shares of Series E preferred stock in
February 1999 to investment funds associated with General Atlantic
pursuant to a Stock Exchange Agreement.
10. An aggregate of 33,334 shares of common stock was issued in a private
placement in September 1999 to Edwin B. Lange, our Senior Vice
President of North American Sales. The consideration received for such
shares was $148,500.
11. From May 20, 1997 to October 31, 1999, FirePond granted stock options
to purchase an aggregate of 9,019,723 shares of common stock to
directors, employees and consultants with exercise prices ranging from
$3.95 to $7.22 per share pursuant to FirePond's 1997 Stock Option Plan.
As of October 31, 1999, 57,736 shares of common stock have been issued
upon exercise of options pursuant to Firepond's 1997 Stock Option Plan.
12. Warrants to purchase an aggregate of 304,900 shares of common stock
were issued in private placement transactions in October 1999 to a
customer and strategic partners with an exercise price of $7.22 per
share.
13. Warrants to purchase an aggregate of 360,000 shares of common stock
were issued in a private placement transaction in November 1999 to
lenders, including investment funds
II-2
<PAGE> 95
affiliated with General Atlantic Partners and Technology Crossover
Ventures, with an exercise price of $5.25 per share.
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under the
Securities Act pursuant to Rule 701 promulgated thereunder on the basis that
these securities were offered and sold either pursuant to a written compensatory
benefit plan or pursuant to written contracts relating to compensation, as
provided by Rule 701, or pursuant to Section 4(2) of the Securities Act on the
basis that the transactions did not involve a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<S> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Form of First Amended and Restated Certificate of
Incorporation of the Registrant (to be filed prior to the
effectiveness of the offering).
*3.3 Form of Second Amended and Restated Certificate of
Incorporation of the Registrant (to be filed following the
consummation of this offering).
*3.4 By-laws of the Registrant.
*3.5 Form of First Amended and Restated By-laws of the Registrant
(to be effective upon consummation of the offering).
*4.1 Specimen certificate for shares of common stock, $.01 par
value, of the Registrant.
*5.1 Opinion of McDermott, Will & Emery as to the validity of the
securities being offered.
10.1 Amended and Restated Registration Rights Agreement, dated
February 23, 1999, between the Registrant and the
Stockholders named therein.
*10.2 Amended and Restated 1997 Stock Option Plan of the
Registrant.
*10.3 1999 Stock Option and Grant Plan of the Registrant.
*10.4 1999 Director Plan of the Registrant.
10.5 Lease Agreement between Petrie Development Corp. and the
Registrant, dated as of August 11, 1998.
10.6 Lease of 890 Winter Street, Waltham, Massachusetts between
FirePond, Inc., as Tenant, and 890 Winter Street, L.L.C., as
Landlord dated as of March 25, 1999.
*10.7 Consulting Agreement between the Registrant and Soft OS,
Inc.
*10.8 License Agreement between the Registrant and Silverstream.
*10.9 Loan and Security Agreement between Registrant and Greyrock
Business Credit Company dated as of July 31, 1998.
*10.9.1 First Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
July 8, 1999.
*10.9.2 Second Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
September 28, 1999.
10.10 Employment Agreement dated April 2, 1998 between Registrant
and Klaus P. Besier.
10.11 Offer Letter dated May 11, 1998 between Registrant and
Graham S. Williams.
10.12 Offer Letter dated October 21, 1998 between Registrant and
Ilya G. Gorelik.
10.13 Offer Letter dated April 24, 1998 between Registrant and
Steven J. Waters.
10.14 Offer Letter dated December 11, 1998 between Registrant and
Paul K. McDermott.
21.1 Subsidiaries
*23.1 Consent of McDermott, Will & Emery (included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Deloitte & Touche LLP.
</TABLE>
II-3
<PAGE> 96
<TABLE>
<S> <C>
24.1 Powers of Attorney (included on page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment to this Registration Statement.
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not required or because
the required information is given in the Consolidated Financial Statements or
Notes to those statements.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waltham, Commonwealth of
Massachusetts, on November 11, 1999.
FIREPOND, INC.
By: /s/ KLAUS P. BESIER
------------------------------------
Klaus P. Besier
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints each of Klaus P. Besier, Paul K.
McDermott and Thomas F. Carretta such person's true and lawful attorney-in-fact
and agent with full power of substitution and resubstitution, for such person
and in such person's name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this
Registration Statement (or to any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act), and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto each said attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that any said
attorney-in-fact and agent, or any substitute or substitutes of any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ KLAUS P. BESIER Chairman, President, Chief November 11, 1999
- --------------------------------------------------- Executive Officer and
Klaus P. Besier Director (Principal Executive
Officer)
/s/ PAUL K. MCDERMOTT Chief Financial Officer and November 11, 1999
- --------------------------------------------------- Vice President of Finance and
Paul K. McDermott Administration (Principal
Financial Officer and
Principal Accounting Officer)
/s/ PAUL R. BUTARE Director November 11, 1999
- ---------------------------------------------------
Paul R. Butare
/s/ J. MICHAEL CLINE Director November 11, 1999
- ---------------------------------------------------
J. Michael Cline
/s/ WILLIAM O. GRABE Director November 11, 1999
- ---------------------------------------------------
William O. Grabe
</TABLE>
II-5
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Certificate of Incorporation of the Registrant.
*3.2 Form of First Amended and Restated Certificate of
Incorporation of the Registrant (to be filed prior to the
effectiveness of the offering).
*3.3 Form of Second Amended and Restated Certificate of
Incorporation of the Registrant (to be filed following the
consummation of this offering).
*3.4 By-laws of the Registrant.
*3.5 Form of First Amended and Restated By-laws of the Registrant
(to be effective upon consummation of the offering).
*4.1 Specimen certificate for shares of common stock, $.01 par
value, of the Registrant.
*5.1 Opinion of McDermott, Will & Emery as to the validity of the
securities being offered.
10.1 Amended and Restated Registration Rights Agreement, dated
February 23, 1999, between the Registrant and the
Stockholders named therein.
*10.2 Amended and Restated 1997 Stock Option Plan of the
Registrant.
*10.3 1999 Stock Option and Grant Plan of the Registrant.
*10.4 1999 Director Plan of the Registrant.
10.5 Lease Agreement between Petrie Development Corp. and the
Registrant, dated as of August 11, 1998.
10.6 Lease of 890 Winter Street, Waltham, Massachusetts between
FirePond, Inc., as Tenant, and 890 Winter Street, L.L.C., as
Landlord dated as of March 25, 1999.
*10.7 Consulting Agreement between the Registrant and Soft OS,
Inc.
*10.8 License Agreement between the Registrant and Silverstream.
*10.9 Loan and Security Agreement between Registrant and Greyrock
Business Credit Company dated as of July 31, 1998.
*10.9.1 First Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
July 8, 1999.
*10.9.2 Second Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
September 28, 1999.
10.10 Employment Agreement dated April 2, 1998 between Registrant
and Klaus P. Besier.
10.11 Offer Letter dated May 11, 1999 between Registrant and
Graham S. Williams.
10.12 Offer Letter dated October 21, 1998 between Registrant and
Ilya G. Gorelik.
10.13 Offer Letter dated April 24, 1998 between Registrant and
Steven J. Waters.
10.14 Offer Letter dated December 11, 1998 between Registrant and
Paul K. McDermott.
21.1 Subsidiaries.
*23.1 Consent of McDermott, Will & Emery (included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (included on page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment to this Registration Statement.
<PAGE> 1
EXHIBIT 10.1
================================================================================
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
among
FIREPOND, INC.,
and
THE SHAREHOLDERS NAMED HEREIN
Dated: February 23, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS.............................................................3
2. GENERAL: SECURITIES SUBJECT TO THIS AGREEMENT...........................9
(a) GRANT OF RIGHTS................................................9
(b) REGISTRABLE SECURITIES.........................................9
(c) HOLDERS OF REGISTRABLE SECURITIES..............................9
3. DEMAND REGISTRATION....................................................10
(a) REQUEST FOR DEMAND REGISTRATION...............................10
(b) INCIDENTAL OR "PIGGY-BACK" Rights with Respect to a Demand
REGISTRATION..................................................10
(c) EFFECTIVE DEMAND REGISTRATION.................................11
(d) EXPENSES......................................................11
(e) UNDERWRITING PROCEDURES.......................................11
(f) SELECTION OF UNDERWRITERS.....................................12
4. FORM S-3...............................................................12
(a) REQUEST FOR S-3 REGISTRATION..................................12
(b) FORM S-3 UNDERWRITING PROCEDURES..............................12
(c) LIMITATIONS ON FORM S-3 REGISTRATIONS.........................13
(d) NO DEMAND REGISTRATION........................................13
(e) EXPENSES......................................................13
(f) SELECTION OF UNDERWRITERS.....................................14
5. INCIDENTAL OR "PIGGY-BACK" REGISTRATION................................14
(a) REQUEST FOR INCIDENTAL REGISTRATION...........................14
(b) EXPENSES......................................................15
6. HOLDBACK AGREEMENTS....................................................15
(a) RESTRICTIONS ON PUBLIC SALE BY DESIGNATED HOLDERS.............15
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY....................15
7. REGISTRATION PROCEDURES................................................16
(a) OBLIGATIONS OF THE COMPANY....................................16
(b) SELLER INFORMATION............................................19
(c) NOTICE TO DISCONTINUE.........................................19
(d) REGISTRATION EXPENSES.........................................20
8. Indemnification: Contribution..........................................20
(a) INDEMNIFICATION BY THE COMPANY................................20
(b) INDEMNIFICATION BY DESIGNATED HOLDERS.........................20
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C> <C>
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS........................21
(d) CONTRIBUTION..................................................21
9. REPORTS UNDER THE EXCHANGE ACT.........................................22
10. Miscellaneous..........................................................23
(a) RECAPITALIZATIONS. EXCHANGES. ETC.............................23
(b) NO INCONSISTENT AGREEMENTS....................................23
(c) REMEDIES......................................................23
(d) AMENDMENTS AND WAIVERS........................................23
(e) NOTICES.......................................................24
(f) SUCCESSORS AND ASSIGNS........................................26
(g) THIRD PARTY BENEFICIARIES.....................................26
(h) COUNTERPARTS..................................................26
(i) HEADINGS......................................................27
(j) GOVERNING LAW.................................................27
(k) SEVERABILITY..................................................27
(l) ENTIRE AGREEMENT..............................................27
(m) FURTHER ASSURANCES............................................27
(n) AGGREGATION OF STOCK..........................................27
Schedule 1........Major Shareholders
Schedule 2........Other Shareholders
</TABLE>
(ii)
<PAGE> 4
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is made, by and among FirePond, Inc. (f/k/a Clear With Computers,
Inc. and CWC Incorporated), a Minnesota corporation (the "Company"), General
Atlantic Partners 40, L.P., a Delaware limited partnership ("GAP 40"), General
Atlantic Partners 46, L.P., a Delaware limited partnership ("GAP 46"), General
Atlantic Partners 52, L.P., a Delaware limited partnership ("GAP 52"), GAP
Coinvestment Partners, L.P., a New York limited partnership ("GAP
Coinvestment"), GAP Coinvestment Partners 11, L.P., a Delaware limited
partnership ("GAP Coinvestment IF'), Jerome D. Johnson ("Johnson"), Rachel Lee
Johnson Trust ("Johnson Trust #1"), Anne Marie Johnson Trust ("Johnson Trust
#2"), Ramsey/Beirne Associates Incorporated ("Ramsey/Beirne"), Ori Sasson
("Sasson"), TCV III (GP), a Delaware general partnership ("TCV III GP"), TCV
III, L.P., a Delaware limited partnership ("TCV III LP"), TCV III (Q), L.P., a
Delaware limited partnership ("TCV III Q"), TCV III Strategic Partners, L.P., a
Delaware limited partnership, ("TCV III SP" and, collectively with TCV III GP,
TCV III LP and TCV III Q, "TCV") and Lehman Brothers VC Partners L.P., a
Delaware limited partnership ("Lehman").
RECITALS
WHEREAS, this Agreement amends and restates in its entirety that
certain REGISTRATION RIGHTS AGREEMENT, dated May 20, 1997 (the "Original
Agreement"), among the Company, GAP 40, GAP Coinvestment, and the shareholders
listed on SCHEDULE 1 thereto, as amended on July 30, 1997 by AMENDMENT NO. 1
(the "First Amendment") among the Company, GAP 40, GAP Coinvestment, Johnson,
Johnson Trust #1, Johnson Trust #2, Ramsey/Beirne and Sasson, and as further
amended on April 30, 1998 by AMENDMENT NO. 2 (the "Second Amendment"), among the
Company, GAP 46, GAP 40, GAP Coinvestment, Johnson, Johnson Trust #1, Johnson
Trust #2, Ramsey/Beirne and Sasson;
WHEREAS, the Original Agreement was made in connection with the
Preferred Stock and Warrant Purchase Agreement, dated May 9, 1997 (the "Series A
Stock Purchase Agreement"), among the Company, CWC International, Inc., Clear
With Computers of Michigan, Inc., Quality Disk Copy, Inc., Clear with Leasing,
Inc., CWC Studios, LLC, GAP 40 and GAP Coinvestment, pursuant to which the
Company agreed to, among other things, issue and sell: (a) to GAP 40, and GAP 40
agreed to purchase from the Company, (i) an aggregate of 709,973 shares of
Series A Convertible Participating Preferred Stock, par value $.01 per share, of
the Company (the "Series A Preferred Stock") and (ii) a warrant (the "GAP LP
Warrant") to purchase, subject to the terms and conditions thereof, an aggregate
of 161,387 shares of Series B Convertible Preferred Stock, par value $.01 per
share, of the Company (the "Series B Preferred Stock"); and (b) to GAP
Coinvestment, and GAP Coinvestment agreed to purchase from the Company, (i) an
aggregate of 127,803 shares of Series A Preferred Stock and (ii) a warrant (the
"GAPCO Warrant" and, together with the GAP LP Warrant, the "Warrants") to
purchase, subject to the terms and conditions thereof, an aggregate of 29,051
shares of Series B Preferred Stock. Each share of Series A Preferred
<PAGE> 5
Stock and Series B Preferred Stock is convertible (subject to adjustment) into
one (1) share of Common Stock, par value $.01, of the Company (the "Common
Stock"); and
WHEREAS, the First Amendment was made in connection with (a) the Series
C Stock Purchase Agreement, dated July 30, 1997 (the "Series C Stock Purchase
Agreement"), among the Company, Ramsey/Beirne and Sasson, pursuant to which the
Company agreed to, among other things, sell to each of Ramsey/Beirne and Sasson
the aggregate number of shares, par value $.01 per share, of Series C
Convertible Participating Preferred Stock of the Company (the "Series C
Preferred Stock") set forth opposite their names on Schedule 2 thereto; and (b)
the warrant, dated July 30, 1997 (the "Ramsey/Beirne Warrant"), issued to
Ramsey/Beirne to purchase, subject to the terms and conditions thereof, an
aggregate of 300,000 shares of Common Stock; and
WHEREAS, the Second Amendment was made in connection with (a) the
Series E Preferred Stock Purchase Agreement, dated April 30, 1998 (the "Series E
Stock Purchase Agreement"), among the Company, GAP 46 and GAP Coinvestment,
pursuant to which the Company agreed to, among other things, sell to each of GAP
46 and GAP Coinvestment an aggregate of 3,194,234 shares and 608,048 shares,
respectively, of the Company's Series E Convertible Participating Preferred
Stock, par value $.01 per share (the "Series E Preferred Stock"); and (b) that
certain Amendment No. 2 ("Amendment No. 2 to the Shareholders Agreement"), dated
April 30, 1998 and among the parties thereto, to the Shareholders Agreement,
dated May 20, 1997, as amended by Amendment No. 1 thereto on July 30, 1997,
among the Company, GAP 40, GAP Coinvestment, Johnson, Johnson Trust #1, Johnson
Trust #2, Ramsey/Beirne and Sasson; and
WHEREAS, this Agreement is made in connection with (a) the Series F
Preferred Stock and Warrant Purchase Agreement, dated the date hereof (the
"Series F Stock Purchase Agreement"), between the Company, GAP 52, GAP
Coinvestment II, TCV and Lehman (each a "Series F Purchaser" and collectively,
the "Series F Purchasers"), pursuant to which the Company has agreed to, among
other things, (i) sell to each Series F Purchaser that number of shares of the
Company's Series F Convertible Preferred Stock, par value $.01 per share (the
"Series F Preferred Stock") set forth opposite such Series F Purchaser's name on
EXHIBIT A to said Series F Stock Purchase Agreement and (ii) sell to each Series
F Purchaser that number of warrants to purchase Series F Preferred Stock (the
"Series F Warrants") set forth opposite such Series F Purchaser's name on
EXHIBIT A to said Series F Stock Purchase Agreement; (b) the Amended and
Restated Shareholders Agreement, dated the date hereof and among the parties
thereto, amending the Shareholders Agreement, dated May 20, 1997, as amended by
Amendments No. 1 and No. 2 thereto dated, respectively, July 30, 1997 and April
30, 1998, among the Company, GAP 46, GAP 40, GAP Coinvestment, Johnson, Johnson
Trust #1, Johnson Trust #2, Ramsey/Beirne and Sasson; and (c) that certain
Exchange Agreement dated the date hereof (the "Series E Exchange Agreement"), by
and among the Company, GAP 40, GAP 46 and GAP Coinvestment pursuant to which GAP
40 will exchange 3,156,559 shares of Series E Preferred Stock for 3,156,559
shares of Series G Convertible Participating Preferred Stock, par value $.01 per
share, of the Company (the "Series G Preferred Stock"), GAP 46
2
<PAGE> 6
will exchange 3,194,234 shares of Series E Preferred Stock for 3,194,234 shares
of Series G Preferred Stock and GAP Coinvestment will exchange 1,253,770 shares
of Series E Preferred Stock for 1,253,770 shares of Series G Preferred Stock.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the undersigned, representing (i) the
Company, (ii) the FirePond Shareholders (as hereinafter defined) holding
Registrable Securities (as hereinafter defined) representing (after giving
effect to any adjustments) at least 60% of the aggregate number of Registrable
Securities owned by all of the FirePond Shareholders and (iii) the holders of
Registrable Securities representing (after giving effect to any adjustments) at
least 75 % of (x) the aggregate number of Registrable Securities owned by all of
the General Atlantic Shareholders (as hereinafter defined) plus (y) the
aggregate number of Registrable Securities owned by the Ramsey/Beirne
Shareholders (as hereinafter defined) and the Sasson Shareholders (as
hereinafter defined), as a group, hereby agree as follows:
1. DEFINITIONS. As used in this Agreement the following terms
have the meanings indicated:
"AFFILIATE" shall mean (a) any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act and
(b) the following Persons, who shall be deemed to be Affiliates of GAP 40, GAP
46 and GAP 52: (i) GAP LLC, the members of GAP LLC and the limited partners of
GAP 40, GAP 46 or GAP 52; (ii) any Affiliate of the limited partners of GAP 40,
GAP 46 or GAP 52; and (iii) any limited liability company or partnership, a
majority of whose members or partners, as the case may be, are members, former
members, consultants or key employees of GAP LLC. In addition, GAP 40, GAP 46,
GAP 52, GAP Coinvestment and GAP Coinvestment II shall be deemed to be
Affiliates of one another. Notwithstanding the foregoing, no Person that
competes with a line or lines of business of the Company shall be considered an
Affiliate of GAP 40, GAP 46, GAP 52, GAP Coinvestment, GAP Coinvestment II
Lehman, TCV or the Ramsey/Beirne Shareholders or any of the Sasson Shareholders.
"AGREEMENT" has the meaning assigned to such term in the recital to
this Agreement.
"AMENDMENT NO. 2 TO THE SHAREHOLDERS AGREEMENT" has the meaning
assigned to such term in the recital to this Agreement.
"APPROVED UNDERWRITER" has the meaning set forth in Section 3(f) of
this Agreement.
"COMMON STOCK " means the common stock, par value $.01 per share, of
the Company or any other capital stock of the Company into which such shares are
converted, reclassified, reconstituted or exchanged.
"COMPANY" has the meaning assigned to such term in the recital to this
Agreement.
3
<PAGE> 7
"COMPANY UNDERWRITER" has the meaning set forth in Section 5(a) of this
Agreement.
"DEMAND REGISTRATION" has the meaning set forth in Section 3(a) of this
Agreement.
"DESIGNATED HOLDER" means (i) each of the FirePond Shareholders, each
of the General Atlantic Shareholders, each of the Ramsey/Beirne Shareholders,
each of the Sasson Shareholders, each of the TCV Shareholders, each of the
Lehman Shareholders and any transferee of any of them to whom Registrable
Securities have been transferred in accordance with the provisions of the
Shareholders Agreement and Section 10(f) of this Agreement and (ii) the
shareholders listed on Schedule 2 hereto and any transferee of them to whom
Registrable Securities have been transferred in accordance with the provisions
of Section 10(f) of this Agreement, other than a transferee to whom such
securities have been transferred pursuant to a registration statement under the
Securities Act or Rule 144 or Regulation S under the Securities Act.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"FIREPOND SHAREHOLDERS" means the Major Shareholders and any Permitted
Transferee (as defined in the Shareholders Agreement) thereof to which
Registrable Securities are transferred in accordance with Section 2.2 of the
Shareholders Agreement.
"FIRST AMENDMENT" has the meaning assigned to such term in the recital
to this Agreement.
"GAP 40" has the meaning assigned to such term in the recital to this
Agreement.
"GAP 46" has the meaning assigned to such term in the recital to this
Agreement.
"GAP 52" has the meaning assigned to such term in the recital to this
Agreement
"GAP COINVESTMENT" has the meaning assigned to such term in the recital
to this Agreement.
"GAP COINVESTMENT I" has the meaning assigned to such term in the
recital to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
liability company and the general partner of GAP 40, GAP 46, GAP 52 and any
successor to such entity.
"GAP LP WARRANT" has the meaning assigned such term in the recital to
this Agreement.
"GAPCO WARRANT" has the meaning assigned such term in the recital to
this Agreement.
4
<PAGE> 8
"GENERAL ATLANTIC SHAREHOLDERS" means GAP 40, GAP 46, GAP 52, GAP
Coinvestment, GAP Coinvestment II and any Permitted Transferee (as defined in
the Shareholders Agreement) thereof to which Registrable Securities are
transferred in accordance with Section 2.2 of the Shareholders Agreement.
"HOLDERS' COUNSEL" has the meaning set forth in Section 7(a)(i) of this
Agreement.
"INCIDENTAL REGISTRATION" has the meaning set forth in Section 5(a) of
this Agreement.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(c) of this
Agreement.
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(c) of this
Agreement.
"INITIAL PUBLIC OFFERING" means a firm commitment underwritten initial
public offering pursuant to an effective Registration Statement filed under the
Securities Act covering the offer and sale of shares of Common Stock for the
account of the Company.
"INITIATING HOLDER(S)" has the meaning set forth in Section 3(a) of
this Agreement.
"INSPECTOR" has the meaning set forth in Section 7(a)(viii) of this
Agreement.
"IPO EFFECTIVENESS DATE" means the effective date of the registration
statement filed in connection with the Company's Initial Public Offering.
"JOHNSON" has the meaning assigned to such term in the recital of this
Agreement.
"JOHNSON TRUST # 1" has the meaning assigned to such term in the
recital to this Agreement.
"JOHNSON TRUST #2" has the meaning assigned to such term in the recital
to this Agreement.
"LEHMAN" has the meaning assigned to such term in the recital of this
Agreement.
"LEHMAN SHAREHOLDERS" means Lehman and any Permitted Transferee (as
defined in the Shareholders Agreement) thereof to which Registrable Securities
are transferred in accordance with Section 2.2 of the Shareholders Agreement.
"MAJOR SHAREHOLDERS" means Johnson, Johnson Trust #1 and Johnson Trust
#2.
"MARKET PRICE" means (a) if such shares are listed on a national
securities exchange or admitted to unlisted trading privileges on such an
exchange, the last reported sale price of a share of Common Stock on such
exchange on each of such days or if no such sale is made on any such day, the
mean of the closing bid and asked prices for such day on such exchange; or (b)
if such shares are not so listed or admitted to unlisted trading privileges, the
mean of the last bid and asked prices reported for a share of Common Stock on
each of such days (i) by the National
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Association of Securities Dealers Automatic Quotation System or (ii) if reports
are unavailable under clause (i) above by the National Quotation Bureau
Incorporated.
"NASD" has the meaning set forth in Section 7(a)(xiv) of this
Agreement.
"ORIGINAL AGREEMENT" has the meaning assigned to such term in the
recital to this Agreement.
"OTHER SHAREHOLDERS" has the meaning set forth in Section 10(g) of this
Agreement.
"PERSON" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"RAMSEY/BEIRNE" means Ramsey/Beirne Associates Incorporated.
"RAMSEY/BEIRNE SHAREHOLDERS" means Ramsey/Beirne and any Permitted
Transferee (as defined in the Shareholders Agreement) thereof to whom
Registrable Securities are transferred in accordance with Section 2.2 of the
Shareholders Agreement.
"RAMSEY/BEIRNE WARRANT" means the warrant, dated July 30, 1997, to
purchase 300,000 share of Common Stock issued by the Company to Ramsey/Beirne.
"RECORDS" has the meaning set forth in Section 7(a)(viii) of this
Agreement.
"REGISTRABLE SECURITIES" means each of the following: (a) any and all
shares of Common Stock (i) owned or acquired by the Designated Holders, but
excluding any shares of Common Stock acquired by a Designated Holder in or after
the Company's initial public offering which were not Restricted Securities, as
defined in Rule 144 of the Securities Act, when purchased by such Designated
Holder, (ii) issued or issuable upon (A) conversion of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock or Series G Preferred Stock, or (B) exercise of the Warrants or
exercise of the Series F Warrants, including, without limitation, any additional
shares of Common Stock issued or issuable upon conversion of any Series B
Preferred Stock or Series F Preferred Stock issued pursuant to the Warrants or
the Series F Warrants or (iii) issued or issuable upon conversion of warrants
exercisable for shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock or Series G
Preferred Stock acquired by any of the Designated Holders after the date hereof,
(b) any other shares of Common Stock acquired or owned by any of the Designated
Holders prior to the IPO Effectiveness Date, or acquired or owned by any of the
Designated Holders after the IPO Effectiveness Date if such Designated Holder is
an Affiliate of the Company and (c) any shares of Common Stock issued or
issuable to any of the Designated Holders with respect to shares of
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Common Stock or shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock or Series G Preferred Stock
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise and shares of Common Stock issuable upon conversion, exercise or
exchange thereof.
"REGISTRATION EXPENSES" has the meaning set forth in Section 7(d) of
this Agreement.
"REGISTRATION STATEMENT" means a registration statement filed pursuant
to the Securities Act.
"RESTRICTED SECURITIES" shall have the meaning set forth in Rule 144 of
the Securities Act.
"S-3 APPROVED UNDERWRITER" has the meaning set forth in Section 4(f) of
this Agreement.
"S-3 INITIATING HOLDER" has the meaning set forth in Section 4(a) of
this Agreement.
"S-3 REGISTRATION" has the meaning set forth in Section 4(a) of this
Agreement.
"SASSON" means Ori Sasson.
"SASSON SHAREHOLDERS" means Sasson and any Permitted Transferee (as
defined in the Shareholders Agreement) thereof to whom Registrable Securities
are transferred in accordance with Section 2.2 of the Shareholders Agreement.
"SEC" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"SECOND AMENDMENT" has the meaning assigned to such term in the recital
to this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"SERIES A PREFERRED STOCK" has the meaning assigned such term in the
recital to this Agreement.
"SERIES A STOCK PURCHASE AGREEMENT" has the meaning assigned to such
term in the recital to this Agreement.
"SERIES B PREFERRED STOCK" has the meaning assigned such term in the
recital to this Agreement.
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"SERIES C PREFERRED STOCK" has the meaning assigned such term in the
recital to this Agreement.
"SERIES C STOCK PURCHASE AGREEMENT" has the meaning assigned to such
term in the recital to this Agreement.
"SERIES E EXCHANGE AGREEMENT" has the meaning assigned to such term in
the recital to this Agreement.
"SERIES E PREFERRED STOCK" has the meaning assigned such term in the
recital to this Agreement.
"SERIES E STOCK PURCHASE AGREEMENT" has the meaning assigned to such
term in the recital to this Agreement.
"SERIES F PREFERRED STOCK" has the meaning assigned such term in the
recital to this Agreement.
"SERIES F PURCHASERS" has the meaning assigned to such term in the
recital to this Agreement.
"SERIES F SHAREHOLDERS" means GAP 52, GAP Coinvestment II, TCV, Lehman
and their respective Affiliates and Permitted Transferees (as defined in the
Shareholders Agreement).
"SERIES F STOCK PURCHASE AGREEMENT" has the meaning assigned to such
term in the recital to this Agreement.
"SERIES F WARRANTS" has the meaning assigned such term in the recital
to this Agreement.
"SERIES G PREFERRED STOCK" has the meaning assigned such term in the
recital to this Agreement.
"SHAREHOLDERS AGREEMENT" means the Amended and Restated Shareholders
Agreement, dated the date hereof, among the Company, GAP 40, GAP 46, GAP 52, GAP
Coinvestment, GAP Coinvestment II, Johnson, Johnson Trust #1, Johnson Trust #2,
Ramsey/Beirne, Sasson, TCV and Lehman, as amended from time to time.
"TCV III" has the meaning assigned to such term in the recital to this
Agreement.
"TCV III GP" has the meaning assigned to such term in the recital to
this Agreement.
"TCV III LP" has the meaning assigned to such term in the recital to
this Agreement.
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"TCV III Q" has the meaning assigned to such term in the recital to
this Agreement.
"TCV III SP" has the meaning assigned to such term in the recital to
this Agreement.
"TCV SHAREHOLDERS" means TCV III GP, TCV III LP, TCV III Q, TCV III SP
and any Permitted Transferee (as defined in the Shareholders Agreement) thereof
to which Registrable Securities are transferred in accordance with Section 2.2
of the Shareholders Agreement.
"WARRANT" has the meaning assigned to such term in the recital to this
Agreement.
2. GENERAL: SECURITIES SUBJECT TO THIS AGREEMENT.
(a) GRANT OF RIGHTS. The Company hereby grants
registration rights to the FirePond Shareholders, the General Atlantic
Shareholders, the Ramsey/Beirne Shareholders, the Sasson Shareholders, the TCV
Shareholders and the Lehman Shareholders upon the terms and conditions set forth
in this Agreement.
(b) REGISTRABLE SECURITIES. For the purposes of this
Agreement, Registrable Securities will cease to be Registrable Securities when
(i) a registration statement covering such Registrable Securities has been
declared effective under the Securities Act by the SEC and such Registrable
Securities have been disposed of pursuant to such effective registration
statement, (ii) the entire amount of Registrable Securities proposed to be sold
by a Designated Holder in a single sale, in the opinion of counsel satisfactory
to the Company and the Designated Holder, each in their reasonable judgment, may
be distributed to the public without any limitation as to volume pursuant to
Rule 144 (or any successor provision then in effect) under the Securities Act
and such Registrable Securities held by any Designated Holder constitute less
than one percent (1 %) of the outstanding capital stock of the Company or (iii)
the Registrable Securities are proposed to be sold or distributed by a Person
not entitled to the registration rights granted by this Agreement.
(c) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed
to be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected and
disregarding any legal restrictions upon the exercise of such rights. If the
Company receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company may act
upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities issuable
upon exercise of an option or upon conversion of another security shall be
deemed outstanding for the purposes of this Agreement.
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3. DEMAND REGISTRATION.
(a) REQUEST FOR DEMAND REGISTRATION. At any time after
the IPO Effectiveness Date, (i) one or more of the General Atlantic Shareholders
as a group, acting through GAP LLC or its written designee; (ii) the Major
Shareholders as a group, acting through Johnson; or (iii) the Series F
Shareholders holding Registrable Securities representing (after giving effect to
any adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the Series F Shareholders (other than GAP 52 or GAP
Coinvestment II) (each of (i), (ii) or (iii), the "Initiating Holder(s)") may
make a written request to the Company to register, under the Securities Act
(other than pursuant to a registration statement on Form S-4 or S-8 or any
successor thereto) and under the securities or "blue sky" laws of any
jurisdiction designated by such holder or holders (a "Demand Registration"), the
number of Registrable Securities stated in such request; PROVIDED, HOWEVER that
the Company shall not be obligated to effect more than two (2) Demand
Registrations for the General Atlantic Shareholders, two (2) Demand
Registrations for the Major Shareholders and one (1) Demand Registration for the
Series F Shareholders pursuant to this Section 3; PROVIDED, that in the event
that the rights granted to the holders of Registrable Securities pursuant to
Section 4 hereof shall cease to be available to such holders as a result of
changes in the federal securities laws, then the number of Demand Registrations
available to such Series F Shareholders hereunder shall be increased from one
(1) Demand Registration to two (2) Demand Registrations pursuant to this Section
3. If at the time of any request to register Registrable Securities pursuant to
this Section 3(a), the Company is engaged in, or has fixed plans to engage in
within thirty (30) days of the time of such request, a registered public
offering or is engaged in any other activity which, in the good faith
determination of the Board of Directors of the Company, would be adversely
affected by the requested registration to the material detriment of the Company,
then the Company may at its option direct that such request be delayed for a
reasonable period not in excess of three (3) months from the effective date of
such offering or the date of completion of such other material activity, as the
case may be, such right to delay request to be exercised by the Company not more
than once in any one-year period. In addition, the Company shall not be required
to effect any registration within ninety (90) days after the effective date of
any other Registration Statement of the Company. Each request for a Demand
Registration by the Initiating Holder(s) shall state the amount of the
Registrable Securities proposed to be sold and the intended method of
disposition thereof. Upon a request for a Demand Registration, the Company shall
promptly take such steps as are necessary or appropriate to prepare for the
registration of the Registrable Securities to be registered.
(b) INCIDENTAL OR "PIGGY-BACK" RIGHTS WITH RESPECT TO A
DEMAND REGISTRATION. Each of the Designated Holders (other than the Initiating
Holder(s) that have requested such registration) may offer its or his
Registrable Securities under any Demand Registration pursuant to this Section 3.
Within ten (10) days after the receipt from an Initiating Holder of a request
for a Demand Registration, the Company shall (i) give written notice thereof to
all of the Designated Holders (other than the Initiating Holder(s) that have
requested such registration) and (ii) subject to Section 3(e), include in such
registration all of the
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Registrable Securities held by such Designated Holders from whom the Company has
received a written request for inclusion therein within ten (10) days of the
receipt by such Designated Holders of such written notice referred to in clause
(i) above. Each such request by such Designated Holders shall specify the number
of Registrable Securities proposed to be registered and the intended method of
disposition thereof. The failure of any such Designated Holder to respond within
such 10-day period referred to in clause (ii) above shall be deemed to be a
waiver of such Designated Holder's rights under this Section 3, PROVIDED that
any Designated Holder may waive its rights under this Section 3 prior to the
expiration of such 10-day period by giving written notice to the Company, with a
copy to the Initiating Holder(s).
(c) EFFECTIVE DEMAND REGISTRATION. The Company shall use
its best efforts to expeditiously cause any such Demand Registration to become
and remain effective as soon as practicable, but in any event not later than 120
days after it receives a request under Section 3(a) hereof. A registration shall
not constitute a Demand Registration until it has become effective and remains
continuously effective for the lesser of (i) the period during which all
Registrable Securities registered in the Demand Registration are sold or (ii)
120 days; provided, HOWEVER, that a registration shall not constitute a Demand
Registration if (x) after such Demand Registration has become effective, such
registration or the related offer, sale or distribution of Registrable
Securities thereunder is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for any
reason not attributable to the Initiating Holders and such interference is not
thereafter eliminated, (y) the conditions to closing specified in the
underwriting agreement, if any, entered into in connection with such Demand
Registration are not satisfied or waived, other than by reason of a failure by
the Initiating Holders or (z) if the request for such Demand Registration is
withdrawn by the Initiating Holder and such Initiating Holder reimburses the
Company for any expenses incurred in relation thereto.
(d) EXPENSES. In any registration initiated as a Demand
Registration, the Company shall pay all Registration Expenses (other than
underwriting discounts and commissions) in connection therewith, whether or not
such Demand Registration becomes effective.
(e) UNDERWRITING PROCEDURES. If the Initiating Holders
holding a majority of the Registrable Securities held by all of the Initiating
Holders to which the requested Demand Registration relates so elect, the
offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of a firm commitment underwritten offering and the managing
underwriter or underwriters selected for such offering shall be the Approved
Underwriter (as hereinafter defined) selected in accordance with Section 3(f).
In connection with any Demand Registration under this Section 3 involving an
underwriting, none of the Registrable Securities held by any Designated Holder
making a request for inclusion of such Registrable Securities pursuant to
Section 3(b) hereof shall be included in such underwriting unless such
Designated Holder accepts the terms of the underwriting as agreed upon by the
Company, the Initiating Holders and the Approved Underwriter, and then only in
such quantity as will not, in the opinion of the Approved Underwriter,
jeopardize the success of such
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offering by the Initiating Holders. If the Approved Underwriter advises the
Company in writing that in its opinion the aggregate amount of such Registrable
Securities requested to be included in such offering is sufficiently large to
have a material adverse effect on the success of such offering, then the Company
shall include in such registration only the aggregate amount of Registrable
Securities that in the opinion of the Approved Underwriter may be sold without
any such material adverse effect and shall reduce, FIRST as to the Designated
Holders (that are not Initiating Holders that requested such registration and
that requested to participate in such registration pursuant to Section 3(b)
hereof) as a group, if any; and SECOND as to the Initiating Holders as a group,
pro rata within each group based on the number of Registrable Securities
included in the request for Demand Registration, the amount of Registrable
Securities to be included in such registration.
(f) SELECTION OF UNDERWRITERS. If any Demand Registration
of Registrable Securities is in the form of an underwritten offering, the
Initiating Holders that requested such registration holding a majority of the
Registrable Securities held by all such Initiating Holders shall select and
obtain an investment banking firm of national reputation to act as the managing
underwriter of the offering (the "Approved Underwriter"); PROVIDED, HOWEVER ,
that the Approved Underwriter shall, in any case, be acceptable to the Company
in its reasonable judgment.
4. FORM S-3.
(a) REQUEST FOR S-3 REGISTRATION. After the first public
offering of its securities registered under the Securities Act, the Company
shall use its best efforts to qualify and remain qualified to register
securities on Form S-3 (or any successor form) under the Securities Act. The
holders of at least (i) ten percent (10%) of the Registrable Securities or (ii)
a majority in interest of the holders of Common Stock issuable or issued on
conversion of the Series F Preferred Stock or (iii) holders registering
Registrable Securities with an aggregate value of not less than $3,000,000 (the
"S-3 Initiating Holders") shall have the right to request any number of
registrations on Form S-3 (or any successor form) for the Registrable Securities
held by such requesting holders (an "S-3 Registration"). Such requests shall be
in writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended method of disposition of such shares by such holder
or holders. Within ten (10) days after the receipt from an S-3 Initiating Holder
of a request for an S-3 Registration the Company shall give notice to all other
Designated Holders of the receipt of a request for registration pursuant to this
Section 4 and such Designated Holders shall then have ten (10) days to notify
the Company in writing of their desire to participate in such registration.
(b) FORM S-3 UNDERWRITING PROCEDURES. If the S-3
Initiating Holders so request, the Company shall use its best efforts to cause
such S-3 Registration pursuant to this Section 4 to be in the form of a firm
commitment underwritten offering and the managing underwriter or underwriters
selected for such offering shall be the S-3 Approved Underwriter selected in
accordance with Section 4(f). In connection with any S-3 Registration under
Section 4(a) involving an underwritten offering, the Company shall not be
required to include
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any Registrable Securities in such underwritten offering unless the Designated
Holders thereof accept the terms of the underwritten offering as agreed upon
between the Company, the S-3 Approved Underwriter and the S-3 Initiating
Holders, and then only in such quantity as such underwriter believes will not
jeopardize the success of such offering by the S-3 Initiating Holders. If the
S-3 Approved Underwriter believes that the registration of all or part of the
Registrable Securities which the S-3 Initiating Holders and the other Designated
Holders have requested to be included would materially adversely affect the
success of such public offering, then the Company shall be required to include
in the underwritten offering, to the extent of the amount that the S-3 Approved
Underwriter believes may be sold without causing such adverse effect, FIRST, all
of the Registrable Securities to be offered for the account of the S-3
Initiating Holders, pro rata based on the number of Registrable Securities owned
by such S-3 Initiating Holders; SECOND, the Registrable Securities to be offered
for the account of the other Designated Holders who requested inclusion of their
Registrable Securities pursuant to Section 4(a), pro rata based on the number of
Registrable Securities owned by such Designated Holders; and THIRD any other
securities requested to be included in such underwritten offering.
(c) LIMITATIONS ON FORM S-3 REGISTRATIONS. If at the time
of any request to register Registrable Securities pursuant to Section 4(a), the
Company is engaged in, or has fixed plans to engage in within thirty (30) days
of the time of such request, a registered public offering or is engaged or has
fixed plans to engage in any other activity which, in the good faith
determination of the Board of Directors of the Company, would be adversely
affected by the requested S-3 Registration to the material detriment of the
Company, then the Company may at its option direct that such request be delayed
for a reasonable period not in excess of three (3) months from the effective
date of such offering or the date of completion of such other material activity,
as the case may be, such right to delay a request to be exercised by the Company
not more than once in any twelve (12) month period. In addition, the Company
shall not be required to effect any registration pursuant to Section 4(a), (i)
within 90 days after the effective date of any other Registration Statement of
the Company, (ii) if within the 12-month period preceding the date of such
request, the Company has effected two registrations on Form S-3 pursuant to
Section 4(a), (iii) if Form S-3 is not available for such offering by the S-3
Initiating Holders or (iv) if the S-3 Initiating Holders, together with the
Designated Holders (other than S-3 Initiating Holders which have requested an
S-3 Registration under Section 4(a)) registering Registrable Securities in such
registration, propose to sell their Registrable Securities at an aggregate price
(calculated based upon the Market Price of the Registrable Securities on the
date of filing of the Form S-3 with respect to such Registrable Securities) to
the public of less than $3,000,000.
(d) NO DEMAND REGISTRATION. No registration requested by
any Designated Holder pursuant to this Section 4 shall be deemed a Demand
Registration pursuant to Section 3.
(e) EXPENSES. In any registration initiated as an S-3
Registration, the Company shall pay all Registration Expenses (other than
underwriting discounts and commissions) in connection therewith, whether or not
such S-3 Registration becomes effective.
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(f) SELECTION OF UNDERWRITERS. If any S-3 Registration of
Registrable Securities is in the form of an underwritten offering, the S-3
Initiating Holders that requested such registration holding a majority of the
Registrable Securities held by all such S-3 Initiating Holders shall select and
obtain an investment banking firm of national reputation to act as the managing
underwriter of the offering (the "S-3 Approved Underwriter"); PROVIDED, HOWEVER,
that the S-3 Approved Underwriter shall, in any case, be acceptable to the
Company in its reasonable judgment. In connection with any S-3 Registration
under this Section 4 involving an underwriting, none of the Registrable
Securities held by any Designated Holder making a request for inclusion of such
Registrable Securities pursuant to Section 4(a) hereof shall be included in such
underwriting unless such Designated Holder accepts the terms of the underwriting
as agreed upon by the Company, the S-3 Initiating Holder and the S-3 Approved
Underwriter.
5. INCIDENTAL OR "PIGGY-BACK" REGISTRATION.
(a) REQUEST FOR INCIDENTAL REGISTRATION. At any time
after the IPO Effectiveness Date, if the Company proposes to file a Registration
Statement under the Securities Act with respect to an offering by the Company
for its own account (other than a registration statement on Form S-4 or S-8 or
any successor thereto), then the Company shall give written notice of such
proposed filing to each of the Designated Holders of Registrable Securities at
least thirty (30) days before the anticipated filing date, and such notice shall
describe the proposed registration and distribution and offer such Designated
Holders the opportunity to register the number of Registrable Securities as each
such holder may request (an "Incidental Registration"). The Company shall, and
shall use its best efforts (within ten (10) days of the notice provided for in
the preceding sentence) to cause the managing underwriter or underwriters of a
proposed underwritten offering (the "Company Underwriter") to, permit each of
the Designated Holders who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company
included therein. In connection with any Incidental Registration under this
Section 5(a) involving an underwriting, the Company shall not be required to
include any Registrable Securities in such underwriting unless the holders
thereof accept the terms of the underwriting as agreed upon between the Company
and the Company Underwriter, and then only in such quantity as will not, in the
opinion of the Company Underwriter, jeopardize the success of the offering by
the Company. If in the written opinion of the Company Underwriter the
registration of all or part of the Registrable Securities which the Designated
Holders have requested to be included pursuant to this Section 5 would
materially adversely affect such offering, then the Company shall be required to
include in such Incidental Registration, to the extent of the amount that the
Company Underwriter believes may be sold without causing such adverse effect,
FIRST, all of the securities to be offered for the account of the Company;
SECOND , the Registrable Securities to be offered for the account of the
Designated Holders pursuant to this Section 5, pro rata based on the amount
recommended by the Company Underwriter; and THIRD, any other securities
requested to be included in such underwriting.
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(b) EXPENSES. The Company shall bear all Registration
Expenses (other than underwriting discounts and commissions) in connection with
any Incidental Registration pursuant to this Section 5, whether or not such
Incidental Registration becomes effective.
6. HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY DESIGNATED HOLDERS. In
connection with the Company's initial underwritten public offering, the
Designated Holders, if requested in good faith by the Company and the managing
underwriter of the Company's securities, shall agree not to sell or otherwise
transfer or dispose of any Registrable Securities of the Company held by them
(except for any securities sold pursuant to such registration statement) for a
period following the effective date of such registration statement as agreed to
by the holders of not less than a majority of the Registrable Securities,
PROVIDED, HOWEVER that in no event shall such period exceed 180 days. In
connection with any other underwritten public offering by the Company, to the
extent holders of not less than a majority of the Registrable Securities have
agreed with the managing underwriter(s) not to sell or otherwise transfer or
dispose of any of the Registrable Securities held by each of them (except for
any securities sold pursuant to such registration statement) for a period of
time after the effective date of any such registration statement (such period
not to exceed ninety (90) days) in order to effect an orderly public
distribution thereof and each Designated Holder who either participates in such
offering or has been afforded the opportunity to participate in such offering on
a pro rata basis with the Initiating Holders and all other Designated Holders
participating in such offering shall, if requested in good faith by the Company
and the managing underwriter, enter into and execute such an agreement with such
managing underwriter(s) and the Company pertaining to a restriction on the
transfer of any Registrable Securities of the Company then held by them (and not
included in such registration) during such same time period and on the same
terms and conditions as the agreement made by said holders of a majority of the
Registrable Securities. The foregoing provisions of this Section 6(a) shall only
be applicable to the extent that, with respect to any applicable registration,
the five officers of the Company holding the greatest number of shares of
capital stock of the Company (assuming exercise or conversion of all exercisable
or convertible securities) and all directors of the Company enter into similar
agreements.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The
Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-4 or S-8 or any
successor thereto), during the period beginning on the effective date of any
registration statement in which the Designated Holders of Registrable Securities
are participating, other than pursuant to Section 5 hereof, and ending on the
earlier of (i) the date on which all Registrable Securities registered on such
registration statement are sold or (ii) 120 days after the effective date of
such registration statement.
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7. REGISTRATION PROCEDURES.
(a) OBLIGATIONS OF THE COMPANY. Whenever the registration
of Registrable Securities has been requested pursuant to Section 3, Section 4 or
Section 5 of this Agreement, the Company shall use its best efforts to effect
the registration and sale of such Registrable Securities in accordance with the
intended method of distribution thereof as quickly as practicable, and in
connection with any such request, the Company shall, as expeditiously as
possible:
(i) use its best efforts to prepare and file
with the SEC a registration statement on any form for which the Company
then qualifies or which counsel for the Company shall deem appropriate
and which form shall be available for the sale of such Registrable
Securities in accordance with the intended method of distribution
thereof, and use its best efforts to cause such registration statement
to become effective; PROVIDED, HOWEVER, that (x) before filing a
registration statement or prospectus or any amendments or supplements
thereto, the Company shall provide counsel selected by the Designated
Holders holding a majority of the Registrable Securities being
registered in such registration ("Holders' Counsel") and any other
Inspector (as hereinafter defined) with an adequate and appropriate
opportunity to participate in the preparation of such registration
statement and each prospectus included therein (and each amendment or
supplement thereto) to be filed with the SEC, which documents shall be
subject to the review of Holders' Counsel, and (y) the Company shall
notify the Holders' Counsel and each seller of Registrable Securities
of any stop order issued or threatened by the SEC and take all
reasonable action required to prevent the entry of such stop order or
to remove it if entered;
(ii) prepare and file with the SEC such
amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to keep
such registration statement effective for the lesser of (x) 180 days or
(y) such shorter period which will terminate when all Registrable
Securities covered by such registration statement have been sold, and
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration
statement;
(iii) as soon as reasonably possible, furnish to
each seller of Registrable Securities, prior to filing a registration
statement copies of such registration statement as is proposed to be
filed, and thereafter such number of copies of such registration
statement, each amendment supplement thereto (in each case including
all exhibits thereto), the prospectus included in such registration
statement (including each preliminary prospectus) and such other
documents as each such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
seller;
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<PAGE> 20
(iv) use its best efforts to register or qualify
such Registrable Securities under such other securities or "blue sky"
laws of such jurisdictions as any seller of Registrable Securities may
reasonably request, and to continue such qualification in effect in
such jurisdiction for 120 days or for as long as any such seller
requests or until all of such Registrable Securities are sold,
whichever is shortest, and do any and all other acts and things which
may be reasonably necessary or advisable to enable any such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; PROVIDED, HOWEVER , that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but
for this Section 7(a)(iv), (y) subject itself to taxation in any such
jurisdiction or (z) consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause the
Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and
operations of the Company to enable the seller or sellers of
Registrable Securities to consummate the disposition of such
Registrable Securities;
(vi) notify each seller of Registrable Securities
at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, upon discovery that, or upon the
happening of any event as a result of which, the prospectus included in
such registration statement contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, and the Company shall
promptly prepare a supplement or amendment to such prospectus and
furnish to each seller a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, after
delivery to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made;
(vii) enter into and perform customary agreements
(including an underwriting agreement in customary form with the
Approved Underwriter, S-3 Approved Underwriter or Company Underwriter,
if any, selected as provided in Section 3, Section 4 or Section 5, as
the case may be) and take such other actions as are prudent and
reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities;
(viii) make available for inspection by any seller
of Registrable Securities, any managing underwriter participating in
any disposition pursuant to such registration statement, Holders'
Counsel and any attorney, accountant or other agent retained by any
such seller or any managing underwriter (each, an "Inspector" and
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<PAGE> 21
collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise their due diligence
responsibility, and cause the Company's and its subsidiaries' officers,
directors and employees, and the independent public accountants of the
Company, to supply all information reasonably requested by any such
Inspector in connection with such registration statement. Records that
the Company determines, in good faith, to be confidential and which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (x) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in the registration
statement, (y) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction or (z)
the information in such Records was known to the Inspectors on a
non-confidential basis prior to its disclosure by the Company or has
been made generally available to the public. Each seller of Registrable
Securities agrees that it shall, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to
the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of the Records
deemed confidential;
(ix) if such sale is pursuant to an underwritten
offering, use its best efforts to obtain a "cold comfort" letter from
the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by "cold comfort"
letters as Holders' Counsel or the managing underwriter reasonably
request;
(x) use its best efforts to furnish at the
request of any seller of Registrable Securities on the date such
securities are delivered to the underwriters for sale pursuant to such
registration or, if such securities are not being sold through
underwriters, on the date the registration statement with respect to
such securities becomes effective, an opinion, dated such date, of
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the seller making such
request, covering such legal matters with respect to the registration
in respect of which such opinion is being given as such seller may
reasonably request and are customarily included in such opinions and
are reasonably acceptable to counsel representing the Company;
(xi) otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC, and make
available to its security holders, as soon as reasonably practicable
but no later than fifteen (15) months after the effective date of the
registration statement, an earnings statement covering a period of
twelve (12) months beginning after the effective date of the
registration statement, in a manner which satisfies the provisions of
Section 11 (a) of the Securities Act and Rule 158 thereunder;
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<PAGE> 22
(xii) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued
by the Company are then listed or approved for inclusion on Nasdaq, as
applicable, PROVIDED that the applicable listing requirements are
satisfied;
(xiii) keep Holders' Counsel advised in writing as
to the initiation and progress of any registration under Section 3,
Section 4 or Section 5 hereunder;
(xiv) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of
such Registrable Securities and their respective counsel in connection
with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD"); and
(xv) participate, to the extent reasonably
requested by the managing underwriter for the offering or the holders,
in efforts to sell the Registrable Securities under the offering
(including without limitation, participating in "roadshow" meetings
with prospective investors) that would be customary for underwritten
primary offerings of a comparable amount of equity securities by the
Company.
