<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 12, 2000
REGISTRATION STATEMENT NO. 333-90911
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FIREPOND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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>
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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:
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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>
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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. [ ]
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.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. 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 JANUARY 12, 2000
[FIREPOND LOGO]
5,000,000 SHARES
COMMON STOCK
FirePond, Inc. is offering 5,000,000 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 $11.00 and $13.00 per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
------------------------
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<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to FirePond........................................ $ $
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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 its stockholders have granted the underwriters a 30-day
option to purchase up to 750,000 additional shares of common stock to cover
over-allotments. FleetBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 2000.
------------------------
ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
SG COWEN
E*OFFERING
The date of this prospectus is , 2000
<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:
The text "FirePond Application Suite(TM) enables selling complex products and
services through e-commerce channels, integrates e-commerce selling channels
with established sales channels, and shares customer information across the
entire enterprise."
In the center of the page is a small shaded circle with the following text:
"FirePond Business Rules 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: "FirePond Commerce, Internet Selling Software for
E-Commerce." The quarter circle on the right is labeled: "FirePond Sales,
Internet Selling Software for Direct and Indirect Sales Channels."
There is one large rectangle protruding from the bottom of the center
circle. The rectangle is labeled: "FirePond Sales Manager, Enterprise Sales
Administration and Customer Information Management."
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Note on Forward Looking Statements.......................... 10
Use of Proceeds............................................. 10
Dividend Policy............................................. 10
Capitalization.............................................. 11
Dilution.................................................... 12
Selected Consolidated Financial Data........................ 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 26
Management.................................................. 38
Related Party Transactions.................................. 46
Principal Stockholders...................................... 48
Description of Capital Stock................................ 50
Shares Eligible for Future Sale............................. 54
Underwriting................................................ 56
Legal Matters............................................... 58
Experts..................................................... 58
Where You Can Find More Information......................... 58
Index to Consolidated Financial Statements.................. F-1
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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 related notes included in this prospectus. Unless otherwise
indicated, this prospectus assumes that the underwriters have not exercised
their option to purchase additional shares. This prospectus also assumes that
the warrants to purchase series F preferred stock have been automatically
exercised on a net exercise basis, that all shares of preferred stock have been
automatically converted into shares of common stock and that the priority
payments have been made through the issuance of additional shares of common
stock to some common and preferred stockholders. This prospectus has been
adjusted to reflect a two-for-three reverse stock split of the common stock
effected on January 4, 2000.
FIREPOND, INC.
FirePond is a leading provider of integrated e-business sales and marketing
solutions for companies wishing to offer complex products and services through
business-to-business and business-to-consumer e-commerce 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 offer personalized
products, services and content to their customers over the Internet, as well as
through more traditional selling channels, to convert potential customers into
customers and to increase repeat business. 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 ability of both sales models to transact business
effectively. Our products can also share the information from these interactive,
Internet-based transactions across the enterprise to help develop a company's
common view of individual customers. This approach allows companies to manage
their ongoing sales, marketing, product planning and fulfillment activities in a
fashion that encourages long-term customer loyalty.
We target the largest 2,000 companies in the world, commonly known as
Global 2000 companies, in selected industries 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.
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:
- utilize our experience to expand into new markets;
- exploit our established international organization to target leading
businesses worldwide;
- utilize our development organization to rapidly expand our products'
packaged e-business application functionality;
- expand our relationships with systems integrators and complementary
software vendors to expand our market reach and implementation capacity;
- provide a range of product packaging options to better penetrate Global
2000 accounts; and
- leverage our 16 years of implementation expertise to provide
individualized solutions for our customers.
1
<PAGE> 6
We were incorporated in Minnesota in 1983 as a provider of custom developed
interactive selling solutions. Although we undertook a strategic restructuring
in late 1996 to focus on providing more standardized software products, we
continue to depend on revenue from our custom development services. For example,
in fiscal 1999 our custom development services revenue accounted for almost half
of our total revenue. In addition, custom development services revenues from two
customers accounted for more than a quarter of our total revenues in fiscal
1999. We released our current product, the FirePond Application Suite, in
October 1999, and we are dependent upon its acceptance by our target markets to
complete our transition to a packaged software company. If the FirePond
Application Suite is not widely adopted, we may never be profitable.
We became a Delaware corporation as a result of a reincorporation merger
effected in December 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. 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 including FirePond Application Suite, FirePond Business Rule
Engine, FirePond Commerce, FirePond Sales, FirePond Sales Manager, FirePond
Process Server, FirePond Enterprise Workbench and Signature Plus are our
trademarks. All other trade names and trademarks used in this prospectus are the
property of their owners.
THE OFFERING
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Common stock offered by FirePond........................... 5,000,000 shares
Common stock to be outstanding after the offering.......... 32,485,652 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:
- 9,408,825 shares issuable upon exercise of outstanding options as of
November 30, 1999 at a weighted average exercise price of $5.24 per
share;
- 864,567 shares issuable upon exercise of outstanding warrants as of
November 30, 1999 at a weighted average exercise price of $5.64 per
share; and
- warrants to purchase 190,438 shares of series B 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.
As of November 30, 1999, we have also reserved an additional 3,429,119
shares of common stock for future issuance under our stock option plans. 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
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 exercise of warrants to purchase series F preferred stock on a net
exercise basis;
- the conversion of all outstanding shares of preferred stock into shares
of common stock; and
- the payment of priority payments through the issuance of additional
shares of common stock to some common and preferred stockholders upon
completion of this offering.
The pro forma as adjusted consolidated balance sheet data summarized below
reflects the sale of the common stock in this offering at an assumed initial
public offering price of $12.00 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."
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FISCAL YEARS ENDED OCTOBER 31,
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1997 1998 1999
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Product-related revenues.................................. $ 416 $ 6,860 $ 18,381
Custom development services............................... 27,747 22,142 15,904
-------- ------- --------
Total revenues......................................... 28,163 29,002 34,285
Loss from operations........................................ (25,444) (8,715) (28,224)
Net loss.................................................... (27,035) (9,041) (28,855)
Net loss per share:
Basic and diluted net loss per share...................... $ (2.62) $ (0.91) $ (2.88)
Basic and diluted weighted average common shares
outstanding............................................ 10,319 9,925 10,024
Pro forma net loss per share (unaudited):
Pro forma net loss per share.............................. $ (1.12)
Pro forma basic and diluted weighted average common shares
outstanding............................................ 25,799
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<CAPTION>
OCTOBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. 2,120 2,120 49,630
Working capital (deficit)................................. (11,380) (11,380) 42,870
Total assets.............................................. 21,660 21,660 69,170
Long-term debt, less current portion...................... 702 702 702
Convertible preferred stock............................... 191 -- --
Total stockholders' equity (deficit)...................... (5,354) (5,354) 48,896
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3
<PAGE> 8
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. If any of the following risks actually occur, our business,
financial condition or results of operations could be seriously harmed, 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. Because we have only been focused on
providing software products for a short time, 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 AND MAY NOT BE PROFITABLE IN THE FUTURE
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 $27.0 million for fiscal 1997, $9.0 million
for fiscal 1998 and $28.9 million for fiscal 1999. We expect to continue to
incur losses on both a quarterly and annual basis and we are uncertain if or
when we will become profitable. 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. We may not sustain our growth or generate sufficient revenues to
attain profitability.
DISAPPOINTING QUARTERLY REVENUES OR OPERATING RESULTS COULD CAUSE THE PRICE OF
OUR COMMON STOCK TO FALL
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 seriously harmed. In addition, the purchase of our products typically
involves 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. 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. Because our sales cycle is long,
we may have difficulty predicting when we will recognize revenues. 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.
A SIGNIFICANT PERCENTAGE OF OUR PRODUCT DEVELOPMENT IS PERFORMED BY A THIRD
PARTY INTERNATIONALLY, THE LOSS OF WHICH WOULD SUBSTANTIALLY HARM OUR PRODUCT
DEVELOPMENT EFFORTS
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, could
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.
4
<PAGE> 9
THE SUCCESS OF OUR BUSINESS DEPENDS ON THE NEW FIREPOND APPLICATION SUITE, WHICH
HAS BEEN RECENTLY INTRODUCED AND MAY NOT BE WIDELY ADOPTED BY OUR CUSTOMERS
We expect to derive substantially all of our product license revenues in
the future from the newly announced FirePond Application Suite and its component
products, which were released in October 1999. Our business depends on the
successful release, introduction and customer acceptance of this new suite of
products. We expect that we will continue to depend on revenues from new and
enhanced versions of the FirePond Application Suite, 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 CUSTOM DEVELOPMENT SERVICES REVENUES ARE EXPECTED TO CONTINUE TO REPRESENT A
SIGNIFICANT PERCENTAGE OF OUR TOTAL REVENUES, AND THE UNEXPECTED LOSS OF A
CONTRACT COULD REDUCE OUR REVENUES
Custom development services revenues represented 99% of total revenues for
fiscal 1997, 76% of total revenues for fiscal 1998 and 46% of total revenues for
fiscal 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. We also expect that a limited number of customers will continue to
account for a substantial portion of these revenues. For example, for fiscal
1999, custom development services revenues from two customers accounted for 27%
of our total revenues in the aggregate. An unexpected decrease in revenues from
our custom development services and related maintenance contracts could
adversely affect our overall revenues and our operating results.
FAILURE TO INCREASE OUR INTERNATIONAL REVENUES COULD SERIOUSLY HARM 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 to be successful.
However, foreign markets for our products may develop more slowly than currently
anticipated. International revenues represented 11% in fiscal 1999. Our failure
to expand our international sales could have a significant negative impact on
our business.
FAILURE TO EFFECTIVELY MANAGE OUR GEOGRAPHICALLY DISPERSED ORGANIZATION COULD
HAVE A SIGNIFICANT NEGATIVE IMPACT ON OUR BUSINESS OPERATIONS
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. 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 AND 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 May 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 packaged software products. A significant increase in domestic and
international personnel will likely be necessary to address potential growth in
our customer base and market opportunities. This 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.
5
<PAGE> 10
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 and we expect that this competition will increase. Many of
our current and potential competitors have longer operating histories, greater
name recognition and substantially greater 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 revenues could significantly decline.
FAILURE TO EXPAND OUR RELATIONSHIPS WITH SYSTEMS INTEGRATORS AND CONSULTING
FIRMS WOULD IMPEDE ACCEPTANCE OF OUR PRODUCTS AND DELAY THE 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. 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.
IF E-BUSINESS SALES AND MARKETING SOLUTIONS ARE NOT WIDELY ADOPTED, WE MAY NOT
BE SUCCESSFUL
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 seriously harm our business. 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 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.
IF WE ARE UNABLE TO INTRODUCE NEW AND ENHANCED PRODUCTS ON A TIMELY BASIS THAT
RESPOND EFFECTIVELY TO CHANGING TECHNOLOGY, OUR REVENUES MAY DECLINE
Our market 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.
WE DEPEND ON TECHNOLOGY LICENSED TO US BY THIRD PARTIES, THE LOSS OF WHICH COULD
ADVERSELY AFFECT OUR COMPETITIVE POSITION
We license technology from a small number of software providers for use
with our products. In addition, the effective implementation of our products
depends upon the successful operation of third-party licensed technology in
conjunction with our products. We anticipate that we will continue to license
and rely on technology from third parties in the future. This technology may not
continue to be available on commercially reasonable terms, if at all, and some
of the technology we license would be difficult to replace. The loss of the use
of this technology would result in delays in the license and implementation of
our products until equivalent technology, if available, is identified, licensed
and integrated. In turn, this could prevent the implementation or impair the
functionality of our products, delay new product introductions, or injure our
reputation.
6
<PAGE> 11
WE DEPEND ON KEY PERSONNEL AND MUST ATTRACT AND RETAIN ADDITIONAL QUALIFIED
PERSONNEL TO BE SUCCESSFUL
Our success depends upon the continued contributions of our senior sales,
engineering and management personnel, who perform important 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 seriously
harm our business.
In addition, 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 our
ability to develop new products or product enhancements.
CLAIMS MAY BE BROUGHT AGAINST US IF WE HIRE FORMER EMPLOYEES OF OUR COMPETITORS,
WHICH MAY CAUSE US TO INCUR SUBSTANTIAL COSTS
Companies in the software industry, whose employees accept positions with
competitors, frequently claim that those competitors have breached, or
encouraged the breach of, noncompetition and nondisclosure agreements. These
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.
IF WE ARE UNABLE TO PROVIDE ADEQUATE PROFESSIONAL SERVICE AND CUSTOMER SUPPORT,
OUR ABILITY TO SUSTAIN OR GROW OUR BUSINESS WILL BE HARMED
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.
IF OUR NEW AND COMPLEX PRODUCTS FAIL TO PERFORM PROPERLY, OUR REVENUES WOULD BE
ADVERSELY AFFECTED
Software products as complex as ours may contain undetected errors, or
bugs, which result in product failures, or may cause our products to fail to
meet our customers' expectations. Our products may be particularly susceptible
to bugs or performance degradation because of the evolving nature of Internet
technologies and the stress that full deployment of our products over the
Internet to thousands of end-users may cause. Because we have only recently
released our primary product, the FirePond Application Suite, it 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.