(xvi) provide a transfer agent and registrar for
all Registrable Securities registered pursuant hereunder and a CUSIP
number for all such Registrable Securities, in each case not later than
the effective date of such registration.
(xvii) use best efforts to take all other steps
necessary to effect the registration of the Registrable Securities
contemplated hereby.
(b) SELLER INFORMATION. The Company may require each
seller of Registrable Securities as to which any registration is being effected
to furnish to the Company such information regarding the distribution of such
securities as the Company may from time to time reasonably request in writing.
(c) NOTICE TO DISCONTINUE. Each Designated Holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 7(a)(vi), such
Designated Holder shall forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Designated Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 7(a)(vi) and, if so
directed by the Company, such Designated Holder shall deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in such
Designated Holder's possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period during
which such registration statement shall be maintained effective pursuant to this
Agreement (including, without limitation, the period referred to in Section
7(a)(ii)) by the number of days during the period from and including the date of
the giving of such notice pursuant to
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<PAGE> 23
Section 7(a)(vi) to and including the date when the Designated Holder shall have
received the copies of the supplemented or amended prospectus contemplated by
and meeting the requirements of Section 7(a)(vi).
(d) REGISTRATION EXPENSES. The Company shall pay all
expenses (other than as set forth in Sections 3(d), 4(e) and 5(b)) arising from
or incident to the performance of, or compliance with, this Agreement,
including, without limitation, (i) SEC, stock exchange and NASD registration and
filing fees, (ii) all fees and expenses incurred in complying with securities or
"blue sky' laws (including reasonable fees, charges and disbursements of counsel
in connection with "blue sky" qualifications of the Registrable Securities),
(iii) all printing, messenger and delivery expenses, (iv) the fees, charges and
expenses of counsel to the Company and of its independent public accountants and
any other accounting fees, charges and expenses incurred by the Company
(including, without limitation, any expenses arising from any special audits
incident to or required by any registration or qualification) and the reasonable
legal fees, charges and expenses of one counsel engaged by the Initiating
Holders to represent their interests in connection with a Demand Registration
and (v) any liability insurance or other premiums for insurance obtained by the
Company in connection with any Demand Registration or Incidental Registration
pursuant to the terms of this Agreement, regardless of whether such registration
statement is declared effective. All of the expenses described in this Section
7(d) are referred to herein as "Registration Expenses."
8. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law, each
Designated Holder, its officers, directors, trustees, partners, shareholders,
members, employees, advisors and agents and each Person who controls (within the
meaning of the Securities Act or the Exchange Act) such Designated Holder from
and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue, or allegedly untrue, statement of a material fact contained in any
registration statement, prospectus or preliminary prospectus or notification or
offering circular (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or arising out of or based upon
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
concerning such Designated Holder furnished in writing to the Company by such
Designated Holder expressly for use therein. The Company shall also provide
customary indemnities to any underwriters of the Registrable Securities, their
officers, directors and employees and each Person who controls such underwriters
(within the meaning of the Securities Act and the Exchange Act) to the same
extent as provided above with respect to the indemnification of the Designated
Holders of Registrable Securities.
(b) INDEMNIFICATION BY DESIGNATED HOLDERS. In connection
with any registration statement in which a Designated Holder is participating
pursuant to Section 3,
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<PAGE> 24
Section 4 or Section 5 hereof, each such Designated Holder shall furnish to the
Company in writing such information with respect to such Designated Holder as
the Company may reasonably request or as may be required by law for use in
connection with any such registration statement or prospectus and each
Designated Holder agrees to indemnify and hold harmless, to the fullest extent
permitted by law, the Company, any underwriter retained by the Company and their
respective directors, officers, employees and each Person who controls the
Company or such underwriter (within the meaning of the Securities Act and the
Exchange Act) to the same extent as the foregoing indemnity from the Company to
the Designated Holders, but only with respect to any such information with
respect to such Designated Holder furnished in writing to the Company by such
Designated Holder expressly for use therein; PROVIDED, HOWEVER, that the total
amount to be indemnified by such Designated Holder pursuant to this Section 8(b)
shall be limited to the net proceeds received by such Designated Holder in the
offering to which the registration statement or prospectus relates.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person
entitled to indemnification hereunder (the "Indemnified Party") agrees to give
prompt written notice to the indemnifying party (the "Indemnifying Party") after
the receipt by the Indemnified Party of any written notice of the commencement
of any action, suit, proceeding or investigation or threat thereof made in
writing for which the Indemnified Party intends to claim indemnification or
contribution pursuant to this Agreement; PROVIDED, HOWEVER , that the failure so
to notify the Indemnifying Party, shall not relieve the Indemnifying Party of
any liability that it may have to the Indemnified Party hereunder. If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel (other than reasonable costs of investigation) shall be paid by the
Indemnified Party unless (i) the Indemnifying Party agrees to pay the same, (ii)
the Indemnifying Party fails to assume the defense of such action with counsel
reasonably satisfactory to the Indemnified Party in its reasonable judgment or
(iii) the named parties to any such action (including any impleaded parties)
have been advised by such counsel that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to it which are different from or
additional to those available to the Indemnifying Party. In either of such
cases, the Indemnifying Party shall not have the right to assume the defense of
such action on behalf of such Indemnified Party. No Indemnifying Party shall be
liable for any settlement entered into without its written consent, which
consent shall not be unreasonably withheld.
(d) CONTRIBUTION. If the indemnification provided for in
this Section 8 from the Indemnifying Party is unavailable to an Indemnified
Party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
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<PAGE> 25
payable by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
faults of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Sections 8(a), 8(b)
and 8(c), any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding; PROVIDED that the
total amount to be contributed by such Designated Holder shall be limited to the
net proceeds received by such Designated Holder in the offering.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
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.
9. REPORTS UNDER THE EXCHANGE ACT. With a view to making
available to the Designated Holders the benefits of Rule 144 promulgated under
the Securities Act and any other rule or regulation of the SEC that may at any
time permit a Designated Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times after ninety (90)
days after the effective date of the Initial Public Offering;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to any Designated Holder, so long as the
Designated Holder owns any Registrable Securities, forthwith upon request (i) a
written statement by the Company that it has complied with the reporting
requirements of SEC Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company), the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements), or that it qualifies as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the
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<PAGE> 26
Company, and (iii) such other information as may be reasonably requested in
availing any Designated Holder of any rule or regulation of the SEC that permits
the selling of any such securities without registration or pursuant to such
form.
10. MISCELLANEOUS.
(a) RECAPITALIZATIONS, EXCHANGES, ETC. The provisions of
this Agreement shall apply, to the full extent set forth herein with respect to
(i) the shares of Common Stock and (ii) any and all equity securities of the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in conversion of, in exchange for or in substitution of, the shares of Common
Stock and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, recapitalizations and the like occurring after the
date hereof. The Company shall cause any successor or assign (whether by merger,
consolidation or otherwise) to enter into a new registration rights agreement
with the Designated Holders on terms substantially similar to this Agreement as
a condition of any such transaction.
(b) NO INCONSISTENT AGREEMENTS. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Designated Holders in this Agreement or grant any
additional registration rights to any Person or with respect to any securities
which are not Registrable Securities which are prior in right to or inconsistent
with the rights granted in this Agreement.
(c) REMEDIES. The Designated Holders, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
shall be entitled to specific performance of their rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive in any action for specific performance the
defense that a remedy at law would be adequate.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless consented to in writing by (i) the Company, (ii) the
FirePond Shareholders holding Registrable Securities representing (after giving
effect to any adjustments) at least 60% of the aggregate number of Registrable
Securities owned by all of the FirePond Shareholders, (iii) the holders of
Registrable Securities representing (after giving effect to any adjustments) at
least 75 % of (x) the aggregate number of Registrable Securities owned by all of
the General Atlantic Shareholders plus (y) the aggregate number of Registrable
Securities owned by the Ramsey/Beirne Shareholders and the Sasson Shareholders,
as a group, and (iv) the Series F Shareholders (other than the General Atlantic
Shareholders) holding Registrable Securities representing (after giving effect
to any adjustments) at least 60% of the aggregate number of Registrable
Securities owned by all of the Series F Shareholders. Any such written consent
shall be binding upon the Company and all of the Designated Holders.
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<PAGE> 27
(e) NOTICES. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be made by registered or certified first-class mail, return receipt
requested, telecopier, courier service, overnight mail or personal delivery:
(i) if to the Company:
FirePond, Inc.
25 Burlington Mall Road, Suite 300
Burlington, MA 01803
Telecopy: (781) 328-0247
Attn: President
cc: Paul McDermott
with copies to:
FirePond, Inc.
1000 Riverview Office Tower
9009 34th Avenue South
Bloomington, Minnesota 55425
Attn: Thomas F. Carretta
and;
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Telecopy: (617) 523-1231
Attn: John J. Egan III, P.C.
(ii) if to the Major Shareholders:
c/o FirePond, Inc.
1000 Riverview Office Tower
9009 34th Avenue South
Bloomington, Minnesota 55425
Attention: General Counsel
with a copy to:
Kunard, Barnett, Kakeldey & Gates, Ltd.
226 North Broad Street
Mankato, Minnesota 56002
Telecopy: (507) 345-7722
Attention: Richard Kakeldey, Esq.
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<PAGE> 28
(iii) if to the General Atlantic Shareholders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attn: J. Michael Cline
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(iv) if to any other Designated Holder, at its
address as it appears on the record books of
the Company.
(v) if to the TCV Shareholders:
Technology Crossover Ventures
56 Main Street, Suite 210
Millburn, NJ 07041
Attention: Robert C. Bensky
Phone: (973) 467-5320
Telecopy: (973) 467-5323
with a copy to:
Technology Crossover Ventures
575 High Street, Suite 400
Palo Alto, CA 94301
Attention: Jay C. Hoag
Phone: (650) 614-8210
Fax: (650) 614-8222
(vi) if to the Lehman Shareholders:
Lehman Brothers VC Partners L.P.
3 World Financial Center
New York, NY 10285
Attention: Michael S. Castleman
Phone: (212) 526-2969
Fax: (212) 526-3836
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All such notices and communications shall be deemed to have been duly
given when delivered by hand, if personally delivered; when delivered by courier
or overnight mail, if delivered by commercial courier service or overnight mail;
five (5) Business Days after being deposited in the mail, postage prepaid, if
mailed; and when receipt is mechanically acknowledged, if telecopied.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and be binding upon the successors and permitted assigns of each
of the parties hereto. The Demand Registration rights of the General Atlantic
Shareholders, the Major Shareholders, and the Series F Shareholders contained in
Section 3 hereof and the other rights of each of the General Atlantic
Shareholders, the Major Shareholders, and the Series F Shareholders with respect
thereto shall be, with respect to any Registrable Security, (i) automatically
transferred among the General Atlantic Shareholders, (ii) automatically
transferred among the Major Shareholders and (iii) automatically transferred
among the Series F Shareholders, as the case may be, and in all other cases,
transferred only with the consent of the Company. The incidental or "piggyback"
registration rights of the Designated Holders contained in Sections 3(b), 4 and
5 hereof and the other rights of each of the Designated Holders with respect
thereto shall be, with respect to any Registrable Security, automatically
transferred by such Designated Holder to any Person who is the transferee of
such Registrable Security; PROVIDED, HOWEVER, that the "piggyback" registration
rights of the Other Shareholders (as set forth in subsection (g) below) may be
transferred only with the consent of the Company. All of the obligations of the
Company hereunder shall survive any such transfer.
(g) THIRD PARTY BENEFICIARIES. The parties to this
Agreement agree that the shareholders of the Company listed on Schedule 2 (the
"Other Shareholders") shall be entitled to certain "piggyback' registration
rights under Sections 3(b), 4 and 5(a) of this Agreement. The rights granted
pursuant to the preceding sentence are expressly conditioned on the agreement of
each such Other Shareholder to abide by the obligations set forth herein as if
each Other Shareholder was an original signatory to this Agreement including,
without limitation, the obligations set forth in Sections 3(b), 4, 5(a), 6(a),
7(a) and 8(b). The Company shall provide notice to the Other Shareholders of an
event that triggers the Other Shareholders' "piggyback" registration rights.
Other than as set forth in this Section 10(g), no Person other than the parties
hereto and their successors and permitted assigns is intended to be a
beneficiary of any of the rights granted hereunder.
(h) COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so
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<PAGE> 30
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
(i) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning, hereof.
(j) GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts,
without regard to the principles of conflicts of law thereof.
(k) SEVERABILITY. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Designated Holders shall
be enforceable to the fullest extent permitted by law.
(l) ENTIRE AGREEMENT. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and in the Stock Purchase Agreement. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter, including, without limitation, the Original Agreement, the First
Amendment and the Second Amendment.
(m) FURTHER ASSURANCES. Each of the parties shall execute
such documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement including
without limitation the Original Agreement, as amended by the First Amendment and
the Second Amendment.
(n) AGGREGATION OF STOCK. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
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<PAGE> 31
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Registration Rights Agreement on the date
first written above.
FIREPOND, INC.
By: /s/ Klaus P. Besier
----------------------------------------
Name: Klaus P. Besier
Title: President
GENERAL ATLANTIC PARTNERS 40, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
Its: General Partner
By: /s/ Thomas J. Murphy
----------------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-Fact
GENERAL ATLANTIC PARTNERS 46, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC
Its: General Partner
By: /s/ Thomas J. Murphy
----------------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-Fact
GENERAL ATLANTIC PARTNERS 52, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC
Its: General Partner
By: /s/ Thomas J. Murphy
----------------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-Fact
28
<PAGE> 32
GAP COINVESTMENT PARTNERS, L.P.
By: /s/ Thomas J. Murphy
--------------------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-Fact
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ Thomas J. Murphy
--------------------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-Fact
/s/ Jerome D. Johnson
------------------------------------------------
Jerome D. Johnson
RACHEL LEE JOHNSON TRUST
By:
---------------------------------------------
Name: Richard H. Kakeldey
Title: Trustee of the Rachel Lee Johnson
Irrevocable Trust
ANNE MARIE JOHNSON TRUST
By:
---------------------------------------------
Name: Richard H. Kakeldey
Title: Trustee of the Rachel Lee Johnson
Irrevocable Trust
29
<PAGE> 33
RAMSEY/BEIRNE ASSOCIATES INCORPORATED
By:
---------------------------------------------
Name:
Title:
---------------------------------------------
Ori Sasson
TCV III (GP)
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
-----------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
30
<PAGE> 34
TCV III, L.P.
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III (Q), L.P.
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
TCV III Strategic Partners, L.P.
By: Technology Crossover Management III, L.L.C.,
Its: General Partner
By: /s/ Robert C. Bensky
------------------------------------------------
Name: Robert C. Bensky
Title: Chief Financial Officer
Lehman Brothers VC Partners L.P.
By: LB I Group Inc.
Its: General Partner
By: /s/ Alan Washkowitz
------------------------------------------------
Name: Alan Washkowitz
Title: Senior Vice President
31
<PAGE> 35
SCHEDULE 1
MAJOR SHAREHOLDERS
Rachel Lee Johnson Trust
Anne Marie Johnson Trust
32
<PAGE> 36
Schedule 2
Other Shareholders
<TABLE>
<S><C>
- -Christopher R. Arlandson as Co-trustee of the Christopher Robin Arlandson Irrevocable Trust
- -Christopher R. Arlandson as Co-trustee of the Dawn Celeste Arlandson Irrevocable Trust
- -Christopher R. Arlandson as Co-trustee of the John Roy Arlandson Irrevocable Trust
- -Christopher R. Arlandson as Co-Trustee of the Scott David Arlandson Irrevocable Trust
- -John S. Arlandson
- -Alan R. Bennett
- -Mary Sue Bifulk
- -Richard J. Bouquet
- -Frank D. Cesario
- -Gerald W. Eick
- -James R. Iglesias
- -Charles E. Juntunen
- -Richard H. Kakeldey
- -Richard H. Kakeldey as Co-trustee of the Christopher Robin Arlandson Irrevocable Trust
- -Richard H. Kakeldey as Co-trustee of the Dawn Celeste Arlandson Irrevocable Trust
- -Richard H. Kakeldey as Co-trustee of the John Roy Arlandson Irrevocable Trust
- -Richard H. Kakeldey as Trustee of the Scott David Arlandson Irrevocable Trust
- -Robert E. Madsen
- -Delores H. Perpich
- -Rudolph G. Perpich, Jr.
- -Gerald B. Smith
- -Randolph E. Wersal
</TABLE>
33
<PAGE> 1
EXHIBIT 10.5
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") is made and entered into as of August
11, 1998, by Petrie Development Corp., a Minnesota corporation ("Landlord" and
CWC Incorporated, a Minnesota corporation ("Tenant").
RECITALS:
A. Landlord is the owner of the Project.
B. Tenant desires to lease from Landlord and Landlord desires to lease to
Tenant the Premises subject to and in accordance, with the terms and conditions
set forth herein.
AGREEMENTS:
NOW, THEREFORE, for good, fair and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Landlord and Tenant hereby covenant
and agree as follows as of the Commencement Date:
ARTICLE 1.
DEFINITIONS
Defined terms utilized in this Lease are set forth on SCHEDULE "1" attached
hereto. As used herein, such terms shall have such meanings to be equally
applicable to both the singular and plural forms of the terms defined.
ARTICLE 2.
DEMISE; COMMON AREAS; TERM; LEASE YEAR
2.1 DEMISE. Subject to the terms and conditions of this Lease, Landlord
leases to Tenant and Tenant hereby leases from Landlord, the Premises. Landlord
reserves unto itself the right to grant easements across, under or through the
Land, which do not materially interfere with Tenant's access to or use of the
Premises. Landlord also reserves unto itself the use of the exterior walls and
the roof and, subject to the provisions of Section 13.19 hereof, the right to
install, maintain, use, repair and replace pipes, ducts, conduits, wires and
appurtenant fixtures existing in or leading through or under the Premises.
2.2 USE OF COMMON AREAS. Use by Tenant of the Premises shall include the
nonexclusive use, in common with others, of the Common Areas, and such use shall
be subject to the provisions of this Lease.
2.3 CONTROL OF COMMON AREAS. The Common Areas shall be subject to the
exclusive control and management of Landlord. Landlord shall have the right to
establish,
<PAGE> 2
modify and enforce the Rules. Landlord shall have the right to alter the Common
Areas and to construct additions to or additional buildings in the Project
resulting in a diminution of Common Areas. Landlord shall have the right to
construct and operate lighting and signs on all the Common Areas and
improvements, to police the same, to change the area and location of parking
areas and other common facilities, to restrict parking by Tenant, its agents and
employees, to close temporarily or permanently the parking areas or facilities,
and to perform other acts in and to the areas and improvements as Landlord may
deem advisable in its sole discretion, provided such actions do not materially
interfere with Tenant's access to or use of the Premises.
2.4 LEASE TERM. The initial term of this Lease shall be for the Lease Term,
unless terminated sooner pursuant to any of the provisions hereof. The Lease
Term and Tenant's obligation to pay Rent shall commence on the Commencement
Date.
2.5 LEASE YEAR. The first Lease Year shall begin on the Commencement Date
and shall end on December 31, 1998. The second Lease Year shall begin on January
1, 1999, and each Lease Year thereafter during the Lease Term shall consist of a
full calendar year, provided that if the Lease Term expires on a date other than
December 31, the period of time from January 1 of that calendar year until such
expiration date shall be construed as a Lease Year.
ARTICLE 3.
RENT AND OTHER CHARGES
3.1 BASE RENT. Tenant shall pay in advance as base rent (the "Base Rent")
the monthly amounts set forth in EXHIBIT "B" attached hereto commencing on the
Commencement Date and continuing thereafter on the first day of each subsequent
calendar month. Base Rent for any period during the Lease Term which is less
than one (1) month shall be a pro-rata portion of the applicable monthly
installment.
3.2 PAYMENT OF IMPOSITIONS.
(a) Tenant shall deposit with Landlord monthly (as a deposit and
not a payment) commencing on the Commencement Date and continuing
thereafter on the first day of each subsequent calendar month an
amount equal to Tenant's Share of one-twelfth of the annual
Impositions estimated by Landlord and communicated by Landlord to
Tenant in writing so that Landlord shall have sufficient funds to pay
the Impositions on the first day of the month preceding the month in
which they become due. To the extent within Tenant's control, Tenant
further agrees to cause all bills, statements or other documents
relating to Impositions to be sent or mailed directly to Landlord.
Provided Tenant has deposited sufficient funds with Landlord pursuant
to this Section 3.2(a), Landlord shall pay, when due, such Impositions
as may be due out of the funds so deposited with Landlord. If at any
time and for any reason the funds deposited with Landlord are or will
be insufficient to pay such Impositions as may then or subsequently be
due, Landlord
<PAGE> 3
shall notify Tenant and Tenant shall deposit an amount equal to such
deficiency with Landlord within seven (7) days after such notice.
Notwithstanding the foregoing, nothing contained herein shall cause
Landlord to be obligated to pay any amounts in excess of the amount of
funds deposited with Landlord pursuant to this Section 3.2(a). If
amounts collected by Landlord under this Section 3.2(a) exceed amounts
necessary in order to pay Impositions, Landlord shall retain such
excess payments and Tenant shall receive a credit for such excess
amount toward the next payments due for such Impositions, unless
within 30 days following any Lease Year Tenant notifies Landlord to
reimburse Tenant for the amount of such excess, in which event
Landlord, following receipt of such notice, shall promptly reimburse
such excess to Tenant. Should Tenant fail to deposit with Landlord
sums sufficient to pay such Impositions in full at least ten (10) days
before delinquency thereof Landlord may, at Landlord's election, but
without any obligation so to do, advance any amounts required to make
up the deficiency, which advances, if any, shall be treated as
Additional Rent. Upon expiration of the Lease Term or earlier
termination of this Lease in accordance with Section 13.28 hereof, the
sums held by Landlord under this Section 3.2(a) shall be allocated
between Landlord and Tenant as of such expiration date based upon the
periods with respect to which such sums are due and payable, and
Landlord shall be entitled to retain such portion as represents
amounts due and payable up through such expiration date, and the
balance shall be returned to Tenant. In the event this Lease is
terminated due to an Event of Default, all sums held by Landlord under
this Section 3.2(a) shall be retained by Landlord.
(b) Subject to the following conditions, Tenant shall have the
right, at Tenant's sole cost and expense, to contest or object in good
faith to any Imposition, but such right shall not be deemed or
construed in any way as relieving, modifying or extending Tenant's
covenant to pay any such Imposition at the time and in the manner
provided in this Section 3.2: (i) Tenant has given prior written
notice to Landlord of Tenant's intent so to contest or object to an
Imposition; (ii) Tenant shall demonstrate to Landlord's satisfaction
that the legal proceedings shall operate conclusively to prevent the
sale of the Project, or any part thereof; (iii) if Tenant has not
deposited with Landlord all amounts required to be deposited under
Section 3.2(a) hereof, Tenant shall furnish evidence reasonably
satisfactory to Landlord of Tenant's ability to pay such Impositions
which are being contested plus any interest and penalty which may be
imposed thereon and which could become a lien against the Project or
any part thereof; (iv) no Default or Event of Default has occurred;
(v) Tenant covenants and agrees that any increase in Impositions
resulting from such contest or objection shall be paid by Tenant upon
demand; and (vi) the Premises comprise 100% of the Improvements.
<PAGE> 4
(c) Subject to any Legal Requirement, Landlord shall use all
reasonable efforts to obtain the benefit of any statute or ordinance
permitting any real property assessment for public betterments or
improvements to be paid over the maximum period of time allowed by the
relevant taxing authority.
3.3 UTILITIES; OPERATING EXPENSES.
(a) Tenant shall pay or cause to be paid when due, all charges,
fees, assessments and related costs for public utility services
(including, without limitation, gas, water, sewer, electricity, light,
power, telephone, cable and other communication services and refuse
and garbage collection) used, rendered or supplied in connection with
the Premises throughout the Lease Term.
(b) Tenant shall deposit with Landlord monthly (as a deposit and
not as a payment) an amount equal to Tenant's Share of one-twelfth of
the annual Operating Expenses estimated by Landlord and communicated
by Landlord to Tenant in writing so that Landlord will have sufficient
funds to pay Operating Expenses on the first day of the month
preceding the month in which they become due. Provided Tenant has
deposited sufficient funds with Landlord pursuant to this Section
3.3(b), Landlord shall pay, when due, Tenant's Share of such Operating
Expenses as may be due out of the funds so deposited with Landlord. If
at any time and for any reason the funds deposited with Landlord are
or will be insufficient to pay such amounts as may then or
subsequently be due, Landlord shall notify Tenant and Tenant shall
within seven (7) days after such notice deposit an amount equal to
such deficiency with Landlord. Notwithstanding the foregoing, nothing
contained herein shall cause Landlord to be obligated to pay any
amounts in excess of the amount of funds deposited with Landlord
pursuant to this Section 3.3(b). If amounts collected by Landlord
under this Section 3.3(b) exceed amounts necessary in order to pay
Operating Expenses, Landlord shall retain such excess payments and
Tenant shall receive a credit for such excess amount toward the next
payments due for such Operating Expenses, unless within 30 days
following any Lease Year Tenant notifies Landlord to reimburse Tenant
for the amount of such excess, in which event Landlord, following
receipt of such notice, shall promptly reimburse such excess to
Tenant. Should Tenant fail to deposit with Landlord sums sufficient to
pay such Operating Expenses in full at least ten (10) days before
delinquency thereof Landlord may, at Landlord's election, but without
any obligation so to do, advance any amounts required to make up the
deficiency, which advances if any, shall be treated as Additional
Rent. Upon expiration of the Lease Term or earlier termination of this
Lease in accordance with Section 13.28 hereof, the sums held by
Landlord under this Section 3.3(b) shall be allocated between Landlord
and Tenant as of such date based upon the
<PAGE> 5
periods with respect to which such sums are incurred, and Landlord
shall be entitled to retain such portion as represents amounts
incurred through such date, and the balance shall be returned to
Tenant. In the event this Lease is terminated due to an Event of
Default, all sums held by Landlord under this Section 3.3(b) shall be
retained by Landlord.
(c) Within one hundred twenty (120) days after the end of each
Lease Year, Landlord shall provide Tenant with a detailed statement of
the actual Operating Expenses for the preceding Lease Year, and if
Tenant has overpaid or underpaid its share of the actual Operating
Expenses for the preceding Lease Year, Tenant or Landlord shall pay
the other, as appropriate, the amount of such overpayment or
underpayment, as the case may be, within thirty (30) days after the
statement of actual Operating Expenses is delivered.
(d) After Landlord has provided Tenant with a statement of the
actual Operating Expenses for any calendar year, Tenant, at its
expense, shall have the right for a period of 180 days after receipt
of such statement, to audit Landlord's books and records relating to
the actual Operating Expenses for the period covered by such
statement. If Tenant fails to exercise its audit rights within said
180 day period, Landlord's statement of actual Operating Expenses
shall be deemed binding on Tenant. Any such audit shall be concluded
by Tenant within 60 days following the commencement thereof. If any
audit shall prove that Tenant has overpaid its share of Operating
Expenses, the amount of such overpayment shall be promptly refunded to
Tenant. Tenant shall bear the costs of any audit conducted for or by
it. Tenant may not request such an audit more than once for any Lease
Year. If such audit determines that Landlord has overstated Operating
Expenses by more than 3%, Landlord agrees to pay the costs of Tenant's
audit.
3.4 SALES TAXES. Tenant shall also pay directly or reimburse to Landlord,
upon demand, for the full amount of any and all taxes, assessments, fees and
other governmental charges, general and special, ordinary or extraordinary, of
every kind and nature whatsoever (other than Landlord's income taxes), levied,
assessed, imposed or otherwise payable with respect to Base Rent or Additional
Rent. The provisions of this Section shall survive the expiration of the Lease
Term or the earlier termination hereof.
3.5 PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency, any and
all taxes levied or assessed during the Lease Term upon Tenant's personal
property. In the event any or all of the personal property shall be assessed and
taxed with the real property, Tenant shall pay to Landlord such taxes within
thirty (30) days after written notice from Landlord setting forth the amount of
such taxes applicable to personal property together with a copy of the tax bill
and other evidence documenting that such tax is properly payable by Tenant.
<PAGE> 6
3.6 LOCATION OF PAYMENTS. Tenant shall for the entire Lease Term pay Rent
to Landlord as herein provided at the address for Landlord set forth in Section
13.8 hereof or at such other place as Landlord may from time to time in writing
designate.
3.7 NO SETOFF. All amounts due by Tenant to Landlord hereunder, including
Base Rent and Additional Rent, shall be paid without any setoff, counterclaim or
deduction whatsoever or any prior demand. The covenant to pay Rent, whether Base
Rent or Additional Rent, is hereby declared to be an independent covenant on the
part of Tenant to be kept and performed and no act or circumstance whatsoever
shall release, relieve or otherwise excuse Tenant of the obligation to pay Rent.
ARTICLE 4.
ALTERATIONS AND ADDITIONS
4.1 ALTERATIONS.
(a) Tenant will not make or allow to be made any alterations,
additions or deletions in or to the Premises without the prior written
consent of Landlord, which consent shall not be unreasonably withheld
by Landlord, except as set forth in Section 4.1(b) hereof. Such
alterations, physical additions, or improvements shall become part of
the Premises and the property of the Landlord.
(b) Tenant may, at its sole cost and expense, make alterations or
additions to the Premises without Landlord's prior consent, provided
(i) such alterations or additions do not affect the structural
integrity of the Improvements comprising the Premises, adversely
affect any of the mechanical or electrical systems of the Improvements
comprising the Premises, or alter in any way the intended or current
use of the Premises; (ii) the cost of any such alteration or addition
does not exceed $50,000 in any one instance or $100,000 in any single
Lease Year; (iii) such alterations or additions are performed by duly
licensed and qualified contractors in accordance with all Legal
Requirements and in a good and workmanlike manner; (iv) such
alterations or additions are completed prior to the expiration of the
Lease Term; (v) such alterations or improvements do not reduce the
value of the Project or the Premises; (vi) such alterations and
improvements are made pursuant to plans and specifications delivered
to Landlord in advance; (vii) no Default or Event of Default has
occurred and is continuing, and (viii) no such alteration or addition
is made or commenced within the last twelve (12) months of the Lease
Term.
4.2 CONSTRUCTION LIENS. Tenant shall pay when due, and indemnify, protect,
defend and hold Landlord harmless from, all claims for labor or materials
furnished or alleged to have been furnished to Tenant for use in the Premises,
which claims are or may be secured by any lien against the Premises or any
interest therein in accordance with applicable law. Tenant shall not permit any
liens to be filed against the Premises or any
<PAGE> 7
interest therein and shall immediately obtain a release from any lien so filed
or remove the same by bond in form and content satisfactory to Landlord. Nothing
in the Lease shall be construed in any way as constituting the consent or
request of Landlord to any contractor, subcontractor, laborer, or materialman
for the performance of any labor or the furnishing of any materials for any
alteration, addition, improvement or repair to the Premises, nor as giving
Tenant any right, power or authority to contract for or permit the rendering of
services or the furnishing of materials that would give rise to the filing of a
lien against the Premises.
4.3 REMOVAL OF IMPROVEMENTS. All alterations, additions and other
improvements by Tenant shall become the property of Landlord and shall not be
removed from the Premises, unless request is made by Landlord to Tenant to
remove those alterations, additions and other improvements which were made
without Landlord's approval where such approval was required under this Lease.
All moveable trade fixtures, furniture, furnishings and signs installed in the
Premises by Tenant and paid for by Tenant, shall remain the property of Tenant
and may be removed upon the expiration of the term of this Lease; provided that
any of such items as are affixed to the Premises and require severance may be
removed only if Tenant repairs any damage caused by such removal and that Tenant
shall otherwise comply with all of the terms, conditions and covenants to be
performed by Tenant under this Lease with respect to such removal. If Tenant
fails to remove such items from the Premises by the expiration of the Lease Term
or earlier termination of this Lease, all such trade fixtures, furniture,
furnishings and signs shall become the property of Landlord, unless Landlord
elects to require their removal, in which case Tenant shall, at its sole cost
and expense, promptly remove the same and restore the Premises to its condition
on the date of this Lease. The covenants contained in this Section shall survive
the expiration of the Lease Term or earlier termination hereof.
4.4 SIGNS. Tenant covenants and agrees that it shall not, without the prior
written consent of Landlord, paint, erect or install any signs, lettering or
placards or make any additions, alterations or changes to the exterior of the
Premises. Landlord hereby consents to all signs identifying Tenant and currently
located on the Premises. Upon expiration of the Lease Term, the earlier
termination of the Lease, a Put Date or a Recapture Date, Tenant shall at the
request of Landlord remove such signs and shall promptly restore the surfaces to
which the signs were affixed to their former condition, except with regard to
the Put Premises or Recapture Premises, and any awnings on the Building. The
obligation set forth in the preceding sentence shall survive the expiration of
the Lease Term or the earlier termination hereof.
ARTICLE 5.
REPAIRS AND MAINTENANCE
5.1 LANDLORD'S OBLIGATIONS. From and after the earlier to occur of a Put
Date or a Recapture Date, Landlord shall:
(a) maintain, repair and replace as needed all heating,
ventilating, air conditioning, mechanical, electrical and plumbing
systems, facilities and equipment which are located in or serve the
Premises;
<PAGE> 8
(b) replace Project standard fluorescent electric lamps and
ballasts used in the Premises;
(c) furnish Tenant: (i) hot and cold water, at those points of
supply provided for general use of tenants; (ii) heat and refrigerated
air conditioning in season at such times as Landlord normally
furnishes these services to all tenants of the Project, and at such
temperatures and in such amounts as are in accordance with any
applicable statutes, rules or regulations and are considered to be
standard, including the standard for computer rooms, such service at
other times and on Saturdays, Sundays, and holidays ("Additional
Service") to be made available from Landlord (Landlord hereby reserves
the right to charge Tenant for any such Additional Service requested
by Tenant at Landlord's cost). If any repairs are needed to the
heating, air conditioning and ventilation system servicing Tenant's
system network room, Landlord hereby agrees that Tenant may contact
Landlord's service provider directly for such service and Landlord
shall pay the cost thereof; (iii) janitor service to the Premises on
weekdays other than holidays; and (iv) such window washing as may from
time to time in the Landlord's judgment be reasonably required;
(d) operate, maintain, repair and replace the Common Areas in a
clean, safe and sanitary condition and state of repair in accordance
with all Legal Requirements; and
(e) keep the parking lot, driveways and sidewalks within the
Common Areas free from snow, ice and debris.
Failure to any extent to furnish, or any stoppage or interruption of these
defined services, shall not render Landlord liable in any respect for
damages to any person, property, or business, nor be construed as an
eviction of Tenant or work an abatement of Rent, nor relieve Tenant from
fulfillment of any covenant or agreement hereof unless caused by the
negligent or intentional acts or omission of Landlord. Should any equipment
or machinery furnished by Landlord cease to function properly, Landlord
shall use reasonable diligence to repair the same promptly upon receipt of
notice of the same, but Tenant shall have no claim for an abatement of Rent
or damages on account of any interruptions in service occasioned thereby or
resulting therefrom unless caused by the negligent or intentional acts or
omissions of Landlord. Whenever heat generating machines or equipment are
used by Tenant in the Premises which disproportionately affect the
temperature otherwise maintained by the air conditioning equipment,
Landlord reserves the right to install supplementary air conditioning units
in the Premises (or for the use of the Premises) and the reasonable expense
of such purchase, installation, maintenance, operation and repair shall be
paid by Tenant upon 15 days prior notice as Additional Rent
<PAGE> 9
5.2 TENANT'S OBLIGATIONS. Except to the extent Landlord is specifically
responsible therefor under Section 5.1 hereof, Tenant is solely responsible for
causing the Premises to be kept in a clean, safe, sanitary and first class
condition and state of repair in accordance with all Legal Requirements required
as a result solely of Tenant's specific use. As used in this Section, the term
"repairs" shall include replacements and other improvements as are necessary to
maintain the Premises as is required under this Lease. If Landlord is required
to make repairs by reason of Tenant's acts or omissions or those of Tenant's
employees, agents, invitees, licensees or contractors, Landlord shall have the
right, but shall not be obligated, to make such repairs or replacements on
behalf of and for the account of Tenant. In such event, such work shall be paid
for in full by Tenant as Additional Rent. Notwithstanding any provision in this
Lease to the contrary, throughout the term of this Lease, Landlord shall be
responsible for any and all necessary major repairs (major is defined as cost of
$10,000.00 or more in the aggregate for one project or series of projects) or
replacements of the roof, or any other components or systems of the Project
and/or parking lot, driveways and landscaping, including but not limited to
repaving of the parking lot, replacement of HVAC systems or roof. To the extent
allowed under Section 3.3 hereof, Landlord may charge Tenant a portion of such
costs, as amortized over the useful life of the improvement or replacement as
Operating Expenses, but only to the extent allowed under Section 3.3 hereof.
Notwithstanding any provision in this Lease to the contrary, throughout the term
of this Lease, all repairs, replacements and improvements to the structural
components of the Project and all improvements to the Project shall be made by
Landlord, at Landlord's sole cost and expense and not be charged to Tenant.
5.3 SURRENDER. On the last day of the Lease Term, or on any sooner
termination of this Lease, Tenant shall surrender the Premises in the same
condition as the Premises existed on the Commencement Date, ordinary wear and
tear and damage by an Insured Casualty excepted, with such additions,
replacements, betterments, alterations and improvements thereto as permitted or
required hereunder, broom clean, and shall surrender all keys and access cards,
to Landlord in the condition required to be maintained by Tenant under this
Lease. The covenants contained in this Section shall survive the expiration of
the Lease Term or earlier termination hereof.
5.4 RIGHT OF ENTRY. Landlord and its authorized representatives shall have
the right to enter the Premises (a) upon at least 48 hours prior written notice
to Tenant at all reasonable times to inspect the Project or to show the Premises
to prospective lenders, purchasers or tenants, provided any such entry is done
in a manner such as to avoid interference with the operation of the Premises,
and, (b) in the event of the existence of an Event of Default hereunder, to
conduct testing and to make repairs, alterations, improvements or additions as
Landlord may reasonably deem necessary, including those to be performed by
Tenant, without the same constituting an eviction of Tenant in whole or in part,
and Rent shall not abate as a result of such entry. Nothing herein shall imply
any duty upon the part of Landlord to conduct any test or do any work which the
Tenant may be required to perform under this Lease, and the performance thereof
by Landlord shall not constitute a waiver of Tenant's default in failing to
perform it. If Tenant is not present to permit entry into the Premises, Landlord
may, in case of emergency, enter by master key.
<PAGE> 10
Landlord may place upon the Premises "For Rent" signs and notices, specifying
the portion of the Building that is for rent.
ARTICLE 6.
HAZARDOUS SUBSTANCES
6.1 NO HAZARDOUS SUBSTANCES. Tenant shall not bring into or permit the
existence of any Hazardous Substance on the Premises other than as permitted by
applicable Environmental Regulations. If Tenant discovers the presence of any
Hazardous Substance on or in the Premises which is in violation of any
Environmental Regulation, Tenant shall promptly give Landlord notice thereof. If
during Tenant's occupancy or at any time throughout the Lease Term the existence
of a Hazardous Substance in violation of any Environmental Regulation exists
within the Premises or, as a result of any action or inaction by Tenant, within
the Project, (a) Tenant shall remove such Hazardous Substance and dispose of it
as required by any and all applicable Environmental Regulations, or (b)
Landlord, if it is advised to remove such Hazardous Substance itself to protect
or minimize against any liability to Landlord as a result of the presence of any
Hazardous Substance by no less than five (5) days' notice to Tenant, may elect
to remove any Hazardous Substance and dispose of it as required by any
Environmental Regulation, in which case Tenant shall pay the entire cost of such
disposal within ten (10) days after receipt of a statement for such cost by
Landlord, such amount to be treated as Additional Rent. If any Governmental
Authority shall require any remedial action or other response with respect to
the Project as the result of any Hazardous Substance brought into or permitted
by Tenant on or in the Project, Tenant shall notify Landlord of such action or
response and shall, with the prior written approval of Landlord, be responsible
for satisfying the requirements of the applicable Governmental Authority.
6.2 TENANT INDEMNITY. Tenant shall indemnify, defend (with counsel
satisfactory to Landlord), protect and hold Landlord and its members, managers,
officers, employees and agents harmless from and against any and all claims,
causes of action, damages, penalties, costs and expenses (including attorneys'
fees, consultant fees and related expenses) which may be asserted against or
incurred by Landlord and its members, managers, officers, employees and agents,
or any of them, resulting from the failure by Tenant to fulfill its obligations
under Section 6.1 hereof or resulting from the presence of Hazardous Substances
within the Premises or, as a result of any action or inaction by Tenant, within
the Project. Tenant's duty to indemnify, defend, protect and hold harmless
includes, but is not limited to, proceedings or actions commenced by any
Governmental Authority.
6.3 SURVIVAL. The foregoing covenants and indemnifications shall be deemed
continuing covenants and indemnifications for the benefit of Landlord and its
successors and assigns and shall survive the expiration of the Lease Term or
earlier termination of this Lease.
<PAGE> 11
ARTICLE 7.
COVENANTS OF TENANT
7.1 USE OF PREMISES. Tenant covenants and agrees that from and after the
Commencement Date, it shall use and occupy the Premises solely for the purpose
of the Permitted Use and for no other purpose.
7.2 CONTINUING COVENANTS. Tenant covenants and agrees with Landlord to:
(a) maintain the Premises in a good condition and state of
repair;
(b) promptly make all of repairs, renewals, replacements and
additions, to the Premises which may be necessary, required under any
Legal Requirement or otherwise required under the terms of this Lease;
(c) not commit or suffer waste with respect to the Premises;
(d) not remove, demolish or in any respect alter any of the
Improvements comprising the Premises, provided that Tenant may make
alterations in accordance with Section 4.1 hereof;
(e) subject to any Legal Requirement, not make, install or permit
to be made or installed, any alterations or additions to the Premises
if doing so will violate the terms and conditions of this Lease unless
approved by Landlord in writing;
(f) not make, suffer or permit any nuisance to exist on the
Premises;
(g) keep the Premises neat and clean at all times and to keep any
refuse in proper containers out of sight until the same is removed;
(h) neither do nor suffer anything to be done or kept in or about
the Premises which contravenes Landlord's insurance policies or
increases the premiums therefor;
(i) promptly comply with, or cause to be complied with, and
conform to all Legal Requirements with regard to Tenant's specific use
solely; and
(j) from and after the earlier of a Put Date or a Recapture Date,
comply with all of the Rules.
<PAGE> 12
ARTICLE 8.
INSURANCE AND INDEMNITIES
8.1 INSURANCE COVERAGES.
(a) Landlord shall obtain beginning on the Commencement Date and
shall maintain throughout the Lease Term, as an Operating Expense, the
following insurance coverages:
(i) A policy of commercial general liability insurance
(including "Insurance Service Office" (ISO) forms and
endorsements or their equivalent) to insure against
injury to property, person or loss of life arising out
of the ownership, use, occupancy or maintenance of the
Project with limits of general liability not less than
$10,000,000 for death and/or bodily injury, personal
injury, advertising injury and property damage. The
policy shall contain supplemental endorsements covering
contractual liability as provided in an ISO liability
policy under the definition of insured contract.
(ii) A policy providing commercial property insurance on the
entire Project for the full replacement cost of the
Project. An "Agreed Amount Clause" waiving the
coinsurance clause must be included, as well as flood
and earthquake coverage, to the extent available, at
limits equal to the maximum foreseeable loss at the
location of the Premises. Coverage must also include an
"Ordinances or Law Regulations" insuring agreement
governing the construction, use or repair of property.
Such coverage must include the expense of tearing down
any property, including the cost of removing its
debris. Increased cost of construction coverage must
also be included.
(b) Tenant shall obtain, at Tenant's expense, beginning on the
Commencement Date and shall maintain through the Lease Term, the
following insurance coverages:
(i) A policy of commercial general liability insurance
(including "Insurance Service Office" (ISO) forms and
endorsements or their equivalent) naming Landlord,
Tenant and any other party designated by Landlord as an
additional insured, to insure against injury to
property, person or loss of life arising out of the
ownership, use, occupancy or maintenance of the
<PAGE> 13
Premises with limits of general liability not less than
$ 10,000,000 for death and/or bodily injury, personal
injury, advertising injury and property damage. The
policy shall contain supplemental endorsements covering
contractual liability as provided in an ISO liability
policy under the definition of insured contract.
(ii) A policy providing commercial property insurance
containing the insuring agreement "Cause of
Loss-Special Form" or its equivalent, together with
such endorsements as may be deemed advisable by
Landlord to insure the Improvements comprising the
Premises, Tenant's leasehold improvements, merchandise,
trade fixtures, furnishings, equipment and personal
property. Such policy shall provide coverage in an
amount not less than the full replacement cost of the
Improvements comprising the Premises. An "Agreed Amount
Clause" waiving the coinsurance clause must be
included, as well as flood and earthquake coverage, to
the extent available, at limits equal to the maximum
foreseeable loss at the location of the Premises.
Coverage must also include an "Ordinances or Law
Regulations" insuring agreement governing the
construction, use or repair of property. Such coverage
must include the expense of tearing down any property,
including the cost of removing its debris. Increased
cost of construction coverage must also be included.
(iii) A policy of workers' compensation insurance must be
provided that insures the benefits required by the
State law and includes coverage B Employer's Liability.
The Employer's liability limits must be:
Bodily Injury By Accident - $1,000,000 Each Accident
Bodily Injury By Disease - $1,000,000 Policy Limit
Bodily Injury By Disease - $1,000,000 Each Employee
Landlord does not, by requiring such insurance or by any other act or
event, assume or undertake liability for any work-related injuries or
death to Tenant or Tenant's employees.
(iv) If Tenant commits or permits any activity or the
placing or operation of any equipment on or about the
Premises creating unusual hazards, Tenant shall
promptly upon notice or demand from Landlord,
<PAGE> 14
procure and maintain in force, during such activity or
operation, insurance sufficient to cover the risks
created thereby. Landlord's demand for unusual hazard
insurance shall not constitute a waiver of any right
Landlord may have to demand the removal or cessation of
such activity or operation.
(v) A policy of business interruption insurance with an
"Extra Expense" insuring agreement naming Landlord and
any other party designated by Landlord as an additional
insured providing coverage of not less than twelve (12)
months of Rent and other business income. Such policy
must include an endorsement providing an extended
period of indemnity for 180 days.
(vi) All other insurance, if any, customarily maintained by
businesses of like type, or required by any Legal
Requirement to be carried or maintained by Tenant.
8.2 INSURANCE POLICIES. Insurance required under Section 8.1 shall be
written by companies duly qualified to do business in the State and shall be
satisfactory in all respects to Landlord and the holder of any mortgage against
the Project. The companies providing such insurance shall deliver to Tenant and
Landlord copies of such policies or certificates evidencing the existence and
amount of such insurance with loss payable clauses satisfactory to Landlord,
including, specifically, the holder of the first mortgage on the Project as a
loss payee. No such policy shall be cancelable or subject to reduction of
coverage or modification except after thirty (30) days prior written notice to
Landlord and such other persons designated by Landlord. At least ten (10) days
prior to the expiration of such policies, Landlord may order such insurance and
charge the cost to Tenant as Additional Rent. Tenant shall not do or permit
anything to be done which will invalidate the insurance policies furnished
pursuant to Section 8.1 or otherwise by Landlord and shall comply with all
requirements imposed by such insurers, unless such compliance is expressly
waived in writing by Landlord. Landlord may from time to time reasonably require
that the policy limits of any or all such insurance be increased to reflect the
effects of inflation and changes in normal commercial insurance practices.
Landlord agrees that Tenant may carry the above-described insurance in the form
of a blanket policy covering the Premises and other properties.
8.3 EXEMPTION OF LANDLORD FROM LIABILITY. Tenant hereby agrees that
Landlord shall not be liable and Tenant hereby waives all claims against
Landlord for injury to Tenant's business or any loss of income or other
consequential damages or for damage to the inventory, fixtures, furnishings,
improvements or other property of Tenant, Tenant's employees, invitees,
customers, sublessees, agents, occupants, contractors, or injury to the person
of Tenant, Tenant's employees, agents, contractors, occupants, invitees,
customers, sublessees, or any other person in or about the Premises, whether
such damage or injury is caused by or results from fire, steam, electricity,
gas, water or rain, or from the breakage,
<PAGE> 15
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air-conditioning or lighting fixtures, or from any other cause
whatsoever, whether said damage or injury results from conditions arising upon
the Premises, or from other sources or places, and regardless of whether the
cause of such damage or injury or the means of repairing the same is
inaccessible to Tenant unless caused by the negligent or intentional acts or
omissions of Landlord. Landlord shall not be liable to Tenant for any damages
arising from any act or neglect of any other tenant of the Project.
8.4 INDEMNIFICATION. Tenant shall indemnify, defend, protect and hold
harmless Landlord from and against any and all claims arising from Tenant's use
of the Premises, or from the conduct of Tenant's business or from any activity,
work or things done, permitted or suffered by Tenant in or about the Premises or
elsewhere unless caused by the negligent or intentional acts or omissions of
Landlord, and shall further indemnify, defend, protect and hold harmless
Landlord from and against any and all claims arising from any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any negligence of the Tenant, or any of
Tenant's sublessees, agents, customers, invitees, contractors, occupants, or
employees, and from and against all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon; and in case any action or proceeding be brought
against Landlord by reason of any such claim, Tenant, upon notice from Landlord,
shall defend the same at Tenant's expense by counsel reasonably satisfactory to
Landlord. Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property or injury to persons, in, upon or about
the Premises, and Tenant hereby waives all claims in respect thereof against
Landlord unless caused by the negligent or intentional acts or omissions of
Landlord. The provisions of this Section shall survive expiration of the Lease
Term or the earlier termination hereof
8.5 MUTUAL WAIVER OF SUBROGATION. Nothing in this Lease shall be construed
so as to authorize or permit any insurer of Landlord or Tenant to be subrogated
to any right of Landlord or Tenant against the other party arising under this
Lease. Landlord and Tenant each hereby release the other to the extent of any
loss required to be insured against by either of the parties under the terms of
this Lease, whether or not such insurance has actually been secured, to the
extent such loss is insurable, whether or not such insurance has actually been
secured, even if such incidents shall be brought about by the fault or
negligence of either party or persons for whose acts or negligence the other
party is responsible. Landlord and Tenant shall, to the extent permitted by
their respective insurers, each obtain appropriate waivers of subrogation from
their respective insurance carriers giving effect to this Section.
ARTICLE 9.
DAMAGE OR DESTRUCTION
In the event (a) the Improvements are damaged by fire, explosion or other
casualty insured under the fire and extended coverage insurance policy required
hereunder (an "INSURED CASUALTY") to the extent of fifty percent (50%) or more
of the insurable value thereof immediately preceding the casualty, (b) the
Improvements are damaged by a casualty or occurrence other than an Insured
Casualty, (c) such damage occurs at anytime
<PAGE> 16
within the last twelve (12) months of the Lease Term, or (d) the Premises or any
portion thereof is damaged by fire, explosion or other casualty and the Premises
cannot be repaired, rebuilt or restored to substantially the same condition,
under any Legal Requirement or other governmental order or under any other
agreement to which the Premises is subject (a "PROHIBITED CASUALTY"), then in
such event Landlord may terminate this Lease by giving Tenant written notice of
termination within thirty (30) days after the happening of the event causing the
damage. In the event the damage is not extensive enough to give rise to
Landlord's option to terminate this Lease, a Prohibited Casualty has not
occurred, or Landlord does not elect to terminate this Lease, Landlord shall
promptly and with all due diligence repair and replace the damage to the
Improvements to the condition that existed immediately preceding such fire,
explosion or other casualty. Upon completion of such repairs and replacements by
Landlord, Tenant shall promptly repair or replace all portions of the Premises
not repaired or replaced by Landlord to the condition existing immediately
preceding such fire, explosion or other casualty. All work by Tenant shall
comply with the requirements and limitations imposed by Landlord. During any
period of reconstruction or repair of the Premises, Tenant shall operate its
business in the Premises to the extent practicable. Base Rent shall be abated
during the period of such repair and restoration to the extent the Premises is
not tenantable. If such damage or destruction cannot be repaired or completed
within one year after the date such damage or destruction occurred, Tenant shall
have the right to terminate this Lease by giving notice to Landlord.
ARTICLE 10.
CONDEMNATION
10.1 TAKING OF WHOLE. In the event (a) the whole of the Premises shall be
taken or condemned for a public or quasi-public use or purpose by a competent
authority or sold by Landlord in lieu thereof, (b) such a portion of the
Premises shall be taken, condemned or sold in lieu thereof so that the balance
cannot be used for the same purpose and with substantially the same utility to
Tenant as immediately prior to such taking, or (c) the Premises or any portion
thereof shall be taken or condemned for a public or quasi-public use or purpose
by a competent authority or sold by Landlord in lieu thereof and Landlord is
unable to repair, rebuild or restore the same under the terms of any agreement
to which it is a party, or under any Legal Requirement or other governmental
order to which Landlord or the Premises is subject (a "PROHIBITED TAKING"), this
Lease shall terminate upon delivery of possession to the condemning authority or
its assignee, and, subject to the provisions of Section 10.3 hereof, any award,
compensation or damage (the "AWARD") shall be paid to and be the sole property
of Landlord whether the Award shall be made as compensation for diminution of
the value of the leasehold estate or the fee of the Land or otherwise, and
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
and to any and all of the Award. Tenant shall have no claim against Landlord by
reason of such taking or termination and, subject to the provisions of Section
10.3 hereof, shall not have any claim or right to any portion of the Award to be
paid to Landlord. Tenant shall continue to pay Rent and other charges hereunder
until the Lease is terminated.