PRODUCT LIABILITY CLAIMS RELATED TO OUR CUSTOMERS' CRITICAL BUSINESS OPERATIONS
COULD RESULT IN SUBSTANTIAL COSTS
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 the failure. Our product
liability insurance may not cover claims brought against us. Product liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. Any product liability claims, whether or not
successful, could seriously damage our reputation and our business.
7
<PAGE> 12
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 HARMED
The year 2000 problem creates a risk for us. The risk exists primarily in
four 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;
- potential failures of our products, particularly our central office-based
systems, 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
limit our ability to remedy known defects in our products. Therefore, known or
unknown defects that affect the operation of our software, 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.
OUR LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY MAY HARM 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 protect our
proprietary rights could result in our competitors offering similar products,
potentially resulting in loss of a competitive advantage and decreased revenues.
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.
Therefore, 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. This 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. This 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.
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. Royalty or licensing
agreements, if required, may not be available on terms acceptable to us, if at
all. If 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.
DIFFICULTIES AND FINANCIAL BURDENS ASSOCIATED WITH ACQUISITIONS COULD HARM OUR
BUSINESS AND FINANCIAL RESULTS
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
8
<PAGE> 13
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 could be seriously harmed.
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 16,742,348 shares, or approximately 60% of the
outstanding shares of common stock, 57% 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 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 price for their shares of common stock.
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 their operating performance. 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 publicly traded companies.
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.
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 AND LOWER THE VALUE OF OUR COMMON STOCK
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 could adversely affect the holders of our
common stock.
9
<PAGE> 14
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 about 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 in other sections of 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 $54.3 million, at an assumed initial
offering price of $12.00 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 $62.6 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 bears interest
payable monthly at a rate equal to the prime rate plus 2.0% and is due
October 31, 2000;
- to repay a $2.0 million term loan, plus accrued interest, which 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 bear interest at 12.0% and are due upon the earlier of
the closing of this offering or November 11, 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 for 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.
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. 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.
10
<PAGE> 15
CAPITALIZATION
The following table presents our capitalization as of October 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the net exercise of warrants to purchase
series F preferred stock, the conversion of all outstanding shares of
convertible preferred stock into shares of common stock and the payment
of priority payments through the issuance of additional shares of common
stock to some 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 $12.00
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" on page 10.
The adjusted information presented 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" beginning on page 15.
<TABLE>
<CAPTION>
AS OF OCTOBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Line of credit.............................................. $ 6,740 $ 6,740 $ --
======== ========= =========
Long-term debt, less current portion........................ $ 702 $ 702 $ 702
Stockholders' equity (deficit):
Preferred stock; 50,000,000 shares authorized:
Series A convertible participating preferred stock;
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; 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;
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; 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;
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, 100,000,000 shares authorized; 10,072,817
shares issued and outstanding, actual; 100,000,000 shares
authorized, 27,537,895 shares issued and outstanding, pro
forma; and 100,000,000 shares authorized, 32,537,895
shares issued and outstanding, pro forma as adjusted...... 101 275 325
Additional paid-in capital.................................. 62,380 108,147 162,347
Accumulated deficit......................................... (61,793) (107,543) (107,543)
Deferred compensation....................................... (5,893) (5,893) (5,893)
Cumulative translation adjustment........................... (327) (327) (327)
Subscription receivables.................................... (13) (13) (13)
-------- --------- ---------
Total stockholders' equity (deficit)...................... (5,354) (5,354) 48,896
-------- --------- ---------
Total capitalization.................................. $ (4,652) $ (4,652) $ 49,598
======== ========= =========
</TABLE>
The table above excludes as of October 31, 1999:
- - 7,655,121 shares of common stock issuable upon exercise of outstanding stock
options at a weighted average exercise price of $4.17 per share under our
stock option plans;
- - 296,667 shares of common stock subject to outstanding warrants at a weighted
average exercise price of $5.02 per share; and
- - warrants to purchase 190,438 shares of series B 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.
11
<PAGE> 16
DILUTION
As of October 31, 1999, we had a pro forma net tangible book deficit of
$5.6 million, or $(0.20) per share.
Pro forma net tangible book deficit per share is equal to:
- our total tangible assets minus total liabilities, divided by
- the number of outstanding shares of our common stock, after giving effect
to the net exercise of warrants to purchase series F preferred stock, the
conversion of all outstanding shares of our convertible preferred stock
into common stock and the payment of priority payments through the
issuance of additional shares of common stock to some common and
preferred stockholders.
If we give effect to our sale of 5,000,000 shares of common stock in this
offering at an assumed initial public offering price of $12.00 per share and
deduct the estimated underwriting discounts and commissions and the estimated
expenses relating to this offering, our pro forma as adjusted net tangible book
value as of October 31, 1999 would have been $48.7 million, or $1.50 per share.
This represents an immediate increase in pro forma net tangible book value of
$1.70 per share to existing stockholders and an immediate dilution of $10.50 per
share to new investors. If the initial public offering price is higher or lower
than $12.00 per share, the dilution to new investors will also be higher or
lower. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........... $12.00
Pro forma net tangible book deficit per share as of
October 31, 1999.......................................... $ (0.20)
Increase per share attributable to new investors.......... 1.70
-------
Pro forma as adjusted net tangible book value per share
after the offering...................................... 1.50
------
Dilution per share to new investors....................... $10.50
======
</TABLE>
The following table summarizes, as of October 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.... 27,537,895 84.6% $ 54,645,000 47.7% $ 1.98
New investors............ 5,000,000 15.4 60,000,000 52.3 12.00
----------- ----- ------------ ------
Total............... 32,537,895 100.0% $114,645,000 100.0%
=========== ===== ============ ======
</TABLE>
The foregoing computations are based on the number of common shares
outstanding as of October 31, 1999 and exclude:
- 7,655,121 shares of common stock issuable upon exercise of outstanding
options at a weighted average exercise price of $4.17 per share under our
stock option plans;
- 296,667 shares of common stock issuable upon exercise of outstanding
warrants at a weighted average exercise price of $5.02 per share; and
- warrants to purchase 190,438 shares of series B 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.
12
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data are derived from our consolidated and
combined financial statements. The following data were derived from our audited
consolidated financial statements presented elsewhere in this prospectus:
- consolidated statements of operations for fiscal 1997, 1998 and 1999; and
- consolidated balance sheets at October 31, 1998 and 1999.
The following data were derived from our audited combined financial statements
not included in this prospectus:
- combined statements of operations for fiscal 1995 and 1996; and
- combined balance sheets at October 31, 1995, 1996 and 1997.
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" beginning on page 15. The historical results are not necessarily
indicative of the operating results to be expected in the future.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
Revenues:
Product-related revenues:
License(1).............................................. $ -- $ -- $ 416 $ 1,888 $ 9,777
Services and maintenance................................ -- -- -- 4,972 8,604
------- ------- -------- ------- --------
Total product-related revenues........................ -- -- 416 6,860 18,381
Custom development services............................... 31,150 34,158 27,747 22,142 15,904
------- ------- -------- ------- --------
Total revenues........................................ 31,150 34,158 28,163 29,002 34,285
Cost of revenues:
License................................................... -- -- 178 192 238
Product-related services and maintenance(2)............... -- -- -- 3,061 5,677
Custom development services............................... 19,749 20,036 31,365 8,397 10,636
------- ------- -------- ------- --------
Total cost of revenues................................ 19,749 20,036 31,543 11,650 16,551
------- ------- -------- ------- --------
Gross profit (loss)......................................... 11,401 14,122 (3,380) 17,352 17,734
Operating expenses:
Sales and marketing(2).................................... 3,643 5,290 8,080 13,680 23,609
Research and development(2)............................... 723 2,601 3,634 8,199 9,641
General and administrative(2)............................. 4,354 3,081 3,188 3,516 7,084
Stock-based compensation.................................. -- -- 450 672 2,597
Restructuring charge...................................... -- -- 6,712 -- 3,027
------- ------- -------- ------- --------
Total operating expenses.............................. 8,720 10,972 22,064 26,067 45,958
------- ------- -------- ------- --------
Income (loss) from operations............................... 2,681 3,150 (25,444) (8,715) (28,224)
Other expense, net.......................................... 1,039 1,306 1,591 326 631
------- ------- -------- ------- --------
Net income (loss)........................................... $ 1,642 $ 1,844 $(27,035) $(9,041) $(28,855)
======= ======= ======== ======= ========
Net income (loss) per share:
Basic and diluted net income (loss) per share............. $ 0.16 $ 0.18 $ (2.62) $ (0.91) $ (2.88)
======= ======= ======== ======= ========
Basic weighted average common shares outstanding.......... 10,348 10,401 10,319 9,925 10,024
Diluted weighted average common shares outstanding........ 10,379 10,432 10,319 9,925 10,024
</TABLE>
13
<PAGE> 18
<TABLE>
<CAPTION>
OCTOBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 467 $ 450 $10,147 $ 2,324 $ 2,120
Working capital (deficit)................................... (553) (3,417) (7,119) (6,240) (11,380)
Total assets................................................ 19,863 23,342 27,906 18,786 21,660
Long-term debt, net of current portion...................... 7,290 7,685 3,991 1,727 702
Total stockholders' equity (deficit)........................ 2,836 4,200 (986) 1,031 (5,354)
</TABLE>
- ------------------------------------
(1) Includes related-party revenues of $350 in fiscal 1997. See note 11(a) in
notes to consolidated financial statements.
(2) Excludes charge for stock-based compensation. See note 9(g) in notes to
consolidated financial statements.
14
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are a leading provider of integrated e-business sales and marketing
solutions for companies wishing to offer complex products and services through
business-to-business and business-to-consumer e-commerce channels. From our
inception in 1983 through 1997, we generated revenues primarily through
providing custom development services. These services consisted of the
development of highly customized applications, utilizing core software
technology, and related software maintenance and data maintenance services. In
early fiscal 1997, we undertook a plan to change our strategic focus from a
custom development services company to a software product company providing more
standardized solutions. As a result, we exited several of our unrelated business
activities, changed our management team and reduced our workforce to be in line
with our newly defined business strategy. Our first packaged software product
was introduced in May 1997 and we released our current product, the FirePond
Application Suite, in October 1999. As a result of these efforts,
product-related revenues as a percentage of total revenues increased from 1.5%
in fiscal 1997 to 23.6% in fiscal 1998 and to 53.6% in fiscal 1999.
We anticipate that product-related revenues from 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. Unlike our custom development services, our product-related services
represent the implementation of our packaged software products. 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. Custom development services revenues will continue to
represent a material portion of total revenues until existing custom development
contracts and related maintenance agreements are completed. Custom development
services revenues in the future will be primarily from ongoing software
maintenance and data maintenance services that we provide under custom
development services contracts. The rate of decline in custom development
revenues depends in part on our ability to convert custom development services
customers to our software products. Since the introduction of our first software
product in May 1997, we have converted eight custom development customers to our
software products.
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, or SOP, No. 97-2,
Software Revenue Recognition, as amended by SOP No. 98-4, and SOP No. 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts. We generally recognize revenues from product-related 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 the number
of hours incurred to date on a project
15
<PAGE> 20
compared to the total estimated hours. During fiscal 1997, we increased our
estimates of total contract costs on several of our fixed-priced contracts and
recorded a $5.2 million provision for loss contracts, all of which was accrued
as of October 31, 1997. In fiscal 1998, the loss contract reserve changed
because:
- we charged $1.9 million of costs against the accrual when we fulfilled
our obligations to the customers;
- we reduced the accrual by $2.9 million when we revised our estimated
losses; and
- we increased the accrual by $480,000 for estimated losses on other
contracts.
In fiscal 1999, we charged an additional $500,000 of costs against the accrual
for loss contracts when we fulfilled our obligations to the customer.
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. In connection with our change
in strategic focus, we wrote off $4.0 million of our capitalized software
development costs to costs of custom development services revenues in fiscal
1997. Through May 1997, we capitalized $532,000 of costs related to the
development of our first software product. We have amortized these costs over
three years to cost of license revenues.
Since the introduction of our first software product, 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,
beginning in June 1997, 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. We have also granted stock warrants
to a customer and to a strategic business partner. Stock-based compensation
related to grants to employees represents the amortization, over the vesting
period of the option, of the difference between the exercise price of options
granted to employees and the fair market value of our common stock for financial
reporting purposes. Stock-based compensation related to grants to non-employees
represents the fair market value of the options and warrants 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 $2.6 million in fiscal 1999. As of October 31, 1999, the
deferred compensation balance was approximately $5.9 million and will be
amortized over the remaining vesting period of the options and warrants.
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 $27.0 million for fiscal 1997, $9.0 million for fiscal 1998, and
$28.9 million for fiscal 1999. We expect to continue to incur losses on both a
quarterly and annual basis in the future.