10.2 PARTIAL TAKING. In the event (a) only a part of the Premises is taken
or condemned but the Premises or the part remaining can still be used for the
same purpose
<PAGE> 17
and with substantially the same utility to Tenant as immediately prior to such
taking, or (b) a Prohibited Taking has not occurred, this Lease shall not
terminate and Landlord shall repair and restore the remaining Improvements
comprising the Premises provided the cost and expense of such repair and
restoration does not exceed the amount of the Award. If the cost of such repair
and restoration exceeds the amount of the Award, Landlord may terminate this
Lease by giving Tenant written notice of termination to Tenant within thirty
(30) days of the delivery of possession to the condemning authority. If Landlord
is obligated to repair and restore the remaining Improvements comprising the
Premises, as herein provided, there shall be no abatement or reduction in any
Rent or other charges payable by Tenant under this Lease because of such taking
or condemnation, provided however that all Rent payable or other charges
hereunder shall be abated during the period of such repair and restoration to
the extent the Premises is not tenantable.
10.3 TENANT'S AWARD. Subject to the rights of Landlord's lenders,
termination of this Lease because of condemnation shall be without prejudice to
the rights of either Landlord or Tenant to recover from the condemning authority
compensation and damages for the injury and loss sustained by them as a result
of the taking, and Tenant shall have the right to make a claim against the
condemning authority for the unamortized value of Tenant's leasehold
improvements; interruption or dislocation of business in the Premises; loss of
good will and for moving and remodeling expenses. Tenant shall not have the
right to make a claim for diminution in value of Tenant's leasehold estate. If
this Lease is terminated as a result of a condemnation, Tenant shall, subject to
the rights of Landlord's lenders, make a separate claim to the condemning
authority for the above-mentioned items. If the condemning authority refuses to
allocate the award between Landlord's and Tenant's claims for damages and
instead grants a single, lump sum award to Landlord, Landlord and Tenant shall
use reasonable, good-faith efforts to determine that portion of the award which
is attributable to Tenant's leasehold improvements (but only the extent such
leasehold improvements were paid for by Tenant).
ARTICLE 11.
DEFAULTS; REMEDIES
11.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant and each such
event shall be referred to herein as an "EVENT OF DEFAULT":
(a) The failure of Tenant to make any payment of Rent or any
other payment required to be made by Tenant under this Lease, within
ten (10) days after written notice from Landlord, provided that
Landlord shall not be required to provide written notice of such
non-payment more than twice in any Lease Year.
(b) The failure by Tenant to observe or perform any of the terms,
covenants or conditions of this Lease to be observed or performed by
Tenant (other than those described in Sections 11.1(a), (c), (d) or
(e) hereof) where such failure shall continue for a period of thirty
(30) days after written notice thereof from Landlord to Tenant;
provided,
<PAGE> 18
however, that if the nature of such default is such that more than 30
days are required for its cure, then Landlord shall not be in default
if Tenant commences performance within said 30 day period and
thereafter diligently prosecutes the same to completion within 90 days
after such notice.
(c) (i) The making by Tenant or any entity holding a controlling
interest in Tenant of any general assignment, or general arrangement
for the benefit of creditors; (ii) the filing by or against Tenant or
any entity holding a controlling interest in Tenant of a petition to
have Tenant or such controlling entity adjudged a bankrupt or a
petition for reorganization or arrangement under any law relating to
bankruptcy (unless, in the case of a petition filed against Tenant or
such controlling entity, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession is
not restored to Tenant within sixty (60) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease
or in the Premises, where such seizure is not discharged within sixty
(60) days.
(d) An assignment shall occur in violation of Article 12 hereof.
11.2 LANDLORD'S REMEDIES. Upon the occurrence of an Event of Default,
Landlord shall have the following remedies, in addition to all other rights and
remedies provided by law or equity, or elsewhere in this Lease or in any other
agreement related to this Lease, to which Landlord may resort cumulatively or in
the alternative:
(a) Landlord may, at Landlord's election, terminate this Lease
upon the delivery of written notice of such termination to Tenant. On
the delivery of such notice, all Tenant's rights in the Premises and
the Project, in all improvements located at the Premises, to revenues
from the Premises, and to amounts which may otherwise be due from
Landlord to Tenant under this Lease, shall terminate. Promptly after
notice of termination, Tenant shall fulfill its obligations under
Section 5.2 hereof and surrender and vacate the Premises in a broom
clean condition, and Landlord may reenter and take possession of the
Premises and eject all parties in possession or eject some and not
others or eject none. Termination under this Subsection shall not
relieve Tenant from the payment of any sum then due to Landlord or
from any claim for damages previously accrued or then accruing against
Tenant. Upon such termination, Landlord shall also be entitled to
recover from Tenant (i) unpaid Rent or such other amounts which have
been earned or are payable at the time of termination, and (ii) as
liquidated damages and not as a penalty, a sum of money equal to the
Rent and such other
<PAGE> 19
amounts and rental costs to be paid by Tenant to Landlord for the
remainder of the Lease Term (the "ACCELERATED AMOUNT").
(b) Landlord may, at Landlord's election, terminate Tenant's
right to possession only, without terminating the Lease. Upon
termination of Tenant's right to possession without termination of the
Lease, Tenant shall surrender possession and vacate the Premises
immediately and deliver possession of the Premises to Landlord, and
Tenant hereby grants to Landlord the immediate right to enter into the
Premises, remove Tenant's signs and other evidences of tenancy, and
take and hold possession of the Premises with or without process of
law, and to dispossess the others who may be occupying or within the
Premises, without being deemed in any manner guilty of trespass,
eviction, or forcible entry or detainer, without incurring any
liability for any damage resulting therefrom, without such entry and
possession terminating the Lease or releasing Tenant from Tenant's
obligation to pay Rent and to fulfill all other of Tenant's
obligations under this Lease for the full Lease Term. Landlord shall
be entitled to recover from Tenant (i) unpaid Rent or such other
amounts which have been earned or are payable at the time of
termination, and (ii) as liquidated damages and not as a penalty, the
Accelerated Amount.
(c) Landlord may, at Landlord's election, store Tenant's personal
property, if any, for the account and at the cost of Tenant.
(d) Whether or not Landlord elects to terminate the Lease,
Landlord may, but shall be under no obligation to, relet all or any
part of the Premises for such rent and upon such terms as shall be
satisfactory to Landlord (including the right to relet the Premises as
a part of a larger area, the right to change the character or use of
the Premises and the right to restrict prospective tenants to those
whose business is compatible with the nature and character of the
Premises). For the purpose of such reletting, Landlord may decorate or
may make any repairs, changes, alterations or additions in or to the
Premises that may be necessary or convenient. If the Lease is not
terminated and if the Premises is not relet, or if it is relet and a
sufficient sum shall not be realized from such reletting after paying
all of the expenses of any such decorations, repairs, changes,
alterations and additions, the expenses of such reletting and the
collection of the rent accruing therefrom (including, but not limited
to, attorneys' fees and brokers' commissions), to satisfy the Rent and
other charges herein provided to be paid for remainder of the term of
this Lease, Tenant shall pay to Landlord promptly any deficiency, and
Tenant agrees that Landlord may file suit to recover and recover any
sum falling due under the terms of this Subsection from time to time.
<PAGE> 20
(e) The term "RENTAL COSTS" as used in this Lease shall be deemed
to include, but shall not be limited by implication, all repossession
costs, brokerage commissions, legal expenses, attorneys' fees,
alteration costs, and expenses of preparation of the Premises or parts
thereof for reletting.
(f) For purposes of Sections 11.2(a) and (b) above, the present
value (the "PRESENT VALUE") of the Accelerated Amount shall be
computed by discounting the Accelerated Amount to the date of
determination applying the rate on the United States Treasury
obligation having a maturity equal to the balance of the Lease Term
and having an asking price closest to par, as quoted by the Federal
Reserve Bank of New York as published in the Federal Reserve
Statistical Release H. 15 (519) on the date of determination (or the
closest preceding date on which such rate is published), or any
successor publication thereto. Landlord and Tenant agree that in the
event of the exercise by Landlord of its remedy under Sections 11.2(a)
or (b) hereof and the payment by Tenant of the Present Value of the
Accelerated Amount, the cost to Landlord will be difficult to
ascertain and that the Present Value of the Accelerated Amount
constitutes a reasonable estimate of such cost and is not a penalty.
Accordingly, if Tenant defaults, the parties agree that, except as may
be otherwise expressly set forth herein to the contrary, the Present
Value of the Accelerated Amount shall be the amount due from Tenant
upon such default and Landlord shall not be obligated to mitigate its
cost below such amount. Notwithstanding anything to the contrary
contained herein, Tenant acknowledges and agrees that if Tenant fails
to pay to Landlord the Present Value of the Accelerated Amount within
thirty (30) days after notice of termination, then Tenant shall
forfeit any right to have the Accelerated Amount discounted to Present
Value pursuant to the provisions of this Section 11.2(f).
(g) Landlord may, at Landlord's election, retain any or all
amounts on deposit pursuant to Sections 3.2(a) and 3.3(b) hereof or
otherwise and apply such amounts to Tenant's obligations hereunder.
(h) In the event Landlord elects to terminate Tenant's right to
possession only without terminating the Lease and without pursuing
recovery of the Accelerated Amount, Landlord shall use "commercially
reasonable efforts" to relet the Premises as the agent of Tenant and
receive the rent therefor; and in the event of such reletting, Tenant
shall pay Landlord the cost of reletting including brokerage and
reasonable attorneys' fees and commissions, renovating, repairing and
altering the Premises for a new tenant or tenants and any deficiency
that may arise by reason of such reletting, on demand; provided,
however, the failure of Landlord to relet the Premises shall not
release or affect Tenant's liability for Rent or for damages and such
Rent and damages shall be paid by Tenant on the dates specified
herein. For purposes hereof,
<PAGE> 21
"commercially reasonable efforts" shall mean that Landlord has listed
the Premises as available for leasing with a recognized brokerage firm
and if Landlord has so listed the Premises, Landlord shall not be
required to take any other action with respect to reletting the
Premises nor shall Landlord be liable in any manner for failure to
relet the Premises. The Rent payable by Tenant hereunder shall be
reduced by the rent received by Landlord from such reletting.
11.3 LANDLORD MAY PERFORM. Landlord shall have the right at any time, after
not less than thirty (30) days notice to Tenant (or without notice with respect
to matters described in Article 8, and in case of emergency or a hazardous
condition or in case any fine, penalty, interest or cost may otherwise be
imposed or incurred), to make any payment or perform any act required of Tenant
under any provision in this Lease, and in exercising such right, to incur
necessary and incidental costs and expenses, including reasonable attorneys'
fees. Nothing herein shall obligate Landlord to make any payment or perform any
act required of Tenant, and this exercise of the right to so do shall not
constitute a release of any obligation or a waiver of any default. All payments
made and all costs and expenses incurred in connection with any exercise of such
right shall be reimbursed to Landlord by Tenant as Additional Rent.
ARTICLE 12.
ASSIGNMENT AND SUBLETTING
12.1 ASSIGNMENT BY TENANT. Tenant shall not voluntarily or by operation of
law assign, transfer, mortgage, lease, sublet, grant, license or otherwise
transfer or encumber all or any part of Tenant's interest in this Lease or in
the Premises, or permit the use or occupancy of the Premises or any part thereof
by anyone other than Tenant, without Landlord's prior written consent, which
consent shall not be unreasonably withheld or delayed at any time.
12.2 TENANT OWNERSHIP. If Tenant is a corporation (except a corporation
whose stock is traded on a nationally recognized exchange), a limited liability
company, a partnership, limited, limited liability or general, or a business
trust and if at any time during the Lease Term, any part or all of the shares of
the corporation, membership interests in the limited liability company, general
partnership interest of the partnership, or beneficial interests of the trust
shall be transferred by sale, issuance, assignment, bequest, operation or law or
otherwise so as to result in a direct or indirect change in the present control
of Tenant, such transfer shall constitute an assignment within the meaning of
Section 12.2 hereof. The acceptance by Landlord of payment after notice of such
a transfer shall not constitute a waiver of Landlord's right at any time to
treat such transfer as an Event of Default.
12.3 RELATED ENTITY TRANSFERS. Notwithstanding anything contained in
Sections 12.1 and 12.2 hereof to the contrary, Tenant may, without the consent
of Landlord but with advance notice to Landlord, and without releasing or
relieving Tenant of or from its obligations hereunder, from time to time and at
any time (a) assign or otherwise transfer this Lease to or (b) sublet or
otherwise permit the use of all or any portion of the Premises
<PAGE> 22
by, any of the following (each, a "RELATED ENTITY"): (i) any parent, subsidiary
or affiliate corporation or entity; (ii) any corporation resulting from the
consolidation or merger of Tenant into or with any other entity; or (iii) to or
by any person, firm, entity or corporation acquiring a majority of Tenant's
issued and outstanding capital stock or a substantial part of Tenant's physical
assets. As used herein, the term "SUBSIDIARY" shall mean an entity of which
Tenant owns one hundred percent (100%) of the capital stock thereof and an
"AFFILIATE CORPORATION OR ENTITY" shall mean a person or business entity,
corporate or otherwise, that, through one or more intermediaries, controls or is
controlled by, or is under common control with Tenant or is purchasing the
business which Tenant conducts at the Premises. The word "CONTROL" means the
right and power to direct or cause the direction of the management and policies
of a person or business entity, corporation or otherwise, through ownership of
voting securities, by contract or otherwise.
12.4 ASSIGNMENT DUE TO BANKRUPTCY.
(a) In the event a petition is filed by or against Tenant under
the Bankruptcy Code, Tenant, as debtor and debtor in possession, and
any trustee who may be appointed, agree to adequately protect Landlord
as follows:
(i) to pay monthly in advance on the first day of each
month as reasonable compensation for use and occupancy
of the Premises an amount equal to all Rent due
pursuant to this Lease; and
(ii) to perform each and every obligation of Tenant under
this Lease until such time as this Lease is either
rejected or assumed by order of a court of competent
jurisdiction; and
(iii) to determine within sixty (60) days after the filing
of such petition whether to assume or reject this
Lease; and
(iv) to give Landlord at least thirty (30) days prior
written notice, unless a shorter notice period is
agreed to in writing by the parties, of any proceeding
relating to any assumption of this Lease; and
(v) to do all other things of benefit to Landlord otherwise
required under the Bankruptcy Code.
Tenant shall be deemed to have rejected this Lease in
the event of the failure to comply with any of the
above.
(b) If Tenant or a trustee elects to assume this Lease subsequent
to the filing of a petition under the Bankruptcy Code, Tenant, as
debtor
<PAGE> 23
and as debtor in possession, and any trustee who may be appointed
agree as follows:
(i) to cure each and every breach by Tenant within not more
than thirty (30) days of assumption of this Lease; and
(ii) to compensate Landlord for any actual pecuniary loss
resulting from any existing breach, including without
limitation, Landlord's reasonable costs, expenses and
attorney's fees incurred as a result of the breach, as
determined by a court of competent jurisdiction, within
thirty (30) days of assumption of this Lease; and
(iii) in the event of an existing breach, to provide
adequate assurance of Tenant's future performance,
including without limitation:
(1) the deposit of an additional sum equal to Rent for
the remainder of the Lease Term to be held
(without any allowance for interest thereon) to
secure Tenant's obligations under the Lease; and
(2) the production to Landlord of written
documentation establishing that Tenant has
sufficient present and anticipated financial
ability to perform each and every obligation of
Tenant under this Lease; and
(3) assurances, in form acceptable to Landlord, as may
be required under any applicable provision of the
Bankruptcy Code; and
(iv) the assumption will not breach any provision of this
Lease; and
(v) the assumption will be subject to all of the provisions
of this Lease unless the prior written consent of
Landlord is obtained; and
(vi) the prior written consent to the assumption of any
mortgagee to which this Lease has been assigned as
collateral security is obtained.
(c) If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or
<PAGE> 24
entity who shall have made a bona fide offer to accept any assignment
of this Lease on terms acceptable to Tenant, then notice of such
proposed assignment shall be furnished by Tenant to Landlord, setting
forth:
(i) the name and address of such person; and
(ii) all the terms and conditions of such offer; and
(iii) the adequate assurance to be provided Landlord to
assure such person's future performance under the
Lease, including without limitation, the assurances
referred to in any applicable provision of the
Bankruptcy Code, shall be given to Landlord by Tenant
no later than twenty (20) days after receipt by Tenant,
but in any event no later than ten (10) days prior to
the date that Tenant shall make application to a court
of competent jurisdiction for authority and approval to
enter into such assignment and assumption, and Landlord
shall thereupon have the prior right and option, to be
exercised by notice to Tenant given at any time prior
to the effective date of such proposed assignment, to
accept (or to cause its designee to accept) an
assignment of this Lease upon the same terms and
conditions and for the same consideration, if any, as
the bona fide offer made by such person, less any
brokerage commissions which may be payable out of the
consideration to be paid by such person for the
assignment of this Lease. The adequate assurance to be
provided Landlord to assure the assignee's future
performance under the Lease shall include without
limitation:
(1) the deposit of a sum equal to Rent for the
remainder of the Lease Term to be held (without
any allowance for interest thereon) as security
for performance hereunder; and
(2) a written demonstration that the assignee meets
all reasonable financial and other criteria of
Landlord as did Tenant and its business at the
time of execution of this Lease, including the
production of the most recent audited financial
statement of the assignee prepared by a certified
public accountant; and
<PAGE> 25
(3) the assignee's use of the Premises will be a Permitted
Use; and
(4) assurances, in form acceptable to Landlord, as to all
matters identified in any applicable provision of the
Bankruptcy Code.
12.5 NO RELEASE OF TENANT. Notwithstanding anything to the contrary
contained in this Lease, and regardless of Landlord's consent, no assignment,
encumbrance, subletting, transfer, lease or other permission for the use or
occupancy of all or any part of the Premises shall, unless otherwise agreed by
Landlord, release Tenant of Tenant's obligation to pay the Rent and other
charges and to perform all other obligations to be performed by Tenant under
this Lease. The acceptance of Rent and other charges by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision hereof.
Consent to one assignment shall not be deemed consent to any subsequent
assignment.
12.6 TRANSFER OF LANDLORD'S RIGHTS. Landlord shall have the right to
transfer and assign, in whole or in part, all and every feature of its rights
and obligations hereunder and in the Premises. Such transfers or assignments,
howsoever made, are to be fully binding upon and recognized by Tenant. Upon such
transfer or assignment and the assumption of Landlord's obligations by the
transferee, and subject to the provisions of Section 13.2 hereof, Landlord shall
be relieved of all obligations under the Lease accruing subsequent to the date
of transfer.
ARTICLE 13.
GENERAL PROVISIONS
13.1 ESTOPPEL CERTIFICATE. Tenant shall at any time, upon not less than ten
(10) days after the giving of written notice by Landlord, execute, acknowledge
and deliver to Landlord or to such person designated by Landlord, a statement in
writing (a) certifying that this Lease is unmodified and in full force and
effect (or if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, (b) acknowledging
that there are not, to the best of Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specify such defaults if they are claimed,
(c) acknowledging that there are no offsets, counterclaims or defenses to the
obligations of Tenant under the Lease, and (d) certifying as to any other
matters as may be reasonably requested by Landlord. Any such statement may be
conclusively relied upon by any prospective purchaser or encumbrancer of the
Premises. If Tenant does not execute, acknowledge and deliver the statement
referred to in this Section within time set forth above, the information set
forth therein shall be deemed true and correct.
13.2 LANDLORD'S LIABILITY. The term "LANDLORD," as used in this Lease,
shall mean only the owner or owners at the time in question of fee title to the
Premises. In the event of any transfer of such title or interest, Landlord shall
be released from all liability as
<PAGE> 26
respects Landlord's obligations thereafter to be performed, provided that
Landlord's obligations are assumed by Landlord's transferee.
13.3 SEVERABILITY. The invalidity of any provision of this Lease, or of its
application to any person or circumstance as determined by a court of competent
jurisdiction, shall in no way affect the validity of any other provision hereof
and each term, covenant, condition and provision of this Lease shall be valid
and be enforced to the fullest extent permitted by law.
13.4 TIME OF ESSENCE. Time is of the essence hereof.
13.5 CAPTIONS. Article and Section captions are not a part of this Lease.
13.6 INCORPORATION OF PRIOR AGREEMENTS. This Lease and the attached
exhibits set forth all the agreements, terms, covenants and conditions between
Landlord and Tenant concerning the Premises and, except as aforesaid, there are
no agreements, terms, covenants or conditions, oral or written, between them
other than those herein contained. Except as otherwise provided herein, no
amendment, change or addition to this Lease shall be binding upon Landlord or
Tenant unless it is in writing and signed by each party.
13.7 LANDLORD DEFAULT; TENANT'S REMEDIES.
(a) In the event of any default by Landlord in the observance or
performance of any obligation on Landlord's part to be observed or
performed under this Lease, Tenant shall give Landlord written notice
specifying such default with particularity and Landlord shall
thereupon have thirty (30) days in which to cure any such default;
provided, however, that if the nature of such default is such that
more than thirty (30) days are required for its cure, then Landlord
shall not be in default if Landlord commences performance within said
thirty (30) day period and thereafter diligently prosecutes the same
to completion within ninety (90) days of such notice. If Landlord
fails to cure any such default after such notice and cure period,
Tenant may, as its sole and exclusive remedy, commence an action
against Landlord for specific performance and/or damages.
(b) If Landlord shall fail to perform any covenant, term or
condition of this Lease required to be performed by Landlord, if any,
and if as a consequence of such default, Tenant shall recover a money
judgment against Landlord, such judgment shall be satisfied only out
of the proceeds of sale received upon execution of such judgment and
levied thereon against the right, title and interest of Landlord in
the Premises and out of Rent receivable by Landlord, or out of the
consideration received by Landlord from the sale or other disposition
of all or any part of Landlord's right, title and interest in the
Premises, and neither Landlord nor its members, partners, officers,
directors, managers,
<PAGE> 27
shareholders and lenders, nor their respective successors and assigns,
shall be personally liable for any deficiency.
13.8 NOTICES. All notices and demands hereunder shall be in writing, and
shall be deemed to have been properly given or served as of (a) the date of
personal delivery with acknowledgment of receipt; (b) three (3) business days
after the same is deposited in the United States mail, prepaid, for delivery by
registered or certified mail, return receipt requested; or (c) the first
business day after the date delivered to a reputable overnight courier service
providing proof of delivery. The initial addresses of Landlord and Tenant are
set forth below:
If to Landlord: Petrie Development Corporation
P.O. Box 5128
Mankato, MN 56002-5128
Attention: Susan M. Matzke, President
Facsimile No: (507) 387-3420
Confirmation No.: (507) 387-2843
With a copy to Hinshaw & Culbertson
3100 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, MN 55402
Attention: L.J. Rotman, Esq.
Facsimile No.: (612) 334-8888
Confirmation No.: (612) 334-2675
If to Tenant: CWC Incorporated
1983 Premier Drive
P.O. Box 4459
Mankato, MN 56002-4459
Attention: Mr. Richard C. Lueck
Facsimile: (507) 388-0406
Confirmation No.: (507) 388-0636
With a copy to: Gray, Plant, Mooty, Mooty & Bennett, P.A.
3400 City Center
33 South Sixth Street
Minneapolis, MN 55402
Attention: Laura J. Schoenbauer, Esq.
Facsimile: (612) 333-0066
Confirmation No.: (612) 343-2947
Such addresses may be changed at any time or from time to time or additional
notice parties added, by notice as above provided.
13.9 WAIVERS. No waiver by Landlord of any provision of this Lease shall be
implied and, in order to be enforceable, all waivers by Landlord shall be in a
written
<PAGE> 28
instrument duly executed by Landlord. No waiver by Landlord of any provision of
this Lease shall be deemed a waiver of any other provision hereof or of any
subsequent breach by Tenant of the same or any other provision. Landlord's
consent to or approval of any act shall not be deemed to render unnecessary the
obtaining of Landlord's consent to or approval of any subsequent act by Tenant.
No payment by Tenant or receipt by Landlord of a lesser amount than the amount
then due shall be deemed to be other than on account of the earliest rent due,
nor shall any endorsement or statement on any check or any letter accompanying
any check or payment as payment be deemed an accord and satisfaction, and
Landlord shall accept such check or payment without prejudice to Landlord's
right to recover the balance of such payment or pursue any other remedy in this
Lease provided.
13.10 RECORDING. Tenant shall not record this Lease or any indicia hereof
in any public record.
13.11 HOLDING OVER. Tenant shall surrender the Premises upon the expiration
of the Lease Term or earlier termination of the Lease. Any holdover not
consented to by Landlord in writing shall not result in a new tenancy or
interest and, in such case, Landlord may treat Tenant as a trespasser. If Tenant
remains in possession of the Premises or any part thereof after the expiration
of the Lease Term or the earlier termination hereof without the express written
consent of Landlord, Tenant shall pay rent (for such holdover period) equal to
the amount of one hundred fifty percent (150%) of the amount of Rent and other
charges actually paid by Tenant under this Lease during the last full Lease
Year.
13.12 CUMULATIVE REMEDIES. Except as expressly provided herein, no remedy
or election hereunder shall be deemed exclusive but shall, wherever possible, be
cumulative with all other remedies at law or in equity or otherwise available to
Landlord.
13.13 COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Tenant shall be deemed both a covenant and a condition.
13.14 BINDING EFFECT. This Lease shall bind and inure to the benefit of
Landlord and Tenant and their respective permitted successors and assigns.
13.15 SUBORDINATION; ATTORNMENT AND NON-DISTURBANCE.
(a) This Lease, at the option of Landlord or any of its lenders,
shall be subordinate to any ground lease, mortgage or any other
hypothecation for security and any renewals, future advances,
modifications, consolidations, replacements and extensions thereof,
provided Tenant's rights hereunder continue to be recognized so long
as no Event of Default exists.
(b) Provided Tenant's rights hereunder continue to be recognized
so long as no Event of Default exists, Tenant shall execute any
documents required to effectuate such subordination or to make this
Lease prior to the lien of any mortgage, ground lease or other
security device, as the case may be.
<PAGE> 29
(c) In the event of (i) a sale, assignment, ground lease,
mortgage or other transfer of Landlord's interest in the Premises or
any portion thereof or in this Lease; or (ii) any proceedings brought
for the foreclosure of, the granting of a deed in lieu of foreclosure
of or the exercise of the power of sale under any mortgage or security
agreement made by Landlord covering the Premises or any portion
thereof, and provided that such mortgagee or other transferee shall
agree to recognize Tenant's rights hereunder so long as an Event of
Default has not occurred, Tenant shall attorn to the mortgagee or
other transferee and recognize such mortgagee or other transferee as
Landlord under this Lease.
(d) In the event Landlord desires to convey the Premises pursuant
to a sale/leaseback transaction, Tenant shall upon Landlord's request
agree to terminate this Lease and enter into a new lease upon the same
terms and conditions as set forth herein.
13.16 ATTORNEY'S FEES. If Landlord retains an attorney to enforce the terms
of or determine rights under this Lease, Landlord shall be entitled to recover
reasonable costs, attorneys' fees and expenses, including those incurred at the
appellate level. In the event that Landlord fails to fulfill its obligations
hereunder and Tenant commences an action against Landlord under Section 13.7(a)
hereof, the party prevailing in such action shall be entitled to its reasonable
attorneys' fees and expenses.
13.17 CORPORATE AUTHORITY. Each individual executing this Lease on behalf
of Tenant represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of Tenant, in accordance with a duly adopted
resolution, and that this Lease is binding upon Tenant in accordance with its
terms. Tenant shall, contemporaneous with the execution of this Lease, deliver
to Landlord a certified copy of a resolution of the Board of Directors of Tenant
authorizing or ratifying the execution and delivery of this Lease.
13.18 NO JOINT VENTURE. Landlord and Tenant, by entering into this Lease or
consummating the transactions contemplated hereby, shall not be considered
partners or joint venturers.
13.19 QUIET ENJOYMENT. Provided Tenant pays the Rent herein recited and
performs all of Tenant's other covenants and agreements herein contained,
Landlord covenants that Tenant shall peacefully have, hold and enjoy the
Premises, subject to all the other provisions herein contained.
13.20 MORTGAGE FINANCING. In the event Landlord desires to obtain mortgage
financing and Landlord's mortgagee or mortgagees reasonably request certain
modifications or amendments to this Lease, then Tenant, on not less than twenty
(20) days advance notice, agrees to execute such modifications or amendments as
required. Notwithstanding the foregoing, Tenant shall not be required to execute
any modifications or amendments to this Lease which shall modify the provisions
of this Lease relating to the amount of Rent or other charges or costs to be
paid by Tenant, Tenant's rights or
<PAGE> 30
obligations under the Lease, the size of the Premises, notice periods, notice
requirements, cure periods, the duration of the term of this Lease, or otherwise
subject Tenant to additional cost, expense, risk, liability or obligations.
Tenant agrees to cooperate with Landlord's efforts in obtaining said mortgage
financing provided there is no cost or expense to Tenant.
13.21 COUNTERPARTS. This Lease may be executed in any number of
counterparts, each of which shall be an original and all of which together shall
constitute and be construed as one and the same instrument.
13.22 BROKERS. Each party hereto does hereby indemnify and agree to hold
the other harmless from and against any and all claims, fees, commissions and
suits of any real estate broker or agent with respect to services claimed to
have been rendered at the request of or through or under such party in
connection with the execution of this Lease or the transactions set forth
herein.
13.23 FINANCIAL STATEMENTS. Tenant shall deliver to Landlord (a) within 120
days after the end of each calendar year annual audited operating statements for
Tenant and a copy of the balance sheet of Tenant as of the end of such year, and
related statements of income and retained earnings and changes in financial
position for such year, and (b) such other information as Landlord may from time
to time reasonably request. All financial statements of Tenant delivered to
Landlord shall be true and correct in all respects, shall be prepared in
accordance with GAAP, and fairly present the financial condition of the subject
thereof as of the dates thereof. None of the aforesaid financial statements, or
any certificate or statement furnished to Landlord by or on behalf of Tenant in
connection with the transactions contemplated hereby, shall contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements contained therein or herein not misleading. All financial
statements of Tenant delivered to Landlord under this Section shall be treated
confidentially by Landlord and its lenders and all parties that have access to
such information shall execute a confidentiality agreement in form and content
satisfactory to Tenant, in its sole discretion, prior to having access of such
information.
13.24 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Lease is or will be
made and delivered in the State and shall be governed by and construed and
interpreted in accordance with the laws of the United States of America and the
State, without regard to principles of conflict of laws. All judicial actions,
suits or proceedings brought by or against Landlord or Tenant with respect to
its rights, obligations, liabilities or any other matter under or arising out of
or in connection with this Lease or any transaction contemplated hereby or for
recognition or enforcement of any judgment rendered in any such proceedings
shall be brought in any state or federal court in the State. By execution and
delivery of this Lease, Landlord and Tenant accept, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts and
irrevocably agree to be bound by any final judgment rendered thereby in
connection with this Lease or any transaction contemplated hereby from which no
appeal has been taken or is available. Tenant and Landlord each hereby
irrevocably waive any objections, including without limitation any objection to
the laying of venue or based on the grounds of FORUM NON CONVENIENS, which
<PAGE> 31
either may now or hereafter have to the bringing of any such action or
proceeding in any such jurisdiction. Tenant and Landlord acknowledge that final
judgment against it in any action, suit or proceeding referred to in this
Section shall be conclusive and may be enforced in any other jurisdiction by
suit on the judgment, a certified or exemplified copy of which shall be
conclusive evidence of the same.
13.25 "AS IS" LEASE. Notwithstanding anything to the contrary herein
contained, Tenant expressly understands, acknowledges and agrees that the lease
of the Premises shall be made by Landlord to Tenant on an "as is, where is"
basis, and "with all faults," and Tenant acknowledges that Tenant has agreed to
lease the Premises in its present condition and that Tenant is relying solely on
its own examination and inspections of the Premises and not on any statements or
representations made by Landlord or any agents or representatives of Landlord.
Additionally, Tenant hereby acknowledges that, Landlord makes no warranty or
representation, express or implied, or arising by operation of law, including,
but in no way limited to, any warranty of condition, habitability,
merchantability, or fitness for a particular purpose of the Project, the
Premises or any portion thereof. Landlord hereby specifically disclaims any
warranty, guaranty or representation, oral or written, past, present or future,
of, as to, or concerning: (a) the nature and condition of the Project, the
Premises or any part thereof, including but not by way of limitation, as to its
water, soil or geology, or the suitability thereof, for any and all activities
and uses which Tenant may elect to conduct thereon, or any improvements Tenant
may elect to construct thereon, or any income to be derived therefrom or
expenses to be incurred with respect thereto, or any obligations or any other
matter or thing relating to or affecting the same; (b) the absence of any
Hazardous Substances on, in or under the Project on, in or under any land
adjacent to or abutting the Land; (c) the manner of construction or condition or
state of repair or lack of repair of the Project; (d) the nature or extent of
any easement, restrictive covenant, right-of-way, lease, possession, lien,
encumbrance, license, reservation, condition or other similar matter pertaining
to the Project, the Premises or any portion thereof; and (e) the compliance of
the Project, the Premises or the operation of the Project, the Premises or
portion thereof with any Legal Requirements.
13.26 THIRD PARTY BENEFICIARY. There are no third party beneficiaries of
this Lease, intended or otherwise.
13.27 TENANT PUT. Provided no Event of Default shall exist on the first
anniversary of the Commencement Date, Tenant shall have the right to elect to
terminate this Lease with respect to a portion of the Premises, the size of
which Tenant may specify, not to exceed fifty percent (50%) of the Premises
(exclusive of the Common Areas) with notice of its election, but, subject to the
conditions herein, the location of which Landlord shall specify. Provided no
Event of Default shall exist on the second anniversary of the Commencement Date,
Tenant shall have the right to elect to terminate this Lease with respect to a
portion of the Premises, the size of which Tenant may specify, not to exceed
fifty percent (50%) of the Premises (exclusive of the Common Areas) with notice
of its election, but, subject to the conditions herein, the location of which
Landlord shall specify. The applicable location specified by Landlord is
referred to herein as the "PUT PREMISES". In specifying the applicable Put
Premises under this Section, Landlord shall not include in
<PAGE> 32
the Put Premises that portion of the Premises that is cross-hatched in Exhibit
"D-2" attached hereto and shall consult with Tenant, shall act reasonably and in
good faith and shall endeavor to take into account concerns regarding
contiguity, leasehold improvements, Tenant's operational needs, a balance of
interior and exterior space and a balance of finished and unfinished space. In
specifying the Put Premises with respect to the second election by Tenant under
this Section, if any, Landlord may not specify any portion of the Improvements
which are not on, the date of such election, included within the Premises; shall
include the systems network room in the Put Premises and shall consult with
Tenant, shall act reasonably and in good faith and shall endeavor to take into
account concerns regarding contiguity, leasehold improvements, Tenant's
operational needs, a balance of interior and exterior space and a balance of
finished and unfinished space. In addition, if, at the time of the second
election, Tenant has not exercised the first election, the Put Premises shall
not include that portion of the Premises that is cross-hatched on Exhibit "D-2."
The first election under this Section, if made by Tenant, shall be delivered to
Landlord in writing prior to the first anniversary of the Commencement Date and
shall be effective on the second anniversary of the Commencement Date. The
second election under this Section, if made by Tenant shall be delivered to
Landlord in writing prior to the second anniversary of the Commencement Date and
shall be effective on the third anniversary of the Commencement Date. The
applicable effective date of an election under this Section is referred to
herein as the "PUT DATE". Such elections, once made by Tenant by the delivery of
notice, as aforesaid, shall be irrevocable. Such elections may only be made once
by Tenant and if such elections are not, or may not be, made, as aforesaid,
Tenant shall have no further rights under this Section. In the event Tenant does
not, or may not, make the first election under this Section, Tenant shall
continue to be entitled to make the second election under this Section. On or
before the applicable Put Date, Tenant shall remove itself from possession of
the applicable Put Premises and, with respect to such Put Premises, comply with
all other provisions of this Lease applicable upon the expiration of the Lease
Term. From and after the applicable Put Date, the term "Premises" shall mean the
Premises other than the applicable Put Premises. On the applicable Put Date,
Landlord shall adjust the amount of Base Rent to be paid by Tenant and Tenant's
Share to properly reflect the reduction in the size of the Premises by the size
of the applicable Put Premises. Following the applicable Put Date, Landlord
shall have the right, at its sole cost and expense, to enter the Premises for
purposes of constructing demising walls, doors, corridors and related work which
Landlord determines to be necessary to properly separate and divide the
applicable Put Premises.
13.28 TENANT TERMINATION. Provided no Event of Default shall exist on the
fourth anniversary of the Commencement Date, Tenant shall have the right to
elect to terminate this Lease. Such election, if made by Tenant, shall be
delivered to Landlord in writing prior to the fourth anniversary of the
Commencement Date and shall be effective on the fifth anniversary of the
Commencement Date. Such election, once made by Tenant by delivery of notice, as
aforesaid, shall be irrevocable. If such election is not, or may not be, made,
as aforesaid, Tenant shall have no further rights under this Section.
13.29 RECAPTURE. Upon not less than twelve (12) months notice to Tenant,
Landlord shall have the right to elect to recapture and terminate this Lease
with respect to all or any portion of the Premises cross-hatched on Exhibit
"D-1" attached hereto which
<PAGE> 33
Landlord may specify. Upon not less than 120 days notice to Tenant, Landlord
shall have the right to elect to recapture and terminate this Lease with respect
to all or any portion of the Premises cross-hatched on Exhibit "D-2" attached
hereto which Landlord may specify. At any time on or after the fourth
anniversary of the Commencement Date, upon not less than twelve (12) months
notice to Tenant, Landlord shall have the right to elect to recapture and
terminate this Lease with respect to all or any portion of the Premises
cross-hatched on Exhibit "D-3" attached hereto which Landlord may specify. Any
portion of the Premises which Landlord may specify for recapture under this
Section is referred to herein as the "RECAPTURED PREMISES". In the event that
the Recaptured Premises are less than the Premises, in specifying the Recaptured
Premises, Landlord shall consult with Tenant, shall act reasonably and in good
faith and shall endeavor to take into account concerns regarding contiguity,
leasehold improvements, Tenant's operational needs, a balance of interior and
exterior space and a balance of finished and unfinished space. Such election, if
made by Landlord, shall be delivered to Tenant in writing. Such election may be
made by Landlord from time to time and as often as Landlord shall determine. In
the event Landlord elects to recapture and terminate this Lease as provided in
this Section, such election shall be effective on the date specified by Landlord
(such effective date is referred to herein as a "RECAPTURE DATE"). On or before
the applicable Recapture Date, Tenant shall remove itself from possession of the
Recaptured Premises and, with respect to the Recaptured Premises, comply with
all other provisions of this Lease applicable upon the expiration of the Lease
Term. In the event that the Recaptured Premises are less than the Premises, from
and after the Recapture Date, the term "Premises" shall mean the Premises other
than the Recaptured Premises, on the applicable Recapture Date Landlord shall
adjust the amount of Base Rent to be paid by Tenant and Tenant's Share to
properly reflect the reduction in the size of the Premises by the size of the
Recaptured Premises and following the applicable Recapture Date, Landlord shall
have the right, at its sole cost and expense, to enter the Premises for purposes
of constructing demising walls, doors, corridors and related work which Landlord
determines to be necessary to properly separate and divide the Recaptured
Premises.
<PAGE> 34
IN WITNESS WHEREOF, Tenant and Landlord have executed this Lease as of the
date set forth above.
"LANDLORD"
PETRIE DEVELOPMENT CORP.,
a Minnesota corporation
By /s/ Susan M. Matzke
----------------------------
Its President
------------------------
"TENANT"
CWC INCORPORATED,
a Minnesota corporation
By /s/ Richard C. Lueck
----------------------------
Its VP Corporate Services
------------------------
<PAGE> 35
SCHEDULE "1"
DEFINITIONS
-----------
For purposes of this Lease, the following words and terms shall have the
following meanings ascribed to them:
(a) "ACCELERATED AMOUNT" shall have the meaning ascribed to such term in
Section 11.2(a) hereof.
(b) "ADDITIONAL RENT" shall mean all costs, expenses, charges and other amounts
owed by Tenant to Landlord hereunder, other than Base Rent. Additional Rent
shall include Tenant's Share of Impositions and Operating Expenses, as well
as any cost incurred by Landlord in fulfilling Tenant's obligations
hereunder. Additional Rent shall be due and payable on the earlier of the
date Landlord advances funds or demand, unless specifically provided to the
contrary in this Lease.
(c) "AWARD" shall have the meaning ascribed to such term in Section 10.1
hereof.
(d) "BANKRUPTCY CODE" shall mean the United States Bankruptcy Code, as amended.
(e) "BASE RENT" shall have the meaning ascribed to such term in Section 3.1
hereof.
(f) "COMMENCEMENT DATE" shall mean the date of this Lease.
(g) "COMMON AREAS" shall mean, to the extent applicable, all parking areas,
driveways, entrances, exits, loading docks, pick-up stations, sidewalks,
ramps, landscaped areas, exterior stairways, public elevators, escalators,
hallways, lobbies, and other areas and improvements provided by Landlord
for the common use of tenants of the Project, the guests, customers, and
employees of tenants of the Project, and all other portions of the Project
that are not leased to Tenant or other tenants of the Project or otherwise
leasable, including mechanical rooms and bathrooms available to more than
one tenant.
(h) "DEFAULT" shall mean an event which but for the giving of notice or passage
of time, or both, would constitute an Event of Default hereunder.
(i) "DEFAULT RATE" shall mean the annual rate of interest of fifteen percent
(15%), or such lesser amount as may be the maximum amount permitted by
applicable law. In the event that Rent is not paid when due, the amount of
Rent not so paid shall bear interest at the Default Rate from the date due
until the date paid.
(j) "ENVIRONMENTAL REGULATION(S)" means any law, rule, regulation or permit
relating to the environment, human health or safety now existing or
hereafter enacted.
(k) "EVENT OF DEFAULT" shall have the meaning ascribed to such term in Section
11.1 hereof .
<PAGE> 36
(l) "GAAP" shall mean generally accepted accounting principles as in effect in
the United States on the Commencement Date applied on a consistent basis.
(m) "GOVERNMENTAL AUTHORITY" means any federal, state, or local governmental
body including elected bodies, departments, agencies, commissions, boards
or instrumentalities having or purporting to have jurisdiction over
Landlord, Tenant, the Project, the Premises or the business conducted or to
be conducted from the Project or the Premises.
(n) "HAZARDOUS SUBSTANCES" means any substance, pollutant or contaminant, as
those terms are now or hereafter defined in any Environmental Regulation,
and specifically includes, but is not limited to, lead oxide, asbestos,
asbestos-containing materials, petroleum, or petroleum-based products,
formaldehyde, and polychlorinated biphenyls.
(o) "IMPOSITIONS" shall mean all real estate taxes of every kind and nature
imposed upon or assessed of or against Landlord with respect to the
Project, Tenant or any portion of the Project or interest therein, all
charges for any easement or agreement maintained for the benefit of any
portion of the Project, all installments of general and special assessments
(payable over the longest period allowed by the assessing authority),
levies, permits, inspection and license fees, all water and sewer rents and
charges and all other public charges, levies or taxes, whether of a like or
different nature, even if unforeseen or extraordinary, imposed upon or
assessed of or against Landlord with respect to the Project, Tenant or any
portion of the Project or interest therein, together with any penalties or
interest on any of the foregoing to the extent Tenant has not provided
Landlord with funds with respect to the payment of such taxes and charges
under Section 3.2(a) hereof.
(p) "IMPROVEMENTS" shall mean all buildings, structures and improvements now
located or hereafter constructed on the Land and all fixtures and equipment
attached to, forming a part of and necessary for the operation of such
buildings, structures and improvements.
(q) "INSURED CASUALTY" shall have the meaning ascribed to such term in Article
9 hereof.
(r) "LAND" shall mean that certain real property located in Blue Earth County,
Minnesota and legally described on EXHIBIT "A" attached hereto, together
with all easements and rights benefitting or appurtenant to such real
property.
(s) "LANDLORD" shall mean Galt Investments, L.L.C., a Nevada limited liability
company, and its successors and assigns.
(t) "LEASE" shall mean this Lease Agreement.
(u) "LEASE TERM" shall mean the period from the Commencement Date through and
including a date ten (10) years thereafter.
<PAGE> 37
(v) "LEASE YEAR" shall mean a full calendar year, provided that the first and
last Lease Years shall be determined in accordance with Section 2.5 hereof.
(w) "LEGAL REQUIREMENTS" shall mean all present and future laws, statutes,
codes, ordinances, orders, judgments, decrees, injunctions, agreements,
rules, regulations and requirements pertaining to the Project including any
applicable insurance, environmental, zoning or building, use and land use
laws, ordinances, rules or regulations and all covenants, restrictions and
conditions now or hereafter of record which may be applicable to any of the
Project, or to the use, manner of use, occupancy, possession, operation,
maintenance, alteration, construction, repair or reconstruction of any of
the Project.
(x) "OPERATING EXPENSES" shall mean all costs and expenses of owning,
operating, maintaining repairing, restoring and replacing all or any
portion of the Project. Operating Expenses shall include all costs and
expenses of protecting, operating, managing the Project (including
attorneys' and other professional fees, except those related to negotiation
or enforcement of leases), repairing, repaving, lighting, cleaning,
painting, striping, insuring, removing of snow, ice and debris, police
protection, security and security patrol, fire protection, regulating
traffic, inspecting, repairing and maintaining of machinery and equipment
used in the operation of the Common Areas, including heating, ventilating
and air conditioning machinery and equipment, depreciation of machinery and
equipment providing heating, ventilating and air conditioning for the
interior Common Areas, cost and expense of inspecting, maintaining,
repairing and replacing storm and sanitary drainage systems, sprinkler and
other fire protection systems, electrical, gas, water, telephone and
irrigation systems, cost and expense of repairing and replacing the Project
and the exterior of the buildings in the project, including, but not
limited to floors, roofs, skylights, elevators, walls, stairs and signs,
cost and expense of installing, maintaining and repairing burglar or fire
alarm systems, if installed, cost and expense of landscaping and shrubbery,
expense of utilities, reasonable property management costs. The following
shall not be included in Operating Expenses: (a) interest or payments on
any financing for the Project; (b) any expenses resulting from the gross
negligence of the Landlord, its agents or employees; (c) any items for
which Landlord is reimbursed by insurance; (d) the cost of providing
improvements within or services to or allowances for the benefit of the
premises and for the individual use of any other tenants in the Project at
any time, and any improvements to the common areas; (e) any other cost or
expense otherwise paid by Tenant under the Lease; (f) leasing commissions;
(g) fines and penalties incurred other than as a result of a Default; (h)
prior to the earlier to occur of a Put Date or a Recapture Date, property
management fees; (i) legal expenses incident to the enforcement by Landlord
of any terms of any lease; (j) compensation paid to any employee of
Landlord, other than compensation paid to employees of Landlord in
connection with the Project; (k) costs of travel, entertainment and
promotion; (l) any costs associated with dividing the Premises; and (m)
capital expenditures and other expenditures for improvements, except (a)
the amortized amount of those made to reduce operating expenses, provided
the savings achieved is the same as or greater than the amortized capital
expenditure, and (b) the amortized amount of
<PAGE> 38
those made to comply with governmental laws, or ordinances, regulations or
orders applicable to the Project.
(y) "PERMITTED USE" shall mean the use of the Premises as an office, warehouse
and light industrial facility in compliance with all Legal Requirements and
the terms and conditions of this Lease.
(z) "PREMISES" shall mean that portion of the Project depicted as such on
EXHIBIT "C" attached hereto, consisting of approximately 63,259 square
feet. Prior to the earlier to occur of a Put Date or a Recapture Date, the
Premises shall be deemed to include the Common Areas. As such, until such
date, the provisions of Sections 2.2 and 2.3 hereof shall have no force or
effect.
(aa) "PRESENT VALUE" shall have the meaning ascribed to such term in Section
11.2(f) hereof.
(bb) "PROHIBITED CASUALTY" shall have the meaning ascribed to such term in
Article 9 hereof.
(cc) "PROHIBITED TAKING" shall have the meaning ascribed to such term in Section
10.1 hereof.
(dd) "PROJECT" shall mean the collective reference to the Land and Improvements,
which are located at 1983 Premier Drive, Mankato, Minnesota consisting of
one building which contains approximately 63,259 square feet.
(ee) "PUT DATE" shall have the meaning ascribed to such term in Section 13.27
hereof.
(ff) "PUT PREMISES" shall have the meaning ascribed to such term in Section
13.27 hereof.
(gg) "RECAPTURE DATE" shall have the meaning ascribed to such term in Section
13.29 hereof.
(hh) "RECAPTURED PREMISES" shall have the meaning ascribed to such term in
Section 13.29 hereof.
(ii) "RELATED ENTITY" shall have the meaning ascribed to such term in Section
12.3 hereof.
(jj) "RENT" shall mean the sum of Base Rent and Additional Rent.
(kk) "RULES" shall mean those reasonable rules and regulations adopted for all
tenants within the Project from time to time by Landlord with respect to
the use and care of the Project.
(ll) "STATE" shall mean the State in which the Project is located.
<PAGE> 39
(mm) "TENANT" shall mean CWC Incorporated, a Minnesota corporation.
(nn) "TENANT'S SHARE" shall mean 100%, until the occurrence of a Put Date or
Recapture Date, at which time Tenant's share shall be reduced as provided
in Sections 13.27 or 13.29 hereof.
<PAGE> 40
EXHIBIT "A"
LEGAL DESCRIPTION OF LAND
-------------------------
<PAGE> 41
EXHIBIT "B"
BASE RENT
---------
Monthly Amount
Dates of Base Rent
----- ------------
[months 1-60] [$45,833.33]
[months 61-120] [$48,124.99]
<PAGE> 42
DEPICTION OF PREMISES
---------------------
[DIAGRAM]
<PAGE> 43
EXHIBIT D-1
-----------
[20% PROTECTED/12 MONTHS NOTICE]
--------------------------------
[DIAGRAM]
<PAGE> 44
EXHIBIT D-2
-----------
[55% UNPROTECTED/120 DAY NOTICE]
--------------------------------
[DIAGRAM]
+
-
<PAGE> 45
EXHIBIT D-3
-----------
[25% PROTECTED/12 MONTHS NOTICE AFTER 4 YEARS]
----------------------------------------------
[DIAGRAM]
<PAGE> 1
EXHIBIT 10.6
LEASE OF 890 WINTER STREET, WALTHAM, MASSACHUSETTS
BETWEEN
FIREPOND INC., AS TENANT
AND
890 WINTER STREET, L.L.C., AS LANDLORD
March 25, 1999
<PAGE> 2
LEASE OF
890 WINTER STREET
WALTHAM, MASSACHUSETTS
TABLE OF CONTENTS
PAGE
ARTICLE 1 BASIC LEASE PROVISIONS.....................................1
1.1 INTRODUCTION...............................................1
1.2 BASIC DATA.................................................1
1.3 ENUMERATION OF EXHIBITS....................................5
1.4 OTHER DEFINITIONS..........................................5
ARTICLE 2 PREMISES AND APPURTENANT RIGHTS............................6
2.1 LEASE OF PREMISES..........................................6
2.2 APPURTENANT RIGHTS AND RESERVATIONS........................6
ARTICLE 3 LEASE TERM, COMMENCEMENT DATE AND
BUILDING/PREMISES CONSTRUCTION.............................8
3.1 LEASE TERM.................................................8
3.2 COMPLETION OF THE BUILDING.................................8
3.3 PREPARATION OF THE PREMISES................................8
3.4 QUALITY AND PERFORMANCE OF WORK/CONCLUSIVENESS
OF LANDLORD'S PERFORMANCE..................................9
3.5 CONSTRUCTION REPRESENTATIVES...............................9
3.6 LANDLORD'S CONTRIBUTION...................................10
3.7 TENANT ENTRY..............................................10
ARTICLE 4 BASIC RENT/ADDITIONAL RENT................................10
4.1 PAYMENT...................................................10
ARTICLE 5 USE OF PREMISES...........................................11
5.1 PERMITTED USE.............................................11
5.2 INSTALLATIONS AND ALTERATIONS BY TENANT...................12
ARTICLE 6 ASSIGNMENT AND SUBLETTING.................................13
6.1 PROHIBITION...............................................14
6.2 CONSENT TO SUBLEASE.......................................15
6.3 EXCESS PAYMENTS...........................................16
6.4 TERMINATION...............................................17
-i-
<PAGE> 3
TABLE OF CONTENTS
(continued)
PAGE
6.5 MISCELLANEOUS.............................................17
6.6 ACCEPTANCE OF RENT........................................19
6.7 COMPETITORS OF BGS SYSTEMS, INC...........................19
ARTICLE 7 REPAIRS AND SERVICES......................................21
7.1 LANDLORD REPAIRS..........................................21
7.2 TENANT REPAIRS............................................21
7.3 FLOOR LOAD - HEAVY MACHINERY..............................22
7.4 BUILDING SERVICES.........................................23
7.5 ELECTRICITY...............................................25
7.6 SERVICES PRIOR TO COMMENCEMENT DATE.......................27
7.7 INTERRUPTION OF SERVICES..................................27
ARTICLE 8 REAL ESTATE TAXES.........................................27
8.1 DEFINITIONS...............................................27
8.2 TENANT'S SHARE OF TAXES...................................28
8.3 REFUND OF TAXES...........................................29
ARTICLE 9 OPERATING EXPENSES........................................30
9.1 DEFINITIONS...............................................30
9.2 EXCESS OPERATING EXPENSES.................................31
9.3 TENANT'S AUDIT RIGHTS.....................................32
ARTICLE 10 INDEMNITY AND INSURANCE...................................33
10.1 TENANT'S INDEMNITY........................................33
10.2 GENERAL LIABILITY INSURANCE...............................33
10.3 TENANT'S RISK.............................................34
10.4 CERTIFICATES OF INSURANCE.................................34
10.5 INJURY CAUSED BY THIRD PARTIES............................34
10.6 WAIVER OF SUBROGATION.....................................35
ARTICLE 11 LANDLORD'S ACCESS TO PREMISES.............................35
11.1 LANDLORD'S RIGHT OF ENTRY.................................35
11.2 LANDLORD'S RIGHT TO CHANGE ENTRIES, ETC...................36
11.3 EXCAVATION................................................36
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
PAGE
ARTICLE 12 FIRE, EMINENT DOMAIN, ETC.................................37
12.1 ABATEMENT OF RENT.........................................37
12.2 LANDLORD'S RIGHT OF TERMINATION...........................37
12.3 RESTORATION...............................................37
12.4 AWARD.....................................................38
12.5 LANDLORD'S INSURANCE......................................38
ARTICLE 13 DEFAULT...................................................38
13.1 TENANT'S DEFAULT..........................................38
13.2 LANDLORD'S DEFAULT........................................44
ARTICLE 14 MISCELLANEOUS PROVISIONS..................................44
14.1 EXTRA HAZARDOUS USE.......................................44
14.2 WAIVER....................................................44
14.3 COVENANT OF QUIET ENJOYMENT...............................44
14.4 LANDLORD'S LIABILITY......................................45
14.5 NOTICE TO MORTGAGEE OR GROUND LESSOR......................46
14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE.................46
14.7 RULES AND REGULATIONS.....................................47
14.8 ADDITIONAL CHARGES........................................47
14.9 INVALIDITY OF PARTICULAR PROVISIONS.......................47
14.10 PROVISIONS BINDING, ETC...................................47
14.11 RECORDING.................................................47
14.12 NOTICES...................................................47
14.13 WHEN LEASE BECOMES BINDING................................48
14.14 PARAGRAPH HEADINGS AND INTERPRETATION OF SECTIONS.........48
14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR......................48
14.16 STATUS REPORT, FINANCIAL STATEMENTS.......................49
14.17 SECURITY DEPOSIT..........................................49
14.18 REMEDYING DEFAULTS........................................51
14.19 HOLDING OVER..............................................51
14.20 SURRENDER OF PREMISES.....................................51
-iii-
<PAGE> 5
TABLE OF CONTENTS
(continued)
PAGE
14.21 BROKERAGE.................................................52
14.22 Y2K INDEMNIFICATION.......................................52
14.23 SIGNAGE...................................................52
14.24 GOVERNING LAW.............................................52
-iv-
<PAGE> 6
LEASE
THIS INSTRUMENT IS A LEASE, dated as of March 25, 1999, in which the
Landlord and the Tenant are the parties hereinafter named, and which relates to
space in a certain building (the "Building") known as, and with an address at,
890 Winter Street, Waltham, Massachusetts, being located in a multiple building
office park known as Waltham Woods Corporate Center (the "Complex"). The parties
to this instrument hereby agree with each other as follows:
ARTICLE 1
BASIC LEASE PROVISIONS
1.1 INTRODUCTION. The following set forth basic data and identifying
Exhibits elsewhere hereinafter referred to in this Lease, and, where
appropriate, constitute definitions of the terms hereinafter listed.
1.2 BASIC DATA.
Landlord: 890 Winter Street, L.L.C., a
Delaware limited liability company.
Landlord's Original Address: c/o Leggat McCall Properties LLC,
10 Post Office Square, Boston,
MA 02109.
Landlord's Construction
Representative: Leggat McCall Properties LLC,
880 Winter Street, Waltham, MA.
Tenant: FirePond Inc., a Minnesota
corporation.
Tenant's Original Address: 8009 South 34th Avenue, Suite 1000,
10th Floor, Bloomington,
Minnesota 55425
Tenant's Construction
Representative: Trimbach Interior Design, Inc.,
200 Park Avenue South, Suite 1508,
New York, NY 10003
Premises: A portion of the third floor of the
Building as shown on EXHIBIT A
annexed hereto.
Premises Rentable Area: Agreed to be 29,534 square feet
located on the third floor of the
Building, as measured in accordance
with the Measurement Method.
Basic Rent: (i) (a) From the Commencement Date
through June 30, 2000, $982,005.50
($33.25 per square foot of Premises
Rentable Area) per annum;
<PAGE> 7
(b) From July 1, 2000 through
June 30, 2001, $996,772.50 ($33.75
per square foot of Premises Rentable
Area) per annum;
(c) From July 1, 2001 through
June 30, 2002, $1,011,539.50 ($34.25
per square foot of Premises Rentable
Area) per annum;
(d) From July 1, 2002 through
June 30, 2003, $1,026,306.50 ($34.75
per square foot of Premises Rentable
Area) per annum;
(e) From July 1, 2003 through
June 30, 2004, $1,041,073.50 ($35.25
per square foot of Premises Rentable
Area) per annum; and
(f) From July 1, 2004 through
December 31, 2004, $1,041,073.50
($35.25 per square foot of Premises
Rentable Area) per annum, as the
same may be adjusted and/or abated
pursuant to Section 12.1 hereof.
Estimated Electricity Payment: $25,103.90 (eighty-five cents
($0.85) per square foot of Premises
Rentable Area) per annum as a
payment toward the actual cost of
providing electricity to the
Premises, as the same may be
adjusted and/or abated pursuant to
Sections 7.5 and 12. 1.
Additional Rent: The Estimated Electricity Payment
and all other charges and sums
payable by Tenant as set forth in
this Lease, other than and in
addition to Basic Rent.
Lease Term: As defined in Section 3. 1.
Lease Year: A twelve (12) month period
commencing on the Commencement Date
and each successive twelve (12)
month period thereafter during the
Lease Term, except the last Lease
Year shall be the period commencing
July 1, 2004 through the end of the
Lease Term.
Security Deposit: An irrevocable Letter of Credit, as
defined in and subject to the
provisions of Section 14.17, in the
amount noted below.
-2-
<PAGE> 8
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
SECURITY DEPOSIT SECURITY DEPOSIT
AMOUNT REQUIRED IF AMOUNT REQUIRED IF
TOTAL AUDITED NET TOTAL AUDITED NET
EARNINGS ARE EARNINGS ARE
POSITIVE FOR NEGATIVE FOR
PREVIOUS FOUR FISCAL PREVIOUS FOUR FISCAL
QUARTERS BEGINNING QUARTERS BEGINNING
JULY 1, 1998 AND JULY 1, 1998 AND
LEASE YEAR ENDING JUNE 30, 1999 ENDING JUNE 30, 1999
- ----------------------------------------------------------------------------------------------------------------
<C> <C> <C>
1. July 1, 1999-June 30, 2000 $400,000 $550,000
- ----------------------------------------------------------------------------------------------------------------
2. July 1, 2000-June 30, 2001 $300,000 $450,000
- ----------------------------------------------------------------------------------------------------------------
3. July 1, 2001-June 30, 2002 $200,000 $400,000
- ----------------------------------------------------------------------------------------------------------------
4. July 1, 2002-June 30, 2003 $150,000 $300,000
- ----------------------------------------------------------------------------------------------------------------
5. July 1, 2003-December 31, 2003 $100,000 $250,000
- ----------------------------------------------------------------------------------------------------------------
6. January 1, 2004 - None $200,000
December 31, 2004
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Brokers: CB Richard Ellis/Whittier Partners
and Leggat McCall Properties LLC.
Agent: Leggat McCall Properties LLC, 880
Winter Street, Waltham, MA, Attn:
Property Manager, or such other
person or entity from time to time
designated by Landlord.
Building Rentable Area: Agreed to be 173,070 square feet, as
measured in accordance with the
Measurement Method.
Business Days: All days except Saturday, Sunday,
New Year's Day, Martin Luther King
Day, President's Day, Memorial Day,
Independence Day, Labor Day,
Columbus Day, Veterans Day,
Thanksgiving Day, and Christmas Day
(and the following day when any such
day occurs on Sunday).
Commencement Date: As defined in Section 3.1.
Default of Tenant: As defined in Section 13.1.
Force Majeure: Collectively and individually,
strikes or other labor trouble, fire
or other casualty, acts of God,
governmental preemption of
priorities or other controls in
connection
-3-
<PAGE> 9
with a national or other public
emergency or shortages of fuel,
supplies or labor resulting
therefrom, or any other cause,
whether similar or dissimilar,
beyond Landlord's reasonable
control.
Initial General Liability
Insurance: $3,000,000 per occurrence/
$5,000,000 aggregate (combined
single limit) for property damage,
bodily injury or death.
Measurement Method: "Standard Method for Measuring Floor
Area in Office Buildings,"
(Reprinted August 1990, American
National Standard ANSI Z65.1-1980)
(Reaffirmed 1989), (Approved June
21, 1989 by American National
Standards Institute, Inc.) prepared
for the Building Owners and Managers
Associations International.
Landlord's Contribution: An amount equal to $856,486 ($29.00
per square foot of Premises Rentable
Area).
Operating Year: As defined in Section 9.1.
Operating Expenses: As defined in Section 9.1.
Base Operating Expenses: Operating Expenses incurred for the
calendar year ending December 31,
1999, adjusted to 95% occupancy, and
as more particularly defined in
Section 9.1.
Building Operating Expenses: As defined in Section 9.1.
Common Site Operating Expenses: As defined in Section 9. 1.
Permitted Uses: General offices of the type
generally found in first-class
office buildings in the suburban
Boston area, subject to the
provisions of Section 5.1(a).
Site: The land area shown on the Site Plan
annexed as EXHIBIT B hereto,
including the properties known as
880 Winter Street and 890 Winter
Street.
Tax Year: As defined in Section 8.1.
Taxes: As defined in Section 8.1.
Base Taxes: The actual Taxes for the Tax Year
commencing on July 1, 2000 and
ending on June 30, 2001 (and, to the
extent the Building has not been
substantially leased when such
actual Taxes are determined,
adjusted as though the Building had
been substantially leased at such
time), as such may have been abated
pursuant to Section 8.3, if at all,
multiplied by 0.95.
-4-
<PAGE> 10
Tax Expenses: As defined in Section 8.1.
Tax Parcel or Property: The Building and the land parcel(s)
on which the Building is located.
Tenant's Proportionate Share: As defined in Section 9.1.
Tenant's Removable Property: As defined in Section 5.2(b).
Building Standard: Materials of at least as good
quality as Landlord has elected at
the time of execution of this Lease
to use as part of its standard
construction substantially
throughout the Building, as such are
more particularly described in
EXHIBIT J hereto.
1.3 ENUMERATION OF EXHIBITS. The following Exhibits are a part of this
Lease, are incorporated herein by reference attached hereto, and are to
be treated as a part of this Lease for all purposes. Undertakings
contained in such Exhibits are agreements on the part of Landlord and
Tenant, as the case may be, to perform the obligations stated therein.
Exhibit A - Floor Plan of Premises
Exhibit B - Site Plan
Exhibit C - Tenant's Work Letter
Exhibit D - Plan Approval Agreement
Exhibit E - Operating Expenses
Exhibit F - Rules and Regulations
Exhibit G - Contractor's Insurance
Exhibit H - Subordination, Non-Disturbance and Attornment Agreement
Exhibit I - Base Building Condition
Exhibit J - Building Standard Materials
Exhibit K - Cleaning Specifications
Exhibit L - HVAC Building Design Criteria
Exhibit M - Competitors of BGS Systems, Inc.
1.4 OTHER DEFINITIONS. The following additional terms, whenever used in
this Lease (unless the context requires otherwise), shall have the
respective meanings specified in the Sections of this Lease set forth
below after such terms;
<TABLE>
<S> <C>
Adequate Assurance............................................Section 13.1(c)
Adequate Assurance of Future Performance ....................Section 13.1(d) and Section 13.1(f)
Affiliate.....................................................Section 6.7
Alterations...................................................Section 5.2
Bankruptcy Code...............................................Section 13.2
Base Building Work............................................Section 3.3
BGS...........................................................Section 6.7
BMC...........................................................Section 6.7
</TABLE>
-5-
<PAGE> 11
<TABLE>
<S> <C>
Business Hours................................................Section 7.4(a)
Commencement Date.............................................Section 3.1
Default of Tenant.............................................Section 13.1(b)
Estimated Electricity Payment.................................Section 1.2
Essential Services............................................Section 7.7
Event of Bankruptcy...........................................Section 13.1
Issuing Bank..................................................Section 14.17(2)
Landlord's Contribution.......................................Exhibit C
Non-Renewal Notice............................................Section 14.17(2)
Notice Day....................................................Exhibit C
Overtime Service..............................................Section 7.4(a)
Permitted Minor Alterations...................................Section 5.2(a)
Plans.........................................................Section 3.2(a)
Requisition...................................................Exhibit C
Restriction Confirmation Request..............................Section 6.7
RFO...........................................................Section 6.7
RFO Acceptance................................................Section 6.7
RFO Notice....................................................Section 6.7
Rules and Regulations.........................................Section 14.7
Substantially damaged.........................................Section 12.2
Taxes.........................................................Section 8.1(a)
Tax Excess....................................................Section 8.2
Tax Expenses..................................................Section 8.1(c)
Tax Year......................................................Section 8.1(b)
Tenant's Removable Property...................................Section 5.2(b)
Tenant's Work.................................................Exhibit C
Tenant's Work Rules...........................................Exhibit C
Tenant's Dumpster Location....................................Exhibit C
Untenantable Conditions.......................................Section 7.7
Untenantable Premises.........................................Section 7.7
Year 2000 Compliant...........................................Section 14.22
Year 2000 Problems............................................Section 14.22
</TABLE>
ARTICLE 2
PREMISES AND APPURTENANT RIGHTS
2.1 LEASE OF PREMISES. Landlord hereby demises and leases to Tenant, and
Tenant hereby accepts from Landlord, the Premises depicted in the floor
plan(s) annexed hereto as EXHIBIT A, for the Lease Term and upon and
subject to the terms and conditions hereinafter set forth.
2.2 APPURTENANT RIGHTS AND RESERVATIONS. (a) Tenant shall have, as
appurtenant to the Premises, the non-exclusive right to use, and permit
its invitees to use in common with others, public or common lobbies,
hallways, stairways, elevators and the loading platform of the Building
and common roadways, driveways and walkways necessary for access to the
Building, and if the portion of the Premises on any floor
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includes less than the entire floor, the common toilets, corridors and
elevator lobby of such floor; but such rights shall always be subject
to the Rules and Regulations from time to time established by Landlord
pursuant to Section 14.7 and to the right of Landlord to designate and
change from time to time areas and facilities so to be used.
(b) Excepted and excluded from the Premises are the ceiling,
floor, perimeter walls and exterior windows (except the inner surface
of each thereof), and any space in the Premises used for shafts,
stacks, pipes, conduits, fan rooms, ducts, electric or other utilities,
sinks or other Building facilities, but the entry doors (and related
glass and finish work) to the Premises are a part thereof, provided
that Tenant shall have the right to use the vertical penetrations of
the Building for its piping, conduits, sleeving and cabling with the
Landlord's prior written consent, such consent not to be unreasonably
withheld if such use by Tenant will not adversely affect (i) the
Landlord's utilization of such penetrations for the delivery of
services required to be provided by Landlord to any tenants of the
Building or (ii) the structural integrity of the Building. Landlord
shall have the right to place in the Premises interior storm windows,
sun control devices, utility lines, equipment, stacks, pipes, conduits,
ducts and the like, provided the same are concealed behind any then
existing walls and/or ceilings of the Premises or are installed in such
manner so as to reduce to a minimum interference with Tenant's use of
the Premises. In the event that Tenant shall install any hung ceilings
or walls in the Premises, Tenant shall install and maintain, as
Landlord may require, proper access panels therein to afford access to
any facilities above the ceiling or within or behind the walls.
(c) Tenant shall also have the right (subject to the Rules and
Regulations established pursuant to Section 14.7) to use without charge
therefor during the initial Lease Term (i) on an exclusive, reserved
basis, seventeen (17) parking spaces in the basement level of the
Building, provided, however, that Landlord shall not be obligated to
monitor the use of such parking spaces or enforce Tenant's exclusive
use against unauthorized users thereof (except that if Landlord is so
requested by Tenant, Landlord shall cooperate in all reasonable
respects and at Tenant's expense with Tenant's efforts to enforce
Tenant's exclusive use of such parking spaces against unauthorized
users thereof), and (ii) on a non-exclusive, unreserved basis and in
common with use by other tenants of the Complex, parking spaces in the
parking areas located on the lots on which the Building is situated in
an amount, which when aggregated with the parking spaces reserved in
(i) above, shall equal no more than 3.3 parking spaces per 1,000 square
feet of Premises Rentable Area. Landlord covenants that the other
tenants of the Building shall not be permitted to use, on an aggregate
basis, more than 3.3 parking spaces per 1,000 square feet of Building
Rentable Area on the parking areas located on the lots on which the
Building is situated. Landlord shall install and maintain, at Tenant's
expense, Building Standard signage identifying Tenant's reserved
parking spaces in the basement level of the Building. Landlord
acknowledges that Tenant shall have the right to monitor the use of
Tenant's reserved parking spaces in the basement level of the Building
and to enforce reasonably Tenant's exclusive use against unauthorized
users thereof, provided that Tenant shall provide
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Landlord with prompt, reasonably detailed written notice of any
enforcement measures Tenant has employed or will employ against
unauthorized users. The parking privileges granted herein are
non-transferable except to an assignee or subtenant permitted pursuant
to Article 6. Further, Landlord assumes no responsibility whatsoever
for loss or damage due to fire, theft or otherwise to any automobile(s)
parked in the Building or on the lots on which the Building is located
or to any personal property therein, and Tenant covenants and agrees,
upon request from Landlord from time to time, to notify its officers,
employees, agents and invitees of such limitation of liability. Tenant
acknowledges and agrees that a license only is hereby granted, and no
bailment is intended or shall be created.
ARTICLE 3
LEASE TERM, COMMENCEMENT DATE AND BUILDING/PREMISES CONSTRUCTION
3.1 LEASE TERM. The Lease Term and the estate hereby granted shall commence
on July 1, 1999 (the "Commencement Date") and shall expire and end on
December 31, 2004, or on such earlier date upon which the Lease Term
may expire or be terminated pursuant to any of the conditions or other
provisions of this Lease or pursuant to law.
3.2 COMPLETION OF THE BUILDING. On or before the Commencement Date, the
following conditions shall have been satisfied by Landlord:
(a) Reasonable means of access to the Premises and parking
areas on the lots on which the Building is located sufficient to
provide Tenant with its permitted parking in accordance with Section
2.2(c) hereof shall exist and those facilities reasonably necessary for
Tenant's occupancy of the Premises, including, without limitation, an
entrance lobby, elevators (which need not consist of all of the
elevators in the bank which serves the Premises), toilets, plumbing,
water, lighting and electrical power facilities shall have been
installed and shall be in reasonably good working order and be
available to Tenant, but excluding the amenities described in Section
7.4(b)(vi) and (vii); and
(b) The heating, ventilating and air conditioning systems
reasonably necessary for Tenant's occupancy of the Premises and the
common areas shall have been installed and shall be in reasonably good
operating order and capable of providing the applicable services in
accordance with the specifications set forth in EXHIBIT L hereto,
subject to reasonable periods of adjustment and balancing required with
respect thereto.
3.3 PREPARATION OF THE PREMISES. Except for the work to be performed by
Landlord as expressly set forth and described in EXHIBIT I hereto
("Base Building Work"), the Premises shall be delivered to and accepted
by Tenant "as is," in their then state of construction, finish and
decoration, without any additional obligation on the part of Landlord
to prepare or construct the Premises for Tenant's occupancy. Tenant
acknowledges that the Premises are to be delivered in so-called "shell"
condition and substantial work must be performed by Tenant before the
Premises can be occupied by
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Tenant for the conduct of its business. All of such work necessary to
prepare the Premises for Tenant's occupancy shall be performed by
Tenant in accordance with the provisions of EXHIBIT C hereto including
the obligation to obtain an amendment to the certificate of occupancy
for the Building allowing occupancy and use of the Premises. Landlord
shall cooperate with Tenant in its application for any certificate of
occupancy including prompt execution of any necessary applications
therefor or filings in connection therewith requested reasonably by
Tenant. Notwithstanding the foregoing, Section 5.2(a) of this Lease and
the provisions of this Lease setting forth Tenant's insurance
obligations (i.e., Sections 10.2 and 10.3) shall not apply during the
performance of Tenant's Work and such matters shall, during such time,
be governed by the applicable provisions of EXHIBIT C hereto.
3.4 QUALITY AND PERFORMANCE OF WORK/CONCLUSIVENESS OF LANDLORD'S
PERFORMANCE. All construction work required or permitted by this Lease
shall be done in a good and workmanlike manner with Building Standard
materials, or, if not applicable, new, first-class materials, in a
lien-free manner and in compliance with all applicable laws and
requirements of public authorities and insurance bodies related to, or
arising out of the performance of, such construction work. Each party
may inspect the work of the other at reasonable times, and the
Construction Representative of each party shall promptly give notice of
any approvals and other actions on the party's behalf required to be
given in connection with design and construction. Except to the extent
to which Tenant shall have given Landlord notice, not later than the
end of the second full calendar month of the Lease Term next beginning
after the Commencement Date, of specific respects in which Landlord has
not performed the Base Building Work, Tenant shall be deemed
conclusively to have approved all such work and shall have no claim
that Landlord has failed to perform or has improperly performed any of
the Base Building Work, except for latent defects in such work not
reasonably capable of discovery by Tenant by the end of such second
full calendar month, and except as expressly provided herein, the
Premises will be leased in their condition on the Commencement Date AS
IS WITHOUT REPRESENTATION OR WARRANTY by Landlord. Notwithstanding the
foregoing, Landlord hereby represents and warrants to Tenant that: (i)
the Base Building Work will be undertaken in accordance with all
applicable laws, codes and ordinances, including without limitation the
Americans With Disabilities Act of 1990, (ii) Landlord has not received
from any governmental agency having jurisdiction any written notice to
the effect that the Premises are in violation of any applicable law,
code or ordinance, which violation remains outstanding as of the date
hereof, (iii) on the Commencement Date, and (iv) the Base Building Work
will comply with the Americans With Disabilities Act of 1990 on the
Commencement Date, no hazardous substances, hazardous materials, PCB's
or friable and accessible asbestos containing materials will be present
in the Premises or Building which would require remediation under
applicable law. To the extent that Tenant will be responsible for
maintenance and/or repair of any item of work included in the Base
Building Work, then Landlord shall use reasonable efforts to obtain
from Landlord's contractor a warranty for the benefit of Tenant
covering such items.
3.5 CONSTRUCTION REPRESENTATIVES. Any action or failure to act by
Landlord's Construction Representative or by Tenant's Construction
Representative shall be deemed
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to be the action or failure to act of Landlord or Tenant, as the case
may be, solely in respect to construction matters in connection with
the performance of the Base Building Work and Tenant's Work. Landlord
and Tenant each shall have the right to change their respective
Construction Representatives by notice in accordance with Section 14.12
hereof, except that, where Tenant seeks to change its Construction
Representative, Tenant shall consult with Landlord in the selection of
any substitute Tenant's Construction Representative and shall provide
to Landlord a list of at least three (3) parties from which Tenant
intends to select a substitute Tenant's Construction Representative.
Landlord shall have the right to object to any person or party
identified on such list and, in such case, shall specify in writing to
Tenant the grounds for such objection. Notwithstanding anything to the
contrary herein contained, if Landlord shall object to all persons or
parties identified on such list, the grounds for each such objection
must be reasonable. Tenant shall have the right to substitute for
Tenant's Construction Representative any party identified on such list
who is not objected to by Landlord (in the manner provided above)
within five (5) Business Days of submission of such list to Landlord.
3.6 LANDLORD'S CONTRIBUTION. Landlord agrees to pay to Tenant, as a
contribution towards Tenant's Work "Landlord's Contribution" as
provided in, and subject to the provisions of, EXHIBIT C hereto. If
Landlord shall default in the payment of any portion of Landlord's
Contribution, Tenant shall be entitled to offset such amount against
the Basic Rent next payable under this Lease.
3.7 TENANT ENTRY. Subject to the provisions of EXHIBIT C, commencing on the
date hereof, Landlord shall permit Tenant to enter the Premises for the
purpose of performing Tenant's Work, when in Landlord's judgment the
same can be done without any interference with Landlord's performance
of the remaining Base Building Work. Any such entry shall be at
Tenant's sole risk and Landlord shall not be responsible for any damage
or loss to property or installations placed in the Premises by Tenant
prior to the Commencement Date. In addition, in no event shall Tenant
make use of any labor in the Building or otherwise suffer or permit any
action to be taken which would result in labor difficulties or
otherwise delay the performance by Landlord of its remaining work.
Prior to performing any of Tenant's Work, Tenant shall provide Landlord
with proof of insurance in accordance with EXHIBIT C hereto.
ARTICLE 4
BASIC RENT/ADDITIONAL RENT
4.1 PAYMENT. (a) Tenant agrees to pay to Landlord, or as directed by
Landlord, commencing on the Commencement Date without offset, abatement
(except as provided in Section 7.7 or Section 12.1), deduction or
demand, the Basic Rent and Additional Rent. Basic Rent shall be payable
in equal monthly installments, in advance, on the first day of each and
every calendar month during the Lease Term, at Landlord's Original
Address, or at such other place as Landlord shall from time to time
designate by notice, in lawful money of the United States. In the event
that (i) any installment of Basic Rent or Additional Rent is not paid
within five (5) days of the date when due, or (ii) Tenant fails to pay
any installment of Basic Rent or Additional Rent on the date when due
and such failure shall occur more than twice in any calendar year, then
Tenant shall pay, in an
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addition to any charges under Section 14.18, at Landlord's request an
administrative fee equal to three percent (3%) of the overdue payment.
Landlord and Tenant agree that all amounts due from Tenant under or in
respect of this Lease, whether labeled Basic Rent, Additional Rent or
otherwise, shall be considered as rental reserved under this Lease for
all purposes, including without limitation regulations promulgated
pursuant to the Bankruptcy Code, and including further without
limitation, Section 502(b) thereof.
(b) Basic Rent for any partial month shall be pro-rated on a
daily basis, and if the first day on which Tenant must pay Basic Rent
shall be other than the first day of a calendar month, the first
payment which Tenant shall make to Landlord shall be equal to a
proportionate part of the monthly installment of Basic Rent for the
partial month from the first day on which Tenant must pay Basic Rent to
the last day of the month in which such day occurs, plus the
installment of Basic Rent for the succeeding calendar month.
ARTICLE 5
USE OF PREMISES
5.1 PERMITTED USE. (a) Tenant agrees that the Premises shall be used and
occupied by Tenant only for Permitted Uses specifically excluding,
without limitation, use for medical, dental, governmental, utility
company or employment agency offices. Tenant shall not use, or suffer
or permit the use of, or suffer or permit anything to be done in or
anything to be brought into or kept in or about the Premises or the
Building or any part thereof (a) which would violate any of the
provisions of this Lease, (b) for any unlawful purposes or in any
unlawful manner, (c) which is not normally found in first-class office
buildings in the greater Boston area, or (d) which, in the reasonable
judgment of Landlord, shall in any way (i) impair or tend to impair the
appearance or reputation of the Building or the Complex or (ii) impair
or interfere with or tend to impair or interfere with any of the
Building services or the proper and economic heating, ventilation,
cleaning, air conditioning or other servicing of the Building or
Premises, or with the use of any of the other areas of the Building, or
occasion discomfort, inconvenience or annoyance to, any of the other
tenants or occupants of the Building or the Complex.
(b) Tenant agrees to conform to the following provisions
during the Lease Term of this Lease:
(i) Tenant shall cause all freight to be delivered to or
removed from the Building and the Premises in
accordance with reasonable rules and regulations
established by Landlord therefor;
(ii) Tenant will not place on the exterior of the Premises
(including both interior and exterior surfaces of
doors and interior surfaces of windows) or on any
part of the Building outside the Premises, any signs,
symbol, advertisement or the like visible to public
view outside of the Premises. Landlord will not
withhold consent for signs, corporate logos or
lettering on the entry doors to the Premises provided
such signs conform to building standards
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adopted by Landlord in its sole discretion and Tenant
has submitted to Landlord a plan or sketch in
reasonable detail (showing, without limitation, size,
color, location, materials and method of affixation)
of the sign to be placed on such entry doors.
Landlord agrees, however, to maintain, at its expense
and in accordance with building standards adopted by
Landlord in its sole discretion, a tenant directory
in the lobby of the Building (and, in the case of
multi-tenant floors, in that floor's elevator lobby)
in which will be placed Tenant's name and the
location of the Premises in the Building;
(iii) Tenant shall not perform any act or carry on any
practice which may injure the Premises, or any other
part of the Building, or cause any offensive odors or
loud noise or constitute a nuisance or a menace to
any other tenant or tenants or other persons in the
Building;
(iv) Tenant shall, in its use of the Premises, comply with
the requirements of all applicable governmental laws,
rules and regulations, including without limitation
the Americans With Disabilities Act of 1990; and
(v) Tenant shall continuously throughout the Lease Term
occupy the Premises for Permitted Uses.
5.2 INSTALLATIONS AND ALTERATIONS BY TENANT. (a) Tenant shall make no
alterations, additions (including, for the purposes hereof,
wall-to-wall carpeting), or improvements (collectively, "Alterations")
after the completion of Tenant's Work in or to the Premises without
Landlord's prior written consent. Notwithstanding the foregoing, with
respect to non-structural Alterations that do not affect the Building's
electrical, plumbing or mechanical systems, (i) Landlord's consent
shall not be required if the cost of such Alterations is less than
$10,000 per individual instance and, when aggregated with the cost of
all other Alterations performed by Tenant over the preceding one year
period, is less than $30,000, so long as Tenant notifies Landlord in
writing at least three (3) Business Days prior to commencing any such
Alterations as to the nature, scope and estimated cost of such
Alterations ("PERMITTED MINOR ALTERATIONS"); and (ii) Landlord's prior
written consent shall not be unreasonably withheld or delayed if the
cost of such Alterations is $10,000 or more per individual instance or
if, when aggregated with the cost of all other Alterations performed by
Tenant over the preceding one year period, is $30,000 or more. All
Alterations shall be solely at Tenant's expense. Tenant shall indemnify
Landlord from any costs or expenses resulting from Tenant's
implementation of the Permitted Minor Alterations. Any Alterations,
additions or improvements shall be in accordance with complete plans
and specifications meeting the requirements set forth in the Rules and
Regulations from time to time in effect and approved in advance by
Landlord. Landlord shall approve or disapprove of Tenant's proposed
Alterations within ten (10) Business Days of Landlord's receipt of such
complete plans and specifications and the other required deliveries and
information from Tenant set forth in the Rules and
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Regulations. Landlord shall inform Tenant, at the time of its approval
of any Alterations, whether Landlord will require such Alterations to
be removed by Tenant upon the expiration or earlier termination of the
Lease. Such Alterations work shall (i) be performed in a good and
workmanlike manner and in compliance with all applicable laws, (ii) be
made at Tenant's sole cost and expense and at such times and in such a
manner as Landlord may from time to time designate, (iii) be made only
in accordance with the Rules and Regulations from time to time in
effect with respect thereto, and (iv) become part of the Premises and
the property of Landlord. If any Alterations shall involve the removal
of fixtures, equipment or other property in the Premises which are not
Tenant's Removable Property, such fixtures, equipment or property shall
be promptly replaced by Tenant at its expense with new fixtures,
equipment or property of like utility and of at least equal quality.
The provisions of this Section 5.2(a) shall not apply to Tenant's Work,
the performance of which shall be governed by EXHIBIT C hereto and the
other provisions of this Lease, subject to the last sentence of Section
3.3 and Section 7.6 of this Lease.
(b) All articles of personal property and all business
fixtures, machinery and equipment and furniture owned or installed by
Tenant solely at its expense in the Premises ('Tenant's Removable
Property") shall remain the property of Tenant and may be removed by
Tenant at any time prior to the expiration of this Lease, provided that
Tenant, at its expense, shall repair any damage to the Building caused
by such removal. Tenant shall remove, at its sole expense, on the
expiration or earlier termination of this Lease, all cabling installed
at the Premises pursuant to the Plans.
(c) Notice is hereby given that Landlord shall not be liable
for any labor or materials furnished or to be furnished to Tenant upon
credit, and that no mechanic's or other lien for any such labor or
materials shall attach to or affect the reversion or other estate or
interest of Landlord in and to the Premises. To the maximum extent
permitted by law, before such time as any contractor commences to
perform work on behalf of Tenant, such contractor (and any
subcontractors) shall furnish a written statement acknowledging the
provisions set forth in the prior clause. Whenever and as often as any
mechanic's lien shall have been filed against the Building or all or
any part of the Site based upon any act or interest of Tenant or of
anyone claiming through Tenant, Tenant shall forthwith take such action
by bonding, deposit or payment as will remove or satisfy the lien.
(d) In the course of any work being performed by Tenant
(including without limitation the "field installation" of any Tenant's
Removable Property), Tenant agrees to use labor compatible with that
being employed by landlords for work in or to the Building or other
buildings in the Complex and not to employ or permit the use of any
labor or otherwise take any action which might result in a labor
dispute involving personnel providing services in the Building pursuant
to arrangements made by Landlord.
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ARTICLE 6
ASSIGNMENT AND SUBLETTING
6.1 PROHIBITION. (a) Except as expressly permitted in this Article 6,
Tenant covenants and agrees that, whether voluntarily, involuntarily,
by operation of law or otherwise, neither this Lease nor the Lease Term
and estate hereby granted, nor any interest herein or therein, will be
assigned, mortgaged, pledged, encumbered or otherwise transferred, and
that neither the Premises nor any part thereof will be encumbered in
any manner by reason of any act or omission on the part of Tenant, or
used or occupied or permitted to be used or occupied by anyone other
than Tenant, or for any use or purpose other than a Permitted Use, or
be sublet (which term, without limitation, shall include granting of
concessions, licenses and the like) in whole or in part, or be offered
or advertised for assignment or subletting. Without limiting the
foregoing, any agreement pursuant to which: (y) Tenant is relieved from
the obligation to pay, or a third party agrees to pay on Tenant's
behalf, all or any portion of Basic Rent or Additional Rent due under
this Lease; and/or (z) a third party undertakes or is granted the right
to assign or attempt to assign this Lease or sublet or attempt to
sublet all or any portion of the Premises shall for all purposes hereof
be deemed to be an assignment of this Lease and subject to the
provisions of this Article 6. The provisions of this Section 6.1(a)
shall apply to a transfer (by one or more transfers) of a majority of
the stock or partnership interests or other evidences of ownership of
Tenant as if such transfer were an assignment of this Lease. If there
is an initial public offering of the stock of the Tenant or if Tenant
at any time is or becomes a publicly traded company, the transfer of
less than a majority of the stock of Tenant on a public stock exchange
shall not be deemed an assignment within the meaning of this Article 6.
The merger or consolidation of Tenant into or with any other entity, or
the sale of all or substantially all of its assets, shall be deemed to
be an assignment within the meaning of this Article 6.
(b) Anything in Section 6.1(a) to the contrary
notwithstanding, transactions with an entity (i) into or with which
Tenant is merged or consolidated, (ii) to which substantially all of
Tenant's assets are transferred as a going concern, or (iii) which
controls or is controlled by Tenant or is under common control with
Tenant, shall not be deemed to be an assignment or subletting within
the meaning of this Article 6, provided that in any of such events:
(i) the successor to Tenant has a net worth computed in
accordance with generally accepted accounting
principles consistently applied at least equal to the
net worth of Tenant herein named on the date of this
Lease,
(ii) proof satisfactory to Landlord of such net worth
shall have been delivered to Landlord prior to the
effective date of any such transaction,
(iii) the assignee or subtenant agrees directly with
Landlord, by written instrument in form satisfactory
to Landlord, to be bound by all the obligations of
Tenant hereunder including, without limitation, the
covenant against further assignment and subletting,
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(iv) in no event shall Tenant (or the entity into which
Tenant is merged or consolidated under clause (i)
above) be released from its obligations under this
Lease, and
(v) any such transfer or transaction is for a legitimate,
regular business purpose of Tenant other than a
transfer of Tenant's interest in this Lease.
(c) If, in violation of this Article 6, this Lease be
assigned, or if the Premises or any part thereof be sublet or occupied
by anyone other than Tenant, Landlord may, at any time and from time to
time, collect rent and other charges from the assignee, subtenant or
occupant, and apply the net amount collected to the rent and other
charges herein reserved, but no such assignment, subletting, occupancy,
collection or modification of any provisions of this Lease shall be
deemed a waiver of this covenant, or the acceptance of the assignee,
subtenant or occupant as a tenant, or a release of Tenant from the
further performance by Tenant of all the terms, conditions and
covenants on the part of Tenant to be performed hereunder. Any consent
by Landlord to a particular subletting or occupancy shall not in any
way diminish the prohibition stated in paragraph (a) of this Section
6.1 or the continuing liability of the original named Tenant. No
assignment shall be binding on Landlord unless such assignee or Tenant
shall deliver to Landlord a duplicate original of the instrument of
assignment which contains a covenant of assumption by the assignee of
all of the obligations aforesaid and shall obtain from Landlord the
aforesaid written consent, prior thereto. No assignment or subletting
hereunder shall relieve Tenant from its obligations hereunder and
Tenant shall remain fully and primarily liable therefor. No such
assignment, subletting, or occupancy shall affect or be contrary to
Permitted Uses. Any consent by Landlord to a particular assignment,
subletting or occupancy shall be revocable, and any assignment,
subletting or occupancy shall be void ab initio if the same shall fail
to require that such assignee, subtenant or occupant agree therein to
be independently bound by and upon all of the covenants, agreements,
terms, provisions and conditions set forth in this Lease on the part of
Tenant to be kept and performed.
6.2 CONSENT TO SUBLEASE.
Notwithstanding the prohibition set forth in Section 6.1(a), but
subject to Section 6.7, the following provisions shall govern Tenant's
subletting of the Premises:
Landlord shall not unreasonably withhold its consent to one or more
sublettings requested by Tenant, provided further that:
(i) The business of each proposed subtenant and its use
of the Premises shall be consistent with the
Permitted Uses, including the specific exclusions
therefrom set forth in Section 5.1 hereof;
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(ii) In the reasonable judgment of Landlord the proposed
subtenant is of a character and financial condition
such as is in keeping with the standards of Landlord
in those respects for the Building and the Complex;
(iii) Neither the proposed subtenant, nor any person or
entity who directly or indirectly controls, is
controlled by, or is under common control with, the
proposed subtenant or any person who controls the
proposed subtenant, shall be (A) a government entity
(or subdivision or agency thereof), or (B) a person
or entity which is negotiating (or which has, in the
last twelve (12) months, negotiated) with Landlord
for the rental of any space in the Site, provided
Landlord has available, or will have available within
six (6) months from the effective date of the
proposed sublease, in Landlord's Buildings at the
Site, compatible space in size to the space proposed
to be sublet (compatible space being defined as plus
or minus ten percent (10%) of the space proposed to
be sublet);
(iv) The form of the proposed sublease shall be reasonably
satisfactory to Landlord and shall comply with the
applicable provisions of this Article 6;
(v) No proposed sublease for which the sublet space shall
be physically segregated shall cover less than 3,000
square feet of Premises Rentable Area and Tenant
shall, upon Landlord's request, remove such physical
segregation prior to the expiration of the Lease
Term;
(vi) Not later than thirty (30) days prior to the proposed
commencement of such sublease, Landlord shall have
received information reasonably sufficient to
determine compliance with the foregoing conditions;
and
(vii) in no event shall Tenant be released from its
obligations under this Lease.
Moreover, notwithstanding any such sublease which may be permitted hereunder or
consented to by Landlord, Tenant shall in all cases remain fully and primarily
liable hereunder.
6.3 EXCESS PAYMENTS. In the event that Tenant shall enter into one or more
subleases pursuant to Section 6.2, if the rent and other sums
(including without limitation the fair value of any services provided
by such subtenant for Tenant) on account of any such sublease exceed
the Basic Rent and Additional Rent allocable to that portion of the
Premises subject to such sublease, plus actual out-of-pocket third
party expenses reasonably incurred by Tenant in connection with such
sublease (such expenses to be pro-rated evenly over the term of such
sublease), including, without limitation,
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reasonable brokerage commissions actually paid to a licensed broker,
reasonable attorneys' fees and commercially reasonable tenant
improvements, Tenant shall pay to Landlord, as an additional charge,
fifty percent (50%) of such excess, such amount to be paid monthly with
payments by Tenant of Basic Rent hereunder.
6.4 TERMINATION. Notwithstanding any other provision of this Article 6 to
the contrary, if and at each such time as Tenant shall intend to enter
into any sublease, the term of which sublease is for seventy-five
percent (75%) or more of the then remaining initial Lease Term, then
Tenant shall give Landlord notice of such intent not earlier than
ninety (90), and not later than sixty (60), days prior to the effective
date of such proposed sublease, and Landlord may then elect to
terminate this Lease only with respect to that portion of the Premises
proposed to be covered by such sublease by giving notice to Tenant of
such election not later than forty-five (45) days after receipt of
Tenant's notice and, upon the giving of such notice by Landlord, this
Lease shall terminate with respect to such portion sixty (60) days
after the giving of such notice by Landlord with the same force and
effect as if such date were the date originally set forth herein as the
expiration date hereof. If Landlord shall elect to terminate this Lease
with respect to any portion of the Premises as hereinabove provided,
then from and after the effective date of such termination, the
definitions of Basic Rent, Premises Rentable Area, and Tenant's
Proportionate Share shall be adjusted to reflect that portion of the
Premises that remains subject to this Lease after such termination.
6.5 MISCELLANEOUS. (a) Any sublease consented to by Landlord shall be
expressly subject and subordinate to all of the covenants, agreements,
terms, provisions and conditions contained in this Lease. Any proposed
sub-sublease or proposed assignment of a sublease shall be subject to
the provisions of this Article 6. Tenant shall reimburse Landlord on
demand, as an additional charge, for any reasonable costs (including
reasonable attorneys' fees and expenses) incurred by Landlord in
connection with any actual or proposed assignment or sublease, whether
or not consummated, including the costs of making investigations as to
the acceptability of the proposed assignee or subtenant, except Tenant
shall not be obligated to so reimburse Landlord in the event Landlord
elects to recapture Tenant's space with respect to such proposed
assignment or sublease as provided in Section 6.4. Any sublease to
which Landlord gives its consent shall not be valid or binding on
Landlord unless and until Tenant and the sublessee execute a consent
agreement in form and substance satisfactory to Landlord.
(b) Notwithstanding any sublease, or any amendments or
modifications subsequent thereto, Tenant will remain fully liable for
the payment of Basic Rent, Additional Rent and other charges and for
the performance of all other obligations of Tenant contained in this
Lease, except as such obligations may be affected by Landlord's
recapture of a portion of Tenant's space pursuant to Section 6.4. Any
act or omission of any subtenant, or of anyone claiming under or
through any subtenant, that violates any of the obligations of this
Lease shall be deemed a violation of this Lease by Tenant.
(c) The consent by Landlord to any sublease shall not relieve
Tenant or any person claiming through or under Tenant of the
obligations to obtain the
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consent of Landlord, pursuant to the provisions of this Article 6, to
any subsequent sublease.
(d) With respect to each and every sublease authorized by
Landlord under the provisions of this Article 6, it is further agreed
that any such sublease shall provide that: (i) the term of the sublease
must end no later than one day before the last day of the Lease Term of
this Lease; (ii) no sublease shall be valid, and no subtenant shall
take possession of all or any part of the Premises until a fully
executed counterpart of such sublease has been delivered to Landlord;
(iii) each sublease shall provide that it is subject and subordinate to
this Lease; (iv) Landlord may enforce the provisions of the sublease,
including collection of rents; (v) in the event of termination of this
Lease or reentry or repossession of the Premises by Landlord, Landlord
may, at its option, take over all of the right, title and interest of
Tenant, as sublessor, under such sublease, and such subtenant shall, at
Landlord's option, attorn to Landlord but nevertheless Landlord shall
not (A) be liable for any previous act or omission of Tenant under such
sublease; (B) be subject to any defense or offset previously accrued in
favor of the subtenant against Tenant; or (C) be bound by any previous
modification of such sublease made without Landlord's written consent
or by any previous prepayment of more than one month's rent.
(e) If Landlord shall rightfully fail or refuse to give its
consent to any proposed assignment or sublease, and such failure to
consent is not in violation of the terms and provisions of this Lease,
Tenant shall indemnify and hold harmless Landlord from and against any
and all loss, liability, costs and expenses (including, without
limitation, reasonable attorneys' fees) asserted against, imposed upon
or incurred by Landlord by reason of any claims made against Landlord
by the proposed assignee or sublessee or by any brokers, finders or
other persons for commissions or other compensation in connection with
the proposed assignment or sublease.
(f) If Landlord grants its consent to an assignment or
sublease and such assignment or sublease does not become effective for
any reason for ninety (90) days after the granting of such consent, or
if such assignment or sublease is modified or amended prior to its
becoming effective, then and in either such event, Landlord's consent
shall be deemed to have been withdrawn and Tenant shall not have the
right to assign this Lease or to sublease all or any portion of the
Premises without once again complying with the provisions and
conditions of this Article 6. In no event shall Tenant agree to modify
or amend any sublease to which Landlord has consented without
Landlord's prior written consent.
(g) Except as expressly provided in Section 6.4 hereof, the
joint and several liability of Tenant and any assignee or successor of
Tenant under this Lease shall not be discharged, released or impaired
in any respect by any agreement or stipulation made by Landlord
modifying any of the obligations contained in this Lease, or by any
waiver or failure by Landlord to enforce any of the obligations of this
Lease. but in no event shall Tenant's continued liability
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exceed what its continuing liability would have been had the Lease not
been modified except for those modifications, if any, which were
consented to by Tenant.
(h) The listing of any name other than Tenant on the door of
the Premises, on the Building directory or otherwise, shall not operate
to vest any right or interest in this Lease or in the Premises in any
other person or entity, nor shall such listing be deemed to be the
consent of Landlord to any assignment or transfer of this Lease or to
any sublease of the Premises or any portion thereof or the use or
occupancy of the Premises or any portion thereof by others.
6.6 ACCEPTANCE OF RENT. If this Lease is assigned, whether or not in
violation of the provisions of this Lease, Landlord may collect rent
from the assignee. If all or any part of the Premises are sublet,
whether or not in violation of this Lease, Landlord may, after default
by Tenant and expiration of Tenant's time to cure such default, collect
rent from the subtenant. In either event, Landlord may apply the net
amount collected to payment of Basic Rent and Additional Rent, but no
such assignment, subletting, or collection shall be deemed a waiver of
any of the provisions of this Article 6, an acceptance of the assignee
or subtenant as a lessee, or a release of Tenant from the performance
by Tenant of Tenant's obligations under this Lease.
6.7 COMPETITORS OF BGS SYSTEMS, INC. Notwithstanding anything to the
contrary herein, for so long as BGS Systems, Inc. ("BGS") or an
Affiliate is in actual occupancy of at least 75% of its Premises
Rentable Area in the Complex, Tenant shall not assign the Lease or
sublet all or any portion of its Premises Rentable Area to a Competitor
of BGS listed on EXHIBIT M attached hereto, subject, however, in all
respects to the succeeding provisions of this Section 6. The foregoing
restriction shall not apply to Tenant subletting all or a portion of
its Premises Rentable Area or assigning this Lease to a Competitor if,
pursuant to the terms of this Lease, Tenant has satisfied all
conditions precedent set forth in this Lease to an assignment of the
Lease or a subletting of all or any portion of the Premises Rentable
Area including, without limiting any of the other provisions set forth
in the Lease to Tenant's right to assign this Lease or sublet the
Premises Rentable Area, the obligation to first offer an assignment of
this Lease or the Premises Rentable Area proposed to be sublet by
Tenant to BMC Software, Inc. ("BMC"), an Affiliate of BGS, in the
following fashion. Such right of first offer ("RFO") shall be
implemented by Tenant giving notice (the "RFO Notice") to BMC at the
address and in the manner specified below. A copy of such RFO Notice
shall be delivered to Landlord at its notice address provided in
Section 14.12 of this Lease. The RFO Notice shall specify the bona fide
economic and other principal terms on which Tenant intends to assign
this Lease or sublet all or any portion of the Premises Rentable Area
to a Competitor listed on EXHIBIT M hereto, accompanied by Tenant's
written proposal made to such Competitor. If, not later than midnight
of the second (2nd) Business Day following receipt by BMC of the RFO
Notice, Tenant has not received a written notice from BMC electing to
accept Tenant's transaction terms set forth in the RFO Notice, then the
RFO shall be of no further force or effect and Tenant may undertake to
assign the Lease or sublet the Premises Rentable Area at any time
thereafter to such Competitor without again complying with the RFO
provisions herein set forth. If, however, (i) BMC
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timely elects in writing to accept the transaction terms set forth in
the RFO Notice (the "RFO Acceptance"), and (ii) within twenty (20)
Business Days after receipt by Tenant of the RFO Acceptance, Tenant and
BGS or BMC, as the case may be, fail to execute and deliver documents
in consummation of the terms specified in the RFO Notice for any reason
whatsoever or no reason, then, in such event, the RFO shall be of no
further force and effect and Tenant may undertake to assign this Lease
or sublet the Premises Rentable Area at any time thereafter to such
Competitor without again complying with the RFO provisions herein set
forth.
The foregoing restriction shall not apply (i) if, as noted above, BGS
or its Affiliates are not in actual occupancy of at least 75% of its Premises
Rentable Area in the Complex; (ii) to Affiliates of a Competitor; (iii) to a
Competitor if, after a merger or consolidation by a Competitor with another
entity, or a sale, lease, license or other disposition by a Competitor of all or
substantially all of its assets to another entity, whether in one transaction or
series of transactions, such Competitor is not a surviving entity; or (iv) if,
after a merger or consolidation by BMC with another entity, or a sale, lease,
license or other disposition by BMC of all or substantially all of its assets to
another entity, whether in one transaction or a series of transactions, BMC is
not the surviving entity.
For so long as the restriction prohibiting Tenant from leasing space in
the Complex to a Competitor listed in EXHIBIT M hereto is in force and
applicable, Tenant shall have the right, at any time and from time during the
Lease Term, to request in writing of Landlord and BMC a determination as to
whether the foregoing restriction remains in force and applicable (a
"Restriction Confirmation Request"). Within thirty (30) calendar days after
receipt of Tenant's Restriction Confirmation Request, Landlord or BMC shall
notify Tenant as to whether the restriction set forth in EXHIBIT M hereto
remains in force and applicable. Landlord's and BMC's failure to respond to any
Restriction Confirmation Request (if the same shall continue for an additional
thirty (30) calendar days after receipt of a second notice of a Restriction
Confirmation Request, which second notice shall state that Landlord and BMC have
failed to respond within the period required under this Section 6.7 of the Lease
and continued failure to respond shall be deemed a Landlord confirmation that
such restriction is no longer in force and applicable) shall constitute
Landlord's and BMC's affirmation, acknowledgment and consent that, for the
balance of the Lease Term, the leasing restriction set forth in this Section 6.7
of the Lease shall no longer be applicable.
For purposes of this Section 6.7 only, an "Affiliate" means (i) any
entity directly or indirectly controlling, controlled by or under common control
with such entity; (ii) any entity owning or controlling ten percent (10%) or
more of the outstanding voting interests of such entity; or (iii) any entity of
which such entity owns or controls ten percent (10%) or more of the voting
interests.
Tenant's RFO Notice to BMC shall be in writing and shall be sent by
registered or certified mail, postage prepaid, return receipt requested or by a
nationally recognized overnight courier service (next Business Day delivery) to
BMC at 2101 City West Boulevard, Houston, Texas 77042 ATTN: Manager of Corporate
Real Estate with a copy to the Landlord at the address set forth in Section
14.12 hereof (or at such other address or addresses as may from time to time
hereafter be designated by Landlord or BMC by like notice).