Our series A, series C and series G preferred stock, as well as shares of
our common stock outstanding on May 20, 1997 other than those shares held by
General Atlantic Partners, have rights that allow holders to
16
<PAGE> 21
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 the shares of our common stock outstanding
on May 20, 1997 other than those shares held by General Atlantic Partners. 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. In the period in which
this offering is completed and the payment is made, we will charge our
additional paid-in capital 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.
Before May 1997, we had elected to be treated as an S corporation under the
Internal Revenue Code. As an S corporation, federal and some state income tax
consequences of FirePond 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 before fiscal 1997. In May 1997, we changed from an S
corporation to a C corporation and, as such, taxes are payable at the corporate
level. As of October 31, 1999, we had available a net operating loss
carryforward of approximately $36.0 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
cumulative changes in ownership over a three-year period in excess of 50%.
RESULTS OF OPERATIONS
The following table presents selected consolidated financial data as a
percentage of total net revenues:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER 31,
-------------------------
1997 1998 1999
------ ------ -----
<S> <C> <C> <C>
Revenues:
Product-related revenues:
License................................................ 1.5% 6.5% 28.5%
Services and maintenance............................... -- 17.1 25.1
------ ------ -----
Total product-related revenues....................... 1.5 23.6 53.6
Custom development services............................... 98.5 76.4 46.4
------ ------ -----
Total revenues....................................... 100.0 100.0 100.0
------ ------ -----
Cost of revenues:
License................................................... 0.6 0.6% 0.7
Product-related services and maintenance.................. -- 10.6 16.6
Custom development services............................... 111.4 29.0 31.0
------ ------ -----
Total cost of revenues............................... 112.0 40.2 48.3
------ ------ -----
Gross profit (loss)......................................... (12.0) 59.8 51.7
Operating expenses:
Sales and marketing....................................... 28.7 47.2 68.9
Research and development.................................. 12.9 28.3 28.1
General and administrative................................ 11.3 12.1 20.7
Stock-based compensation.................................. 1.6 2.3 7.6
Restructuring charge...................................... 23.8 -- 8.8
------ ------ -----
Total operating expenses............................. 78.3 89.9 134.1
------ ------ -----
Loss from operations........................................ (90.3) (30.2) (82.4)
Other expense, net.......................................... 5.7 1.0 1.8
------ ------ -----
Net loss.................................................... (96.0)% (31.2)% (84.2)%
====== ====== =====
</TABLE>
17
<PAGE> 22
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 1999 AND 1998
Revenues. Total revenues increased $5.3 million, or 18.2%, to $34.3
million in fiscal 1999 from $29.0 million in fiscal 1998. This increase is
attributable to a 167.9% 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 $7.9 million, or 417.8%, to $9.8
million in fiscal 1999 from $1.9 million in fiscal 1998. License revenues
as a percentage of total revenues increased to 28.5% in fiscal 1999 from
6.5% in fiscal 1998. The increase in license revenues in absolute dollars
and as a percentage of total revenues is primarily attributable to an
increase in the number of licenses implemented at higher average selling
prices. We anticipate that license revenues will continue to grow as a
result of more 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 $3.6 million, or 73.0%, to $8.6 million in fiscal 1999
from $5.0 million in fiscal 1998. Product services revenues as a percentage
of total revenues increased to 25.1% in fiscal 1999 from 17.1% in fiscal
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 28.2%, to $15.9 million in fiscal 1999 from
$22.1 million in fiscal 1998. Custom development services revenues as a
percentage of total revenues decreased to 46.4% in fiscal 1999 from 76.4%
in fiscal 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 $4.9 million, or 42.1%,
to $16.6 million in fiscal 1999 from $11.7 million in fiscal 1998. Total cost of
revenues as a percentage of total revenues increased to 48.3% in fiscal 1999
from 40.2% in fiscal 1998.
Cost of license revenues. Cost of license revenues consists primarily
of costs of royalties, media, product packaging, documentation and other
production cost as well as amortization of capitalized software development
costs. Cost of license revenues increased 24.0% to $238,000 in fiscal 1999
from $192,000 in fiscal 1998. Cost of license revenues as a percentage of
license revenues decreased to 2.4% in fiscal 1999 from 10.2% in fiscal 1998
due to a 417.8% increase in license revenues while cost of license revenues
increased by only 24.0%.
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 $2.6 million, or 85.5%, to $5.7 million in fiscal 1999 from $3.1
million in fiscal 1998. Cost of product-related services and maintenance
revenues as a percentage of product-related services and maintenance
revenues increased to 66.0% in fiscal 1999 from 61.6% in fiscal 1998. The
increase was primarily due to increased staff to support a higher number of
product-related engagements.
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 $2.2 million, or 26.7%, to $10.6
million in fiscal 1999 from $8.4 million in fiscal 1998. Cost of custom
development
18
<PAGE> 23
services as a percentage of custom development services revenues increased
to 66.9% in fiscal 1999 from 37.9% in fiscal 1998. The increase resulted
primarily from the following factors:
- we reduced the estimated losses on contracts in fiscal 1998 by a net
amount of approximately $2.4 million; and
- we charged costs incurred of $1.9 million on loss contracts in fiscal
1998 to the accrual for loss contracts.
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 $9.9 million,
or 72.6%, to $23.6 million in fiscal 1999 from $13.7 million in fiscal 1998.
Sales and marketing expenses as a percentage of total revenues increased to
68.9% in fiscal 1999 from 47.2% in fiscal 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 a $1.0 million increase in 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 the costs 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 $1.4 million, or 17.6%
to $9.6 million in fiscal 1999 from $8.2 million in fiscal 1998. Research and
development expenses as a percentage of total revenues decreased to 28.1% in
fiscal 1999 from 28.3% in fiscal 1998. These expenses increased in absolute
dollars as a result of increased engineering and product development activities
associated with our investment in the FirePond Application Suite. We expect
research and development expenses will continue to increase as we maintain and
enhance our existing products and conduct research for new products.
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 $3.6 million, or 101.5%, to $7.1 million in fiscal 1999 from
$3.5 million in fiscal 1998. General and administrative expenses as a percentage
of total revenues increased to 20.7% in fiscal 1999 from 12.1% in fiscal 1998.
These expenses increased in absolute dollars and as a percentage of total
revenues primarily as a result of increased costs of our infrastructure
necessary to support our growth. We expect that general and administrative
expenses will continue to increase as we continue to add personnel to support
our expanding operations, incur additional costs related to the growth of our
business, and assume the responsibility and the costs associated with becoming a
public company.