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Such notices shall be given, and shall be deemed to have been given and
received, when so hand delivered (against a signed receipt) or three (3) days
after such deposit of such notice by certified or registered mail, or one (1)
day after such deposit of such notice with a nationally recognized overnight
courier; and in the case of failure to deliver by reason of changed address of
which no notice was given or refusal to accept a delivery, such notice shall be
deemed to have been given and received as of the date of such failure as
indicated on the return receipt or by notice of the post office department or
such nationally recognized courier.
ARTICLE 7
REPAIRS AND SERVICES
7.1 LANDLORD REPAIRS. (a) Except as otherwise provided in this Lease,
Landlord agrees to keep in good order, condition and repair the roof,
the exterior and load bearing walls (including exterior glass), the
foundation, the structural floor slabs and other structural elements of
the Building, the common facilities of the Building (including all
plumbing, mechanical, electrical and other Building systems and
equipment installed by Landlord and servicing the Premises, but
specifically excluding any supplemental or accessory heating,
ventilation or air conditioning equipment or systems and
telecommunications/computer systems and equipment exclusively servicing
the Premises installed at Tenant's request or as a result of Tenant's
requirements in excess of Building Standard design criteria), all
insofar as they affect the Premises, except that Landlord shall in no
event be responsible to Tenant for the repair of glass in the Premises,
the doors (or related glass and finish work) leading to the Premises,
or any condition in the Premises or the Building caused by any act or
neglect of Tenant, its agents, employees, assignees, subtenants,
invitees or contractors. Landlord shall not be responsible to make any
improvements or repairs to the Building other than as expressly in this
Section 7.1 provided, unless expressly provided otherwise in this
Lease. All of said repairs and any restorations or replacements
required in connection therewith shall be of a quality and class at
least equal to the original work and installations and shall be done in
good and workmanlike manner.
(b) Landlord shall never be liable for any failure to make
repairs which Landlord has undertaken to make under the provisions of
this Section 7.1 or elsewhere in this Lease unless Tenant has given
notice to Landlord of the need to make such repairs, and Landlord has
failed to commence to make such repairs within a reasonable time after
receipt of such notice, or fails to proceed with reasonable diligence
to complete such repairs.
7.2 TENANT REPAIRS. (a) Except as expressly provided in Section 7.1, Tenant
covenants and agrees that, from and after the date that the possession
of the Premises is delivered to Tenant and until the end of the Lease
Term, Tenant, at its expense, will keep neat and clean and maintain in
good order, condition and repair the Premises and every part thereof,
and will make all required repairs thereto and/or replacements of
portions thereof, excepting only those repairs for which Landlord is
responsible under the terms of this Lease, reasonable wear and tear of
the Premises, and damage by fire or other casualty or as a consequence
of the exercise of the power of eminent domain; and shall surrender the
Premises, at the end of the Lease Term, in such condition. Without
limitation, Tenant
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shall continually during the Lease Term maintain the Premises in
accordance with all laws, codes and ordinances from time to time in
effect and all directions, rules and regulations of the proper officers
of governmental agencies having jurisdiction, and the standards
recommended by the Boston Board of Fire Underwriters, and shall, at
Tenant's expense, obtain all permits, licenses and the like required by
applicable law. To the extent that the Premises constitute a "Place of
Public Accommodation" within the meaning of the Americans With
Disabilities Act of 1990, Tenant shall be responsible, subject to the
requirements of Section 5.2, for making the Premises comply with such
Act. Tenant shall not permit or commit any waste, and, notwithstanding
the foregoing or the provisions of Article 12, Tenant shall be
responsible for the cost of repairs and replacements to the Premises,
the Building and the facilities of the Building, whether ordinary or
extraordinary or structural or nonstructural, when necessitated by
Tenant, or its subtenant or assignee, moving property in or out of the
Building or installation or removal of furniture, fixtures or other
property or by the performance by Tenant, or its subtenant or assignee,
of any Alterations or other work in the Premises, or when necessitated
by the failure to exercise reasonable care by, or misuse, neglect or
improper conduct of, Tenant, its assignee or subtenant, or its or their
agents, employees, contractors or invitees (including any damage by
fire or other casualty arising therefrom, except to the extent that the
Landlord recovers insurance loss proceeds from its casualty insurer
without loss of continuing policy protection and from which insurer a
waiver of subrogation has been obtained in accordance with Section 10.6
hereof) and, if the premium or rates payable with respect to any policy
or policies of insurance purchased by Landlord or Agent with respect to
the Building increases as a result of payment by the insurer of any
claim arising from any act or neglect of Tenant, its assignee,
subtenant, contractors or invitees, Tenant shall pay such increase,
from time to time, within fifteen (15) days after demand therefor by
Landlord, as Additional Rent. All of said repairs and any restorations
or replacements required in connection therewith shall be of a quality
and class at least equal to the original work and installations and
shall be done in a good and workmanlike manner.
(b) If repairs or replacements are required to be made by
Tenant pursuant to the terms hereof, Landlord may demand that Tenant
make the same forthwith, and if Tenant refuses or neglects to commence
such repairs or replacements within ten (10) days after such demand and
complete the same with reasonable dispatch thereafter (except in the
case of an emergency, in which event Landlord may make such repairs
immediately), Landlord may (but shall not be required to do so) make or
cause such repairs or replacements to be made (the provisions of
Section 14.18 being applicable to the costs thereof), and shall not be
responsible to Tenant for any loss or damage whatsoever that may accrue
to Tenant's stock or business by reason thereof.
7.3 FLOOR LOAD - HEAVY MACHINERY. (a) Tenant shall not place a load upon
any floor in the Premises exceeding the floor load per square foot of
area which such floor was designed to carry and which is allowed by
law. Landlord reserves the right to prescribe the weight and position
of all business machines and mechanical equipment, including safes,
which shall be placed so as to distribute the weight. Business machines
and mechanical equipment shall be placed and maintained by Tenant at
Tenant's expense in settings sufficient, in Landlord's judgment, to
absorb and prevent vibration, noise and
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annoyance. Tenant shall not move any safe, heavy machinery, heavy
equipment, freight, bulky matter or fixtures into or out of the
Building or place a load upon any stairwell, elevator or common area
exceeding the floor load per square foot of area which such area was
designed to carry without Landlord's prior consent, which consent may
include a requirement to provide insurance, naming Landlord as an
insured, in such amounts as Landlord may deem reasonable.
(b) If any such safe, machinery, equipment, freight, bulky
matter or fixtures requires special handling, Tenant agrees to employ
only persons holding a Master Rigger's License to do such work, and
that all work in connection therewith shall comply with applicable laws
and regulations. Any such moving shall be at the sole risk and hazard
of Tenant, and Tenant will exonerate, indemnify and save Landlord
harmless against and from any liability, loss, injury, claim or suit
resulting directly or indirectly from such moving.
7.4 BUILDING SERVICES. (a) Landlord shall, on Business Days from 8:00 a.m.
to 6:00 p.m. and on Saturdays from 9 a.m. to 1:00 p.m. ("Business
Hours"), furnish heating and cooling as normal seasonal changes may
require to provide reasonably comfortable space temperature and
ventilation for occupants of the Premises under normal business
operation at an occupancy of not more than one person per 150 square
feet of Premises Rentable Area and an electrical load not exceeding 8.0
watts per square foot of Premises Rentable Area. Such systems shall be
designed to meet the specifications set forth in EXHIBIT L hereto. If
Tenant shall require air conditioning, heating or ventilation outside
the hours and days above specified ("Overtime Service"), Landlord shall
furnish such Overtime Service and Tenant shall pay therefor such
charges as may from time to time be in effect. In the event Tenant
introduces into the Premises personnel or equipment which overloads the
capacity of the Building system or in any other way interferes with the
system's ability to perform adequately its proper functions,
supplementary systems may, if and as needed, at Landlord's option, be
provided by Landlord, at Tenant's expense.
(b) Landlord shall also provide:
(i) Passenger elevator service in common with Landlord
and other tenants in the Building.
(ii) Warm water for lavatory purposes and cold water (at
temperatures supplied by the municipality in which
the Building is located) for drinking, lavatory and
cleaning purposes. If Tenant uses water for any
purpose other than for ordinary lavatory and drinking
purposes, Landlord may assess a reasonable charge for
the additional water so used, or install a water
meter and thereby measure Tenant's water consumption
for all purposes. In the latter event, Tenant shall
pay the cost of the meter and the cost of
installation thereof and shall keep such meter and
installation equipment in good working order and
repair. Tenant agrees to pay for water consumed, as
shown on such meter, together with the sewer charge
based on such meter charges, as and when bills are
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rendered, and in default in making such payment
Landlord may pay such charges and collect the same
from Tenant as Additional Rent.
(iii) Cleaning and janitorial services to the Premises on
Business Days, provided the same are kept in order by
Tenant, substantially in accordance with the cleaning
standards for the Building described in EXHIBIT K
hereto.
(iv) Free access to the Premises on Business Days during
Business Hours, and at all other times via a card key
access system, subject to security precautions from
time to time in effect, and subject always to
restrictions based on emergency conditions. Landlord
shall cooperate with Tenant, at Tenant's sole cost,
to coordinate acceptable systems for security at
Tenant's Premises which are compatible with
Landlord's existing security systems.
(v) Snow and ice removal to the walks, driveways and
parking areas which Tenant is entitled to use under
this Lease, and landscaping of surrounding grounds.
(vi) Within sixty (60) days of the Commencement Date, a
food service facility at the Building, to be operated
by a third party vendor, which will offer at the
breakfast and lunch hours on Business Days, a
reasonable range of hot and cold food selections for
purchase by Tenant, its employees and invitees.
(vii) Within sixty (60) days of the Commencement Date, and
subject to security precautions from time to time in
effect, to restrictions based on emergency conditions
and to reasonable rules and regulations in effect
from time to time, free access to (a) the health and
fitness facility and showers and locker rooms
attendant thereto via a card key access system, and
(b) the shared-use conference center on Business Days
and during Business Hours, but subject to reservation
availability. Landlord reserves the right to charge a
reasonable fee for the Tenant's use of the shared-use
conference center.
(viii) Routine operation and maintenance of the walks,
driveways and parking areas which Tenant is entitled
to use under the Lease and reasonably appropriate
lighting of the parking areas.
(c) Landlord or Agent may from time to time, but shall not be
obligated to, provide one or more uniformed attendants in or about the
lobby of the Building. Unless Landlord expressly agrees otherwise in
writing, such attendant(s) shall serve functions such as assisting
visitors and invitees of tenants and others in the Building, monitoring
fire control and alarm equipment, and
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summoning emergency services to the Building as and when needed. Tenant
expressly acknowledges and agrees that: (i) such attendants shall not
serve as police officers, and will be unarmed, and will not be trained
in situations involving potentially physical confrontation; and (ii) if
provided, such attendants will be provided solely as an amenity to
tenants of the Building for the sole purposes set forth above, and not
for the purpose of securing any individual tenant premises or
guaranteeing the physical safety of Tenant's Premises or of Tenant's
employees, agents, contractors or invitees. If and to the extent that
Tenant desires to provide security for the Premises or for such persons
or their property, Tenant shall be responsible for so doing, after
having first consulted with Landlord and after obtaining Landlord's
consent, which shall not be unreasonably withheld. Landlord expressly
disclaims any and all responsibility and/or liability for the physical
safety of Tenant's property, and for that of Tenant's employees,
agents, contractors and invitees, and, without in any way limiting the
operation of Article 10 hereof, Tenant, for itself and its agents,
contractors, invitees and employees, hereby expressly waives any claim,
action, cause of action or other right which may accrue or arise as a
result of any damage or injury to the person or property of Tenant or
any such agent, invitee, contractor or employee, except to the extent
that the same arises from the negligent act or omission of Landlord or
its agents, employees or contractors. Tenant agrees that, as between
Landlord and Tenant, it is Tenant's responsibility to advise its
employees, agents, contractors and invitees as to necessary and
appropriate safety precautions.
7.5 ELECTRICITY. (a) Landlord shall supply electricity to the Premises to
meet a demand requirement not to exceed 8.0 watts per square foot of
Premises Rentable Area for standard single-phase 120 volt alternating
current and Tenant agrees in its use of the Premises (i) not to exceed
such requirements and (ii) that its total connected lighting load will
not exceed the maximum from time to time permitted under applicable
governmental regulations. If, without in any way derogating from the
foregoing limitation, Tenant shall require electricity in excess of the
requirements set forth above, Tenant shall notify Landlord and Landlord
may (without being obligated to do so) supply such additional service
or equipment at Tenant's sole cost and expense. Landlord shall purchase
and install, at Tenant's expense, all lamps, tubes, bulbs, starters and
ballasts. In order to assure that the foregoing requirements are not
exceeded and to avert possible adverse affect on the Building's
electric system, Tenant shall not, without Landlord's prior consent,
connect any fixtures, appliances or equipment to the Building's
electric distribution system other than personal computers, facsimile
transceivers, typewriters, pencil sharpeners, adding machines,
photocopiers, word and data processors, clocks, radios, hand-held or
desk top calculators, dictaphones, desktop computers and other similar
small electrical equipment normally found in business offices and not
drawing more than 15 amps at 120/208 volts.
(b) Tenant acknowledges that Basic Rent does not include the
cost of providing convenience electricity to the Premises. As elsewhere
provided, Tenant shall pay the Estimated Electricity Payment to
Landlord with Basic Rent payments, and to the extent that the cost of
providing convenience electricity to the Premises for any Operating
Year exceeds the Estimated Electricity Payment,
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Tenant shall pay such excess as herein provided. Tenant's electricity
usage in the Premises shall be measured by one or more so-called
"check-meters," which shall be installed in the Premises by Landlord.
Landlord shall cause such meter(s) to be read periodically, but not
less often than once during each Operating Year, for the purpose of
determining Tenant's actual electricity usage during such Operating
Year. Tenant shall reimburse Landlord, as Additional Rent, for the
actual cost of the electric current consumed in the Premises, as
measured by the "check -meters" serving the Premises, for the Operating
Year in question. In the event that the Building shall be metered for
more than one rate applicable to the Premises, then the Premises shall
be similarly check-metered at each rate applicable to the Premises. To
the extent that the Estimated Electricity Payments theretofore made by
Tenant for the Operating Year in question are less than the amount
computed by Landlord as aforesaid, then Tenant shall pay the amount of
such shortfall within thirty (30) days after being so advised by
Landlord, but if Tenant's Estimated Electricity Payments exceed the
amount due, then Landlord shall credit the excess against subsequent
obligations of Tenant on account of Estimated Electricity Payments (or
refund such excess if the Lease Term has expired and Tenant has no
further obligation to Landlord).
(c) From time to time during the Lease Term, Landlord shall
have the right to have an electrical consultant selected by Landlord
make a survey of Tenant's electric usage, the result of which survey
shall be conclusive and binding upon Landlord and Tenant. In the event
that such survey shows that Tenant has exceeded the requirements set
forth in Section 7.4(a) hereof, in addition to any other rights
Landlord may have hereunder, Tenant shall, upon demand, reimburse
Landlord for the reasonable cost of such survey and the cost, as
determined by such consultant, of electricity usage in excess of such
requirements as an additional charge.
(d) Landlord shall have the right to discontinue furnishing
electricity to the Premises at any time upon not less than thirty (30)
days' notice to Tenant provided Landlord shall, at the expense of the
party requesting direct separate metering, separately meter the
Premises directly to the applicable public utility company. If Landlord
exercises such right, from and after the effective date of such
discontinuance, Landlord shall not be obligated to furnish electricity
to the Premises, and
(i) Tenant shall no longer be required to pay the
Estimated Electricity Payment portion of Basic Rent;
and
(ii) Landlord shall permit Landlord's existing wires,
risers, conduits and other electrical equipment of
Landlord to be used to supply electricity to Tenant
provided that the limits set forth in Section 7.4(a)
hereof shall not be exceeded, and Tenant shall be
responsible for payment of all electricity charges
directly to such utility.
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7.6 SERVICES PRIOR TO COMMENCEMENT DATE. Notwithstanding anything to the
contrary contained in this Article 7, Landlord's obligation to provide
services directly (as opposed to services to common areas of the
Building) to any portion of the Premises prior to the Commencement Date
in respect of such portion of the Premises shall be solely as set forth
in EXHIBIT C hereto.
7.7 INTERRUPTION OF SERVICES. If Landlord breaches its obligations to
supply any HVAC, elevator, plumbing or electrical service or reasonable
means of access to the Premises (collectively, the "Essential
Services") which pursuant to the terms of this Lease Landlord is
obligated to supply in or about the Premises (collectively
"Untenantable Condition") and such Untenantable Condition shall not be
caused by any circumstance referred to in Article 12, Force Majeure or
by any negligence or misconduct of Tenant or its officers, contractors,
licensees, agents, employees, guests or visitors, and as a result of
the Untenantable Condition, (i) Tenant is precluded from using the
whole or any material part of the Premises (the "Untenantable
Premises") due to the fact that the Premises or a part thereof are
untenantable for a period in excess of ten (10) consecutive Business
Days in any one instance (commencing after written notice from Tenant
to Landlord of the Untenantable Condition as provided for herein), (ii)
Tenant shall vacate the Untenantable Premises and cease doing business
therein; and (iii) Tenant shall give notice to Landlord of the facts
set forth in (i) and (ii) above making specific reference to this rent
abatement provision, then in such event, the portion of the Basic Rent
and Additional Rent allocable to the Untenantable Premises shall be
fully abated for the period commencing on the eleventh (11th)
consecutive Business Day after all the conditions set forth in (i),
(ii) and (iii) above shall first be satisfied and ending on the date
the Untenantable Premises shall be rendered usable and Landlord shall
have given notice thereof (or the date Tenant shall re-occupy the
Untenantable Premises for conduct of its business, if earlier). This
Section 7.7 shall act as a waiver of any right to which Tenant is
otherwise entitled by law to claim a constructive eviction by reason of
Landlord's failure to provide supply such Essential Services. Landlord
shall be responsible to repair any Essential Services which it is
required to supply to the Tenant to the extent provided in Section 7.1
hereof.
ARTICLE 8
REAL ESTATE TAXES
8.1 DEFINITIONS. For purposes of this Section 8.1, the following terms
shall have the respective meanings set forth below:
(a) "Taxes" shall mean the aggregate amount of all real estate
and personal property taxes and any general or special assessments and
any betterment assessments (exclusive of penalties thereon and penalty
interest but inclusive of interest on assessments payable in
installments) assessed or imposed upon with respect to the Tax Parcel
for any Tax Year. There shall be excluded from Taxes all income,
estate, succession, inheritance, transfer and franchise taxes imposed
upon Landlord or in connection with the Tax Parcel; provided, however,
that if at any time during the Lease Term the method of taxation of
real estate shall be changed and as a result of any other tax or
assessment, however denominated and including, without limitation, any
franchise, income, profit, use,
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occupancy, gross receipts or rental tax shall be imposed upon Landlord
or the owner of the Tax Parcel, or the rents or income therefrom, in
substitution for or in addition to, in whole or in part, any of the
taxes or assessments listed in the preceding sentence, such other tax
or assessment shall be included in and deemed a part of the Taxes but
only to the extent that the same shall be payable if the Tax Parcel
were the only real estate owned by Landlord. The amount of any special
assessments for public improvements or benefits to be included in Taxes
for any Tax Year, in the case where the same may, at the option of the
taxpayer, be paid in installments, shall be limited to the amount of
the installment due in respect of such Tax Year, together with any
interest payable in connection therewith (other than interest payable
by reason of the delinquent payment of such installment).
(b) "Tax Year" shall mean each period from July 1 through
June 30 (or such other fiscal period as may hereafter be adopted by
applicable governmental authority as the fiscal year for any tax, levy
or charge included in Taxes), any part or all of which occurs during
the Lease Term.
(c) "Tax Expenses" shall mean all expenses, including, without
limitation, reasonable attorneys' fees and disbursements and experts'
and other witnesses' fees, incurred by Landlord in seeking in good
faith to reduce the amount of any assessed valuation of the Tax Parcel,
in contesting the amount or validity of any Taxes, or in seeking a
refund of Taxes.
8.2 TENANT'S SHARE OF TAXES. From and after the Commencement Date, if the
Taxes for any full Tax Year falling within the Lease Term shall exceed
the Base Taxes, or if, in the case of a Tax Year only a fraction of
which is included in the Lease Term, an amount of the Taxes for such
Tax Year multiplied by such fraction exceeds the Base Taxes multiplied
by such fraction (the amount of such excess in either case being
hereinafter referred to as the "Tax Excess"), then Tenant shall pay to
Landlord, as Additional Rent, Tenant's Proportionate Share of the Tax
Excess and Tax Expenses, provided that Tenant shall not be required to
pay Tenant's share of Taxes due for the period from the Commencement
Date, to and including June 30, 2000, until July 1, 2000, the date on
which Base Taxes shall first be determinable. Tenant's Proportionate
Share of the Tax Excess and Tax Expenses for each Tax Year shall be
payable in monthly installments as follows:
(a) Subject to the proviso in the first sentence of this
Section 8.2, estimated payments by Tenant on account of Taxes and Tax
Expenses shall be made on the first day of each and every calendar
month during the Lease Term, in the fashion herein provided for the
payment of Basic Rent. The monthly amount so to be paid to Landlord
shall be sufficient to provide Landlord by the time Taxes and Tax
Expenses are due with a sum equal to Tenant's required payments, as
estimated by Landlord from time to time, on account of Taxes and Tax
Expenses for the then current Tax Year. Promptly after receipt by
Landlord of bills for such Taxes and Tax Expenses, Landlord shall
advise Tenant of the amount thereof and the computation of Tenant's
payment on account thereof. If estimated payments theretofore made by
Tenant for the Tax Year covered by such
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bills exceed the required payments on account thereof for such Tax
Year, Landlord shall credit the amount of overpayment against
subsequent obligations of Tenant on account of Taxes and Tax Expenses
(or refund such overpayment within thirty (30) days if the Lease Term
has ended and Tenant has no further obligation to Landlord); but if the
required payments on account thereof for such Tax Year are greater than
estimated payments theretofore made on account thereof for such Tax
Year, Tenant shall make payment to Landlord within thirty (30) days
after being so advised by Landlord. Landlord shall have the same rights
and remedies for the nonpayment by Tenant of any payments due on
account of Taxes and Tax Expenses as Landlord has hereunder for the
failure of Tenant to pay Basic Rent.
(b) If the Taxes for any Tax Year shall equal or be less than
the Base Taxes, Tenant shall not be obligated to make any payments to
Landlord pursuant to this Section 8.2 in respect of a Tax Excess for
such Tax Year, but in no event shall Tenant be entitled to any refund
or reduction in the Basic Rent by reason of such fact.
(c) It is understood that the provisions of this Section 8.2
are based upon the method of payment of real property taxes in effect
at the date of this Lease, to wit, in quarter-annual installments in
advance on the first day of February, May, August and November of each
Tax Year. If such method of payment is hereafter changed, Landlord
shall have the right to change the method by which Tenant pays Tenant's
Proportionate Share of a Tax Excess and Tax Expenses to a method of
periodic payments which provides Landlord with the full payment of
Tenant's Proportionate Share of such Tax Excess and Tax Expenses in
respect of any installment of Taxes by the date on which such
installment becomes due.
8.3 REFUND OF TAXES. Only Landlord shall have the right to institute tax
abatement, reduction or other proceedings to reduce the Taxes assessed
against the Tax Parcel. Should Landlord be successful in any such
proceeding and obtain a refund for any Tax Year or Years in respect of
which Tenant shall have made a payment to Landlord, pursuant to Section
8.2 hereof, Landlord shall credit Tenant's Proportionate Share of such
refund (or, in the case of a refund of Taxes for a Tax Year, only a
fraction of which is included in the Lease Term, such fraction thereof)
against the monthly installment or installments of Basic Rent next
falling due under this Lease, or if the Lease Term has expired and
Tenant has no further obligations to Landlord, such amount shall be
refunded by Landlord to Tenant within thirty (30) days. In calculating
the amount of any such credit or payment, Landlord shall have the right
to deduct from such refund all Tax Expenses incurred by Landlord in
obtaining the same. The provisions of Article 8 shall survive the
expiration of the Lease Term.
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ARTICLE 9
OPERATING EXPENSES
9.1 DEFINITIONS. For the purposes of this Article 9, the following terms
shall have the respective meanings set forth below:
(a) "Operating Year" shall mean the calendar year within which
the Commencement Date occurs and each subsequent calendar year, any
part or all of which falls within the Lease Term.
(b) "Base Operating Expenses" shall mean the actual Operating
Expenses incurred for the calendar year ending December 31, 1999
(excluding the cost of providing convenience electricity to those
portions of the Building leased or intended to be leased to tenants),
subject to the provisions of the second sentence of Section 9.1(d), and
provided that, if during any portion of the calendar year ending
December 31, 1999, less than all of the Building and the building on
the site to be known as 880 Winter Street (the construction and
completion of which are assumed for purposes of extrapolating Base
Operating Expenses herein) are occupied by tenants or, if Landlord was
not supplying all tenants with the services being supplied to the
Tenant hereunder, then the Operating Expenses actually incurred shall
be reasonably extrapolated by Landlord on an item-by-item basis to the
reasonable Operating Expenses that would have been incurred if the
Building and the building on the site to be known as 880 Winter Street
(the construction and completion of which are assumed for purposes of
extrapolating Base Operating Expenses herein) were fully occupied and
such services were being supplied to all tenants. Such extrapolated
Operating Expenses shall, for all purposes hereof, be deemed to be the
Base Operating Expenses hereunder.
(c) "Tenant's Proportionate Share" shall be a fraction, (i)
the numerator of which is the Premises Rentable Area, and (ii) the
denominator of which is the Building Rentable Area multiplied by 0.95.
(d) "Operating Expenses" shall mean the aggregate of (i) 100%
of Building Operating Expenses and (ii) 45% of Common Site Operating
Expenses, and subject to such percentage allocation, includes all costs
and expenses paid or incurred by or on behalf of Landlord with respect
to the operation, administration, cleaning, repair, maintenance and
management of the Building and the Site all as set forth in EXHIBIT E
annexed hereto, provided that, if during any portion of the Operating
Year for which Operating Expenses are being computed, Landlord is not
furnishing any particular work or service (the cost of which if
performed by Landlord would constitute an Operating Expense) to a
tenant who has undertaken to perform such work or service in lieu of
the performance thereof by Landlord, Operating Expenses for any
Operating Year during all or any part of which such work or service is
not so furnished by Landlord shall be increased by an amount equal to
the additional Operating Expenses which reasonably would have been
incurred during such period by Landlord if it had at its own expense
furnished such work or service to such tenant. In determining the
amount of Operating
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Expenses for any Operating Year, if less than ninety-five percent (95%)
of the Building Rentable Area shall have been occupied by tenant(s) at
any time during such Operating Year, Operating Expenses shall be
determined for such Operating Year to be an amount equal to the
Operating Expenses which would normally be expected to have been
incurred had such occupancy been ninety-five percent (95%) throughout
such Operating Year.
(e) "Building Operating Expenses" for any Operating Year shall
mean all Operating Expenses incurred in respect of the Building,
exclusive of Common Site Operating Expenses, for such Operating Year.
(f) "Common Site Operating Expenses" for any Operating Year
shall mean all Operating Expenses, exclusive of Building Operating
Expenses, incurred in respect of common facilities located on the Site
which service all buildings (including the Building) from time to time
located on the Site including, without limiting the generality of the
foregoing, property management fees and expenses, common roadways,
common driveways, non-exclusive parking areas, utility lines and
equipment, drainage areas and related fixtures and equipment, and any
other similar improvements constructed on the Site, whether above or
below ground, which Landlord is required by any agreement entered into
in connection with the construction of the Building to operate or
maintain or to contribute to the cost of the operation or maintenance
thereof to the extent such expenses are payable with respect to the
buildings on the Site owned by Landlord or its affiliates.
9.2 EXCESS OPERATING EXPENSES.
(a) In the event that, for any Operating Year, Operating
Expenses shall exceed Base Operating Expenses, then Tenant shall pay to
Landlord, as Additional Rent, an amount equal to Tenant's Proportionate
Share of such excess Operating Expenses, such amount to be apportioned
for any portion of an Operating Year in which the Commencement Date
falls or the Lease Term ends.
(b) Estimated payments paid by Tenant on account of excess
Operating Expenses shall be made on the first day of each and every
calendar month during the Lease Term commencing January 1, 2000, in the
fashion herein provided for the payment of Basic Rent.
The monthly amount so to be paid to Landlord shall be sufficient to
provide Landlord by the end of each Operating Year a sum equal to Tenant's
required payments, as estimated by Landlord from time to time during each
Operating Year, on account of Operating Expenses for such Operating Year. After
the end of each Operating Year, Landlord shall submit to Tenant a reasonably
detailed accounting of Operating Expenses for such Operating Year, and Landlord
shall certify to the accuracy thereof having exercised reasonable efforts and
care to ensure invoices for Operating Expenses reflect actual services provided.
If estimated payments theretofore made for such Operating Year by Tenant exceed
Tenant's required payment on account thereof for such Operating Year, according
to such statement, Landlord shall credit the amount of overpayment against
subsequent obligations of Tenant with respect to Operating
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Expenses (or refund such overpayment within thirty (30) days if the Lease Term
has ended and Tenant has no further obligation to Landlord); but, if the
required payments on account thereof for such Operating Year are greater than
the estimated payments (if any) theretofore made on account thereof for such
Operating Year, Tenant shall make payment to Landlord within thirty (30) days
after being so advised by Landlord. Landlord shall have the same rights and
remedies for the nonpayment by Tenant of any payments due on account of
Operating Expenses as Landlord has hereunder for the failure of Tenant to pay
Basic Rent.
9.3 TENANT'S AUDIT RIGHTS. (a) If Tenant shall so request, within ninety
(90) days after receipt of any accounting required to be presented by
Landlord hereunder, Landlord shall permit Tenant, at Tenant's expense
and during normal Business Hours, to review at Landlord's office
Landlord's invoices relating to Operating Expenses for the Operating
Year in respect of which such accounting was prepared for the purpose
of verifying any accounting that Landlord is required to give
hereunder, provided that Tenant shall be limited to one such audit
right per calendar year. Any such request shall be accompanied by a
statement setting forth, in reasonable detail, the particular respects
which Tenant disputes or questions such accounting. In making any such
examination, Tenant agrees, and shall cause its auditors, accountants
and any other employees, agents or contractors having access to such
information to agree, to keep strictly confidential (i) any and all
information contained in such books and records, and (ii) the
circumstances and details pertaining to such examination, including
without limitation the nature of any dispute in respect of Operating
Expenses and the nature or details of any settlement thereof; and
Tenant will confirm and cause its auditors, accountants, employees,
agents and contractors to confirm such agreement in writing, if so
requested by Landlord, prior to such examination. Tenant's review shall
be conducted only by an auditor or accountant of a nationally
recognized auditing or accounting firm and not by any party compensated
by Tenant on a contingency fee arrangement. If Tenant shall not request
any such review within the ninety (90)-day period hereinabove referred
to, then Landlord's accounting shall be binding and conclusive.
(b) If such dispute has not been resolved by agreement within
thirty (30) days after Tenant's notice to Landlord of such dispute as
provided in Section 9(a), then Tenant may, within thirty (30)
additional days after the expiration of the first such thirty (30)-day
period, submit the matter to arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association,
except that there shall be only one arbitrator, who shall have had at
least ten (10) years' experience as a certified property manager in
buildings similar to the Building and in the same general location and
market. If Tenant shall fail to submit the matter to arbitration within
such additional thirty (30)-day period, then Landlord's accounting
shall be conclusively deemed to be correct. Any decision by an
arbitrator shall be final and binding on the parties. If the dispute
shall be resolved in Tenant's favor, Landlord shall forthwith credit
the amount overpaid by Tenant against amounts subsequently coming due
on account of Operating Expenses. Each party shall bear one-half (1/2)
of the cost of such arbitrator. If the arbitrator determines that
Landlord has overcharged Tenant by more than five percent (5%) with
respect to the Tenant's Proportionate Share of excess Operating
Expenses, Landlord shall pay the cost of such audit and shall refund
the amount of the
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excess Operating Expenses which were overcharged to Tenant within
thirty (30) days.
(c) During the pending of any examination by Tenant pursuant
to Section 9(a) and pending resolution by agreement or arbitration
pursuant to Section 9(b), Tenant shall make any payments claimed by
Landlord to be due on account of Operating Expenses, such payment to be
without prejudice to Tenant's position.
ARTICLE 10
INDEMNITY AND INSURANCE
10.1 TENANT'S INDEMNITY. (a) Except to the extent that such claims arise
from the negligent acts or omissions of Landlord or its agents,
contractors or employees, Tenant agrees to indemnify and save harmless
Landlord, its members, agents, contractors and employees from and
against all claims, loss, cost, damage or expense asserted by or on
behalf of any person, firm, corporation or public authority of whatever
nature arising: (i) from any accident, injury or damage whatsoever to
any person, or to the property of any person, occurring in or about the
Premises; (ii) from any accident, injury or damage occurring elsewhere
(other than on the Premises) in or about the Building or the lots on
which the Building is located to the extent that such accident, damage
or injury results from an act or omission on the part of Tenant or
Tenant's agents, employees, invitees or contractors; or (iii) in
connection with the conduct or management of the Premises or of any
business therein, or any thing or work whatsoever done, or any
condition created (other than by Landlord) in or about the Premises;
and, in any case, occurring after the date of this Lease until the end
of the Lease Term and thereafter so long as Tenant is in occupancy of
any part of the Premises. This indemnity and hold harmless agreement
shall include indemnity against all losses, costs, damages, expenses
and liabilities incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof by counsel of the
insurer (if such claim is covered by insurance) or otherwise by counsel
reasonably satisfactory to Landlord, including, without limitation,
reasonable attorneys' fees and costs at both the trial and appellate
levels.
(b) Landlord agrees to indemnify and save harmless Tenant from
and against all claims, loss, cost, damage or expense of whatever
nature arising from any accident, injury or damage, to the extent that
such accident, damage or injury results from an act or omission on the
part of Landlord or Landlord's agents, employees, invitees or
contractors, occurring after the date of this Lease until the end of
the Lease Term. This indemnity and hold harmless agreement shall
include indemnity against all losses, costs, damages, expenses and
liabilities incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof by counsel of the
insurers (if such claim is covered by insurance) or by counsel
reasonably satisfactory to Tenant, including, without limitation,
reasonable attorneys' fees and costs at both the trial and appellate
levels.
10.2 GENERAL LIABILITY INSURANCE. Tenant agrees to maintain in full force
from the date upon which Tenant first enters the Premises for any
reason, throughout the Lease Term and thereafter, so long as Tenant is
in occupancy of any part of the Premises, a
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policy of commercial general liability and property damage insurance
(including broad form contractual liability, independent contractor's
hazard and completed operations coverage) under which Tenant is named
as an insured and Landlord, Agent (and such other persons as are in
privity of estate with Landlord as may be set out in a notice from time
to time) are named as additional insureds, and under which the insurer
agrees to indemnify and hold Landlord, Agent and those in privity of
estate with Landlord, harmless from and against all cost, expense
and/or liability arising out of or based upon any and all claims,
accidents, injuries and damages set forth in Section 10.1(a). Each such
policy shall be issued by one or more insurers in a financial size
category of not less than XIV and with general policyholders rating of
not less than A as rated in the most current available "Bests"
insurance reports, or the then equivalent thereof, and licensed to do
business in the Commonwealth of Massachusetts and authorized to issue
such policies. Tenant may satisfy such insurance requirements by
including the Premises in a so-called "blanket" and/or "umbrella"
insurance policy, provided that the amount of coverage allocated to the
Premises shall fulfill the foregoing requirements. Each policy of
insurance procured by Tenant shall contain endorsements providing that
(i) such policy shall be non-cancelable and non-amendable with respect
to Landlord, Agent and Landlord's said designees without thirty (30)
days' prior notice to Landlord and such designees, (ii) written on an
"occurrence" basis, and (iii) in at least the amounts of the Initial
General Liability Insurance specified in Section 1.2 or such greater
amounts as Landlord shall from time to time reasonably request, and a
duplicate original thereof shall be delivered to Landlord.
10.3 TENANT'S RISK. Tenant agrees to use and occupy the Premises and to use
such other portions of the Building and the lots on which the Building
is located as Tenant is herein given the right to use at Tenant's own
risk. Except to the extent that such claims arise from the negligent
acts or omissions of Landlord or its agents, contractors or employees,
neither Landlord nor Landlord's insurers shall have any responsibility
or liability for any loss of or damage to Tenant's Removable Property,
Tenant's Alterations and any paneling or other wall finishings or
coverings other than normal painting. Tenant shall carry "all-risk"
property insurance on a "replacement cost" basis, insuring Tenant's
Removable Property and any Alterations installed by Tenant pursuant to
Section 5.2, to the extent that the same have not become the property
of Landlord, and other so-called improvements and betterments. The
provisions of this Section 10.3 shall be applicable from and after the
execution of this Lease and until the end of the Lease Term of this
Lease, and during such further period as Tenant may use or be in
occupancy of any part of the Premises or of the Building.
10.4 CERTIFICATES OF INSURANCE. On or prior to the time Tenant and/or its
contractors enter the Premises in accordance with this Lease and
thereafter not less than thirty (30) days prior to the expiration date
of each expiring policy, original copies of the policies provided for
in Section 10.2 issued by the respective insurers, or insurance company
certificates of such policies setting forth in full the provisions
thereof and issued by such insurers, shall be delivered by Tenant to
Landlord.
10.5 INJURY CAUSED BY THIRD PARTIES. Except to the extent that such claims
arise from the negligent acts or omissions of Landlord or its agents or
employees, Tenant
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agrees that Landlord shall not be responsible or liable to Tenant, or
to those claiming by, through or under Tenant, for any loss or damage
that may be occasioned by or through the acts or omissions of persons
occupying adjoining premises or any part of the premises adjacent to or
connecting with the Premises or any part of the Building or otherwise.
10.6 WAIVER OF SUBROGATION.
(a) Landlord and Tenant shall each endeavor to secure an
appropriate clause in or an endorsement to each property insurance
policy obtained by it and covering the Property, the Building, the
Premises, Tenant's Alterations, or Tenant's Removable Property, as
applicable, pursuant to which the respective insurance companies waive
subrogation or permit the insured, prior to any loss, to agree with a
third party to waive any claim it might have against said third party.
The waiver of subrogation or permission for waiver of any claim
hereinbefore referred to shall extend to the agents of each party and,
in the case of Tenant, shall also extend to all other persons and
entities occupying or using the Premises in accordance with the terms
of this Lease. If and to the extent that such waiver or permission can
be obtained only upon payment of an additional charge, then the party
benefiting from the waiver or permission shall pay such charge upon
demand, and if such party shall fail or refuse to pay any such charge
within thirty (30) days of demand therefor, such party shall be deemed
to have agreed that the party obtaining the insurance coverage in
question shall be free of any further obligations under the provisions
hereof relating to such waiver or permission. In the event that either
Landlord or Tenant shall be unable at any time to obtain one of the
provisions referred to above in any of its insurance policies, Landlord
or Tenant, as the case may be, shall promptly notify the other.
(b) Subject to the foregoing provisions of this Section 10.6
and insofar as may be permitted by the terms of the insurance policies
carried by it, each party hereby releases the other and its members,
partners, agents and employees (and in the case of Tenant, all other
persons and entities occupying or using the Premises in accordance with
the terms of this Lease with respect to any claim, including a claim
for negligence) which it might otherwise have against the other party
for loss, damages or destruction with respect to its property by fire
or other casualty (including rentable value or business interruption,
as the case may be) occurring during the Lease Term which could be
covered under an all-risk full replacement cost insurance policy,
whether or not actually obtained.
ARTICLE 11
LANDLORD'S ACCESS TO PREMISES
11.1 LANDLORD'S RIGHT OF ENTRY. Landlord and Agent shall have the right,
without being deemed thereby to evict Tenant from the Premises or any
part thereof or otherwise to violate any of the terms of this Lease or
any of Tenant's rights hereunder, (a) to enter and pass through the
Premises or any part or parts thereof (i) by appointment, such
appointment not to be unreasonably withheld or delayed, to examine the
Premises and to show them to prospective or existing mortgagees,
purchasers or tenants of any part of the
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Building, (ii) for the purpose of performing such maintenance and
making such repairs or changes in or to the Premises or in or to the
Building or its facilities as may be provided for or permitted by this
Lease or may be mutually agreed upon by the parties or as Landlord may
be required to make by laws and requirements of public authorities,
(iii) at such times as such entries shall be required by circumstances
of emergency affecting the Premises or the Building, provided that in
such event, if practicable, Landlord or its agents shall be accompanied
by a designated representative of Tenant or member of the police, fire,
water or other municipal department concerned or of a recognized
protection company or of a public utility company which is concerned,
and (b) to take all materials into and upon the Premises which may be
required for any repairs, changes or maintenance and to store the same
therein for a reasonable time as reasonably required in connection with
the completion of such repairs, changes or maintenance. Landlord's
rights under this Section 11.1 shall be exercised in such manner as to
create the least practicable interference with Tenant's use of the
Premises; provided, however, that the foregoing shall not obligate
Landlord to perform any work outside of Business Hours on Business
Days. Except in the case of an emergency or if otherwise impracticable
under the circumstances, any entry on the Premises by Landlord pursuant
to this Section 11.1 shall be made after reasonable notice to Tenant.
11.2 LANDLORD'S RIGHT TO CHANGE ENTRIES, ETC. Landlord shall have the right
at any time without thereby creating any actual or constructive
eviction or incurring any liability to Tenant therefor, and without
abatement in rent, to change the arrangement or location of lobbies,
entrances, passageways, doors, doorways, stairways, elevators,
corridors and other like portions of the Building outside of the
Premises, provided that such change does not interfere with Tenant's
access to the Premises.
11.3 EXCAVATION. In the event that an excavation or any construction should
be made for building or other purposes upon land adjacent to the
Building, or should be authorized to be made, Tenant shall, if
necessary, afford to the person or persons causing or authorized to
cause such excavation or construction, license to enter the Premises
for the purpose of doing such work as shall reasonably be necessary to
protect or preserve the wall or walls of the Building, or the Building,
from injury or damage and to support them by proper foundations,
pinning and/or underpinning or otherwise. Such rights shall be
exercised in such manner as to create the least practicable
interference with Tenant's use of the Premises; provided, however, that
the foregoing shall not obligate such person to perform any work
outside of Business Hours on Business Days. In the event that such
excavation or construction renders the Premises wholly untenantable,
and Tenant shall vacate the Premises and cease doing business therein
as a result thereof, Basic Rent and Additional Rent shall be abated for
the period during which Tenant has vacated the Premises and such
untenantable condition remains in effect. This Section 11.3 shall act
as a waiver of any right to which Tenant is otherwise entitled by law
to claim a constructive eviction by reason of such untenantable
condition.
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ARTICLE 12
FIRE, EMINENT DOMAIN, ETC.
12.1 ABATEMENT OF RENT. If the Premises and/or the building systems which
service the Premises, including the HVAC system, shall be damaged by
fire or casualty or if a portion of the Building other than the
Premises shall be damaged by fire or casualty such that the Tenant does
not have reasonable access to the Premises or if the common areas of
the Building systems are substantially damaged by fire or other
casualty, Basic Rent and Additional Rent payable by Tenant shall abate
proportionately for the period in which, by reason of such damage,
there is substantial interference with Tenant's use of the Premises,
having regard for the extent to which Tenant may be required to
discontinue Tenant's use of all or a portion of the Premises, but such
abatement or reduction shall end if and when Landlord shall have
substantially restored the Premises (excluding any Alterations made by
Tenant pursuant to Section 5.2) to the condition in which they were
prior to such damage. If the Premises shall be affected by any exercise
of the power of eminent domain, Basic Rent and Additional Rent payable
by Tenant shall be justly and equitably abated and reduced according to
the nature and extent of the loss of use thereof suffered by Tenant. In
no event shall Landlord have any liability for damages to Tenant for
inconvenience, annoyance, or interruption of business arising from such
fire, casualty or eminent domain.
12.2 LANDLORD'S RIGHT OF TERMINATION. If the Premises or the Building are
substantially damaged by fire or casualty (the term "substantially
damaged" meaning damage of such a character that the same cannot, in
ordinary course, reasonably be expected to be repaired within ninety
(90) days from the time that repair work would commence), or if any
part of the Building is taken by any exercise of the right of eminent
domain, then Landlord shall have the right to terminate this Lease
(even if Landlord's entire interest in the Premises may have been
divested) by giving notice of Landlord's election so to do within
ninety (90) days after the occurrence of such casualty or the effective
date of such taking, whereupon this Lease shall terminate thirty (30)
days after the date of such notice with the same force and effect as if
such date were the date originally established as the expiration date
hereof.
12.3 RESTORATION. If this Lease shall not be terminated pursuant to Section
12.2, Landlord shall thereafter use due diligence to restore the
Premises (excluding any Alterations made by Tenant pursuant to Section
5.2) to proper condition for Tenant's use and occupation, provided that
Landlord's obligation shall be limited to the amount of insurance
proceeds available therefor plus the amount of any deductible under
such property damage insurance. If, for any reason, such restoration
shall not be substantially completed within six (6) months after the
expiration of the 90-day period referred to in Section 12.2 (which
six-month period may be extended for such periods of time as Landlord
is prevented from proceeding with or completing such restoration for
any cause beyond Landlord's reasonable control, but in no event for
more than an additional three (3) months), Tenant shall have the right
to terminate this Lease by giving notice to Landlord thereof within
thirty (30) days after the expiration of such period (as so extended)
provided that such restoration is not completed within such period.
This Lease shall cease and come to an end without further liability or
obligation on the part of either
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party thirty (30) days after such giving of notice by Tenant unless,
within such 30-day period, Landlord substantially completes such
restoration. Such right of termination shall be Tenant's sole and
exclusive remedy at law or in equity for Landlord's failure so to
complete such restoration, and time shall be of the essence with
respect thereto.
12.4 AWARD. Landlord shall have and hereby reserves and excepts, and Tenant
hereby grants and assigns to Landlord, all rights to recover for
damages to the Property and the leasehold interest hereby created, and
to compensation accrued or hereafter to accrue by reason of such
taking, damage or destruction, and by way of confirming the foregoing,
Tenant hereby grants and assigns, and covenants with Landlord to grant
and assign to Landlord, all rights to such damages or compensation, and
covenants to deliver such further assignments and assurances thereof as
Landlord may from time to time request, and Tenant hereby irrevocably
appoints Landlord its attorney-in-fact to execute and deliver in
Tenant's name all such assignments and assurances. Nothing contained
herein shall be construed to prevent Tenant from prosecuting in any
condemnation proceedings a claim for the value of any of Tenant's
Removable Property installed in the Premises by Tenant at Tenant's
expense and for relocation expenses, provided that such action shall
not affect the amount of compensation otherwise recoverable by Landlord
from the taking authority.
12.5 LANDLORD'S INSURANCE. Landlord agrees to maintain in full force and
effect, during the Lease Term, property damage insurance with such
deductibles and in such amounts as may from time to time be carried by
reasonably prudent owners of similar buildings in the area in which the
Building is located, provided that in no event shall Landlord be
required to carry other than general commercial liability fire and
extended coverage insurance or insurance in amounts greater than full
replacement cost of the Building. Landlord may satisfy such insurance
requirements by including the Building in a so-called "blanket"
insurance policy, provided that the amount of coverage allocated to the
Building shall fulfill the foregoing requirements.
ARTICLE 13
DEFAULT
13.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of this
Lease any one or more of the following events (herein referred to as a
"Default of Tenant") shall happen:
(i) Tenant shall fail to pay Basic Rent or Additional
Rent hereunder when due and such failure shall
continue for three (3) full Business Days after
written notice to Tenant from Landlord; or
(ii) Tenant shall neglect or fail to perform or observe
any other covenant herein contained on Tenant's part
to be performed or observed and Tenant shall fail to
remedy the same within thirty (30) days after notice
to Tenant specifying such neglect or failure, or if
such failure is of such a nature that Tenant cannot
reasonably remedy the same within such thirty (30)
day period, Tenant shall
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fail to commence promptly to remedy the same and to
prosecute such remedy to completion with diligence
and continuity; or
(iii) Tenant's leasehold interest in the Premises shall be
taken on execution or by other process of law
directed against Tenant; or
(iv) Tenant shall make an assignment for the benefit of
creditors or shall be adjudicated insolvent, or shall
file any petition or answer seeking any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar
relief for itself under any present or future
Federal, State or other statute, law or regulation
for the relief of debtors (other than the Bankruptcy
Code, as hereinafter defined), or shall seek or
consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Tenant or of all
or any substantial part of its properties, or shall
admit in writing its inability to pay its debts
generally as they become due; or
(v) An Event of Bankruptcy (as hereinafter defined) shall
occur with respect to Tenant; or
(vi) A petition shall be filed against Tenant under any
law (other than the Bankruptcy Code) seeking any
reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar
relief under any present or future Federal, State or
other statute, law or regulation and shall remain
undismissed or unstayed for an aggregate of sixty
(60) days (whether or not consecutive), or if any
trustee, conservator, receiver or liquidator of
Tenant or of all or any substantial part of its
properties shall be appointed without the consent or
acquiescence of Tenant and such appointment shall
remain unvacated or unstayed for an aggregate of
sixty (60) days (whether or not consecutive); or
(vii) If: (y) Tenant shall fail to pay the Basic Rent or
Additional Rent hereunder when due or shall fail to
perform or observe any other covenant herein
contained on Tenant's part to be performed or
observed and Tenant shall cure any such failure
within the applicable grace period set forth in
clauses (i) or (ii) above; or (z) a Default of Tenant
of the kind set forth in clauses (i) or (ii) above
shall occur and Landlord shall, in its sole
discretion, permit Tenant to cure such Default after
the applicable grace period has expired; and a
similar failure or Default shall occur more than
twice within the next 365 days (whether or not such
similar failure is cured within the applicable grace
period);
then in any such case Landlord may terminate this Lease by notice to Tenant,
specifying a date not less than five (5) days after the giving of such notice on
which this Lease shall terminate, and
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this Lease shall come to an end on the date specified therein as fully and
completely as if such date were the date herein originally fixed for the
expiration of the Lease Term, and Tenant will then quit and surrender the
Premises to Landlord, but Tenant shall remain liable as hereinafter provided.
(b) For purposes of clause (a)(v) above, an "Event of
Bankruptcy" means the filing of a voluntary petition by Tenant, or the
entry of an order for relief against Tenant, under Chapter 7, 11, or 13
of the Bankruptcy Code, and the term "Bankruptcy Code" means 11
U.S.Css.101, et seq., If an Event of Bankruptcy occurs, then the
trustee of Tenant's bankruptcy estate or Tenant as debtor-
in-possession may (subject to final approval of the court) assume this
Lease, and may subsequently assign it, only if it does the following
within sixty (60) days after the date of the filing of the voluntary
petition, the entry of the order for relief (or such additional time as
a court of competent jurisdiction may grant, for cause, upon a motion
made within the original 60-day period):
(i) files a motion to assume the Lease with the
appropriate court;
(ii) satisfies all of the following conditions, which
Landlord and Tenant acknowledge to be commercially
reasonable:
(A) cures all Defaults of Tenant under this
Lease or provides Landlord with Adequate
Assurance (as defined below) that it will
(y) cure all monetary Defaults of Tenant
hereunder within ten (10) days from the date
of the assumption; and (z) cures all
non-monetary Defaults of Tenant hereunder
within thirty (30) days from the date of the
assumption;
(B) compensates Landlord and any other person or
entity, or provides Landlord with Adequate
Assurance that within ten (10) days after
the date of the assumption, it will
compensate Landlord and such other person or
entity for any pecuniary loss that Landlord
and such other person or entity incurred as
a result of any Default of Tenant, the
trustee, or the debtor-in-possession;
(C) provides Landlord with Adequate Assurance of
Future Performance (as defined below) of all
of Tenant's obligations under this Lease;
and
(D) delivers to Landlord a written statement
that the conditions herein have been
satisfied.
(c) For purposes only of the foregoing paragraph (b), and in
addition to any other requirements under the Bankruptcy Code, any
future federal bankruptcy law and applicable case law, "Adequate
Assurance" means at least meeting the following conditions, which
Landlord and Tenant acknowledge to be commercially reasonable:
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(i) entering an order segregating sufficient cash to pay
Landlord and any other person or entity under
paragraph (b) above, and
(ii) granting to Landlord a valid first lien and security
interest (in form acceptable to Landlord) in all
property comprising the Tenant's "property of the
estate," as that term is defined in Section 541 of
the Bankruptcy Code, which lien and security interest
secures the trustee's or debtor-in-possession's
obligation to cure the monetary and non-monetary
defaults under the Lease within the periods set forth
in paragraph (b) above.