Stock-based compensation expense. Stock-based compensation expense
increased $1.9 million, or 286.5%, to $2.6 million in fiscal 1999 from $672,000
in fiscal 1998. Stock-based compensation expense as a percentage of total
revenues increased to 7.6% in fiscal 1999 from 2.3% in fiscal 1998. If we had
allocated our stock-based compensation to the departments for which the services
were performed, general and administrative expenses would have increased by
$672,000 in fiscal 1998. In fiscal 1999, the allocation would have increased
cost of revenues by $40,000, sales and marketing expenses by $1,327,000,
research and development expenses by $913,000 and general and administrative
expenses by $317,000. The increase in stock-based compensation expense related
to sales and marketing activities in fiscal 1999 resulted from $622,000 in
awards to employees at exercise prices below fair market value, $474,000 in
awards to terminated employees, and $231,000 in awards to consultants and in
connection with strategic business alliances. The increase in stock-based
compensation expense related to research and development activities in fiscal
1999 resulted from $237,000 in awards to consultants and $676,000 in awards to
employees at exercise prices below fair market value.
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 $3.0 million of restructuring charges,
19
<PAGE> 24
which included $1.5 million for asset impairments, $1.0 million for idle lease
space and $500,000 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 $305,000, or 93.6%, to $631,000 in fiscal 1999 from
$326,000 in fiscal 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 $839,000, or 3.0%, to $29.0 million in
fiscal 1998 from $28.2 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.
License. License revenues increased $1.5 million, or 353.8%, to $1.9
million in fiscal 1998 from $416,000 in fiscal 1997. License revenues as a
percentage of total revenues increased to 6.5% in fiscal 1998 from 1.5% 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 $5.0 million in fiscal 1998 from $0 in fiscal 1997.
Product service and maintenance revenues as a percentage of total revenues
was 17.1% in fiscal 1998. The increase 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 $5.6 million, or 20.2%, to $22.1 million in fiscal 1998 from
$27.7 million in fiscal 1997. Custom development services revenues as a
percentage of total revenues decreased to 76.4% in fiscal 1998 from 98.5%
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 $19.9 million, or
63.1%, to $11.6 million in fiscal 1998 from $31.5 million in fiscal 1997. Total
cost of revenues as a percentage of total revenues decreased to 40.3% in fiscal
1998 from 112.0% in fiscal 1997.
Cost of license revenues. Cost of license revenues increased to
$192,000 in fiscal 1998 from $178,000 in fiscal 1997. Cost of license
revenues as a percentage of license revenues decreased to 10.2% in fiscal
1998 from 42.8% in fiscal 1997 due to a 353.8% increase in license revenue
while cost of license revenues increased by only 7.9%.
Cost of product-related services and maintenance revenues. Cost of
product-related services and maintenance revenues increased $3.1 million,
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 61.6% 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 $23.0 million, or 73.2%, to $8.4
million in fiscal 1998 from $31.4 million in fiscal 1997. Cost of custom
development services as a percentage of custom development services
revenues decreased to 37.9% in fiscal 1998 from 113.0% in fiscal 1997. This
decrease is partially because cost of custom development services revenues
in fiscal 1997 included the following:
- a $5.2 million provision for loss contracts reserve;
- a $4.0 million write-off of our capitalized software development costs;
and
- amortization of $1.1 million of capitalized software development costs.
20
<PAGE> 25
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 47.2% in fiscal 1998 from 28.7% 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 28.3% in fiscal 1998 from 12.9% 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.
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 increased to 12.1% in fiscal 1998 from 11.3% 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 2.3% in fiscal 1998 from 1.6% in fiscal 1997. This expense
increased primarily due to a higher number of stock options granted to
non-employees in fiscal 1998. If we had allocated our stock-based compensation
to our functional departments, general and administrative expenses would have
increased by $450,000 in fiscal 1997 and $672,000 in fiscal 1998, resulting from
stock option awards to consultants.
Restructuring charge. In May 1997, we undertook a plan to change our
strategic focus and, in connection with this change, decided to exit several of
our unrelated business activities, change our management team and reduce our
workforce. In connection with this plan, we incurred $6.7 million of
restructuring charges in fiscal 1997, which includes $2.7 million of employee
severance costs, $1.2 million of costs to exit several of our business
activities, and $2.8 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 5.7% in
fiscal 1997 due primarily to a $920,000 decrease in interest expense resulting
from a decrease in outstanding borrowings.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited consolidated statement of
operations data for the eight quarters in the period ended October 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.
21
<PAGE> 26
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product-related revenues:
License.......................... $ 144 $ 447 $ 706 $ 591 $ 1,607 $ 2,410 $ 2,615 $ 3,145
Services and maintenance......... 1,594 1,163 944 1,271 1,296 1,950 2,359 2,999
------- ------- ------- ------- ------- ------- ------- -------
Total product-related
revenues.................... 1,738 1,610 1,650 1,862 2,903 4,360 4,974 6,144
Custom development services...... 5,255 6,888 5,399 4,600 4,283 4,066 3,712 3,843
------- ------- ------- ------- ------- ------- ------- -------
Total revenues................. 6,993 8,498 7,049 6,462 7,186 8,426 8,686 9,987
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Licenses........................... 44 46 51 51 46 47 45 100
Product-related services and
maintenance...................... 890 749 742 680 998 1,405 1,487 1,787
Custom development services........ 2,652 620 3,065 2,060 3,001 2,733 2,888 2,014
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues......... 3,586 1,415 3,858 2,791 4,045 4,185 4,420 3,901
------- ------- ------- ------- ------- ------- ------- -------
Gross profit......................... 3,407 7,083 3,191 3,671 3,141 4,241 4,266 6,086
Operating expenses:
Sales and marketing................ 3,098 3,211 3,456 3,915 4,758 6,541 5,736 6,574
Research and development........... 1,933 1,950 2,047 2,269 1,997 1,828 2,547 3,269
General and administrative......... 907 704 995 910 1,531 1,717 1,814 2,022
Stock-based compensation........... 36 36 244 356 232 423 143 1,799
Restructuring charge............... -- -- -- -- -- -- 2,625 402
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses....... 5,974 5,901 6,742 7,450 8,518 10,509 12,865 14,066
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........ (2,567) 1,182 (3,551) (3,779) (5,377) (6,268) (8,599) (7,980)
Other expense, net................... 34 209 51 32 235 78 92 226
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................... $(2,601) $ 973 $(3,602) $(3,811) $(5,612) $(6,346) $(8,691) $(8,206)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
JAN. 31, APR. 30, JUL. 31, OCT. 31, JAN. 31, APR. 30, JUL. 31, OCT. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product-related revenues:
License............................ 2.1% 5.3% 10.0% 9.1% 22.4% 28.6% 30.1% 31.5%
Services and maintenance........... 22.8 13.6 13.4 19.7 18.0 23.1 27.2 30.0
----- ----- ----- ----- ----- ----- ----- -----
Total product-related revenues... 24.9 18.9 23.4 28.8 40.4 51.7 57.3 61.5
Custom development services........ 75.1 81.1 76.6 71.2 59.6 48.3 42.7 38.5
----- ----- ----- ----- ----- ----- ----- -----
Total revenues................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Licenses............................. 0.6 0.5 0.8 0.8 0.6 0.6 0.5 1.0
Product-related services and
maintenance........................ 12.8 8.8 10.5 10.5 13.9 16.8 17.1 17.9
Custom development services.......... 37.9 7.3 43.5 31.9 41.8 32.4 33.2 20.2
----- ----- ----- ----- ----- ----- ----- -----
Total cost of revenues........... 51.3 16.6 54.8 43.2 56.3 49.6 50.8 39.1
----- ----- ----- ----- ----- ----- ----- -----
Gross profit........................... 48.7 83.4 45.2 56.8 43.7 50.4 49.2 60.9
Operating expenses:
Sales and marketing.................. 44.3 37.8 49.0 60.6 66.2 77.6 66.0 65.8
Research and development............. 27.6 22.9 29.0 35.1 27.8 21.7 29.3 32.7
General and administrative........... 13.0 8.3 14.1 14.1 21.3 20.4 20.9 20.2
Stock-based compensation............. 0.5 0.4 3.5 5.5 3.2 5.0 1.6 18.0
Restructuring charge................. -- -- -- -- -- -- 30.2 4.0
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses......... 85.4 69.4 95.6 115.3 118.5 124.7 148.0 140.7
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations.......... (36.7) 14.0 (50.4) (58.5) (74.8) (74.3) (98.8) (79.8)
Other expense, net..................... 0.5 2.5 0.7 0.5 3.3 0.9 1.1 2.3
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)...................... (37.2)% 11.5% (51.1)% (59.0)% (78.1)% (75.2)% (99.9)% (82.1)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
22
<PAGE> 27
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 October 31, 1999, we had $2.1 million of cash and cash equivalents,
compared with $2.3 million as of October 31, 1998. Our working capital deficit
at October 31, 1999 was $11.4 million, compared to a working capital deficit of
$6.2 million at October 31, 1998.
Net cash used in operating activities was $19.9 million in fiscal 1999,
$10.5 million in fiscal 1998, and $3.0 million in fiscal 1997. Cash used in
operating activities in fiscal 1999 was primarily attributable to our net loss
and increases in accounts receivable and prepaid expense, offset in part by an
increase in deferred revenues, accounts payable and accrued liabilities and
non-cash expenses including depreciation, amortization, stock-based compensation
expense and a restructuring charge.
Net cash used in investing activities was $2.1 million in fiscal 1999, $1.5
million for fiscal 1998, and $6.6 million for fiscal 1997. Net cash used in
investing activities in fiscal 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 $21.9
million in fiscal 1999, $4.1 million in fiscal 1998, and $19.3 million for
fiscal 1997. Proceeds from financing activities for fiscal 1999 were primarily
from the sale of our series F preferred stock and net borrowings on our line of
credit and term note, 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 $4.3 million 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 $2.0 million 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 eligible accounts receivable. Eligible accounts receivable are defined
as accounts receivable from United States based contracts that are payable
within six months and which are not in dispute or delinquent. Interest on the
line of credit is at the prime rate plus 2.0% limited to a minimum of 8.0% per
year, and is payable monthly. We also pay a monthly fee of 0.5% per year on the
unused line of credit. As of October 31, 1999, we had $4.7 million outstanding
under the line of credit and available borrowing capacity of $37,000.
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 or November 11, 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 will record the warrants as a discount totaling $1.9
million against the carrying value of the subordinated notes payable.
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 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 the
23
<PAGE> 28
next 12 months or in the future 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 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
We organized a year 2000 task force to address our year 2000 issues. The
task force concluded all testing and remediation efforts in relation to year
2000 issues on December 15, 1999 as discussed below.
We have tested all custom and product implementations currently being
utilized by customers and, as necessary, have remediated and made all of these
implementations year 2000 ready. We have further tested all existing and past
FirePond products for year 2000 issues and, as necessary, remediated and made
all of these products year 2000 ready. However, we have not tested independently
installed third-party software which may be integrated within our customer's
systems. 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.
We have tested all internal hardware and software for 2000 issues and, as
necessary, have remediated and made all of these systems year 2000 ready. For
our non-information technology, we have obtained year 2000 ready statements from
all of our material suppliers and do not anticipate any year 2000 problems.
The Cost to Address Our Year 2000 Issues
We have incurred costs in replacing hardware as well as labor in assessing,
testing and remediating all of our software and hardware. All costs incurred in
our process to be year 2000 ready are covered by our general budget to fund the
activities of the year 2000 task force. These costs are divided into two
categories:
- our internal systems and hardware; and
- custom and product customer implementations.
The majority of costs were incurred during calendar year 1999. We incurred
approximately:
- 2000 employee hours;
- $10,000 in contract fees; and
- $75,000 in capital expenditures remediating our internal hardware and
software systems.
We anticipate no further material costs associated with remediating year 2000
issues.
The Risk of Our Year 2000 Issues
We have assessed, tested and remediated all anticipated year 2000 issues.
Therefore, currently we are not aware of any material operational issues or
costs associated with year 2000 issues. The only potential
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problems we anticipate in relation to the year 2000 are minor internal or
customer associated year 2000 issues which may have been overlooked by our year
2000 task force or year 2000 issues which are beyond our control.
Our Contingency Plan
We have prepared a contingency plan if we are not year 2000 ready. All key
personnel are available to address all potential problems which may occur with
our own internal systems as well as unanticipated problems with our customers
use of our software products and implementations. We have taken further
contingency plans designed to protect software code that is material to our
business operation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including
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 customer loyalty. 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 through 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 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 before 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, or 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. We have
derived this information from 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, comprehensive selling 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 information about
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customers when they access a company's traditional sales channels, leaving a
company with an incomplete view of an individual customer's behavior,
requirements and preferences. This inability to enable a common view of
individual customers across multiple selling channels limits a company's ability
to develop strategies for improving its product offerings, services, and selling
processes in ways that would encourage repeat business from those customers.