(d) For purposes only of paragraph (b), and in addition to any
other requirements under the Bankruptcy Code, any future federal
bankruptcy law and applicable case law, "Adequate Assurance of Future
Performance" means at least meeting the following conditions, which
Landlord and Tenant acknowledge to be commercially reasonable:
(i) the trustee or debtor-in-possession depositing with
Landlord, as security for the timely payment of rent
and other monetary obligations, an amount equal to
the sum of two (2) months' Basic Rent plus an amount
equal to two (2) months' installments on account of
Taxes and Operating Expenses, computed in accordance
with Articles 8 and 9;
(ii) the trustee or the debtor-in-possession agreeing to
pay in advance, on each day that the Basic Rent is
payable, the monthly installments on account of Taxes
and Operating Expenses, computed in accordance with
Articles 8 and 9 hereof;
(iii) the trustee or debtor-in-possession providing
adequate assurance of the source of the rent and
other consideration due under this Lease; and
(iv) Tenant's bankruptcy estate and the trustee or
debtor-in-possession providing Adequate Assurance
that the bankruptcy estate (and any successor after
the conclusion of the Tenant's bankruptcy
proceedings) will continue to have sufficient
unencumbered assets after the payment of all secured
obligations and administrative expenses to assure
Landlord that the bankruptcy estate (and any
successor after the conclusion of the Tenant's
bankruptcy proceedings) will have sufficient funds to
fulfill Tenant's obligations hereunder.
(e) If the trustee or the debtor-in-possession assumes the
Lease under paragraph (b) above and applicable bankruptcy law, it may
assign its interest in this Lease only if the proposed assignee first
provides Landlord with Adequate Assurance of Future Performance of all
of Tenant's obligations under the Lease,
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and if Landlord determines, in the exercise of its reasonable business
judgment, that the assignment of this Lease will not breach any other
lease, or any mortgage, financing agreement, or other agreement
relating to the Property by which Landlord or the Property is then
bound (and Landlord shall not be required to obtain consents or waivers
from any third party required under any lease, mortgage, financing
agreement, or other such agreement by which Landlord is then bound).
(f) For purposes only of paragraph (e) above, and in addition
to any other requirements under the Bankruptcy Code, any future federal
bankruptcy law and applicable case law, "Adequate Assurance of Future
Performance" means at least the satisfaction of the following
conditions. which Landlord and Tenant acknowledge to be commercially
reasonable:
(i) the proposed assignee submitting a current financial
statement, audited by a certified public accountant,
that allows a net worth and working capital in
amounts determined in the reasonable business
judgment of Landlord to be sufficient to assure the
future performance by the assignee of Tenant's
obligation under this Lease; and
(ii) if requested by Landlord in the exercise of its
reasonable business judgment, the proposed assignee
obtaining a guarantee (in form and substance
satisfactory to Landlord) from one or more persons
who satisfy Landlord's standards of creditworthiness;
(g) If this Lease shall have been terminated as provided in
this Article 13, or if any execution or attachment shall be issued
against Tenant or any of Tenant's property whereupon the Premises shall
be taken or occupied by someone other than Tenant, then Landlord may
re-enter the Premises, either by summary proceedings, ejectment or
otherwise, and remove and dispossess Tenant and all other persons and
any and all property from the same, as if this Lease had not been made.
(h) In the event of any termination, Tenant shall pay the
Basic Rent, Additional Rent and other sums payable hereunder up to the
time of such termination, and thereafter Tenant, until the end of what
would have been the Lease Term of this Lease in the absence of such
termination, and whether or not the Premises shall have been relet,
shall be liable to Landlord for, and shall pay to Landlord, as
liquidated current damages: (y) the Basic Rent, Additional Rent and
other sums that would be payable hereunder if such termination had not
occurred, less the net proceeds, if any, of any reletting of the
Premises, after deducting all expenses in connection with such
reletting, including, without limitation, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees, advertising,
expenses of employees, Alteration costs and expenses of preparation for
such reletting; and (z) if, in accordance with Section 4.1(a), Tenant
commenced payment of the full amount of Basic Rent on any day other
than the
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Commencement Date, the amount of Basic Rent that would have been
payable during the period beginning on the Commencement Date and ending
on the day Tenant commenced payment of the full amount of Basic Rent
under such Section 4.1(a). Tenant shall pay the portion of such current
damages referred to in clause (y) above to Landlord monthly on the days
which the Basic Rent would have been payable hereunder if this Lease
had not been terminated, and Tenant shall pay the portion of such
current damages referred to in clause (z) above to Landlord upon such
termination.
(i) At any time after such termination, whether or not
Landlord shall have collected any such current damages, as liquidated
final damages and in lieu of all such current damages beyond the date
of such demand, at Landlord's election Tenant shall pay to Landlord an
amount equal to the excess, if any, of the Basic Rent, Additional Rent
and other sums as hereinbefore provided which would be payable
hereunder from the date of such demand (assuming that, for the purposes
of this paragraph, annual payments by Tenant on account of Taxes and
Operating Expenses would be the same as the payments required for the
immediately preceding Operating or Tax Year for what would be the then
unexpired Lease Term of this Lease if the same remained in effect),
over the then fair net rental value of the Premises for the same
period.
(j) In case of any Default by Tenant, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord may (i)
re-let the Premises or any part or parts thereof, either in the name of
Landlord or otherwise, 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 Lease Term and may grant
concessions or free rent to the extent that Landlord considers
advisable and necessary to re-let the same and (ii) may make such
reasonable Alterations, repairs and decorations in the Premises as
Landlord in its sole judgment considers advisable and necessary for the
purpose of re-letting the Premises; and the making of such Alterations,
repairs and decorations shall not operate or be construed to release
Tenant from liability hereunder as aforesaid. Landlord shall in no
event be liable in any way whatsoever for failure to re-let the
Premises, or, in the event that the Premises are re-let, for failure to
collect the rent under such re-letting. Tenant hereby expressly waives
any and all rights of redemption granted by or under any present or
future laws in the event of Tenant being evicted or dispossessed, or in
the event of Landlord obtaining possession of the Premises, by reason
of the violation by Tenant of any of the covenants and conditions of
this Lease.
(k) If a Guarantor of this Lease is named in Section 1.2, the
happening of any of the events described in paragraphs (a)(iv)-(a)(vi)
of this Section 13.1 with respect to the Guarantor shall constitute a
Default of Tenant hereunder.
(l) The specified remedies to which Landlord may resort
hereunder are not intended to be exclusive of any remedies or means of
redress to which Landlord may at any time be entitled lawfully, and
Landlord may invoke any
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remedy (including the remedy of specific performance) allowed at law or
in equity as if specific remedies were not herein provided for.
(m) All costs and expenses incurred by or on behalf of
Landlord (including, without limitation, attorneys' fees and expenses
at both the trial and appellate levels) in enforcing its rights
hereunder or occasioned by any default or Default of Tenant hereunder,
shall be paid by Tenant.
13.2 LANDLORD'S DEFAULT. Except as otherwise expressly provided in herein to
the contrary, Landlord shall in no event be in default in the
performance of any of Landlord's obligations hereunder unless and until
Landlord shall have failed to perform such obligations within thirty
(30) days (except in the case of an emergency, in which event Landlord
shall commence the performance of such obligations, as promptly as
practicable under the circumstances), or if such failure is of such a
nature that Landlord cannot reasonably remedy the same within such
thirty (30) day period, Landlord shall fail to commence promptly (and
in any event within such thirty (30) day period) to remedy the same and
to prosecute such remedy to completion with diligence and continuity.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will not
do or permit anything to be done in or upon the Premises, or bring in
anything or keep anything therein, which shall increase the rate of
property or liability insurance on the Premises or the Property above
the standard rate applicable to the Premises being occupied for
Permitted Uses; and Tenant further agrees that, in the event that
Tenant shall do any of the foregoing, Tenant will promptly pay to
Landlord, on demand, any such increase resulting therefrom, which shall
be due and payable as Additional Rent hereunder.
14.2 WAIVER. (a) Failure on the part of Landlord or Tenant to complain of
any action or non-action on the part of the other, no matter how long
the same may continue, shall never be a waiver by Tenant or Landlord,
respectively, of any of the other's rights hereunder. Further, no
waiver at any time of any of the provisions hereof by Landlord or
Tenant shall be construed as a waiver of any of the other provisions
hereof, and a waiver at any time of any of the provisions hereof shall
not be construed as a waiver at any subsequent time of the same
provisions. The consent or approval of Landlord or Tenant to or of any
action by the other requiring such consent or approval shall not be
construed to waive or render unnecessary Landlord's or Tenant's consent
or approval to or of any subsequent similar act by the other.
(b) No payment by Tenant, or acceptance by Landlord, of a
lesser amount than shall be due from Tenant to Landlord shall be
treated otherwise than as a payment on account of the earliest
installment of any payment due from Tenant under the provisions hereof.
The acceptance by Landlord of a check for a lesser amount with an
endorsement or statement thereon, or upon any letter accompanying such
check, that such lesser amount is payment in full, shall be
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given no effect, and Landlord may accept such check without prejudice
to any other rights or remedies which Landlord may have against Tenant.
14.3 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and
provisions of this Lease, on payment of the Basic Rent and Additional
Rent and observing, keeping and performing all of the other terms and
provisions of this Lease on Tenant's part to be observed, kept and
performed, shall lawfully, peaceably and quietly have, hold, occupy and
enjoy the Premises during the Lease Term hereof, without hindrance or
ejection by any persons lawfully claiming under Landlord to have title
to the Premises superior to Tenant; the foregoing covenant of quiet
enjoyment is in lieu of any other covenant, express or implied.
14.4 LANDLORD'S LIABILITY. (a) Tenant specifically agrees to look solely to
Landlord's then equity interest in the Property at the time owned, for
recovery of any judgment from Landlord; it being specifically agreed
that Landlord (original or successor) shall never be personally liable
for any such judgment, or for the payment of any monetary obligation to
Tenant. The provision contained in the foregoing sentence is not
intended to, and shall not, limit any right that Tenant might otherwise
have to obtain injunctive relief against Landlord or Landlord's
successors in interest, or to take any action not involving the
personal liability of Landlord (original or successor) to respond in
monetary damages from Landlord's assets other than Landlord's equity
interest in the Property.
(b) With respect to any services or utilities to be furnished
by Landlord to Tenant, Landlord shall in no event be liable for failure
to furnish the same when prevented from doing so by Force Majeure
including, without limitation, strike, lockout, breakdown, accident,
order or regulation of or by any governmental authority, or failure of
supply, or failure whenever and for so long as may be necessary by
reason of the making of repairs or changes which Landlord is required
or is permitted by this Lease or by law to make or in good faith deems
necessary, or inability by the exercise of reasonable diligence to
obtain supplies, parts or employees necessary to furnish such services,
or because of war or other emergency, or for any other cause beyond
Landlord's reasonable control, or for any cause due to any act or
neglect of Tenant or Tenant's contractors, agents, employees, licensees
or any person claiming by, through or under Tenant, nor shall any such
failure give rise to any claim in Tenant's favor that Tenant has been
evicted, either constructively or actually, partially or wholly,
provided Landlord shall use reasonable efforts to minimize interference
with Tenant's business.
(c) In no event shall Landlord ever be liable to Tenant for
any loss of business or any other indirect or consequential damages
suffered by Tenant from whatever cause.
(d) Where provision is made in this Lease for Landlord's
consent and Tenant shall request such consent and Landlord shall fail
or refuse to give such consent, Tenant shall not be entitled to any
damages for any withholding by Landlord of its consent, it being
intended that Tenant's sole remedy shall be an action for specific
performance or injunction, and that such remedy shall be
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available only in those cases where Landlord has expressly agreed in
writing not to unreasonably withhold its consent. Furthermore, whenever
Tenant requests Landlord's consent or approval (whether or not provided
for herein), Tenant shall pay to Landlord, on demand, as Additional
Rent, any expenses reasonably incurred by Landlord (including, without
limitation, legal fees and costs, if any) in connection therewith.
(e) With respect to any repairs or restoration which are
required or permitted to be made by Landlord, the same may be made
during normal Business Hours and Landlord shall have no liability for
damages to Tenant for inconvenience, annoyance or interruption of
business arising therefrom.
14.5 NOTICE TO MORTGAGEE OR GROUND LESSOR. After receiving notice from any
person, firm or other entity that it holds a mortgage or a ground lease
which includes the Premises, no notice from Tenant to Landlord alleging
any default by Landlord shall be effective unless and until a copy of
the same is given to such holder or ground lessor (provided Tenant
shall have been furnished with the name and address of such holder or
ground lessor), and the curing of any of Landlord's defaults by such
holder or ground lessor shall be treated as performance by Landlord.
14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE. (a) With reference to any
assignment by Landlord of Landlord's interest in this Lease, or the
rents payable hereunder, conditional in nature or otherwise, which
assignment is made to the holder of a mortgage on property which
includes the Premises, Tenant agrees that the execution thereof by
Landlord, and the acceptance thereof by the holder of such mortgage,
shall never be treated as an assumption by such holder of any of the
obligations of Landlord hereunder unless such holder shall, by notice
sent to Tenant, specifically otherwise elect and that, except as
aforesaid, such holder shall be treated as having assumed Landlord's
obligations hereunder only upon foreclosure of such holder's mortgage
and the taking of possession of the Premises.
(b) In no event shall the acquisition of Landlord's interest
in the Property by a purchaser which, simultaneously therewith, leases
Landlord's entire interest in the Property back to the seller thereof
be treated as an assumption by operation of law or otherwise, of
Landlord's obligations hereunder, but Tenant shall look solely to such
seller-lessee, and its successors from time to time in title, for
performance of Landlord's obligations hereunder. In any such event,
this Lease shall be subject and subordinate to the lease to such
purchaser. For all purposes, such seller-lessee, and its successors in
title, shall be the Landlord hereunder unless and until Landlord's
position shall have been assumed by such purchaser-lessor.
(c) Except as provided in paragraph (b) of this Section, in
the event of any transfer of title to the Property by Landlord,
Landlord shall thereafter be entirely freed and relieved from the
performance and observance of all covenants and obligations hereunder
which accrue after the date of such transfer (and, to the extent
assumed by any transferee in writing, covenants and obligations
hereunder
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which have accrued prior to the date of such transfer), and such
transferee shall be deemed to have assumed all prospective covenants
and obligations hereunder.
14.7 RULES AND REGULATIONS. Tenant shall abide by reasonable rules and
regulations from time to time established by Landlord ("Rules and
Regulations") to the extent such Rules and Regulations are not in
conflict with the terms of this Lease, it being agreed that such Rules
and Regulations will be established and applied by Landlord in a
nondiscriminatory fashion, such that all Rules and Regulations shall be
generally applicable to other tenants, of similar nature to the Tenant
named herein, of the Building. Landlord agrees to use reasonable
efforts to insure that any such Rules and Regulations are uniformly
enforced, but Landlord shall not be liable to Tenant for violation of
the same by any other tenant or occupant of the Building, or persons
having business with them. In the event that there shall be a conflict
between such Rules and Regulations and the provisions of this Lease,
the provisions of this Lease shall control. Rules and Regulations
currently in effect are set forth in EXHIBIT F hereto.
14.8 ADDITIONAL CHARGES. If Tenant shall fail to pay when due any sums under
this Lease designated as Additional Rent, Landlord shall have the same
rights and remedies as Landlord has hereunder for failure to pay Basic
Rent.
14.9 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this
Lease, or the application thereof to any person or circumstance shall,
to any extent, be invalid or unenforceable, the remainder of this
Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
14.10 PROVISIONS BINDING ETC. Except as herein otherwise provided, the terms
hereof shall be binding upon and shall inure to the benefit of the
successors and assigns, respectively, of Landlord and Tenant (except in
the case of Tenant, ONLY such assigns as may be permitted hereunder)
and, if Tenant shall be an individual, upon and to his heirs,
executors, administrators, successors and permitted assigns. Each term
and each provision of this Lease to be performed by Tenant shall be
construed to be both a covenant and a condition. The reference
contained to successors and assigns of Tenant is not intended to
constitute a consent to assignment by Tenant, but has reference only to
those instances in which Landlord may later give consent to a
particular assignment as required by those provisions of Article 6
hereof.
14.11 RECORDING. Tenant agrees not to record this Lease, but, if the Lease
Term of this Lease (including any extended term) is seven (7) years or
longer, each party hereto agrees, on the request of the other, to
execute a so-called notice of lease in recordable form and complying
with applicable law and reasonably satisfactory to Landlord's
attorneys. In no event shall such document set forth the rent or other
charges payable by Tenant under this Lease; and any such document shall
expressly state that it is executed pursuant to the provisions
contained in this Lease, and is not intended to vary the terms and
conditions of this Lease.
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14.12 NOTICES. Whenever, by the terms of this Lease, notices, demands,
consents or approvals shall or may be given either to Landlord or to
Tenant, such notice, demand, consent or approval shall be in writing
and shall be sent by registered or certified mail, postage prepaid,
return receipt requested or by a nationally recognized overnight
courier service (next Business Day delivery):
If intended for Landlord, addressed to Landlord at Landlord's Original
Address and marked: "Attention: Asset Manager, Eric B. Sheffels," with a copy to
Peter Van, Esq., Bingham Dana LLP, 150 Federal Street, Boston, MA 02110 (or to
such other address or addresses as may from time to time hereafter be designated
by Landlord by like notice).
If intended for Tenant, addressed to Tenant at Tenant's Original
Address, attention: Paul McDermott with a copy to Tenant's General Counsel at
Tenant's Original Address (or to such other address or addresses as may from
time to time hereafter be designated by Tenant by like notice).
All such notices, demands, consents or approvals shall be effective
when deposited in the United States Mail within the Continental United States or
with an overnight courier service, provided that the same are received in
ordinary course at the address to which the same were sent.
14.13 WHEN LEASE BECOMES BINDING. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises, and this document shall
become effective and binding only upon the execution and delivery
hereof by both Landlord and Tenant. All negotiations, considerations,
representations and understandings between Landlord and Tenant are
incorporated herein and this Lease expressly supersedes any proposals
or other written documents relating hereto. This Lease may be modified
or altered only by written agreement between Landlord and Tenant, and
no act or omission of any employee or agent of Landlord shall alter,
change or modify any of the provisions hereof.
14.14 PARAGRAPH HEADINGS AND INTERPRETATION OF SECTIONS. The paragraph
headings throughout this instrument are for convenience and reference
only, and the words contained therein shall in no way be held to
explain, modify, amplify or aid in the interpretation, construction or
meaning of the provisions of this Lease. The provisions of this Lease
shall be construed as a whole, according to their common meaning
(except where a precise legal interpretation is clearly evidenced), and
not for or against either party. Use in this Lease of the words
"including," "such as" or words of similar import, when followed by any
general term, statement or matter, shall not be construed to limit such
term, statement or matter to the specified item(s), whether or not
language of non-limitation, such as "without limitation" or "including,
but not limited to," or words of similar import, are used with
reference thereto, but rather shall be deemed to refer to all other
terms or matters that could fall within a reasonably broad scope of
such term, statement or matter.
14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR. This Lease shall be subordinate
to any mortgage or ground lease from time to time encumbering the
Premises, whether
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executed and delivered prior to or subsequent to the date of this
Lease, if the holder of such mortgage or ground lease shall so elect,
provided that such holder enters into a written agreement
(substantially in the form annexed hereto as EXHIBIT H or such other
form as may then be customarily used by such holder) that, subject to
such reasonable qualifications as such holder may reasonably impose, in
the event that the holder shall succeed to the interests of Landlord
hereunder pursuant to such mortgage, ground lease or other encumbrance,
so long as no Default of Tenant exists hereunder, Tenant's right to
possession of the Premises shall not be disturbed and Tenant's other
rights hereunder shall not be adversely affected by any foreclosure of
such mortgage or encumbrance or by termination of such ground lease and
such holder shall assume Landlord's obligation under the Lease accruing
after Landlord's foreclosure of its mortgage or its taking of
possession of the Premises for the purpose of foreclosing. If this
Lease is subordinate to any mortgage or ground lease and the holder
thereof (or successor) shall succeed to the interest of Landlord, at
the election of such holder (or successor) Tenant shall attorn to such
holder and this Lease shall continue in full force and effect between
such holder (or successor) and Tenant. Tenant agrees to execute such
instruments of subordination or attornment in confirmation of the
foregoing agreement as such holder may reasonably request.
14.16 STATUS REPORT; FINANCIAL STATEMENTS. Recognizing that both parties may
find it necessary to establish to third parties such as accountants,
banks, mortgagees, ground lessors, or the like, the then current status
of performance hereunder, either party, on the request of the other
made from time to time, will promptly furnish to Landlord, or the
holder of any mortgage or ground lease encumbering Premises, or to
Tenant, as the case may be, a statement of the status of any matter
pertaining to this Lease, including, without limitation,
acknowledgments that (or the extent to which) each party is in
compliance with its obligations under the terms of this Lease. Within
sixty (60) days after the end of each fiscal year of Tenant, Tenant
shall furnish Landlord with financial statements of Tenant in form and
substance reasonably satisfactory to Landlord.
14.17 SECURITY DEPOSIT. If, in Section 1.2 hereof, a security deposit is
specified, Tenant, at its expense, shall deliver to Landlord, on the
date of execution and delivery of this Lease, a clean, irrevocable
Letter of Credit issued by and drawn upon any commercial bank
acceptable to Landlord with a banking office in Boston or New York
(hereinafter referred to as the "Issuing Bank") which Letter of Credit
shall (i) name Landlord as beneficiary thereof, (ii) have a term of not
less than one (1) year, (iii) be in the original amount equal to
$550,000 and subject to reduction as provided in Section 1.2 hereof,
and (iv) otherwise be in form and content satisfactory to Landlord. The
Letter of Credit shall, in any event, provide that:
(1) The Issuing Bank shall pay to Landlord an amount up to the
face amount of the Letter of Credit upon presentation of a statement
from Landlord that a Default of Tenant has occurred, specifying the
nature of such Default and a demand for payment in the amount to be
drawn and notice of such presentation shall be delivered simultaneously
to Tenant;
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<PAGE> 55
(2) The Letter of Credit shall be deemed to be automatically
renewed, without amendment, for consecutive periods of one year each
and shall have a final expiry date of not earlier than January 31,
2005, unless the Issuing Bank sends written notice (hereinafter called
the "Non-Renewal Notice") to Landlord both by Federal Express or
another recognized national or regional courier and by certified or
registered mail, return receipt requested, not less than sixty (60)
days next preceding the then expiration date of the Letter of Credit,
that it elects not to have such Letter of Credit renewed;
(3) Landlord, after receipt of the Non-Renewal Notice, shall
have the right, exercisable by a demand for payment draft only, to draw
upon the Letter of Credit and receive the proceeds thereof (which shall
be held by Landlord as a cash deposit pursuant to the terms of this
Section 14.17 pending the replacement of such Letter of Credit or
applied as permitted by the terms of this Section 14.17); and
(4) Upon Landlord's sale or other transfer of the Building, or
Landlord's interest therein, or a leasing of the Building, the Letter
of Credit shall be transferable by Landlord and Landlord shall
thereupon be released by Tenant from all liability for the return of
such Letter of Credit. In such event, Tenant agrees to look solely to
the new Landlord for the return of said Letter of Credit. Tenant shall
execute such documents as may be necessary to accomplish such transfer
or assignment of the Letter of Credit and shall pay any transfer fees
of the Issuing Bank.
Tenant covenants that it will not assign or encumber, or attempt to
assign or encumber, the Letter of Credit or proceeds thereof and that neither
Landlord nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment, or attempted encumbrance. If Landlord
determines that the financial condition of the Issuing Bank has so declined as
to cause concern that the Issuing Bank may not honor a draw on its Letter of
Credit and provides Tenant with notice of the same, Tenant shall promptly obtain
a replacement Letter of Credit complying with the terms hereof from another
commercial bank acceptable to Landlord.
Landlord shall have the right from time to time without prejudice to
any other remedy Landlord may have on account thereof, to apply such deposit, or
any part thereof, to Landlord's damages arising from, or to cure, any Default of
Tenant. If Landlord shall so apply any or all of such deposit, Tenant shall
promptly deposit with Landlord the amount applied to be held as security
hereunder or obtain a replacement Letter of Credit in such amount conforming
with the other requirements of this Section 14.17.
Provided that no Default of Tenant then exists, Tenant may, in each
Lease Year of the Lease Term beginning with the Lease Year commencing June 15,
2000, substitute for the Letter of Credit then held by Landlord, a replacement
Letter of Credit in the amount required to be posted as a Security Deposit for
the next succeeding Lease Year as set forth in Section 1.2 hereof, it being
understand that Landlord shall not be obligated to return any Letter of Credit
in its possession until Tenant has delivered a substitute Letter of Credit in
the amount required
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pursuant to Section 1.2 hereof for such applicable Lease Year. Provided Landlord
has had delivered to it by Tenant a substitute Letter of Credit in the
applicable amount and otherwise conforming with the other requirements of this
Section 14.17, Landlord shall immediately return to Tenant any Letter of Credit
for which replacement or substitution has been made by Tenant in accordance with
this Section 14.17.
Provided that no Default of Tenant then exists, Landlord shall return
the Letter of Credit, or so much thereof as shall have theretofore not been
applied in accordance with the terms of this Section 14.17, to Tenant on the
expiration or earlier termination of the Lease Term and surrender of possession
of the Premises by Tenant to Landlord at such time. While Landlord holds as a
cash deposit the proceeds resulting from a draw having been made upon the Letter
of Credit, Landlord shall have no obligation to pay interest on the same and
shall have the right to commingle the same with Landlord's other funds. If
Landlord conveys Landlord's interest under this Lease, the cash deposit, or any
part thereof not previously applied, may be turned over by Landlord to
Landlord's grantee, and, if so turned over and receipt of such cash deposit is
acknowledged by Landlord's grantee, Tenant agrees to look solely to such grantee
for proper application of the deposit in accordance with the terms of this
Section 14.17, and the return thereof in accordance herewith. The holder of a
mortgage shall not be responsible to Tenant for the return or application of any
such cash deposit, whether or not it succeeds to the position of Landlord
hereunder, unless such cash deposit shall have been received in hand by such
holder.
14.18 REMEDYING DEFAULTS. Landlord shall have the right, but shall not be
required, to pay such sums or do any act which requires the expenditure
of monies which may be necessary or appropriate by reason of the
failure or neglect of Tenant to perform any of the provisions of this
Lease, and in the event of the exercise of such right by Landlord,
Tenant agrees to pay to Landlord forthwith upon demand all such sums,
together with interest thereon at a rate equal to three percent (3%)
over the base rate in effect from time to time at Fleet National Bank,
as an additional charge. Any payment of Basic Rent, Additional Rent or
other sums payable hereunder not paid when due shall, at the option of
Landlord, bear interest at a rate equal to three percent (3%) over the
base rate in effect from time to time at Fleet National Bank from the
due date thereof and shall be payable forthwith on demand by Landlord,
as an additional charge.
14.19 HOLDING OVER. Any holding over by Tenant after the expiration of the
Lease Term shall be treated as a daily tenancy at sufferance at a rate
equal to two (2) times the Basic Rent then in effect plus Additional
Rent and other charges herein provided (prorated on a daily basis).
Tenant shall also pay to Landlord all damages, direct and/or indirect,
sustained by reason of any such holding over. Otherwise, such holding
over shall be on the terms and conditions set forth in this Lease as
far as applicable.
14.20 SURRENDER OF PREMISES. Upon the expiration or earlier termination of
the Lease Term, Tenant shall peaceably quit and surrender to Landlord
the Premises in neat and clean condition and in good order, condition
and repair, together with all Alterations which may have been made or
installed in, on or to the Premises prior to or during the Lease Term,
excepting only ordinary wear and use and damage by fire or other
casualty for which, under other provisions of this Lease, Tenant has no
responsibility of repair or restoration. Tenant shall remove all of
Tenant's Removable Property and, to the extent
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specified by Landlord, all Alterations made by Tenant and all
partitions wholly within the Premises unless installed initially by
Landlord in preparing the Premises for Tenant's occupancy or as
otherwise provided in Section 5.2; and shall repair any damage to the
Premises or the Building caused by such removal. Any of Tenant's
Removable Property which shall remain in the Building or on the
Premises after the expiration or termination of the Lease Term shall be
deemed conclusively to have been abandoned, and either may be retained
by Landlord as its property or may be disposed of in such manner as
Landlord may see fit, at Tenant's sole cost and expense.
14.21 BROKERAGE. Tenant warrants and represents that Tenant has dealt with no
broker in connection with the consummation of this Lease other than
Broker, and, in the event of any brokerage claims against Landlord
predicated upon prior dealings with Tenant, Tenant agrees to defend the
same and indemnify Landlord against any such claim (except any claim by
Broker who shall be paid by Landlord).
14.22 Y2K INDEMNIFICATION. Landlord represents to Tenant that it (a) has
initiated a review and assessment of all areas within its and its
respective affiliates' businesses and operation (including those
affected by their respective suppliers and vendors) that could be
adversely affected by the Year 2000 Problem (hereinafter defined), (b)
has developed a plan and time line for addressing the Year 2000 Problem
on a timely basis and is following such plan and timetable, (c) has no
reason to believe that any of its and its respective affiliates'
businesses or operations (including those affected by their respective
suppliers and vendors) related to the ownership, management, operation
and maintenance of the Building will be adversely impacted by the Year
2000 Problem, and (d) it and its affiliates' are Year 2000 Compliant
(hereinafter defined). "Year 2000 Problem" means the risk that computer
applications used by Landlord and its affiliates (and their respective
suppliers and vendors) may be unable to recognize or properly perform
date-sensitive functions involving certain dates prior to, or any date
after, December 31, 1999. "Year 2000 Compliant" means that all computer
applications used by Landlord and its affiliates related to the
ownership, management, operation and maintenance of the Building are
able to avoid the Year 2000 Problem.
14.23 SIGNAGE. Tenant shall not place on the exterior of the Premises
(including both interior and exterior surfaces of doors and interior
surfaces of windows) or on any part of the Building outside the
Premises, any signs, symbol, advertisement or the like visible to
public view outside of the Premises. Tenant, at its sole expense, shall
be permitted to place signs, corporate logos or lettering on the entry
doors to the Premises and within the Premises provided such signs
conform to building standards adopted by Landlord in its reasonable
discretion and Tenant has submitted to Landlord a plan or sketch in
reasonable detail (showing, without limitation, size, color, location,
materials and method of affixation) of the signs to be places on such
entry doors. Landlord agrees, however, to maintain, at Landlord's
expense and in accordance with Building Standards adopted by Landlord
in its sole discretion, a tenant directory in the lobby of the Building
and, if the Landlord has installed Tenant directories on each floor of
the Building, in the third floor's elevator lobby, in which will be
placed Tenant's name and the location of the Premises in the Building.
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14.24 GOVERNING LAW. This Lease shall be governed exclusively by the
provisions hereof and by the laws of the Commonwealth of Massachusetts
as the same may from time to time exist.
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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
duly executed, under seal, by persons hereunto duly authorized, in multiple
copies, each to be considered an original hereof, as of the date first set forth
above.
LANDLORD: 890 WINTER STREET, L.L.C.
By: Winter Street OpCo, L.L.C., its managing member
By: Leggat McCall Opportunity Investors, LLC,
its managing member
By: LM Opportunity Principals LLC,
its managing member
By: /s/ Eric B. Sheffels
----------------------------------
Name: Eric B. Sheffels
Title: Authorized Member
TENANT: FIREPOND, INC.
By: /s/ SIGNATURE ILLEGIBLE
--------------------------------------------
Vice President/CFO
By: /s/ Thomas F. Carretta
--------------------------------------------
Secretary
<PAGE> 60
EXHIBIT A
FLOOR PLANS OF PREMISES
[Diagram]
<PAGE> 61
EXHIBIT B
SITE PLAN
[Site Plan should show both 880 and 890 Winter Street]
[Diagram]
<PAGE> 62
EXHIBIT C
TENANT'S WORK LETTER
This Exhibit C and the provisions of the Lease (subject to the last
sentence of Section 3.3 of the Lease and Section 7.6 of the Lease) set forth the
terms and provisions which shall govern the performance of Tenant's Work (as
hereinafter defined).
1. DEFINITIONS
As used in this EXHIBIT C, all capitalized terms shall have the same
meanings as defined in the Lease unless otherwise defined herein. In addition,
the following terms shall have the following respective meanings:
A. "Tenant's Work" shall mean the work to be performed by Tenant
in preparing the Premises for Tenant's occupancy.
B. "Plans" shall mean complete plans, working drawings,
specifications and information necessary for the performance of Tenant's Work.
C. "Tenant's Work Rules" shall have the meaning provided in
Section 2 hereof.
D. "Landlord's Contribution" shall have the meaning provided in\
Section 15A hereof.
E. "Tenant's Dumpster Location" shall have the meaning provided
in Section 8B hereof.
F. "Notice Day" shall have the meaning provided in Section 10B
hereof.
G. "Requisition" shall have the meaning provided in Section 15A
hereof.
2. CONDITIONS TO PERFORMANCE OF TENANT'S WORK
All Tenant's Work shall be performed subject to, and in accordance with
the requirements of, Exhibit C-1 attached hereto, entitled "Tenant Construction
Work at 890 Winter Street, Waltham, MA" (referred to herein as "Tenant's Work
Rules"). Landlord agrees that:
A. Wherever the consent or approval of Landlord or Landlord's
Construction Representative (as defined in Section 1.2 of the Tenant's Work
Rules) is required under the Tenant's Work Rules or hereunder, such consent or
approval shall not be unreasonably withheld or conditioned. Landlord and
Landlord's Construction Representative shall respond to any request for consent
or approval under the Tenant's Work Rules or hereunder as promptly as possible
based upon the nature of such request and, where specific time periods for
consent or approval are set forth in the Tenant's Work Rules or hereunder,
within such time periods.
B. In enforcing the Tenant's Work Rules and in making common
Building facilities (including, without limitation, elevators and loading docks)
available to Tenant during the performance of Tenant's Work, Landlord shall act
in a reasonable and nondiscriminatory manner.
<PAGE> 63
Tenant shall cooperate, and shall cause its contractors to cooperate, with
Landlord in a reasonable manner so that all tenants of the Building shall have
access to and use of the Building's common facilities in an efficient and timely
manner.
C. All Tenant's Work shall be performed in compliance with: (i)
all applicable laws, rules, orders and regulations of governmental authorities
having jurisdiction thereof; (ii) orders, rules and regulations of any Board of
Fire Underwriters, and governing insurance rating bureaus; and (iii) the
approved (i.e. by Landlord) Plans for Tenant's Work. All Tenant's Work shall be
performed in a first-class manner using Building Standard materials consistent
with the first-class character of the Building.
3. PREPARATION OF TENANT'S PLANS; PLAN REQUIREMENTS; APPROVAL BY LANDLORD
(a) Tenant shall submit to Landlord, for Landlord's approval,
complete Plans necessary for the performance of Tenant's Work.
(b) The Plans shall be fully detailed and coordinated, shall show
complete dimensions, shall have designated thereon all points of location and
other matters required to perform Tenant's Work and shall consist of the final
plans and specifications (including air-conditioning, ventilating, electrical,
and plumbing design drawings and specifications) prepared by Tenant's licensed
interior architect or designer and engineer approved by Landlord to describe the
manner in which Tenant intends to finish the Premises. Each submission shall
consist of three (3) sets of the relevant Plans. Notwithstanding the foregoing,
Tenant may submit to Landlord for approval two separate submission of Plans at
different times, one submission consisting of the architectural and structural
Plans and the other submission consisting of the mechanical, electrical,
plumbing and sprinkler Plans. Submissions shall identify changes from prior
submissions. After approval by Landlord of any Plans, any changes thereto from
time to time made by Tenant shall be approved by Landlord in accordance with
subsection (c) below. All Plans shall comply with and conform to Landlord's
existing plans for the Building and with all legal requirements relating to
construction of the Building and/or the Premises. Upon request from Tenant from
time to time Landlord will deliver to Tenant copies of the plans for the
Building, at Tenant's cost if the requested plans have been previously delivered
to Tenant.
(c) Landlord's review and approval of Tenant's Plans shall be as
to layout only and shall not be deemed to be an approval of the legality of the
Plans, the cost of Tenant's Work, or whether the Plans will satisfy Tenant's
needs. Subject to the preceding sentence, after approval by Landlord, the Plans
shall not be changed or modified in any respect by Tenant in any way which
affects the HVAC (on a Building-wide basis), plumbing, electrical or other
systems of the Building, or the structure of the Building, without the further
approval in writing by Landlord in accordance with this subsection (c) below.
Landlord will not unreasonably withhold its approval of any Plans or any change
or modification thereof. Landlord shall specify in reasonable detail any
objections to any of such Plans or changes thereto, as the case may be. Provided
that any such request shall specify that failure to disapprove the same within
ten (10) Business Days shall be deemed approval thereof, failure to timely
disapprove any such Plans or changes thereto shall, for all purposes of the
Lease and this Exhibit C, be deemed to be approval thereof, in writing, by
Landlord. No Tenant Work shall be commenced prior to the approval (or deemed
approval) by Landlord of Plans therefor. Tenant shall have the right, subject to
the terms and provisions of the
<PAGE> 64
Lease and this Exhibit C, to perform Tenant's Work shown on any Plans, or any
changes thereto, approved by Landlord.
4. PERFORMANCE OF TENANT'S WORK; TENANT'S COST
(a) Tenant shall complete Tenant's Work in accordance with the
approved Plans. Except as provided in Section 15 hereof, Tenant's Work shall be
completed at Tenant's sole cost and expense.
(b) Tenant shall perform all of Tenant's Work by contracting
separately with Landlord's contractor performing the Base Building Work (i.e.,
ADP Marshall, Inc.).
(c) Upon completion of Tenant's Work, Tenant shall deliver to
Landlord three (3) complete sets of Tenant's Plans, as changed, and shop
drawings.
5. LANDLORD COOPERATION WITH TENANT'S FILINGS FOR GOVERNMENTAL APPROVALS
Landlord shall cooperate with Tenant, in such manner as Tenant may
reasonably request, in connection with any filings which Tenant is required to
make with appropriate governmental authorities in connection with the
performance of Tenant's Work. Such cooperation shall include, without
limitation, the prompt execution of all documents, instruments, and certificates
as are reasonably required by such governmental authorities in connection with
the performance of Tenant's Work.
6. INTENTIONALLY DELETED
7. COSTS CHARGEABLE TO TENANT IN CONNECTION WITH TENANT'S WORK
Tenant shall pay to Landlord a construction management fee equal to two
percent (2.0%) of Landlord's Contribution in connection with the review and
approval by Landlord, or its designees, agents, representatives, employees,
contractors or subcontractors, of any Plans, or changes thereto, prepared by
Tenant.
8. LOADING DOCKS
A. Subject to Building scheduling requirements in accordance with
Section 2B hereof and coordination with Landlord's Construction Representative
and Landlord's general contractor performing the Base Building Work, and causes
beyond Landlord's reasonable control, access to the Building loading docks will
be made available to Tenant and Tenant's contractor seven (7) days per week,
twenty-four (24) hours per day. Tenant shall pay to Landlord Landlord's then
actual reasonable out-of-pocket costs to provide security to the Building
loading docks during other than Business Hours. Notwithstanding the foregoing,
in the event that any other contractor(s) performing substantial construction
work in the Building uses the Building loading docks at any time during other
than such Business Hours and during which Tenant shall also be using such
Building loading docks, Landlord shall charge such contractors) for and to the
extent of such usage. At all times that Tenant shall be using the Building
loading docks during other than such Business Hours, Landlord shall maintain a
log setting forth the times (if any) that each contractor performing substantial
construction work in the Building uses the Building
<PAGE> 65
loading docks during other than such Business Hours, and Landlord shall cause
each such contractor to sign time sheets with respect thereto. Tenant or its
contractor shall also sign similar time sheets with respect to the use of the
Building loading docks during other than such Business Hours.
B. During Business Hours, Tenant shall have right to use two (2)
dumpster locations ("Tenant's Dumpster Location") for the delivery and removal
of Tenant's construction debris as follows: (i) at such times during Business
Hours as Tenant's trash removal vehicles are picking up trash, Tenant may use
both Tenant's Dumpster Locations (i.e., one for the full dumpster and one for
the empty dumpster) simultaneously; and (ii) at all other times during Business
Hours, one of such Tenant's Dumpster Locations shall remain vacant, Landlord
hereby reserving the right to permit others to use such vacant Tenant's Dumpster
Location for normal Building deliveries. Tenant shall coordinate its use of the
Tenant's Dumpster Locations with such Building deliveries during Business Hours,
as reasonably directed by Landlord's Construction Representative.
C. All deliveries (whether incoming or outgoing) may be subject
to reasonable inspection.
9. TRASH DISPOSAL; GARBAGE
A. All construction and related debris, trash and garbage shall
be disposed of only in Tenant's dumpsters as provided in Section 8 above. Tenant
shall be responsible for pest and vermin control arising out of or caused by the
performance of Tenant's Work and/or the disposal of such debris, trash and
garbage.
B. Portable trash containers shall be stored by Tenant's
contractors in the portions of the Premises where Tenant is performing Tenant's
Work.
10. HVAC
A. At Tenant's request, Landlord shall, at its expense during
Business Hours, provide heat and air conditioning to the portions of the
Premises in which Tenant's Work is being performed as shall be reasonably
required for comfortable construction conditions.
B. If Tenant requires heat or air conditioning during non-
Business Hours, Tenant shall request the same by oral notice from any of
Tenant's designated representatives to Landlord (which oral notice shall
thereafter be promptly confirmed by Tenant in writing), given on before the
applicable time on Notice Days (as hereinafter defined). Tenant shall advise
Landlord in writing of the identity of Tenant's designated representatives who
shall have the authority of requesting additional heat or air-conditioning
services on behalf of Tenant. For purposes of this Section 10.B, "Notice Day"
shall be defined as follows:
(i) in the case of non-holiday weekdays, at or before
5:00 p.m. on the same day for which service is requested;
(ii) in the case of weekend service, at or before
5:00 p.m. on the Friday immediately preceding such weekend; and
<PAGE> 66
(iii) in the case of non-weekend holidays, at or before
5:00 p.m. on the last weekday Business Day immediately preceding such holiday.
Tenant shall pay for such non-business hour heat and air-conditioning at the
rates then being charged by the applicable utility company.
C. Tenant shall install, at its expense and subject to Landlord's
prior written consent, temporary filters and/or other protective devices and
measures to ensure that the Building's heat and air-conditioning system is not
damaged by the performance of Tenant's Work.
11. ACCESS
A. All Tenant's construction employees, service vendors, vendor
service contractors, technicians, delivery personnel, messenger and construction
related personnel shall use the loading docks as the only means of ingress to
and egress from the Building (unless otherwise mutually agreed to by Landlord
and Tenant) and shall provide reasonable identification.
B. Keys required for access to the Premises shall be provided to
Tenant and Tenant's contractors.
C. Except for access to the Building loading docks during
Business Hours, access by Tenant and Tenant's contractors to any portion of the
Building shall be permitted only with security provided by Landlord. Tenant
shall pay to Landlord Landlord's then actual reasonable out-of-pocket costs to
provide such security. All construction schedules provided by Tenant or Tenant's
contractors to Landlord shall specify the portions of the Building through
which, and the times when, access is required.
12. SITE OFFICE
A. Tenant or Tenant's contractor shall construct an appropriate
site office for personnel and materials within the Premises.
B. Subject to reasonable security requirements imposed by
Landlord and causes beyond Landlord's reasonable control, access to the portions
of the Premises in which Tenant's Work may be performed hereunder and the site
office will be made available to Tenant and Tenant's contractors seven (7) days
per week, twenty-four (24) hours per day.
13. COORDINATION OF LANDLORD'S WORK AND TENANT'S WORK
The parties acknowledge that both Tenant and Landlord may be performing
work in the same areas. Therefore, the parties hereby agree to use all
reasonable efforts to coordinate the scheduling and performance of such work so
that each may prosecute such work in an efficient and timely manner.
<PAGE> 67
14. INSURANCE
A. Prior to the commencement of Tenant's Work, Tenant shall
deliver to Landlord a true copy of all insurance policies or certificates of
insurance issued in conformity with Section 14B below, for the following
insurance, which shall name Tenant as insured and (except with respect to the
workers' compensation and disability insurance, described in clause (ii) below)
Landlord, Landlord's Construction Representative, the Agent, and each ground
lessor and mortgagee named in writing to Tenant as additional insureds, and
which shall be kept in full force and effect during the term of this Agreement:
(i) commercial general liability insurance, such
insurance to be on an occurrence basis and to insure against liability for
bodily injury and death and for property damage occurring in, on or about the
Premises with respect to Tenant Work, and the performance thereof, in an amount
not less than $10,000,000 in the event of personal injury to any number of
persons or damage to property arising out of any one occurrence, such insurance
to include premises operations liability, independent contractor's coverage,
products/completed operations for at least a period of three years beyond
completion, broad-form comprehensive general liability endorsement,
cross-liability and, if any operations to which the "XCU Exclusion" would be
applicable, an endorsement that such operations are covered and the "XCU
Exclusions" have been deleted;
(ii) workers' compensation and statutory disability
providing statutory State benefits for all persons employed in connection with
Tenant's Work at or in connection with the Premises; and statutory employer's
liability; and
(iii) "all-risk" builder's risk insurance with respect to
Tenant's Work and materials stored on the Premises or in the Building, written
on a completed value, replacement cost basis. Such insurance shall be in an
amount not less than ninety percent (90%) of the actual replacement cost of
Tenant's Work and such materials, which replacement value shall be determined
from time to time, and approved by the insurers, it being agreed that no
omission on the part of a party to request any such determination shall relieve
Tenant of its obligation to have such replacement value determined as aforesaid.
Such insurance shall contain the waiver of subrogation or right for Tenant to
waive its claims against Landlord, all in accordance with Section 10.6 of the
Lease, and an endorsement stating that "permission is granted to complete and
occupy".
B. All insurance required pursuant to this Section 14 shall be
effected with insurers in a financial size category of not less than IX and with
a general policy holders ratings of not less than A-, as rated in the most
current available "Bests" insurance reports, or the then equivalent thereof,
authorized to do business in the Commonwealth of Massachusetts under valid and
enforceable policies. Such insurance shall provide that such policy shall not be
cancelled (including for non-payment of premium), allowed to lapse or modified
to reduce coverage without at least thirty (30) days' prior written notice to
each insured named therein.
<PAGE> 68
15. LANDLORD'S CONTRIBUTION
A. Subject to and in accordance with the terms of this
Section 15, Landlord shall contribute an amount ("Landlord's Contribution") of
Twenty Nine Dollars ($29.00) per square foot of Total Rentable Area of the
Premises towards the cost of Tenant's Work, inclusive of all architectural and
design costs. Up to five dollars ($5.00) per square foot of Total Rentable Area
of the Premises may be spent on architectural and engineering drawings,
construction management fees, wiring/cabling expenses and moving costs. Provided
that Tenant is not in default (beyond any applicable grace periods) under the
terms of the Lease as of the time that Tenant submits to Landlord any
Requisition (as hereinafter defined), Landlord shall pay Landlord's Contribution
to Tenant by the twentieth (20th) day of each month so long as Tenant shall have
submitted to Landlord, by the twenty-eighth (28th) day of the prior month,
applications for payment and requisitions of Tenant and Tenant's architect and
contractor(s) (using AIA requisition from G-702) for Tenant's Work performed to
date (collectively, "Requisition"). Each Requisition shall be marked "Approved
for Payment" and countersigned by Tenant and Tenant's architect and
contractor(s) and shall be accompanied by written lien waivers for the portions
of Tenant's Work paid to date and a reasonably complete description of Tenant's
Work theretofore completed.
B. Tenant shall, upon completion of Tenant's Work, provide to
Landlord a reasonably detailed statement of all costs and expenses incurred or
paid by Tenant in connection with Tenant's Work. Any unused portion of
Landlord's Contribution shall be paid to Tenant within thirty (30) days of the
submission by Tenant to Landlord of such statement.
<PAGE> 69
EXHIBIT C-1
TENANT CONSTRUCTION WORK AT 890 WINTER STREET, WALTHAM, MA
RULES AND REGULATIONS
1. DEFINITIONS
1.1 Building: 890 Winter Street
1.2 Landlord's
Construction
Representative: Leggat McCall Properties LLC, or such
other Construction Representative as
Landlord may designate, from time to
time.
1.3 Consultant: Any architectural, engineering or design
consultant engaged by Tenant in
connection with Tenant's Work.
1.4 Contractor: Any Contractor engaged by Tenant for the
performance of any Tenant's Work, and
any Subcontractor employed by any such
Contractor.
1.5 Plans: As defined in Section 1B of Exhibit C.
Plans must be prepared and stamped by
professionals registered in MA.
1.6 Business Hours: Monday - Friday, 8:00 AM to 6:00 PM,
holidays excluded, and on Saturdays from
9:00 A.M. to noon.
1.7 Tenant: Firepond, Inc.
1.8 Tenant's Work: Any alterations, improvements,
additions, repairs or installations in
the Building performed by or on behalf
of Tenant prior to Tenant's receipt of a
certificate of occupancy for the
Premises.
1.9 Tradesperson: Any employee (including, without
limitation, any mechanic, laborer, or
tradesperson) employed by a Contractor
performing Tenant's Work.
2. GENERAL
2.1 All Tenant's Work shall be performed in accordance with these
Rules and Regulations.
2.2 The provisions of these Rules and Regulations shall be
incorporated in all agreements governing the performance of
Tenant's Work, including, without
<PAGE> 70
limitation, any agreements governing services to be rendered
by each Contractor and Consultant.
2.3 Except as otherwise provided in these Rules and Regulations,
all inquiries, submissions and approvals in connection with
any Tenant's Work shall be processed through Landlord's
Construction Representative.
2.4 The quality of construction will be consistent with that of a
first-class office building in suburban Boston.
3. PLANS
3.1 Review and
Approval: See Section 3 of Exhibit C.
3.2 Submission
Requirements: a. Tenant shall, at the
earliest possible time,
furnish to Landlord's
Construction Representative
three (3) sets of Plans
describing any Tenant's
Work.
b. The design manifested in
the Plans, if and to the
extent the portion of the
Premises to which such
Plans relate is visible
from the common areas or
exterior of the Building,
will be reviewed by
Landlord and shall comply
with its requirements so as
to avoid aesthetic or other
conflicts with the design
and function of the
Premises and of the
Building as a whole.
4. PRECONSTRUCTION NOTIFICATION AND APPROVALS
4.1 APPROVAL TO COMMENCE WORK
a. Tenant shall submit to Landlord's Construction
Representative, for the approval of Landlord's
Construction Representative, the names of all
prospective Contractors prior to issuing any bid
packages to such Contractors. Landlord has approved
ADP Marshall, Inc. as Tenant's primary Contractor.
b. No Tenant's Work shall be undertaken by any
Contractor or Tradesperson unless and until all the
matters set forth in Paragraph 4.2 below have been
received for the Tenant's Work in question and
unless Landlord's Construction Representative has
approved the matters set forth in Paragraph 4.2
below.
<PAGE> 71
4.2 COMMENCEMENT OF WORK
No Tenant's Work shall be performed unless, at least one week
before any Tenant's Work is to begin, all of the following has
been provided to Landlord's Construction Representative and
approved. Landlord's Construction Representative shall respond
to any request for approval by Tenant under this Section 4.2
as promptly as possible based upon the nature of such request.
In the event that Tenant proposes to change any of the
following, Landlord's Construction Representative shall be
immediately notified of such change and such change shall be
subject to the approval of Landlord's Construction
Representative:
a. Schedule for the work, indicating start and
completion dates, material deliveries, any phasing
and special working hours, and also a list of
anticipated shutdowns of Building systems.
b. List of all Contractors and Subcontractors, including
addresses, telephone numbers, trades employed, and
the union affiliation, if any, of each Contractor and
Subcontractor.
c. Names and telephone numbers of the supervisors of the
work.
d. Copies of all necessary governmental permits,
licenses and approvals.
e. Proof of current insurance, to the limits set out in
Exhibit C-1A to these Rules and Regulations, naming
890 Winter Street, L.L.C. and Leggat McCall
Properties LLC as additional insureds.
f. To the best of Tenant's knowledge, notice of the
involvement of any Contractor in any ongoing or
threatening labor dispute which affects or may affect
the Building.
g. Evidence that Tenant has made provision for either
written waivers of lien from all Contractors and
suppliers of material, or other appropriate
protective measures approved by Landlord.
h. Tenant's safety program which shall be consistent
with the Building's safety manual and requirements of
local ordinances and officials.
4.3 REPORTING INCIDENTS
All accidents, disturbances, labor disputes or threats thereof
known to Tenant or its Contractors pertaining to the Building
or Tenant's property and recordable under OSHA or the rules
and regulations promulgated thereunder, as the same may be
amended from time to time, shall be reported to Landlord's
Construction Representative on the day when such event becomes
known to Tenant or its Contractors. A written report must
follow as soon as reasonably practicable and in any event
within 72 hours.
<PAGE> 72
5. CONSTRUCTION SCHEDULE
5.1 COORDINATION
a. Tenant and its Contractors, during the performance of
Tenant's Work, shall use best efforts to minimize
discomfort, inconvenience and annoyance to the other
tenants and occupants of the Building and the public
at large.
b. If any Tenant's Work requires the shutdown of risers
and mains for electrical, mechanical, sprinkler,
plumbing work, and fire alarm, such Tenant's Work
shall be supervised by Landlord's Construction
Representative. No Tenant's Work will be performed in
the Building's mechanical or electrical equipment
rooms without both Landlord's prior approval and the
supervision of Landlord's Construction
Representative.
5.2 TIME RESTRICTIONS
a. Subject to Paragraph 5.1 of these Rules and
Regulations, general construction work will generally
be permitted at all times, including during Business
Hours.
b. To the extent Special Work, as hereinafter defined,
shall not be identified on a construction schedule
previously approved by Landlord, Tenant shall provide
Landlord's Construction Representative with at least
seventy-two (72) hours notice before proceeding with
Special Work and such Special Work will be permitted
only at times agreed to by Landlord's Construction
Representative during periods outside of Business
Hours. Landlord shall use reasonable efforts to
schedule the performance by Tenant of such Special
Work on shorter notice. "Special Work" shall be
defined as the following operations:
(1) All utility disruptions, shut offs and
turnovers;
(2) Activities involving high levels of noise,
including demolition, coring, drilling and
ramsetting;
(3) Activities resulting in excessive dust or
odors, including demolition and spray
painting; and/or
(4) Activities which would otherwise materially
adversely affect occupants of the Building.
c. If coordination, labor disputes or other
circumstances reasonably require, Landlord's
Construction Representative may change the hours
during which regular construction work can be
scheduled and/or restrict or refuse entry to and exit
from the Building by any Contractor.
<PAGE> 73
6. CONTRACTOR PERSONNEL
6.1 WORK IN HARMONY
a. All Contractors shall be responsible for employing
skilled and competent personnel and suppliers who
shall abide by the Rules and Regulations herein set
forth as amended from time to time by Landlord.
b. Tenant shall not at any time, either directly or
indirectly, employ, permit the employment, or
continue the employment of any Contractor if such
employment or continued employment will or does
interfere or cause any labor disharmony, coordination
difficulty, delay or conflict with any other
contractors engaged in construction work in or about
the Building. Landlord shall not, directly or
indirectly employ, permit the employment or continue
the employment of any contractor if such employment
or continued employment will or does interfere or
cause any labor disharmony, coordination difficulty,
delay or conflict with any Contractors engaged by
Tenant. The foregoing agreement by Landlord shall not
apply to contractors engaged by Landlord to provide
or perform services in or to the Building.
c. Should a work stoppage or other action occur anywhere
in or about the Building as a result of the presence,
anywhere in the Building, of a Contractor engaged
directly or indirectly by Tenant, or should such
Contractor be deemed by Landlord to have violated any
applicable Rules or Regulations, and if the same
shall be continuing for 24 or more hours after
Landlord has given Tenant written notice thereof,
Landlord may, without incurring any liability to
Tenant or said Contractor, require any such
Contractor to vacate the Premises and the Building,
and to cease all further construction work therein.
6.2 CONDUCT
a. While in or about the Building, all Tradespersons
shall perform in a dignified, quiet, courteous, and
professional manner at all times. Tradespersons shall
wear clothing suitable for their work and shall
remain fully attired at all times. All Contractors
will be responsible for their Tradesperson's proper
behavior and conduct.
b. The Landlord's Construction Representative reserves
the right, upon twenty-four (24) hours' written
notice to Tenant, to require the removal of any
person who, or any Contractor which, is causing a
disturbance to any tenant or occupant of the Building
or any other person using or servicing the Building
or is materially adversely interfering with the work
of others, unless such person or Contractor is
performing Tenant's Work in accordance with a
construction schedule previously approved by
Landlord.
<PAGE> 74
6.3 ACCESS
a. Tenant shall require its Contractors to contact
Landlord's Construction Representative prior to
commencing work, to confirm work location and
Building access, including elevator usage and times
of operation. Subject to reasonable security and
scheduling requirements imposed by Landlord and
causes beyond Landlord's reasonable control, access
to the Building shall be provided to Tenant's
Contractor twenty-four (24) hours per day, seven (7)
days per week.
b. No Contractor or Tradesperson will be permitted to
enter any private or public space in the Building,
other than the common areas of the Building necessary
to give direct access to the Premises for which he
has been employed, without the prior approval of
Landlord's Construction Representative.
c. Tenant shall require its Contractors to obtain
permission from Landlord's Construction
Representative prior to undertaking work in any space
outside of the Premises. This requirement
specifically includes ceiling spaces below the
premises where any work required must be undertaken
at the convenience of the affected tenant and outside
of Business Hours. Contractors undertaking such work
shall ensure that all work, including work required
to reinstate removed items and cleaning, be completed
prior to opening of the next Business Day.
d. Contractors shall ensure that all furniture,
equipment and accessories in areas potentially
affected by any Tenant's Work shall be adequately
protected by means of drop cloths or other
appropriate measures. In addition, all Contractors
shall be responsible for maintaining security to the
extent reasonably required by Landlord's Construction
Representative.
e. Temporary access doors for tenant construction areas
connecting with a public corridor will be building
standard, i.e., door frame hardware and lockset. A
copy of the key will be furnished to Landlord's
Construction Representative.
6.4 SAFETY
a. All Contractors shall police ongoing construction
operations and activities at all times, keeping the
Premises orderly, maintaining cleanliness in and
about the Premises, and ensuring safety and
protection of all areas, including truck docks,
elevators, lobbies and all other public areas which
are used for access to the Premises.
b. All Contractors shall appoint a supervisor who shall
be responsible for all safety measures, as well as
for compliance with all applicable governmental laws,
ordinances rules and regulations such as, for
example, "OSHA" and "Right-to-Know" legislation.
<PAGE> 75
c. Any damage caused by Tradespersons or other
Contractor employees shall be the responsibility of
Tenant. Costs for repairing such damage shall be
charged directly to Tenant.
6.5 PARKING
a. Parking is not allowed in or near truck docks, in
handicapped or fire access lanes, or any private ways
in or surrounding the property. Vehicles so parked
will be towed at the expense of Tenant.
b. The availability of parking in any parking areas of
the Building is limited. Use of such parking for
Contractors and their personnel is restricted and
must be arranged with and approved by Landlord's
Construction Representative.
7. BUILDING MATERIALS
7.1 DELIVERY
All deliveries of construction materials shall be made at the
predetermined times coordinated with Landlord's Construction
Representative and shall be effected safely and expeditiously only at
the location determined by Landlord's Construction Representative.
7.2 TRANSPORTATION IN BUILDING
a. Distribution of materials from delivery point to the
work area in the Building shall be accomplished with
the least disruption to the operation of the Building
possible. To the extent available, elevators will be
assigned for material delivery and will be controlled
by the Building management. Tenant shall be
responsible for costs in connection with the
operation of elevators as provided in Section 6 of
Exhibit C.
b. Contractors shall provide adequate protection to all
carpets, wall surfaces, doors and trim in all public
areas through which materials are transported.
Contractors shall clean all such areas daily.
Particular care shall be paid to all public areas to
avoid disruption, dangerous conditions and damage
thereto. Protective measures shall include runners
over carpet, padding in elevators and any other
measures reasonably determined by Landlord's
Construction Representative.
c. Any damage caused to the Building through the
movement of construction materials or otherwise shall
be the responsibility of Tenant. Charges for such
damage will be submitted by Landlord directly to
Tenant.
<PAGE> 76
7.3 STORAGE AND PLACEMENT
a. All construction materials shall be stored only in
the premises where they are to be installed. No
storage of materials will be permitted in any public
areas, loading docks or corridors leading to the
premises.
b. No flammable, toxic or otherwise hazardous materials
may be brought in or about the Building unless (i)
prior notice is given to Landlord's Construction
Representative, (ii) all applicable laws, ordinances,
rules and regulations are complied with, and (iii)
all necessary permits have been obtained.
Notwithstanding the foregoing, normal construction
materials which might otherwise be considered
flammable, toxic, or hazardous may be brought into
the Building, provided that the quantities of such
materials are limited to the amount necessary to
perform Tenant's Work, and further provided that such
materials are handled by Tenant strictly in
accordance with Tenant's approved safety program. All
necessary precautions shall be taken by the
Contractor handling such materials against damage or
injury caused by such materials.
c. All materials required for the construction of the
Premises must conform with the Plans approved by
Landlord, and must be installed in the locations
shown on the drawings approved by Landlord.
d. All work shall be subject to reasonable supervision
and inspection by Landlord's Construction
Representative.
e. No material changes to approved Plans will be made
without prior knowledge and approval of Landlord's
Construction Representative.
f. All protective devices (e.g., temporary enclosures
and partitions) and materials which protect public
areas or areas occupied by other tenants, as well as
their placement, must be approved by Landlord's
Construction Representative.
g. It is the responsibility of Contractors to ensure
that the temporary placement of materials does not
impose a hazard to the Building or its occupants,
either through overloading, or interference with
Building systems, access, egress or in any other
manner whatsoever.
h. All new openings made through the floor slab for
piping, cabling, etc. must be "fire stopped" in a
manner consistent with all applicable codes and
ordinances. All holes in the floor slab at abandoned
floor outlets, etc. will be filled with solid
concrete.
7.4 SALVAGES, WASTE REMOVAL AND CLEANING
a. All rubbish, waste and debris shall be neatly and
cleanly removed from the Building by Contractors
daily unless otherwise approved by Landlord's
<PAGE> 77
Construction Representative. The Building's trash
compactor shall not be used for construction or other
debris.
b. Toxic or flammable waste is to be properly removed
daily and disposed of in full accordance with all
applicable laws, ordinances, rules and regulations.
c. Tenant's Contractor shall, prior to removing any
existing installed item (including, without
limitation, building standard doors, frames and
hardware, light fixtures, ceiling diffusers, ceiling
exhaust fans, sprinkler heads, fire horns, ceiling
speakers and smoke detectors) from the Building,
notify Landlord's Construction Representative that it
intends to remove such item. Contractors shall use
care to limit damage in the removal of such material
and shall deliver any such items to Landlord's
Construction Representative, unless such items shall
be installed again as part of Tenant's Work. Such
items will be delivered, without cost, to an area
designated by Landlord's Construction Representative
which area shall be within the Building.
d. Tenant's Contractor shall be responsible for
maintaining the loading area, freight elevators, and
related corridors in broom clean condition when such
areas are being used by Tenant's Contractor. If such
broom clean condition is not maintained, and such
failure continues for 24 hours or more after written
notice thereof to Tenant, Landlord may do so at
Tenant's cost and expense.
8. CABLING AND WELDING
All cabling, welding and heat cutting shall be performed in accordance
with Exhibit C-1B attached hereto.
9. PAYMENT OF CONTRACTORS
Tenant shall promptly pay the cost of all Tenant's Work so that the
Premises and the Building shall be free of liens for labor or
materials. If any mechanic's lien is filed against the Building or any
part thereof which is claimed to be attributable to Tenant, its agents,
employees or contractors, Tenant shall give immediate notice of such
lien to Landlord and shall promptly discharge the same by payment or
filing any necessary bond within 20 days after Tenant has first notice
of such mechanic's lien.
10. CONTRACTORS INSURANCE
Prior to commencing any Tenant's Work, and throughout the performance
of the Tenant's Work, each Contractor shall obtain and maintain
insurance in accordance with Exhibit C-lB attached hereto. Each
Contractor shall, prior to making entry into the Building, provide
Landlord with certificates that such insurance is in full force and
effect.
<PAGE> 78
11. SUBMISSION UPON COMPLETION
a. Upon completion of any Tenant's Work and prior to taking
occupancy, Tenant shall submit to Landlord a permanent
certificate of occupancy and final approval of any other
governmental agencies having jurisdiction.
b. A properly executed air balancing report, signed by a
professional engineer, shall be submitted to Landlord upon
completion of all mechanical work. Such report shall be
subject to Landlord's approval. If such report is not approved
by Landlord, then Tenant shall, at its cost, submit to
Landlord, for Landlord's approval, its proposal in writing of
the steps which Tenant proposes to take to remedy such
situation. Upon approval by Landlord of such proposal, Tenant
shall, at its cost, take such steps and shall resubmit for
Landlord's approval, a new air balancing report.
c. Tenant shall submit to Landlord's Construction Representative
"as-built" architectural plans on a CAD diskette and shall
submit to Landlord's Construction Representative an "as-built"
set of sepia drawings for all other design disciplines showing
all items of Tenant's Work in full detail.
d. Except to the extent there shall be a bona fide dispute
between the parties in question, Tenant shall submit a general
release for Tenant's Contractor including waivers of lien from
all contractors and suppliers of material in formats approved
by the Landlord.
<PAGE> 79
EXHIBIT C-1A
INSURANCE REQUIREMENTS FOR CONTRACTORS
When Tenant's Work is to be done by Contractors in the Building, Tenant
shall be responsible for including in the contract for such work the following
insurance and indemnity requirements to the extent that they are applicable.
Insurance certificates must be received prior to construction. Landlord's
Construction Representative and Leggat McCall Properties LLC shall be named as
additional insured parties on all certificates.
Each Contractor and each Subcontractor shall, until the completion of
the Tenant's Work in question, procure and maintain at its expense, the
following insurance coverages with companies acceptable to Landlord in the
following MINIMUM limits:
WORKERS' COMPENSATION
(including coverage for Occupational Disease)
LIMIT OF LIABILITY
Workers' Compensation Statutory Benefits
Employer's Liability $500,000
COMMERCIAL GENERAL LIABILITY
(including Contractual Liability assumed by the
Contractor and the Tenant under Section 10.2 of the Lease)
LIMIT OF LIABILITY
Bodily Injury and Property Damage $2,000,000 annual general
aggregate per location
COMPREHENSIVE AUTOMOBILE LIABILITY
(including coverage for Hired and Non-owned Automobiles)
LIMIT OF LIABILITY
Bodily Injury and Property Damage $1,000,000 per occurrence
Without limiting the foregoing, Tenant's General Contractor shall also
procure and maintain at its expense an umbrella liability insurance policy with
a minimum limit of liability of $5,000,000 annual general aggregate. Such
umbrella policy shall name Landlord's Construction Representative and Leggat
McCall Properties LLC as additional insured parties and shall be evidenced by an
insurance certificate delivered to Landlord prior to construction.
<PAGE> 80
EXHIBIT C-1B
CABLING, WELDING AND HEAT CUTTING
1. Installation of Cables
1.1 Computer and Telephone Cables
1.1.1 LAYOUT
A layout of cables must be submitted to Landlord's
Construction Representative for
approval prior to installation.
1.1.2 INSTALLATION
a. Cables installed above the ceiling must be teflon
coated or encased in metal conduit.
b. Cables must be tagged and/or color coded.
c. Cables must be properly affixed to the framing above
the duct work so that they are self-supporting. Do
not fasten to light fixtures.
d. Cables must not sag and will be installed in the
shortest possible runs.
e. Connections (connectors, splices, etc.) must be
securely installed so that they will not pull apart
if cable is accidentally touched or pulled.
1.2 ELECTRICAL FLOOR OUTLET CABLES
1.2.1 LAYOUT
A layout of cables must be submitted to Landlord's
Construction Representative for
approval prior to installation.
1.2.2 INSTALLATION
a. Cables must be tagged and/or color coded.
b. Runs will be as short and as free of slack
as possible.
c. Cables are to be installed in Tenant's own
ceiling then down partitions into the
ceiling of the tenant below.
d. Cables must be properly secured so that they
are self-supporting.
e. All connections (connectors, splices,
etc.) must be located in Tenant's own
space to avoid damage from below.
<PAGE> 81
f. Cables must be secured with clamps where
they pass through the floor to prevent
connections from separating.
g. Where feasible, install cables above duct
work and other materials in the ceiling.
2. WELDING AND HEAT CUTTING WORK
2.1 Welding and heat cutting activities as well as soldering and
brazing shall be included in the "Special Work" category as
defined in Paragraph 5.2(b) of the Construction Rules and
Regulations. To the extent such Special Work shall not be
identified on a construction schedule previously approved by
Landlord, Tenant shall provide Landlord's Construction
Representative with at least seventy-two (72) hours notice
before proceeding and must be performed during periods outside
of regular Business Hours. Landlord shall use reasonable
efforts to schedule the performance by Tenant of such Special
Work on shorter notice.
2.1.1 PERMITTING
The Contractor must obtain a permit from Landlord's
Construction Representative before commencing work. See sample
permit attached.
2.2 PRECAUTIONS
Because welding and other hot work is a fire hazard, the
Contractor must observe the following precautions and
procedures:
a) Sprinklers should be in service while work is underway.
b) Smoke detectors in the work area should be
de-activated by Landlord's Construction
Representative for the duration of the work.
Landlord's Construction Representative will
re-activate smoke detectors when the work is
complete.
c) Combustible materials shall be located at least 35
feet from hot work operations and shall be covered
with non-combustible materials.
d) All flammable liquids and other hazards must be removed.
e) All floor and wall openings must be covered with
non-combustible material.
f) Containers, tanks, ducts, etc. must be cleaned and
purged of flammable vapors, liquids, dusts, etc.
g) A minimum of one multi-purpose 4A-2OBC rated portable
fire extinguisher must be provided within 10 ft. of the
work area. The extinguisher should be fully charged and
have been properly serviced
<PAGE> 82
within the last year. It is the responsibility of the
Contractor to provide fire extinguishers. Building
extinguishers should not be used.
h) A fire watch should be maintained on the floor levels
where the work was conducted plus, if and to the extent
exposed, the next two floors below for at least one half
hour after welding or burning has ceased. If there is a
chance that slag could enter into a utility or elevator
shaft, then the fire watch should cover the base of the
shaft as well as the intermediate floors.
<PAGE> 83
WELDING AND BURNING PERMIT
(Work is not permitted unless this
card is filled in and posted
in work area.)
DATE (of work)___________________________________________________________, 19__
BUILDING ______________________________________________________________________
TENANT ______________________________________ FLOOR ___________________________
CONTRACTOR ____________________________________________________________________
WORK TO BE DONE _______________________________________________________________
SPECIAL PRECAUTIONS ___________________________________________________________
FIRE WATCH REQUIRED ON LEVELS: ______, ______, _______, _______, _______, _____
Permission is granted for this work provided that the necessary precautions are
taken (see back of permit)
PERMIT EXPIRES ________________________________________________________________
SIGNED ________________________________________________________________________
PROPERTY MANAGER
TIME STARTED ____________________________ COMPLETED ___________________________
LOCATION OF NEAREST FIRE PULL STATION _________________________________________
EMERGENCY PHONE NUMBERS: FIRE DEPARTMENT ____________________________
PROPERTY MANAGER ___________________________
FINAL CHECK-UP
Work area and all adjacent areas where sparks might have spread were inspected
for at least 30 minutes after the work was completed and no fire conditions were
noted.
CONTRACTOR ____________________________________________________________________
PROPERTY MANAGER ______________________________________________________________
<PAGE> 84
EXHIBIT D
Firepond, Inc.
8009 South 34th Avenue
Suite 1000, 10th Floor
Bloomington, MN 55425
_____________________, 1999
890 Winter Street, L.L.C.
c/o Leggat McCall Properties LLC
10 Post Office Square
Boston, MA 02109
Re: Firepond, Inc.
[Premises Rentable Area on the Third Floor]
890 Winter Street, Waltham, MA
Ladies and Gentlemen:
Reference is made to that certain Lease, dated as of _____, 1999,
between 890 Winter Street, L.L.C., as Landlord and Firepond, Inc., as Tenant,
with respect to 890 Winter Street, Waltham, Massachusetts. In accordance with
EXHIBIT C of the Lease, this is to confirm that the "Plans" referred to in
Section 3(a) of EXHIBIT C of the Lease, this is to confirm that the "Plans"
referred to in Section 3(a) of EXHIBIT C are those plans and specifications
prepared by __________, and described as follows:
DATE TITLE #PAGES
---- ----- ------
<PAGE> 85
If the foregoing is in accordance with your understanding, would you
kindly execute this letter in the space provided below, and return the same to
us for execution by Landlord, whereupon it will become a binding agreement
between us.
Very truly yours,
FIREPOND, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
Accepted and Agreed:
890 WINTER STREET, L.L.C.
By: Winter Street OpCo, L.L.C., its managing member
By: Leggat McCall Opportunity Investors, LLC,
its managing member
By: LM Opportunity Principals LLC,
its managing member
By: ____________________________________
Name: Eric B. Sheffels
Title: Authorized Member
<PAGE> 86
EXHIBIT E
OPERATING EXPENSES
Without limitation, and subject to the percentage allocation set forth
in Section 9.1, Operating Expenses shall include:
1. All expenses incurred by Landlord, Landlord's agents or
Landlord's affiliates which shall be directly related to employment of
personnel, including amounts incurred for wages, salaries and other compensation
for services, payroll, social security, unemployment and similar taxes,
workmen's compensation insurance, disability benefits, pensions,
hospitalization, retirement plans and group insurance, uniforms and working
clothes and the cleaning thereof, and expenses imposed on Landlord, Landlord's
agents, or Landlord's affiliates pursuant to any collective bargaining agreement
for the services of employees of Landlord or Landlord's agents in connection
with the operation, repair, maintenance, cleaning, management and protection of
the Property and the Site, and its mechanical systems including, without
limitation, day and night supervisors, property manager, accountants,
bookkeepers, janitors, carpenters, engineers, mechanics, electricians and
plumbers and personnel engaged in supervision of any of the persons mentioned
above; provided that, if any such employee is also employed on other property of
Landlord or Landlord's affiliates, such compensation shall be suitably prorated
among the Property and such other properties.
2. The cost of services, utilities (other than the electricity
furnished to the Premises pursuant to Section 7.5), materials and supplies
(including taxes thereon) furnished or used in the operation, repair,
maintenance, cleaning, management and protection of the Property and the Site,
including without limitation fees, if any, imposed upon Landlord or Landlord's
affiliates, or charged to the Property and/or the Site, by the state or
municipality in which the Property is located on account of the need for
increased or augmented public safety services and including, without limitation,
the provision of the following services: cleaning and janitorial services to the
Premises on Business Days, exterior window cleaning, water, elevator service,
exterior maintenance, security, heating, ventilation and air-conditioning and
utilities, including Base Building electricity.
3. The cost of replacements for tools and other similar equipment
used in the repair, maintenance, cleaning and protection of the Property or the
Site, provided that, in the case of any such equipment used jointly on other
property of Landlord or Landlord's affiliates, such costs shall be suitably
prorated among the Property and such other properties.
4. Where the Property is managed by Landlord or an affiliate of
Landlord, a sum equal to the amounts customarily charged by management firms in
the Suburban Route 128/Wellesley-Waltham area for similar properties, but in no
event more than two and one-half percent (2.5%) of gross annual income, whether
or not actually paid, or where managed by other than Landlord or an affiliate
thereof, the amounts accrued for management, together with, in either case,
amounts accrued for legal and other professional fees relating to the Property
and the Site, but excluding such fees and commissions paid in connection with
services rendered for securing, preparing, or renewing leases or litigating
disputes and for matters not related to the normal administration and operation
of the Property.
<PAGE> 87
5. Premiums for insurance against damage or loss to the Building
form such hazards as shall from time to time be generally required by
institutional mortgagees in the Suburban Route 128/Wellesley-Waltham area for
similar properties, including, but not by way of limitation, insurance covering
loss of rent attributable to any such hazards, and general liability insurance.
6. If, during the Lease Term, Landlord or Landlord's affiliates
shall make a capital expenditure either (1) for the reasonably intended purpose
of reducing Operating Expenses undertaken in good faith by Landlord based upon
engineering or other information available to Landlord, upon which Landlord
could reasonably conclude that the cost of such capital improvement(s)
thereafter will, within a reasonable time, result in a reduction of Operating
Expenses equal to or greater than the cost of such capital improvements, whether
or not such a reduction does in fact occur, or (2) pursuant to a requirement of
law, ordinance, order, rule or regulation of any public authority having
jurisdiction or a mandatory (I.E., the failure to comply with any such
requirement will result in the refusal of reputable insurers to issue any policy
which Landlord is obligated to carry pursuant to this Lease or at other than
commercially reasonable rates) requirement of any insurance carrier or insurance
rating organization board, the total cost of which is not properly includable in
Operating Expenses for the Operating Year in which it was made, there shall
nevertheless be included in such Operating Expenses for the Operating Year in
which it was made and in Operating Expenses for each succeeding Operating Year
the annual charge-off of such capital expenditure. Annual charge-off shall be
determined by dividing the original capital expenditure plus an interest factor,
reasonably determined by Landlord, as being the interest rate then being charged
for long-term mortgages by institutional lenders on like properties within the
locality in which the Building is located, by the number of years of useful life
of the capital expenditure; and the useful life shall be determined reasonably
by Landlord in accordance with generally accepted accounting principles and
practices in effect at the time of making such expenditure.
7. Costs for electricity, water and sewer use charges, and other
utilities supplied to the Property and not paid for directly (i.e., other than
by escalation payments) by tenants.
8. Betterment assessments provided the same are apportioned
equally over the longest period permitted by law.
9. Amounts paid to independent contractors for services,
materials and supplies furnished for the operation, repair, maintenance,
cleaning and protection of the Property and the Site.
The following costs and expenses shall be excluded from Operating
Expenses:
1. Costs incurred in connection with the construction of the
original Building improvements, except to the extent such costs are capital
expenditures which will be amortized pursuant to Paragraph 6 above.
2. The cost of defects in the construction, design or equipping
of the Building which are wholly covered by a warranty or guaranty then in
effect from the contractor or supplier responsible for such defect.
<PAGE> 88
3. Costs incurred in connection with the making of repairs which
are the obligation of another tenant in the Building.
4. Interest, fines or penalties for any late payments by Landlord
not due to the act or neglect of Tenant or its agent.
5. Legal fees incurred in connection with Landlord's
noncompliance or violation of law.
6. Costs of repairs, replacements or other work occasioned by
fire, windstorm or other casualty, or the exercise by governmental authorities
of the right of eminent domain.
7. Leasing commissions, attorney's fees, costs, disbursements and
other expenses incurred by Landlord or its agents in connection with
negotiations for leases with tenants, other occupants or prospective tenants or
other occupants of the Building, and similar costs incurred in connection with
disputes with and/or enforcement of any leases with tenants, other occupants, or
prospective tenants or other occupants of the Building.
8. "Tenant allowances", "tenant concessions", workletters, and
other costs or expenses (including permit, license and inspection fees) incurred
in completing, fixturing, furnishing, renovating or otherwise improving,
decorating or redecorating space for tenants or other occupants of the Building,
or vacant, leaseable space in the Building, including space planning/interior
architecture fees for same.
9. Costs of correcting defects, including any allowances for
same, in construction of the Building (including latent defects) or equipment
used therein (or the replacement of defective equipment), any associated parking
facilities, or other improvements, or in the equipment used therein of which
Landlord has been given notice by any tenant within two years of the
Commencement Date.
10. Depreciation, other "non-cash" expense items or amortization,
except for amortization charges as provided for in inclusion item 6 above.
11. Costs of a capital nature, except as provided for in inclusion
item 6 above, including, but not limited to, capital additions, capital
improvements, capital repairs, capital maintenance, capital alterations, capital
replacements, capital equipment and capital tools, and/or capital redesign, all
in accordance with generally accepted accounting principles, consistently
applied.
12. Costs in connection with services (including electricity),
items or other benefits of a type which are not standard for the Building and
which are not available to Tenant without specific charge therefor, but which
are provided to another tenant or occupant of the Building, whether or not such
other tenant or occupant is specifically charged therefor by Landlord.
13. Services, items and benefits for which Tenant or any other
tenant or occupant of the Building specifically reimburses Landlord or for which
Tenant or any other tenant or occupant of the Building pays third persons.
<PAGE> 89
14. Costs or expenses (including fines, penalties and legal fees)
incurred due to the violation by Landlord, its employees, agents and/or
contractors, any tenant (other than Tenant) or other occupant of the Building,
of any terms and conditions (other than by Tenant) of this Lease or of the
leases of other tenants in the Building, and/or any valid, applicable laws,
rules, regulations and codes of any federal, state, county, municipal or other
governmental authority having jurisdiction over the Property that would not have
been incurred but for such violation by Landlord, its employees, agents, and/or
contractors, it being intended that each party shall be responsible for the
costs resulting from its own violation of such leases and laws, rules,
regulations and codes as same shall pertain to the Property.
15. Penalties for late payment by Landlord, including, without
limitation, taxes, equipment leases, etc.
16. Costs directly resulting from the gross negligence or willful
misconduct of Landlord, its employees, agents and/or contractors.
17. Payments in respect of overhead and/or profit to any
subsidiary or Affiliate (hereinafter defined) of Landlord as a result of a
non-competitive selection process for services (other than the management fee)
on or to the Property, or for goods, supplies or other materials, to the extent
that the costs of such services, goods, supplies and/or materials exceed the
costs that would have been paid had the services, goods, supplies or materials
been provided by parties unaffiliated with Landlord of similar skill, competence
and experience, on a competitive basis.
18. Payments of principal, finance charges or interest on debt or
amortization on any mortgage, deed of trust or other debt, and rental payments
(or increases in same) under any ground or underlying lease or leases (except to
the extent the same may be made to pay or reimburse, or may be measured by, real
estate taxes).
19. Taxes payable by Landlord other than Taxes.
20. Real estate taxes allocable to the leasehold improvements of
other tenants or occupants of the Building.
21. Except for the management fee, costs of Landlord's general
overhead and general administrative expenses (individual, partnership or
corporate, as the case may be), which costs would not be chargeable as an
operating expense in accordance with generally accepted accounting principles,
consistently applied.
22. Rentals and other related expenses, if any, incurred in
leasing air conditioning systems, elevators or other equipment ordinarily
considered to be of a capital nature, except equipment which is used in
providing janitorial services and which is not affixed to the Building.
23. Costs incurred in installing, operating, maintaining and
owning any specialty items or services not normally installed, operated and
maintained in buildings comparable to the Building and not necessary for
Landlord's operation, repair and maintenance of, and the providing of required
services for, the Building and/or any associated parking facilities, including,
but not limited to, an observatory, beacon(s), broadcasting facilities (other
than the Building's music system, and life support and security systems),
helicopter pad, promotions, and
<PAGE> 90
displays, but specifically excluding costs incurred in installing, operating,
maintaining and owning the cafeteria, the fitness center and related shower and
locker facilities, the shared use conference center, the concierge, the kiosk
and any other amenities normally found in comparable office buildings in the
Waltham area.
24. Advertising and promotional expenses incurred in connection
with leasing of rentable areas in the Building.
25. Costs or expenses for sculpture, paintings or other works of
art, including costs incurred with respect to the purchase, ownership, showing,
promotion, and/or securing of same.
26. Costs for which Landlord is compensated or reimbursed by
insurance or other means of recovery to the extent the proceeds are compensation
for expenses which previously were included in Operating Expenses for the years
in which such proceeds were received.
27 Costs of correcting or repairing defects in the Building
and/or any associated parking facilities, and/or equipment or the replacement of
defective equipment to the extent that such costs are reimbursed under
warranties of manufacturers, suppliers or contractors, or are otherwise borne by
parties other than Landlord.
28. Costs of restoration or repair of the Building as a result of
total or partial destruction or condemnation thereof.
29. Contributions to operating expense reserves.
30. Contributions to charitable organizations.
31. Costs incurred in removing the property of former tenants
and/or other occupants of the Building.
32. Rental and any other expenses, including wages, salaries and
benefits, and adjustments thereto, for Landlord's leasing offices.
33. Consulting costs and expenses incurred by Landlord except to
the extent same relate exclusively to the improved management or operation of
the Building.
34. The costs of any "tap fees" or one-time lump sum sewer or
water connection fees for the Building.
35. Costs or fees relating to the defense of Landlord's title to
or interest in the Property, or any part thereof.
36. Any other expense which, under generally accepted accounting
principles, consistently applied, would not be considered to be a normal
maintenance or operating expense of the Building.
The term "Affiliate" shall mean and refer to any person or entity controlling,
controlled by, or under common control with another such person or entity.
"Control", as used herein, shall mean
<PAGE> 91
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such controlled person or entity;
the ownership, directly or indirectly, of at least fifty-one percent (51%) of
the voting securities of, or possession of the right to vote, in the ordinary
direction of its affairs, at least fifty-one percent (51%) of the voting
interest in, any person or entity shall be presumed to constitute such control.
In the case of Landlord, the term Affiliate shall include any person or entity
controlling or controlled by or under common control with any managing member of
Landlord or any managing member of Landlord's managing member.
<PAGE> 92
EXHIBIT F
RULES AND REGULATIONS
I. The following regulations are generally applicable:
1. The public sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by Tenant (except as necessary for deliveries) or used for any purpose other
than ingress and egress to and from the Premises.
2. No awnings, curtains, blinds shades, screens or other
projections shall be attached to or hung in, or used in connection with, any
window of the Premises or any outside wall of the Building. Such awnings,
curtains, blinds, shades, screens or other projections must be of a quality,
type, design and color, and attached in the manner, approved by Landlord.
3. No show cases or other articles shall be put in front of or
affixed to any part of the exterior of the Building, nor places in the halls,
corridors or vestibules.
4. The water and wash closets and other plumbing fixtures shall
not be used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids or like substances shall be
deposited therein. All damages resulting from any misuse of the fixtures shall
be borne by the Tenant.
5. Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, for manufacturing. Tenant
shall not use the Premises or any part thereof or permit the Premises or any
part thereof to be used as a public employment bureau or for the sale of
property of any kind at auction, except in connection with Tenant's business.
6. Tenant must, upon the termination of its tenancy, restore to
the Landlord all locks, cylinders and keys to offices and toilet rooms of the
Premises.
7. The Landlord reserves the right to exclude from the Building
between the hours of 6 p.m. and 8 a.m. and at all hours on Sunday and holidays
all persons connected with or calling upon the Tenant who do not present a pass
to the Building signed by the Tenant. Tenant shall be responsible for all
persons for whom it issues any such pass and shall be liable to the Landlord for
all wrongful acts of such persons.
8. The requirements of Tenant will be attended to only upon
application at the Building Superintendent's Office. Employees of Landlord shall
not perform any work or do anything outside of their regular duties, unless
under special instructions from the office of the Landlord.
9. There shall not be used in any space, or in the public halls
of the Building, either by 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.
10. No bicycles, vehicles or animals of any kind shall be brought
into or kept in or about the Premises.
<PAGE> 93
11. No Tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or neighboring
building or premises or those having business with them whether by use of any
musical instrument, radio, talking machine, unmusical noise, whistling, singing,
or in any other way. No Tenant shall throw anything out of the doors, windows or
skylights or down the passageways.
12. The Premises shall not be used for lodging or sleeping or for
any immoral or illegal purpose.
13. No smoking shall be permitted in the Premises or the Building.
Smoking shall only be permitted in smoking areas outside of the Building which
have been designated by the Landlord.
14. Tenants shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system by closing draperies when sun's rays fall
directly on windows of Premises.
15. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name of the Building.
16. Any person desiring to use the health and fitness facility
shall first execute and deliver to the Landlord a liability waiver form prepared
by the Landlord.
II. The following regulations are applicable to any additions, Alterations
or improvements being undertaken by or for Tenant in the Premises:
A. GENERAL
1. All Alterations to be made by Tenant in, to or about the
Premises shall be made in accordance with the requirements of this Exhibit and
by contractors or mechanics approved by Landlord.
2. Tenant shall, prior to the commencement of any work, submit
for Landlord's written approval, complete plans for the Alterations. Drawings
are to be complete with full details and specifications for all of the
Alterations.
3. Alterations must comply with the Building Code applicable to
the Property and the requirements, rules and regulations and any other
governmental agencies having jurisdiction.
4. No work shall be permitted to commence without the Landlord
being furnished with a valid permit and all other necessary approvals from
agencies having jurisdiction.
5. All demolition, removals or other categories of work that may
inconvenience other tenants or disturb Building operations, must be scheduled
and performed before or after normal Business Hours and Tenant shall provide the
Building manager with at least 24 hours' notice prior to proceeding with such
work.
6. All inquiries, submissions, approvals and all other matters
shall be processed through the Building manager.
<PAGE> 94
B. PRIOR TO COMMENCEMENT OF WORK
1. Tenant shall submit to the Building manager a request to
perform the work. The request shall include the following enclosures:
(i) A list of Tenant's contractors and/or subcontractors
for Landlord's approval.
(ii) Four complete sets of plans and specifications
properly stamped by a registered architect or
professional engineer.
(iii) A properly executed building permit application form.
(iv) Four executed copies of the Insurance Requirements
agreement in the form attached to these Tenant's Work
Requirements as EXHIBIT G from Tenant's contractor
and if requested by Landlord from the contractor's
subcontractors.
(v) Contractor's and subcontractor's insurance
certificates including an indemnity in accordance
with the Insurance Requirements agreement.
2. Landlord will return the following to Tenant:
(i) Two sets of plans approved or a disapproval with
specific comments as to the reasons therefor (such
approval or comments shall not constitute a waiver of
approval of governmental agencies).
(ii) Two fully executed copies of the Insurance
Requirements agreement.
3. Tenant shall obtain a building permit from the Building
Department and necessary permits from other governmental agencies. Tenant shall
be responsible for keeping current all permits. Tenant shall submit copies of
all approved plans and permits to Landlord and shall post the original permit on
the Premises prior to the commencement of any work. All work, if performed by a
contractor or subcontractor, shall be subject to reasonable supervision and
inspection by Landlord's Construction Representative. Such supervision and
inspection shall be at Tenant's sole expense and Tenant shall pay Landlord's
reasonable charges for such supervision and inspection.
C. REQUIREMENTS AND PROCEDURES
1. All structural and floor loading requirements shall be subject
to the prior approval of Landlord's structural engineer.
2. All mechanical (HVAC, plumbing and sprinkler) and electrical
requirements shall be subject to the approval of Landlord's mechanical and
electrical engineers and all mechanical and electrical work shall be performed
by contractors who are engaged by Landlord in constructing the Building. When
necessary, Landlord will require engineering and shop
<PAGE> 95
drawings, which drawings must be approved by Landlord before work is started.
Drawings are to be prepared by Tenant and all approvals shall be obtained by
Tenant.
3. Elevator service for construction work shall be charged to
Tenant at standard Building rates. Prior arrangements for elevator use shall be
made with Building manager by Tenant. No material or equipment shall be carried
under or on top of elevators. If an operating engineer is required by any union
regulations, such engineer shall be paid for by Tenant.
4. If shutdown of risers and mains for electrical, HVAC,
sprinkler and plumbing work is required, such work shall be supervised by
Landlord's Construction Representative. No work will be performed in Building
mechanical equipment rooms without Landlord's approval and under Landlord's
supervision.
5. Tenant's contractor shall:
(i) have a superintendent or foreman on the Premises at
all times;
(ii) police the job at all times, continually keeping the
Premises orderly;
(iii) maintain cleanliness and protection of all areas,
including elevators and lobbies.
(iv) protect the front and top of all peripheral HVAC
units and thoroughly clean them at the completion of
work:
(v) block off supply and return grills, diffusers and
ducts to keep dust from entering into the Building
air conditioning system; and
(vi) avoid the disturbance of other tenants.
6. If Tenant's contractor is negligent in any of its
responsibilities, Tenant shall be charged for corrective work.
7. All equipment and installations must be equal to the standards
generally in effect with respect to the remainder of the Building. Any deviation
from such standards will be permitted only if indicated or specified on the
plans and specifications and approved by Landlord.
8. A properly executed air balancing report signed by a
professional engineer shall be submitted to Landlord upon the completion of all
HVAC work.
9. Upon completion of the Alterations, Tenant shall submit to
Landlord a permanent certificate of occupancy and final approval by the other
governmental agencies having jurisdiction.
10. Tenant shall submit to Landlord a final "as-built" set of
drawings showing all items of the Alterations in full detail.
<PAGE> 96
11. Additional and differing provisions in the Lease, if any, will
be applicable and will take precedence.
III. The following regulations shall be effective with respect to any plans
or specifications that Tenant is required to prepare under the Lease:
Whenever Tenant shall be required by the terms of the Lease to submit
plans to Landlord in connection with any improvement or Alteration to the
Premises, such plans shall include at least the following:
1. Floor plan indicating location of partitions and doors
(details required of partition and door types).
2. Location of standard electrical convenience outlets and
telephone outlets.
3. Location and details of special electrical outlets; E.G.,
photocopiers, etc.
4. Reflected ceiling plan showing layout of standard ceiling and
lighting fixtures. Partitions to be shown lightly with
switches located indicating fixtures to be controlled.
5. Locations and details of special ceiling conditions, lighting
fixtures, speakers, etc.
6. Location and specifications of floor covering, paint or
paneling with paint colors referenced to standard color
system.
7. Finish schedule plan indicating wall covering, paint, or
paneling with paint colors referenced to standard color
system.
8. Details and specifications of special millwork, glass
partitions, rolling doors and grilles, blackboards, shelves,
etc.
9. Hardware schedule indicating door number keyed to plan, size,
hardware required including butts, latchsets or locksets,
closures, stops, and any special items such as thresholds,
soundproofing, etc. Keying schedule is required.
10. Verified dimensions of all built-in equipment (file cabinets,
lockers, plan files, etc.)
11. Location and weights of storage files.
12. Location of any special soundproofing requirements.
13. Location and details of special floor areas exceeding 50
pounds of live load per square foot.
14. All structural, mechanical, plumbing and electrical drawings,
to be prepared by the base building consulting engineers,
necessary to complete the Premises in accordance with Tenant's
plans.
<PAGE> 97
15. All drawings to be uniform size (30' x 46') and shall
incorporate the standard project electrical and plumbing
symbols and be at a scale of 1/8" = 1' or larger.
16. All drawings shall be stamped by an architect (or, where
applicable, an engineer) licensed in the jurisdiction in which
the Property is located and without limiting the foregoing,
shall be sufficient in all respects for submission to
applicable governmental authorities in connection with a
building permit application.
17 Landlord's approval of the plans, drawings, specifications or
other submissions in respect of any work, addition, Alteration
or improvement to be undertaken by or on behalf of Tenant
shall create no liability or responsibility on the part of
Landlord for their completeness, design sufficiency or
compliance with requirements of any applicable laws, rules or
regulations of any governmental or quasi-governmental agency,
board or authority.
<PAGE> 98
EXHIBIT G
CONTRACTOR'S INSURANCE
Building: 890 Winter Street, Waltham, MA
Tenant: Firepond. Inc.
Premises: __________ Rentable Square Feet of Space on the Third Floor of the
Building.
The undersigned contractor or subcontractor ("Contractor") has been hired by the
tenant or occupant (hereinafter called "Tenant") of the Building named above or
by Tenant's contractor to perform certain work ("Tenant's Work") for Tenant in
the Premises identified above. Contractor and Tenant have requested the
undersigned landlord ("Landlord") to grant Contractor access to the Building and
its facilities in connection with the performance of the Work and Landlord
agrees to grant such access to Contractor upon and subject to the following
terms and conditions:
1. Contractor agrees to indemnify and save harmless the Landlord,
Landlord's affiliates and their respective officers, employees, agents, members
and partners and each of them, from and with respect to any claims, demands,
suits, liabilities, losses and expenses, including reasonable attorneys' fees,
arising out of or in connection with the Work (and/or imposed by law upon any or
all of them) because of personal injuries, bodily injury (including death at any
time resulting therefrom) and loss of or damage to property, including
consequential damages, whether such injuries to person or property are claimed
to be due to negligence of the Contractor, Tenant, Landlord or any other party
entitled to be indemnified as aforesaid except to the extent specifically
prohibited by law (and any such prohibition shall not void this Agreement but
shall be applied only to the minimum extent required by law).
2. Contractor shall provide and maintain at its own expense, until
completion of the Work, the following insurance:
(a) Workmen's Compensation (including coverage for Occupational Disease)
and Employers Liability Insurance covering each and every workman employed in,
about or upon the Work, as provided for in each and every statute applicable to
Workmen's Compensation and Employers' Liability Insurance.
(b) Comprehensive General Liability Insurance including coverages for
Protective and Contractual liability (to specifically include coverage for the
indemnification clause of this Agreement) for not less than the following
limits:
Personal Injury:
$3,000,000 per person
$5,000,000 per
occurrence
Property Damage:
$3,000,000 per occurrence / $3,000,000 aggregate
<PAGE> 99
(c) Comprehensive Automobile Liability Insurance (covering all owned,
non-owned and/or hired motor vehicles to be used in connection with the Work)
for not less than the following limits:
Bodily Injury:
$1,000,000 per person
$1.000,000 per occurrence
Property Damage:
$1,000,000 per occurrence
Contractor shall furnish a certificate from its insurance carrier or
carriers to the Building office before commencing the Work, showing that it has
compiled with the above requirements regarding insurance and providing that the
insurer will give Landlord ten (10) days' prior written notice of the
cancellation, modification or expiration of any of the foregoing policies.
3. Contractor shall require all of its subcontractors engaged in
the Work to provide the following insurance:
(a) Comprehensive General Liability Insurance including
Protective and Contractual Liability coverages with
limits of liability at least equal to the limits
stated in paragraph 2(b).
(b) Comprehensive Automobile Liability Insurance
(covering all owned, non-owned and/or hired motor
vehicles to be used in connection with the Work) with
limits of liability at least equal to the limits
stated in paragraph 2(c).
[Remainder of Page Left Blank Intentionally]
<PAGE> 100
Upon the request of Landlord, Contractor shall require all of its
subcontractors engaged in the Work to execute an Insurance Requirements
agreement in the same form as this Agreement.
Agreed to and executed this ___ day of __________ 19__.
LANDLORD: 890 WINTER STREET. L.L.C.
By: Winter Street OpCo, L.L.C., its managing member
By: Leggat McCall Opportunity Investors, LLC,
its managing member
By: LM Opportunity Principals LLC,
its managing member
By: ____________________________
Name: Eric B. Sheffels
Title: Authorized Member
CONTRACTOR: ________________________________
By: ______________________________
Name:_____________________________
Title:____________________________
<PAGE> 101
EXHIBIT H
FORM OF
SUBORDINATION. NON-DISTURBANCE AND ATTORNMENT AGREEMENT
[Attach form approved by Fleet National Bank]
<PAGE> 102
EXHIBIT H
LEASE SUBORDINATION, NON-DISTURBANCE
OF POSSESSION AND ATTORNMENT AGREEMENT
This agreement ("Lease Subordination, Non-Disturbance of Possession and
Attornment Agreement" or "Agreement") is made as of the ____ day of ___________
1998, among Fleet National Bank, a national banking association having a place
of business at 75 State Street, Boston, Massachusetts 02109 as agent under a
Construction and Interim Loan Agreement dated as of February 10, 1998 ("Loan
Agreement") among Borrower, Fleet National Bank, and the other lending
institutions which are listed on Schedule 1 annexed to the Loan Agreement (Fleet
National Bank and the other lending institutions which are listed on Schedule 1
annexed to the Loan Agreement are hereinafter collectively referred to as
"Lenders" and individually as "Lender") and Fleet National Bank. as agent
("Agent": which term shall include, if applicable, any other party substituted
for Fleet National Bank as "Agent" under the Loan Agreement), 880 Winter Street.
L.L.C., a Delaware limited liability company having a place of business at 10
Post Office Square, Boston, Massachusetts 02109 ("Landlord" or "Borrower"), and
_______________, a ___________________ having a place of business at
_________________ ("Tenant").
INTRODUCTORY PROVISIONS
A. Agent is relying on this Agreement as an inducement to Agent
in making and maintaining a loan ("Loan") secured by, among other things, a
Mortgage and Security Agreement dated as of February 10, 1998 ("Mortgage") given
by Borrower covering property commonly known as and numbered 880 Winter Street,
Waltham, Massachusetts ("Property") which Mortgage, including a legal
description of the Property shall be recorded simultaneously herewith. Agent is
also the "Assignee" under an Assignment of Leases and Rents ("Assignment") dated
as of February 10, 1998, from Borrower with respect to the Property which
Assignment shall be recorded simultaneously herewith.
B. Tenant is the tenant under that certain lease ("Lease")
dated _______________, 1998, made with Landlord, covering certain premises
("Premises") at the Property as more particularly described in the Lease and in
the "Notice of Lease" dated ___________________, 1998 which shall be recorded
simultaneously herewith.
C. Agent requires, as a condition to the making and maintaining
of the Loan, that the Mortgage be and remain superior to the Lease and that its
rights under the Assignment be recognized.
D. Tenant requires as a condition to the Lease being subordinate
to the Mortgage that its rights under the Lease be recognized.
E. Agent, Landlord, and Tenant desire to confirm their
understanding with respect to the Mortgage and the Lease.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein, and other valuable consideration, the receipt
and adequacy of
<PAGE> 103
which are hereby acknowledged, and with the understanding by Tenant that Agent
and Lenders shall rely hereon in mania and maintaining the Loan, Agent and
Lenders, Landlord, and Tenant agree as follows:
1. SUBORDINATION. The Lease and the rights of Tenant thereunder
are subordinate and inferior to the Mortgage and any amendment, renewal,
substitution, extension or replacement thereof and each advance made thereunder
as though the Mortgage, and each such amendment, renewal, substitution,
extension or replacement were executed and recorded, and the advance made,
before the execution of the Lease. Without limiting the foregoing and
notwithstanding any other term or provision of this Agreement, Tenant's rights
with respect to proceeds of insurance and of eminent domain awards are expressly
made subject and subordinate to the rights of Agent, and the disposition of such
proceeds shall be governed by Sections 14.3, 14.4 and 14.5 of the Loan
Agreement, a copy of which Sections is annexed hereto as EXHIBIT A and
incorporated by reference herein, and the other "Loan Documents" referred to
therein, in all respects.
2. NON-DISTURBANCE. So long as Tenant is not in default (beyond
any period expressed in the Lease within which Tenant may cure such default) in
the payment of rent or in the performance or observance of any of the terms,
covenants or conditions of the Lease on Tenant's part to be performed or
observed, (i) Tenant's occupancy of the Premises shall not be disturbed by Agent
in the exercise of any of its rights under the Mortgage during the term of the
Lease, or any extension or renewal thereof made in accordance with the terms of
the Lease, and (ii) Agent will not join Tenant as a party defendant in any
action or proceeding for the purpose of terminating Tenant's interest and estate
under the Lease because of any default under the Mortgage.
3. ATTORNMENT AND CERTIFICATES. In the event Agent succeeds to
the interest of Borrower as Landlord under the Lease, or if the Property or the
Premises are sold pursuant to the power of sale under the Mortgage (or by a
deed-in-lieu of foreclosure), Tenant shall attorn to Agent, or a purchaser upon
any such foreclosure sale (or deed-in-lieu), and shall recognize Agent, or such
purchaser, thereafter as the Landlord under the Lease. Such attornment shall be
effective and self-operative without the execution of any further instrument.
Tenant agrees, however, to execute and deliver at any time and from time to
time, upon the request of any holder(s) of any of the indebtedness or other
obligations secured by the Mortgage, or upon request of any such purchaser, (a)
any instrument or certificate which, in the reasonable judgment of such
holder(s), or such purchaser, may be necessary or appropriate in any such
foreclosure proceeding or otherwise to evidence such attornment, and (b) an
instrument or certificate regarding the status of the Lease, consisting of
statements, if true (and if not true, specifying in what respect), (i) that the
Lease is in full force and effect, (ii) the date through which rentals have been
paid, (iii) the duration and date of the commencement of the term of the Lease,
(iv) the nature of any amendments or modifications to the Lease, (v) that no
default, or state of facts, which with the passage of time, or notice, or both,
would constitute a default, exists on the part of Tenant or, to Tenant's
knowledge, on the part of Landlord, and (vi) the dates on which payments of
additional rent, if any, are due under the Lease.
4. LIMITATIONS. If Agent exercises any of its rights under the
Assignment or the Mortgage, or if Agent shall succeed to the interest of
Landlord under the Lease in any manner, or if any purchaser acquires the
Property, or the Premises, upon or after any foreclosure of the
<PAGE> 104
Mortgage, or any deed in lieu thereof, Agent or such purchaser, as the case may
be, shall have the same remedies by entry, action or otherwise in the event of
any default by Tenant (beyond any period expressed in the Lease within which
Tenant may cure such default) in the payment of rent or in the performance or
observance of any of the terms, covenants and conditions of the Lease on
Tenant's part to be paid, performed or observed that the Landlord had or would
have had if Agent or such purchaser had not succeeded to the interest of the
present Landlord. From and after any such attornment, Agent or such purchaser
shall be bound to Tenant under all the terms, covenants and conditions of the
Lease, and Tenant shall, from and after such attornment to Agent, or to such
purchaser, have the same remedies against Agent, or such purchaser, for the
breach of an agreement contained in the Lease that Tenant might have had under
the Lease against Landlord, if Agent or such purchaser had not succeeded to the
interest of Landlord. PROVIDED, HOWEVER, that Agent or such purchaser shall only
be bound during the period of its ownership, and that in the case of the
exercise by Agent of its rights under the Mortgage, or the Assignment, or any
combination thereof, or a foreclosure, or deed in lieu of foreclosure, all
Tenant claims shall be satisfied only out of the interest, if any, of Agent, or
such purchaser, in the Property, including the interest, if any, of Agent or
such purchaser in any insurance proceeds, condemnation awards, rents, issues or
profits received by Agent or such purchaser on account of the Property
("Property Interests") and, notwithstanding anything to the contrary contained
in the Lease, Agent and such purchaser shall not be (a) liable for any act or
omission of any prior landlord (including the Landlord) provided, however, Agent
shall be responsible for the performance of any landlord obligations under the
Lease which are required to be performed after Agent or such purchaser succeeds
to the interest of Landlord under the Lease; or (b) subject to any offsets,
counterclaims or defenses which Tenant might have against any prior landlord
(including the Landlord); or (c) bound by any rent, percentage rent or
additional rent which Tenant might have paid for more than the then current
rental period to any prior landlord (including the Landlord); or (d) bound by
any amendment or modification of the Lease, or any consent to any assignment or
sublet, made without Agent's prior written consent; or (e) bound by or
responsible for any security deposit, tax, insurance, or other prepaid or
escrowed sums not actually received by Agent; or (f) liable for or incur any
obligation with respect to any breach of warranties or representations of any
nature under the Lease or otherwise including without limitation any warranties
or representations respecting use, compliance with zoning, landlord's title,
landlord's authority, habitability and/or fitness for any purpose, or
possession; or (g) liable for consequential damages or (h) bound to honor
expansion or purchase options under the Lease except as set forth in Section
1-2, below. Notwithstanding the foregoing, Tenant specifically acknowledges and
agrees that Agent's liability to Tenant in connection with the Lease is limited
solely to Agent's Property Interests.
5. RIGHTS RESERVED. Nothing herein contained is intended, nor
shall it be construed, to abridge or adversely affect any right or remedy of:
(a) the Landlord under the Lease, or any subsequent Landlord, against the Tenant
in the event of any default by Tenant (beyond any period expressed in the Lease
within which Tenant may cure such default) in the payment of rent or in the
performance or observance of any of the terms, covenants or conditions of the
Lease on Tenant's part to be performed or observed; or (b) the Tenant under the
Lease against any prior landlord (including the Landlord) in the event of any
default by such Landlord to pursue claims against such Landlord whether or not
such claim is barred against Agent or a subsequent purchaser.
<PAGE> 105
6. NOTICE AND RIGHT TO CURE. Tenant agrees to provide Agent with
a copy of each notice of default given to Landlord under the Lease, at the same
time as such notice of default is given to the Landlord, and that, in the event
of any default by the Landlord under the Lease, Tenant will take no action to
terminate the Lease (a) if the default is not curable by Agent (so long as the
default does not interfere with Tenant's use and occupation of the Premises), or
(b) if the default is curable by Agent, unless the default remains uncured for a
period of thirty (30) days after written notice thereof shall have been given,
postage prepaid, to Landlord at Landlord's address, and to Agent at the address
provided in Section 7 below; PROVIDED, HOWEVER, that if any such default is such
that it reasonably cannot be cured within such thirty (30) day period, such
period shall be extended for such additional period of time as shall be
reasonably necessary (including, without limitation, a reasonable period of time
to obtain possession of the Property and to foreclose the Mortgage), if Agent
gives Tenant written notice within such thirty (30) day period of Agent's
election to undertake the cure of the default and if curative action (including,
without limitation, action to obtain possession and foreclose) is instituted
within a reasonable period of time and is thereafter diligently pursued. Unless
Agent has provided Tenant with such written notice of Agent's election to
undertake a cure of a default as provided above, Agent shall have no obligation
to cure any default under the Lease.
7. NOTICES. Any notice or communication required or permitted
hereunder shall be in writing, and shall be given or delivered: (i) by United
States mail, registered or certified, postage fully prepaid, return receipt
requested, or (ii) by recognized courier service or recognized overnight
delivery service; and in any event addressed to the party for which it is
intended at its address set forth below:
To Agent: Fleet National Bank
75 State Street
Boston, Massachusetts 02109
Attention: Michael J. Sleece
with a copy to: Goulston & Storrs, P.C.
400 Atlantic Avenue
Boston, Massachusetts 02110
Attention: Michael J. Haroz, Esq.
To Tenant: _________________________________
_________________________________
_________________________________
with a copy to: _________________________________
_________________________________
_________________________________
or such other address as such party may have previously specified by notice
given or delivered in accordance with the foregoing. Any such notice shall be
deemed to have been given and received on the date delivered or tendered for
delivery during normal business hours as herein provided.
<PAGE> 106
8. NO ORAL CHANGE. This Agreement may not be modified orally or
in any manner than by an agreement in writing signed by the parties hereto or
their respective successors in interest.
9. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto, their respective heirs,
personal representatives, successors and assigns (including, without limitation,
holders by assignment or participation of interests in the Loan), and any
purchaser or purchasers at foreclosure of the Property or any portion thereof,
and their respective heirs, personal representatives, successors and assigns.
10. PAYMENT OF RENT TO AGENT. Tenant acknowledges that it has
notice that the Lease and the rent and all sums due thereunder have been
assigned to Agent as part of the security for the Obligations secured by the
Mortgage. In the event Agent notifies Tenant of a default under the Loan and
demands that Tenant pay its rent and all other sums due under the Lease to Agent
(the "Notification"), Tenant agrees that it will honor such demand and pay its
rent and all other sums due under the Lease to Agent, or Agent's designated
agent, until otherwise notified in writing by Agent. Borrower unconditionally
authorizes and directs Tenant to make rental payments directly to Agent
following receipt of such notice and further agrees that Tenant may rely upon
such notice without any obligation to further inquire as to whether or not any
default exists under the Mortgage or the Assignment, and that Borrower shall
have no right or claim against Tenant for or by reason of any payments of rent
or other charges made by Tenant to Agent following receipt of such notice.
Tenant and Borrower each acknowledges Agent's right to collect rents and other
sums under the Lease, as set forth above, and Agent acknowledges that from and
after the date on which Agent has provided the Notification to Tenant. Agent
shall be bound to Tenant under the terms, covenants and conditions of the Lease,
including, without limitation, the covenant to furnish building services and
otherwise operate the Property as more particularly described in the Lease.
11. NO AMENDMENT OR CANCELLATION OF LEASE. So long as the Mortgage
remains undischarged of record, except as expressly permitted by the Lease,
Tenant shall not amend, modify, cancel or terminate the Lease, or consent to an
amendment, modification, cancellation or termination of the Lease, or agree to
subordinate the Lease to any other mortgage, without Agent's prior written
consent in each instance.
12. OPTIONS. With respect to any options for additional space
provided to Tenant under the Lease, Agent agrees to recognize the same if Tenant
is entitled thereto under the Lease after the date on which Agent succeeds as
Landlord under the Lease by virtue of foreclosure or deed in lieu of foreclosure
or Agent takes possession of the Premises; PROVIDED, HOWEVER, Agent shall not be
responsible for any acts of any prior landlord under the lease, or the act of
any tenant, subtenant or other party which prevents Agent from complying with
the provisions hereof and Tenant shall have no right to cancel the Lease or to
make any claims against Agent on account thereof.
With respect to any options in the Lease or otherwise providing Tenant
with rights to purchase the Property or interests therein, such options shall be
subordinate to the Mortgage and shall not apply to any foreclosure or
deed-in-lieu of foreclosure.
<PAGE> 107
13. CAPTIONS. Captions and headings of sections are not parts of
this Agreement and shall not be deemed to affect the meaning or construction of
any of the provisions of this Agreement.
14. COUNTERPARTS. This Agreement may be executed in several
counterparts each of which when executed and delivered is an original, but all
of which together shall constitute one instrument.
15. GOVERNING LAW. This Agreement shall be governed by and
=construed in accordance with the laws of the Commonwealth of Massachusetts.
16. PARTIES BOUND. The provisions of this Agreement shall be
binding upon and inure to the benefit of Tenant, Agent and Lenders and Borrower
and their respective successors and assigns, PROVIDED, HOWEVER, reference to
successors and assigns of Tenant shall not constitute a consent by Landlord or
Borrower to an assignment or sublet by Tenant but has reference only to those
instances in which such consent is not required pursuant to the Lease or for
which such consent has been given.
<PAGE> 108
IN WITNESS WHEREOF. the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AGENT:
FLEET NATIONAL BANK,
a national banking association
By:_______________________________
Name:
Title:
Date executed by Agent:___________
TENANT:
__________________________________
a ________________________________
By: ______________________________
Name:
Title:
Date executed by Tenant:__________
ATTEST:
______________________________________
Name:
Title:
<PAGE> 109
COMMONWEALTH OF MASSACHUSETTS
, ss. , 19
Then personally appeared before me a __________________________of
Fleet National Bank, a national banking association, and acknowledged the
foregoing to be his free act and deed and the free act and deed of said Fleet
National Bank.
_____________________________
Notary Public
My Commission Expires:
880 Winter Street L.L.C., as Landlord under the Lease, and Borrower
under the Mortgage and Security Agreement, the Loan Agreement and the other Loan
Documents, agrees for itself and its successors and assigns that:
1. The above agreement does not:
(a) constitute a waiver by Agent of any of its rights
under the Mortgage and Security Agreement or any of
the other Loan Documents; or
(b) in any way release Borrower from its obligations to
comply with the terms, provisions, conditions,
covenants and agreements and clauses of the Mortgage
and Security Agreement and other Loan Documents;
2. The provisions of the Mortgage and Security Agreement remain
in full force and effect and must be complied with by
Borrower;
3. Tenant shall have the right to rely on any notice or request
from Agent which directs Tenant to pay rent to Agent without
any obligation to inquire as to whether or not a default
exists and notwithstanding any notice from or claim of
Borrower to the contrary. Borrower shall have no right or
claim against Tenant for rent paid to Agent after Agent so
notifies Tenant to make payment of rent to Agent; and
4. The Borrower shall be bound by all of the terms, conditions
and provisions of the foregoing Agreement in all respects.
<PAGE> 110
Executed and delivered as a sealed instrument as of the _____day of
_____,1998.
BORROWER:
880 WINTER STREET. L.L.C., a
Delaware limited liability company
By: Winter Street OpCo, L.L.C.,
its Managing Member
By: Leggat McCall Opportunity Investors, LLC,
its Managing Member
By: LM Opportunity Management, LLC,
its Managing Member
By: ________________________
Name:
Title:
Hereunto duly authorized
Date executed by Borrower: _____ __,1998
COMMONWEALTH OF MASSACHUSETTS
_____________, ss. _____ __,1998
Then personally appeared before me the above-named the
________________, the ____________ of LM Opportunity Management, LLC, the
Managing Member of Leggat McCall Opportunity Investors, LLC, the Managing Member
of Winter Street OpCo, L.L.C., the Managing Member of 880 Winter Street, L.L.C.
(the Borrower described above) and acknowledged the foregoing instrument to be
such person's free act and deed and the free act and deed of such Borrower.
______________________________
Notary Public
My Commission Expires:
<PAGE> 111
EXHIBIT A
LOAN AGREEMENT - SECTIONS 14. 3 - 14.5
14.3 PAYMENT AND APPLICATION OF INSURANCE PROCEEDS. All proceeds of
insurance shall be paid to Agent and, at Agent's option, be applied to
Borrower's Obligations or released, in whole or in part, to pay for the actual
cost of repair, restoration, rebuilding or replacement (collectively, "Cost To
Repair'"). If the Cost To Repair does not exceed $100,000.00 and no Event of
Default has occurred, Agent shall exercise its option to release so much of the
insurance proceeds as may be required for Borrower to pay for the actual Cost to
Repair in a commercially reasonable manner. If the Cost to Repair is $100,000 or
more, Agent shall also exercise its option to release so much of the insurance
proceeds as may be required to pay for the actual Cost To Repair if:
(i) in Agent's good faith judgment such proceeds
together with any additional funds as may be deposited with
and pledged to Agent are sufficient to pay for the Cost To
Repair;
(ii) in Agent's good faith the Repair Work is
likely to be completed prior to the Maturity Date; and
(iii) no Event of Default has occurred under the
Loan Documents.
14.4 CONDITIONS TO RELEASE OF INSURANCE PROCEEDS. If Agent elects
or is required to release insurance proceeds and the Cost to Repair is $100,000
or more, Agent may impose reasonable conditions on such release which shall
include, but not be limited to, the following:
14.4.1 PRIOR TO SUBSTANTIAL COMPLETION. If the Casualty
occurs prior to Substantial Completion of the Improvements,
satisfaction of all conditions precedent to Loan Advances set forth in
Sections 6, 7.1 and 7.2 and compliance with all construction
requirements of this Agreement.
14.4.2 AFTER SUBSTANTIAL COMPLETION. If the Casualty occurs
after Substantial Completion of the Improvements:
(i) Prior written approval by Agent, which
approval shall not be unreasonably withheld or delayed of
plans, specifications, cost estimates, contracts and bonds for
the restoration or repair of the loss or damage;
(ii) Waivers of lien, architect's certificates,
contractor's sworn statements and other evidence of cost
payments and completion as Agent may reasonably require;
(iii) If the Cost To Repair does not exceed
$100,000.00, the funds to pay therefor shall be released to
Borrower. Otherwise, funds shall be released upon final
completion of the Repair Work, unless Borrower requests
earlier funding, in which event partial monthly disbursements
equal to 90% of the value of the work completed or, if the
applicable contract is on a cost plus basis, then
<PAGE> 112
90% of the costs of the work completed if such cost is less
than the value thereof shall be made prior to final completion
of the repair, restoration or replacement and the balance of
the disbursements shall be made upon full completion and the
receipt by Agent of satisfactory evidence of payment and
release of all liens;
(iv) Determination by Agent that the undisbursed
balance of such proceeds on deposit with Agent, together with
additional funds deposited for the purpose, shall be at least
sufficient to pay for the remaining Cost To Repair, free and
clear of all liens and claims for lien;
(v) All work to comply with the standards,
quality of construction and Legal Requirements applicable to
the construction of the Improvements; and
(vi) the absence of any Event of Default under
any Loan Documents.
14.5 TAKING. If there is any condemnation for public use of the
Property or of any Collateral, the awards on account thereof shall be paid to
Agent and shall be applied to Borrower's Obligations, or at Agent's discretion
released to Borrower. If, in the case of a partial taking or a temporary taking,
in the sole judgment of Agent the effect of such taking is such that there has
not been a material and adverse impairment of the viability of the Project or
the value of the Collateral, so long as no Default exists Agent shall release
awards on account of such taking to Borrower if such awards are sufficient (or
amounts sufficient are otherwise made available) to repair or restore the
Property to a condition reasonably satisfactory to Agent and such partial or
temporary taking shall not be deemed to violate the provisions of Section 9.6.1.
<PAGE> 113
EXHIBIT I
BASE BUILDING CONDITION
Waltham Woods Corporate Center
Description of Tenant Shell Condition
A) FLOORS
1) Landlord's base building shell contractor will leave the
entire shell space broom cleaned and ready for minor leveling
material where necessary to accommodate tenant fit-ups. Minor
floor prep work will be done by the tenant's carpet contractor
as part of the tenant build out.
B) WINDOWS
1) All building standard perimeter windows will be cleaned on the
inside.
2) All building standard perimeter window blinds will be
installed and left in place for tenant's use.
3) Building standard window sills will be maple finished and
installed.
C) COLUMNS
1) Columns are to be delivered with drywall enclosures, taped,
and sanded ready to accept paint by tenant.
D) EXTERIOR WALLS
1) All exterior walls will be insulated, covered with drywall,
taped, and sanded ready to receive new finishes by the tenant.
Installation of perimeter power, data & comm to be coordinated
with Landlord.
E) INTERIOR COMMON AREA WALLS OR CORRIDOR DEMISING WALLS
1) All interior common area walls and corridor demising walls
will be sheet rocked, taped, and sanded ready for tenant
vacant side. The corridor side will be finished with building
standard corridor finishes.
F) CEILINGS
1) The ceiling in the shell space will be exposed structural
steel and metal decking ready to receive the tenants ceiling
system.
G) HVAC
<PAGE> 114
1) The Landlord's shell contractor will provide medium pressure
duct and interior VAV boxes and perimeter fan-powered VAV
boxes with DDC thermostat in a temporary location in the
vacant shell spaces. In finished space, one (1) fan-powered
VAV box will be supplied for every 1,500 rentable square,
feet. All work downstream of the VAV boxes including sheet
metal, flex ductwork, grilles and diffusers, exhaust fans,
balancing and connecting into the energy management system
will be part of tenant build out.
H) FIRE PROTECTION
1) The entire building will be sprinklered with sprinkler heads
in the vacant shell space left in the upright condition spaced
approximately 12' x 14' on center.
I) ELECTRICAL
1) Base Building
(a) The electrical service to the building is provided by
a pad mounted transformer. The secondary service
characteristics are 277/480 volts, three (3) phase,
four (4) wire, 60 Hertz, terminating at the 4000 Amp
main switchboard in the basement electrical room.
(b) Each floor is served with tenant distribution panels
served from a 277/480 volt vertical buss riser.
2) Tenant
Tenant distribution panels (2 double tub 225 amp 110/208 bulb
panel per electric closet) are to provide power for the tenant
lighting, power and VAV boxes. Tenant light and power will be
distributed to each floor at 8.0 watts per square foot. An
additional 2.0 watts per square foot will be available for
tenant lights and power at the main switchboard in the
basement.
Common area VAV's will be wired to the house panels. Tenant
VAV's will need to be connected to the tenant panels for
metering.
4) Base/Tenant
Electrical metering is being provided through a check meter
system installed by the Landlord. Individual meters and hook
up by the tenant.
5) Base/Tenant
The fire alarm system for the Building will meet the "ADA"
requirements. Building common areas are complete. Tenant to
install horn/strobes with its build out.
6) Tenant
<PAGE> 115
Telephone closets are provided on each floor for distribution.
J) DEMISING WALLS
Landlord and Tenant shall equally bear the cost of demising walls
affecting the Premises.
<PAGE> 116
EXHIBIT J
BUILDING STANDARD MATERIALS/SPECIFICATIONS
A. DOORS, FRAMES & HARDWARE
TENANT SUITE ENTRY AND EGRESS DOORS
Solid core maple veneer doors in a maple frame with 1'6" X 8'0"
sidelight and building standard hardware. Door shall be full height
3'0" X 8'0" X 1 3/4"
INTERIOR DOOR
Solid core maple veneer doors in a pressed metal frame with building
standard hardware. Door shall be full height 3'0" x 8'0" x 1 3/4".
STAIN
Stain veneer to match architect's (base building) sample. Landlord
shall provide a stain veneer sample to Tenant's designer within ten
(10) days after execution of the Lease.
ENTRY AND EGRESS DOOR HARDWARE
_______________________- full mortise, lever dead latch lockset with
surface mounted ADA closer, two pair of heavy weighted hinges, Ives
door stop and silencer. Metal shall be US 26 Polished Chrome or US32
polished stainless steel.
Landlord shall provide the complete desired door hardware specification
to Tenant within ten (10) days after execution of the Lease.
INTERIOR DOOR HARDWARE
Lever hardware with two pair of heavy weight hinges, Ives door stop and
silencer.
B. BUILDING SAFE
FIRE PROTECTION
Hydraulically designed, light hazard wet sprinkler system throughout
all common and tenant areas. Heads shall be concealed phantom type
heads recessed in ceiling and centered in the 2' x 2' ceiling tile.
The underground garage will be protected by a dry type sprinkler
system.
SMOKE DETECTORS, HEAT DETECTORS, REMOTE LED'S
Smoke or heat detectors will be installed, where required using CPD-ID
module 301-ID by Fire Control Instruments.
FIRE ALARM HORN/STROBE
Fire alarm strobes will be installed, where required.
C. CEILING
<PAGE> 117
ACOUSTICAL TILE
Acoustic ceiling tile shall be VSG Acoustical Frost 414 with 2' x 2' x
5/8" thick tegular edge. Tenant shall have the right to use an
alternate ceiling specification in certain areas of the Premises,
subject to Landlord's reasonable approval thereof.
SUSPENSION GRID
Grid shall be Chicago Metallic 716 white ceiling grid
CEILING HEIGHTS
13'8" - slab to slab
9'6" - finished ceiling height in tenant space
LIGHTING
2' x 4', 18 cell, 3 lamp, 277 volt, florescent parabolic fixture with
electronic ballast and T-8 lamps and return air baffles. Lighting will
provide 50 foot candles 30" above finished floor.
D. FLOOR COVERINGS
CARPET
Cut pile option: 32 ounce "Cyprus Point IV" by Shaws; or Loop pile
option: 28 ounce "Colonial" by Shaws
VINYL COMPOSITION TILE
12" x 12" tile by Armstrong Standard Excelon
Base 4" high resilient base by Nafco or Roppe
E. PARTITIONS
DEMISING PARTITION
Framed with 3 5/8", 25 gage metal studs on 16" centers. Partitions
shall have one layer of 5/8" gypsum wall board, each side, taped and
sanded. Cavity shall have mineral BATT insulation and meet or exceed
the Underwriters Laboratory Design U448. Partition shall extend from
floor to deck and be sealed, top and bottom.
INTERIOR PARTITION
Framed with 2 1/2", 20 gage metal studs or 3 5/8", 25 gage metal studs
on 16" centers. Partitions shall have one layer of 5/8" gypsum wall
board on each side, taped and sanded. Framing and gypsum board shall
extend from the floor to 6" above the ceiling.
<PAGE> 118
EXHIBIT K
CLEANING SPECIFICATIONS
1. Cleaning.
A. OFFICE AREA
Daily on Business Days:
1. Empty and clean all waste receptacles and
ash trays and remove waste material from the
Premises; wash receptacles as necessary.
2. Sweep and dust mop all carpeted areas using
a dust treated mop.
3. Vacuum all rugs and carpeted areas.
4. Hand dust and wipe clean with treated cloths
all horizontal surfaces including furniture,
office equipment, window sills, door ledges,
chair rails, and convector tops, within
normal reach.
5. Wash clean all water fountains.
6. Remove and dust under all desk equipment and
telephones and replace same.
7. Wipe clean all brass and other bright work.
8. Hand dust all grill work within normal reach.
9. Upon completion of cleaning, all lights will
be turned off and doors locked, leaving the
Premises in an orderly condition.
Weekly:
1. Dust coat racks and the like.
2. Remove all finger marks from private
entrance doors, light switches and doorways.
Quarterly:
Render high dusting not reached in daily cleaning to
include:
1. Dusting all pictures, frames, charts, graphs
and similar wall hangings.
2. Dusting all vertical surfaces, such as
walls, partitions, doors and ducts.
<PAGE> 119
3. Dusting all pipes, ducts and high moldings.
4. Dusting all venetian blinds.
B. Lavatories
Daily on Business Days:
1. Sweep and damp mop floors.
2. Clean all mirrors, powder shelves,
dispensers and receptacles, bright work,
flushometers, piping and toilet seat hinges.
3. Wash both sides of all toilet seats.
4. Wash all basins, bowls and urinals.
5. Dust and clean all powder room fixtures.
6. Empty and clean paper towel and sanitary
disposal receptacles.
7. Remove waste paper and refuse.
8. Refill tissue holders, soap dispensers,
towel dispensers, vending sanitary
dispensers; materials to be furnished by
Landlord.
9. A sanitizing solution will be used in all
lavatory cleaning.
Monthly:
1. Machines scrub lavatory floors.
2. Wash all partitions and tile walls in
lavatories.
C. MAIN LOBBY, ELEVATORS, BUILDING EXTERIOR AND CORRIDORS
Daily on Business Days:
1. Sweep and wash all floors.
2. Wash all rubber mats.
3. Clean elevators, wash or vacuum floors, wipe
down walls and corridors.
4. Spot clean any metal work inside lobby.
5. Spot clean any metal work surrounding
Building entrance doors.
<PAGE> 120
Monthly:
All resilient tile floors in public areas to be
treated equivalent to spray buffing.
D. EXTERIOR WINDOWS
Biannually:
Wash exterior windows.
<PAGE> 121
EXHIBIT L
HVAC BUILDING DESIGN CRITERIA
Air-conditioning is provided through a variable air volume (VAV) system
with supply and return diffusers in the ceiling. Heat is provided through the
air-conditioning system using electric heating coils in the exterior zone VAV
terminal boxes.
The HVAC equipment has a design capacity to meet the following
criteria:
o 20 cubic feet per minute for a maximum of one (1) person per
150 square feet of net rentable area on a per floor basis
(ASHRAE standard 62-1981R).
o 88 degrees Fahrenheit dry bulb and 74 degrees Fahrenheit wet
bulb outside; 62 degrees Fahrenheit coincident wet bulb inside
(1 1/2% coincidence, ASHRAE Guide to Maintain an Inside
Temperature of 78 degrees Fahrenheit dry bulb, plus or minus
3% in summer conditions).
o 9 degrees Fahrenheit dry bulb outside; 72 degrees Fahrenheit
dry bulb inside, plus or minus 3% in winter conditions.
Tenant shall have the right to adjust the digital VAV system to
regulate temperature between 70 and 74 degrees Fahrenheit
<PAGE> 122
EXHIBIT M
LIST OF COMPETITORS OF BGS SYSTEMS, INC.
1. Computer Associates International, Inc.
2. Compuware Corporation
3. Envive Corporation
4. Net IQ Corporation
5. Platinum Technologies, Inc.
6. Tivoli Systems, Inc.
7. NEON Systems, Inc.
<PAGE> 1
Exhibit 10.10
CWC INCORPORATED
1983 Premier Drive
P.O. Box 4459
Mankato, Minnesota 56002-4459
April 2, 1998
Klaus Besier
1352 Monument Street
Concord, Massachusetts 01742
Dear Klaus:
As you know, CWC Incorporated (the "Company") and you are parties to
the letter agreement, dated June 6, 1997, as amended by the letter agreement,
dated as of August 7, 1997 (as amended, the "Original Employment Agreement"),
governing the terms of your employment with the Company. The Company and you
hereby agree to amend and restate the Original Employment Agreement in its
entirety pursuant to this letter agreement such that the Original Employment
Agreement is no longer of any force or effect.
1. SCOPE OF EMPLOYMENT; RESIDENCE. You will serve in a full-time
capacity as the President and Chief Executive Officer of the Company. The
Company agrees to maintain its office in Boston, Massachusetts, at which you
will be employed with the Company, and will provide you with reasonably
appropriate support staff. It is the understanding of the Company and you that
you with not be expected to relocate your residence outside of the Boston,
Massachusetts metropolitan region. In addition, it is also anticipated that you
will serve as a director of the Company during your employment with the Company.
2. ANNUAL SALARY AND BONUS. Your annual salary will be $200,000 per
year, payable in equal monthly installments in accordance with the Company's
standard payroll schedule (subject to all applicable withholdings required by
law). You may receive an annual bonus (the "Annual Bonus") of up to $150,000, as
determined by the Board of Directors of the Company (the "Board of Directors")
based upon the achievement by the Company during the applicable fiscal year of
certain performance goals (the "Performance Goals") agreed upon by the Board of
Directors and you at least 30 days prior to the commencement of such fiscal
year. The Annual Bonus will be guaranteed for the first fiscal year of your
employment with the Company and will be paid in equal quarterly installments
during such year. In addition, if during the applicable fiscal year the Company
achieves the Performance Goals and also achieves or surpasses performance
targets in excess of the Performance Goals (the "Stretch Targets"), you may
receive an additional bonus of up to $100,000, as determined by the Board of
Directors. With respect to
<PAGE> 2
each fiscal year, the Stretch Targets shall be agreed upon by the Board of
Directors and you concurrently with the determination of the Performance Goals
for such fiscal year.
3. BENEFITS. As an executive of the Company, you will be eligible to
participate in the Company-sponsored benefits that are available generally to
other senior executives of the Company. You will be entitled to the benefit of
the indemnification provisions contained in the Certificate of Incorporation and
By-laws of the Company applicable to its officers and directors (copies of which
have been provided to you) and you will also be a party to any standard
indemnification agreement for Company executive officers and directors that may
be adopted by the Company.
4. EXPENSES. During the period of your employment, you will be
reimbursed for reasonable and necessary expenses incurred on behalf of the
Company in accordance with the Company's expense reimbursement policy.
5. STOCK OPTIONS. The Company and you hereby acknowledge that the
Company has previously granted to you in accordance with the Clear With
Computers, Inc. 1997 Stock Plan, as amended (the "Stock Plan") incentive stock
options (the "Options") to purchase an aggregate of 2,126,940 shares of common
stock of the Company (the "Option Shares") at an exercise price (subject to
adjustment) of $2.63 per share. The Options to purchase the Option Shares
represent all of the options that the Company is obligated as of the date hereof
to grant to you. In addition, the Company has previously provided you with a
copy of the Stock Plan. The Options are subject to a vesting schedule whereby
the Option Shares vest in equal successive monthly installments over a four-year
period. In the event of a Liquidity Event (as such term is defined below), the
Option's vesting shall accelerate so that 80 percent of the unvested Option
Shares will become fully exercisable immediately prior to the closing of a
Liquidity Event, provided that if as a result of a Liquidity Event, there shall
occur, or the agreements governing such Liquidity Event contemplate, a material
diminution in the nature or scope of your authority, duties, responsibilities or
status, then all of the unvested Option Shares will become fully exercisable
immediately prior to the closing of such Liquidity Event. In addition, if (i) as
a result of a Liquidity Event, you are employed under the terms of this letter
agreement with the entity surviving such Liquidity Event and there shall occur a
material increase in the nature or scope of your authority, duties,
responsibilities or status with such entity or (ii) the agreements governing the
Liquidity Event contemplate your employment under this letter agreement with the
entity surviving such Liquidity Event and a material increase in the nature or
scope of your authority, duties, responsibilities or status with such entity,
then you shall be entitled to renegotiate with the Company's successor the terms
of this letter agreement. For purposes of this paragraph, a "Liquidity Event"
will consist of either (a) a sale of all or substantially all of the assets of
the Company or (b) any merger or consolidation of the Company or a sale of
outstanding capital stock of the Company subsequent to the consummation of which
the holders of the Company's voting stock prior to such transaction hold less
than 50 percent of the outstanding voting stock of the surviving entity
following such transaction.
6. CERTAIN APPROVAL. To the extent that (a) the vesting of the Options
is accelerated as a result of a Liquidity Event and (b) all or any portion of
such Options which are accelerated constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of
-2-
<PAGE> 3
1986, as amended, (the "Excess Acceleration"), then the acceleration of such
portion which constitutes the Excess Acceleration shall be subject to the
condition precedent that it is approved by the shareholders of the Company in
accordance with Section 280G(b)(5)(B) thereof and the proposed Treasury
Regulations relating thereto.
7. REGISTRATION RIGHTS. Pursuant to Sections 3(b) and 4(a) of the
Registration Rights Agreement, dated May 20, 1997 (as amended from time to time,
the "Registration Rights Agreement"), among the Company, General Atlantic
Partners 40, L.P., GAP Coinvestment Partners, L.P., Jerome D. Johnson and the
shareholders named therein, the Company granted to the Designated Holders (as
defined in the Registration Rights Agreement) certain "piggy-back" registration
rights. The Company agrees that with respect any and all shares of common stock
of the Company owned or acquired by you prior to, on or after the date hereof,
you will be entitled to the "piggy-back" registration rights set forth in
Sections 3(b) and 4(a) of the Registration Rights Agreement, provided that (i)
you are obligated to perform all of the duties set forth in the Registration
Rights Agreement as if you were an original signatory thereto, including,
without limitation, the obligations set forth in Sections 3(b), 4(a), 5(a), 6(a)
and 7(b) and (ii) such "piggy-back" registration rights shall cease when any of
the events set forth in Section 2(b) of the Registration Rights Agreement shall
occur with respect to any shares of common stock of the Company owned or
acquired by you.
8. LOAN FROM THE COMPANY. You may deem it advisable to pay certain
moneys in settlement of disputed claims in connection with a former employment
relationship. The Company agrees to make funds available to facilitate such
settlement in the form of a loan from the Company to you on terms and conditions
to be mutually agreed, but in no event will such loan exceed an aggregate amount
of up to $1,440,000. If this loan is made, then on the earlier to occur of (a) a
Liquidity Event and (b) the third anniversary of the date hereof, the Company
will forgive up to $500,000 of the amount of the loan.
9. LEGAL EXPENSES. The Company will pay up to $100,000 of your
personal, reasonable legal fees and disbursements incurred by you directly in
connection with the cessation of your former employment relationship.
10. TERMINATION. Your employment with the Company is not for a specific
term and can be terminated by either you or the Company at any time, with or
without cause, without further obligation hereunder. However, in the event that
the Company terminates your employment "without cause" (as defined below) or you
terminate your employment with "good reason" (as defined below), you will be
entitled to receive your annual salary, payable in equal monthly installments in
accordance with the Company's standard payroll schedule (subject to all
applicable withholdings required by law) until the first anniversary of the
effective date of such termination. In addition, the unvested portion of your
Options shall terminate if (a) the Company terminates your employment for any
reason or no reason or (b) you terminate your employment with the Company for
any reason or no reason. In the event of your death, this letter agreement will
terminate, except that (i) your legal representatives shall be entitled to
receive (x) your annual salary, payable in equal monthly installments in
accordance with the Company's standard payroll schedule (subject to all
applicable withholdings required by law) until the first anniversary of your
death and (y) the amount of the Annual Bonus paid to you in the fiscal year
-3-
<PAGE> 4
immediately preceding the year of your death, payable in equal quarterly
installments until the first anniversary of your death, (ii) 75 percent of the
unvested portion of your Options will become fully exercisable until the six
month anniversary of your death (after which date they shall no longer be
exercisable) and (iii) the remaining 25 percent of the unvested portion of your
Options will terminate. If your employment is terminated by the Company without
cause or by you with good reason, the Company will extend the term of the vested
portion of your Options until the earlier of (i) three months following the date
of such termination, (ii) the effectiveness of a Liquidity Event or (iii) nine
months following the Company's initial public offering. Notwithstanding anything
to the contrary set forth in this letter agreement, in the event that the
Company terminates your employment other than without cause or you terminate
your employment other than with good reason, this letter agreement (other than
paragraphs 11, 12, 13, 14 and 15) will terminate and the Company shall have no
further obligations to you hereunder.
For purposes of this letter agreement, (a) termination "without
cause" shall mean termination for reasons other than (i) financial dishonesty,
including, without limitation, misappropriation of funds or property of the
Company, or any attempt by you to secure any personal profit related to the
business and the business opportunities of the Company without the informed
approval of the Board of Directors; (ii) a repeated refusal to comply with
reasonable directives of the Board of Directors, or the recklessness or willful
misconduct in the performance of duties assigned to you by such Board of
Directors; or (iii) the conviction of any felony or any misdemeanor involving
moral turpitude or fraud; and (b) termination with "good reason" shall mean the
termination of your employment with the Company by written notice, effective on
or after the date of delivery of such notice as specified therein, from you to
the Company, upon the occurrence of a material diminution in your title or
office; the nature or scope of your authority, duties, responsibility or status;
or your reporting responsibilities; PROVIDED, HOWEVER, that no change referred
to in the preceding clause shall be deemed to constitute a good reason if you
agree to remain an employee of the Company.
11. NON-COMPETITION: CONFIDENTIALITY. You acknowledge that (a) the
Company is currently engaged in the business of technology enabled selling and
sales force automation (the "Business") in the United States (the "Territory"),
(b) your employment with the Company will give you access to confidential
information of the Company, including, without limitation, records, notebooks,
data, formulae, specifications, trade secrets, customer and supplier lists and
secret inventions and processes, (c) the covenants contained in this letter
agreement are essential to protect the Business and goodwill of the Company and
(d) you have means to support yourself and your dependents other than by
engaging in the Business and the provisions of this paragraph 11 will not impair
such ability. During the period of your employment with the Company and for a
period of one year after you receive your last payment due to you hereunder, you
will not, in the Territory, (i) engage or participate in the Business, (ii)
enter the employ of, or render any other services to, any person engaged in or
competitive with the Business or (iii) directly or indirectly become interested
in any person referred to in the foregoing clauses (i) and (ii) in any capacity.
You acknowledge that the compensation and other amounts paid to you during your
employment with the Company is intended to and does compensate you for any
inconveniences or economic deprivation resulting from your agreement not to
compete with the Company.
-4-
<PAGE> 5
You acknowledge that the Company and its affiliates have a
legitimate and continuing proprietary interest in the protection of their
confidential information and that they have invested substantial sums and will
continue to invest substantial sums to develop, maintain and protect
confidential information. Therefore, during and subsequent to your employment by
the Company, you agree to keep secret and hold in confidence and not directly or
indirectly disclose or use any such confidential information (except in the
course of performing your duties for the Company), except to the extent
authorized by the Company in writing. These obligations with respect to
confidential information shall not apply to information that you can establish
is (i) publicly available from other sources other than as a result of
disclosure by you, (ii) already known to you prior to your commencement of
employment with the Company or (iii) provided to you by another person or entity
not subject to any limitations on its disclosure. All memoranda, notes, lists,
records, drawings, specifications and related documents and other documents or
papers (and all copies thereof) relating to the Company or any of its
affiliates, including such items stored in computer memories, made or compiled
by or on behalf of you during the course of your employment with the Company, or
made available to you during the course of your employment with the Company, are
the property of the Company and shall be delivered promptly upon the termination
of your employment with the Company or at any other time upon request; PROVIDED,
HOWEVER, that you may retain copies of the foregoing to the extent that such
materials do not constitute confidential information of the Company or any of
its affiliates.
You agree that the Company will suffer irreparable harm if any
provision of this paragraph 11 is not performed in accordance with its terms or
is otherwise breached by you. Accordingly, you agree that the Company will be
entitled to temporary or injunctive relief to prevent any breach or threatened
breach of this paragraph 11, and to specific enforcement of the terms set forth
herein, in addition to any other remedies at law or in equity that may be
available. If any court determines that any of the provisions of this paragraph
11, or any part thereof, is unenforceable because of the duration or
geographical scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be unenforceable.
12. WAIVERS AND AMENDMENTS. This letter agreement may be amended,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof.
13. ASSIGNMENT. This letter agreement, and any rights and obligations
hereunder, may not be assigned by you. This letter agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company.
14. GOVERNING LAW. This letter agreement shall be governed by, and
construed in accordance with, the laws of the State of Massachusetts, without
regard to the conflicts of law principles thereof.
-5-
<PAGE> 6
15. COUNTERPARTS. This letter agreement may be executed in
counterparts, both of which when so executed shall be deemed an original and all
of which together shall constitute one and the same instrument.
This letter agreement contains all of the terms of your employment
with the Company and supersedes any other understandings, oral or written,
between you and the Company. Any additions or modifications of these terms will
only be effective if they are in writing and signed by you and a representative
of the Company authorized by the Board of Directors to sign any such addition or
modification.
If this letter agreement accurately reflects all of the terms of
your employment with the Company, please sign and return to me the enclosed copy
of this letter agreement.
We are extremely excited to have you as a part of the team, and
look forward to working with you on building a very successful and rewarding
business.
Sincerely yours,
CWC INCORPORATED
By: /s/ Jerome D. Johnson
----------------------------------
Name: Jerome Johnson
Title: Chairman of the Board of Directors
Accepted and agreed to on this
7th day of April, 1998
/s/ Klaus Besier
- -------------------------------
Klaus Besier
-6-
<PAGE> 1
Exhibit 10.11
MAY 11, 1998
Graham Williams
Willow Lodge
Bernet Lane
Elstree
Herts WD6 3QZ
England
Re: Offer of Employment
Dear Graham:
On behalf of CWC Incorporated, a Minnesota corporation (the "Company"), I am
pleased to extend to you an offer of employment on the following terms:
Your title shall be Senior Vice President and Managing Director of
Europe/Asia, and you shall report directly to me as a member of the
Executive team. You will be based in the UK with the Netherlands as the
Company's international headquarters. Your start date shall be June 1,
1998, or sooner (the "Commencement Date").
Your base annual salary will be 130,000 pounds, paid in accordance with the
Company's normal payroll practices. Your bonus plan will be 50% of base
salary at revenue target with no cap. A mutually agreeable target will be
defined within one month of your start date. Your bonus will be guaranteed
for the first six months of employment, paid monthly and then against
agreed budget for revenue and profits for FY99 beginning November 1, 1998.
In addition, it is the Company's intent to set up car and pension schemes
in the UK
You will receive 20 days of vacation commencing your first year of
employment.
You shall be entitled to an option for 1% of shares on a fully diluted
basis assuming all Preferred shares are converted to their Common
equivalents. Current exercise price is $2.63 per share to be vested in
equal annual installments over four years in accordance with the CWC
Incorporated 1997 Stock Plan. The standard Company plan is that there is no
acceleration of vesting, however, as a special exception, vesting of 50% of
your
<PAGE> 2
outstanding options shall be accelerated to the date of closing of a change
of control or merger completion.
You will be entitled to receive a minimum of 6 months written notice of
termination of employment from the Company and are required to give 6
months written notice of resignation to the Company. Upon termination of
employment you will be entitled to accrued salary, vacation, bonus, and
vesting of stock options through the termination date. You shall be
entitled to no other benefits or compensation upon termination of
employment.
As a company employee you are also eligible to receive the Company's
standard medical, disability, and life insurance benefits.
This offer is contingent upon satisfactory references.
I have enclosed our Employee Agreement regarding Inventions, Confidentiality,
and Non-Competition. If you accept this offer, please return to Shirley Spoors,
Director of Human Resources a signed copy of this agreement.
To indicate your acceptance of the Company's offer, please sign and date this
letter in the space provided below and return it to Shirley Spoors. A duplicate
original is enclosed for your records. This letter, along with the agreement
relating to proprietary rights between you and the Company, set forth the terms
of your employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or amended
except by a written agreement, signed by the CEO of the Company and by you.
We look forward to you joining CWC Incorporated.
Sincerely,
CWC INCORPORATED
/s/ Klaus Besier
- ------------------------------
Klaus Besier
President and CEO
ACCEPTED AND AGREED TO THIS
20th Day of May, 1998
/s/ Graham Williams
--------------------------------------
<PAGE> 3
Enclosures: Duplicate Original Letter
Employee Agreement regarding Inventions, Confidentiality, and Non
Competition Incentive Stock Option Agreement
cc: Adam Hale Russell Reynolds Associates
<PAGE> 1
Exhibit 10.12
October 21, 1998
Ilya Gorelik
57 Rockport Street
Weston, MA 02493
Re: Offer of Employment
Dear Ilya:
On behalf of FirePond Incorporated, a Minnesota corporation (the "Company"), I
am pleased to extend to you an offer of employment on the following terms:
Your title shall be Senior Vice President, Product Strategy and
Development, and you shall report directly to me. Your start date shall be
October 2, 1998.
Your base annual salary will be $175,000, paid in accordance with the
Company's normal payroll practices.
You will have the ability to earn incentive compensation of 50% of your
base salary, based on mutually agreed upon objectives that we will set
during your first 30 days of employment.
You will be granted an option to purchase 650,000 shares of stock at a
strike price of $2.63 which is equivalent to 2% of the Company's
outstanding common and preferred shares. The stock will be issued to you
under the Company's standard option plan. The options granted to you will
vest equally over four years at a rate of 25% per annum. In the event of a
Change of Control (excluding an IPO) and you are not offered a similar
position with similar compensation in the new entity, 80% of your
outstanding options will immediately vest.
You will receive 15 days pro-rated vacation commencing your first year of
employment.
As a company employee you are also eligible to participate in the Company's
standard medical, dental, disability, and life insurance benefit plans.
I have enclosed our Employee Agreement regarding Inventions, Confidentiality,
and Non-Competition. If you accept this offer, please return both signed copies
of this Agreement to Shirley Spoors, Director, Human Resources.
This letter sets forth, fully, all understandings and agreements between you and
FirePond regarding your employment. Your authorization below acknowledges your
acceptance of these terms.
<PAGE> 2
Ilya Gorelik
August 27, 1998
Page 2
Ilya, I cannot tell you how excited we are to have you join the team. I
sincerely believe that this presents an opportunity for you to leverage all of
your skills and experience to date and to play a pivotal role on the FirePond
management team. I personally look forward to working closely with you over the
years and know that we will all be incredibly successful together.
This offer letter replaces, in its entirety, the offer letter sent August 27,
1998.
We look forward to working with you at FirePond Incorporated.
Sincerely,
FirePond INCORPORATED
/s/ Klaus P. Besier
- ---------------------------
Klaus P. Besier
President and CEO
ACCEPTED AND AGREED TO THIS
21st day of October, 1998
----
/s/ Ilya Gorelik
-------------------------------------
Ilya Gorelik
Enclosures: Duplicate Original Letter
Employee Agreement regarding Inventions, Confidentiality, and
Non-Competition
<PAGE> 1
Exhibit 10.13
September 5, 1997
Mr. Steven Waters
304 Oak Knoll Boulevard
Mankato, Minnesota 56001
Dear Steve:
We are pleased to offer you employment with Clear With Computers, Inc., a
Minnesota corporation (the "Company"), upon the terms and conditions set forth
in this letter agreement.
1. SCOPE OF EMPLOYMENT. You will serve in a full-time capacity as Director
of Strategic Marketing of the Company. Your employment will become effective on
September 10, 1997.
2. ANNUAL SALARY. Your annual salary will be $120,000 per year, payable in
equal monthly installments in accordance with the Company's standard payroll
schedule (subject to all applicable withholdings required by law).
3. COMMISSIONS. You shall be paid by the Company not later than seven days
after the end of fiscal quarter of the Company a commission equal to 1.5 percent
of all license fees invoiced by the Company for the Company's Signature Plus
product during such fiscal quarter (the "Signature Plus Commissions"). In
addition to the Signature Plus Commissions, if you make reasonable efforts to
substantiate that Trilogy, Inc. owes you certain commissions (the "Trilogy
Commissions") and that such Trilogy Commissions have not been paid to you, the
Company shall (a) pay to you the aggregate amount of $50,000 cash (the "Cash
Payment") and (b) grant you options to purchase 50,000 shares of common stock of
the Company (the "Lost Commission Options"). The Lost Commission Options shall
be paid to you by the Company in equal quarterly installments over a four year
period commencing on the date that you provide the substantiation described
above. The amount of Signature Plus Commissions and the Cash Payment shall be
subject to all applicable withholdings required by law.
4. BENEFITS. As an employee of the Company, you will be eligible to
participate in the Company-sponsored benefits that are available generally to
other employees of the Company.
<PAGE> 2
5. EXPENSES. During the period of your employment, you will be reimbursed
for reasonable and necessary expenses incurred on behalf of the Company in
accordance with the Company's expense reimbursement policy.
6. STOCK OPTIONS. You will be granted an incentive stock option (the
"Option") to purchase 25,000 shares of common stock of the Company (the "Option
Shares"). The Option Shares and the Lost Commission Options shall have an
exercise price (subject to adjustment) of $2.63 per share and shall be granted
pursuant to the Company's 1997 Stock Plan. In addition each of the Options and
the Lost Commission Options will be subject to a vesting schedule whereby such
Options and such Lost Commission Options will vest in equal successive yearly
installments over a four-year period.
7. WAIVERS AND AMENDMENTS. This letter agreement may be amended,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof.
8. ASSIGNMENT. This letter agreement, and any rights and obligations
hereunder, may not be assigned by you. This letter agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company.
9. GOVERNING LAW. This letter agreement shall be governed by, and construed
in accordance with, the laws of the State of Massachusetts, without regard to
the conflicts of law principles thereof.
10. COUNTERPARTS. This letter agreement may be executed in counterparts,
both of which when so executed shall be deemed an original and all of which
together shall constitute one and the same instrument.
This letter agreement contains all of the terms of your employment with
the Company and supersedes any other understandings, oral or written, between
you and the Company. Any additions or modifications of these terms will only be
effective if they are in writing and signed by you and a representative of the
Company authorized by the Board of Directors to sign any such addition or
modification.
If this letter agreement accurately reflects all of the terms of your
employment with the Company, please sign and return to me the enclosed copy of
this letter agreement.
<PAGE> 3
We are extremely excited to have you as part of the team, and look forward
to working with you on building a very successful and rewarding business.
Sincerely,
CLEAR WITH COMPUTERS, INC.
By: /s/ Klaus P. Besier
--------------------------------
Name: Klaus P. Besier
Title: President & CEO
Accepted and agreed to on this
9th day of September, 1997
/s/ Steven Waters
- --------------------------------
Steven Waters
<PAGE> 1
Exhibit 10.14
December 11, 1998
Mr. Paul McDermott
3838 Oakbrook Court
Allison Park, PA 15101
RE: Offer of Employment
Original and enclosures sent via fedex
Dear Paul:
It has been a pleasure talking with you about your career opportunities at
FirePond. You are the kind of employee that I am looking for to play a key role
in our company as it grows on its path to become the market leader. I'm
convinced that you can make an immediate impact, and I am excited about your
opportunities for career growth. In short, I want to welcome you to our team.
This letter confirms to you FirePond's offer of employment. The terms of our
offer are as follows:
Your title shall be Chief Financial Officer and Vice President, Finance and
Administration and you shall report directly to me. Your expected start
date shall be January 4, 1998, or sooner (the "Commencement Date").
Your principle place of employment will be Boston; however, extensive
travel to Minnesota will be required during the first three to four months.
Your base annual salary will be $160,000, paid in accordance with the
Company's normal payroll practices. For fiscal year 1999, you will have the
ability to earn incentive compensation of $50,000 at target based on five
mutually agreed upon objectives that we will set during your first 30 days
of employment.
You will receive a $25,000 signing bonus payable with your first payroll
check.
You will be granted an option to purchase 425,000 shares of stock at a
strike price of $2.63 upon commencement of employment. You will also be
given the opportunity to earn an additional grant of 85,000 options prior
to an IPO. The stock will be issued to you under the Company's standard
option plan. The options granted to you will vest equally over four years
at a rate of 25% per annum. In the event of a Change of Control (excluding
an IPO) and you are not offered a similar position with similar
compensation in the new entity, 80% of your outstanding options will
immediately vest.
You will receive 20 days pro-rated vacation commencing your first year of
employment.
To help defray the cost of relocation, the Company will reimburse your
expenses on an as incurred basis. You will be required to submit and
expense report with receipts for remittal.
<PAGE> 2
As a company employee you are also eligible to participate in the Company's
standard medical, dental, disability, and life insurance benefit plans. A
summary of the benefit plans is enclosed.
I have also enclosed our Employee Agreement regarding Inventions,
Confidentiality, and Non-Competition, which is a condition of the offer.
Please return a signed copy of this agreement prior to your accepted date
of employment to Shirley Spoors, Director - Human Resources.
To indicate your acceptance of the Company's offer, please sign and date
this letter in the space provided below and return it to Shirley Spoors
together with the above referred to agreement. A duplicate original is
enclosed for your records. This letter, along with the agreement relating
to proprietary rights between you and the Company, set forth the terms of
your employment with the Company and supersede any prior representations or
agreements, whether written or oral. This letter may not be modified or
amended except by a written agreement, signed by the CEO of the Company and
by you.
FirePond reserves the right to withdraw this employment offer if not accepted by
the close of the business day on December 14, 1998. This offer becomes valid
upon FirePond's final acceptance of the signed offer letter.
It is recognized that this offer of employment is not intended to create a
contract of employment and both FirePond and the employee retain the right to
terminate the employment relationship at any time without cause.
Your response is required by December 14, 1998. Should you have any questions
regarding this offer, please contact me at 781-270-0624.
I look forward to you joining FirePond! An aggressive and focused team, the
ability to create industry-leading software, and dedication to client
satisfaction have all played a significant part in FirePond's past. I am
confident that you will play an important role in our future success.
Sincerely,
/s/ Klaus P. Besier
Klaus P. Besier
President and CEO
FirePond, Inc.
CC: Shirley Spoors, Director - Human Resources
<PAGE> 3
The undersigned accepts the above employment offer, agrees that it contains the
terms of employment with FirePond, and that there are no other terms, expressed
or implied. By accepting this offer of employment, the undersigned is
acknowledging that no prior employment obligations or other contractual
restrictions exist which preclude employment with FirePond. It is further
understood that this offer is confidential and disclosure may result in
termination of employment or withdrawal of this offer.
Accepted:
/s/ Paul Mcdermott 12-13-98
- -------------------------- ----------------------------
Paul McDermott Date
/s/ Shirley Spoors 1-20-99
- -------------------------- ----------------------------
FirePond Hiring Executive Date
<PAGE> 1
Subsidiaries Exhibit 21.1
NAME JURISDICTION OF INCORPORATION
- -----------------------------------------------------------------
[S] [C]
FirePond UK Ltd England
FirePond Nordic AB Sweden
FirePond Benelux BV Netherlands
FirePond Europe BV Netherlands
FirePond Deutschland GmbH Germany
FirePond France SAS France
FirePond Japan KK Japan
FirePond Korea Co. Ltd Korea
FirePond International Inc Minnesota
FirePond of Michigan, Inc. Michigan
<PAGE> 1
Exhibit 23.2
After the two-for-three stock split discussed in Note 9(b) to FirePond, Inc.'s
consolidated financial statements is effected, we expect to be in a position to
render the following report.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 12, 1999
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
November 12, 1999
<PAGE> 1
EXHIBIT 23.3
After the two-for-three stock split discussed in Note 9(b) to FirePond,
Inc.'s consolidated financial statements is effected, we expect to be in a
position to render the following audit report.
Deloitte & Touche LLP
Minneapolis, Minnesota
November 12, 1999
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of FirePond, Inc. on
Form S-1 of our report dated December 30, 1997 (November __, 1999 as to
Note 9(b)), appearing in the Prospectus, which is part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
Minneapolis, Minnesota
November __, 1999
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