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 encourage
conversion of potential customers into customers and repeat business from
individual customers, 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 for selling complex products and
services, and must also automate complex selling activities within traditional
direct and indirect selling channels to maximize the ability of all channels to
transact new business. This next-generation software must also capitalize on the
highly interactive nature of the Internet to capture real-time customer
information from individual selling interactions across all channels, so that
this common view of customer activity may be shared across a company's
enterprise as a basis for developing improved product offerings, services, and
selling processes that would encourage long-term customer loyalty.
THE FIREPOND SOLUTION
FirePond is a leading provider of integrated e-business sales and marketing
solutions for companies wishing to offer complex products and services through
business-to-business and business-to-consumer e-commerce channels. We offer
packaged software applications and related services that allow these companies
to deploy comprehensive, highly interactive selling systems that increase
customer conversion and retention of individual customers over the long term, in
both e-commerce and more traditional sales channels. Our packaged software
product, the FirePond Application Suite, allows companies in our targeted
markets to offer personalized products, services and content when a customer is
preparing to buy, either on an e-commerce web-site, or from a direct
salesperson, distributor, dealer or agent. Using our software, companies are
able to share customer information obtained from business-to-business or
business-to-consumer e-commerce sales transactions with traditional sales
channels, where that information is used by sales people to improve individual
customer relationships and develop additional revenue opportunities. By enabling
these interactive, Internet-based selling transactions, our products are able to
capture from multiple selling channels real-time information about individual
customer behavior, preferences and transaction activity, creating a common view
of individual customers. Our software then distributes this customer information
across the enterprise, where it provides the basis for developing improved
product offerings, services and selling processes that will increase the
likelihood of long-term customer retention.
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 selling capabilities to business-to-business and
business-to-consumer e-commerce sites;
- automate highly complex selling tasks within direct and indirect selling
channels to ensure the accuracy and personalization of products and
services offered to customers throughout those channels;
- utilize the same business rules, data and selling functionality across
all e-commerce and traditional sales channels, so that individual
customers receive consistent, high quality information when they are
ready to buy products or services;
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- develop a common view of each customer across all e-commerce and
traditional sales channels to bring intelligence and consistency to every
customer interaction;
- leverage the interactivity of the Internet to capture a common view of
individual customers from real-time interactions across selling channels,
and share that information across the enterprise to enable strategies for
improved product offerings, services, and selling processes, increasing
the likelihood of achieving long-term customer loyalty; 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:
Pursue Targeted Vertical Markets. We currently focus on 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. We
believe that our focused pursuit of these targeted markets increases our ability
to offer solutions that meet the unique needs of our target customers, which may
vary greatly across industry segments. To further our vertical market focus, our
sales efforts are organized around complementary industry segments so that we
may offer more specialized, consultative expertise when customers evaluate and
license our products. We will continue to deepen our focus on target industry
markets and capture and translate customer requirements into industry-specific
product features and functions, which we believe will create barriers to entry
for our competitors. During fiscal 2000, we also plan to expand into new
vertical industries with similar characteristics and will target leading
companies in those industries.
Expand Established International Infrastructure to Gain Global Market
Share. During fiscal 1999, we invested heavily in a global infrastructure to
target leading businesses worldwide. We have increased the number of FirePond
employees internationally to 78 as of November 30, 1999 from 24 on October 31,
1998. Our international revenues as a percentage of total revenues were 11% in
fiscal 1999. Our leading international customers include Ford Motor
Company-Europe, Hitachi, Packard Bell/NEC, Renault V.I, and Scania. We plan to
use customer wins and existing and new partner relationships to complement our
infrastructure and grow market share in international markets.
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. On an ongoing basis, we
will aggressively seek to expand the number of partners we work with to further
penetrate the market and accelerate our growth.
Offer 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 in their
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current stages of developing and implementing their e-business strategies. When
we are successful in selling our independent component offerings, we create
future opportunities for up-selling customers to our enterprise platform which
we intend to pursue aggressively. 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.
Incorporate 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 and product-related services,
while maintaining the technical expertise and knowledge developed in providing
customized solutions in our prior business model. We believe that our historical
expertise in this area represents a significant competitive advantage. We intend
to expand upon this expertise to develop products by creating packaged software
versions of previously installed custom functionality and by re-using highly
specialized implementation methodologies developed over the course of our
history.
FIREPOND PRODUCTS
The FirePond Application Suite is a suite of packaged, Internet-based
software applications, enabling companies that offer complex products and
services to deploy integrated e-business sales and marketing solutions. The
FirePond Application Suite includes packaged software components for
Internet-based guided selling, which allow companies to offer personalized
products, services and content to customers when they are ready to make a buying
decision, whether on an e-commerce site or through a traditional sales channel.
Within the FirePond Application Suite, we also offer enterprise customer
information management and sales administration capabilities, which allow rich
customer information captured from selling interactions across multiple sales
channels to be consolidated in a single administrative application. Finally, our
software includes a process workflow engine, which enables companies to design
processes that distribute information captured from real-time selling events
enabled by our guided selling applications to connected systems and individuals
across a company's enterprise.
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The table below describes the packaged software components of the FirePond
Application Suite, all of which, other than the FirePond Business Rule Engine,
were released in October 1999. Previous versions of the FirePond Business Rule
Engine have been used in our custom software development implementations as well
as in our prior software products.
<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 during the sale
of complex products and services
- ---------------------------------------------------------------------------------------------------
FirePond Commerce Guided selling application that enable consultative selling
processes
within business-to-business or business-to-consumer
e-commerce
web-sites, leveraging the configuration and business rule
services of the
FirePond Business Rule Engine
- ---------------------------------------------------------------------------------------------------
FirePond Sales Guided selling application that automates complex selling
activities for assisted direct and indirect sales channels,
leveraging the configuration
and business rule services 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 design processes that share customer
information captured by FirePond Commerce and FirePond Sales
across connected systems and individuals within the
enterprise
- ---------------------------------------------------------------------------------------------------
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
We offer a variety of packaging and pricing options for the FirePond
Application Suite, to achieve flexibility in aligning our technology with
companies in different stages of executing their e-business strategies.
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 e-commerce
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. 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 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. To date, substantially all of our
licenses have been perpetual licenses. License fees for our products typically
range from approximately several hundred thousand dollars to several million
dollars.
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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 during the
sale of complex products and services. 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. 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
evaluation and 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 sales channels. At
the time of customer evaluation or purchase, the FirePond BRE will evaluate
customer information 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 offering complex products or services
to quickly deploy highly interactive, consultative e-commerce web sites for
selling. Companies receive the base packaged selling functionality of FirePond
Commerce, then collaborate with FirePond or third-party implementation partners,
to organize the selling functionality in ways that reflect their unique
strategies and best practices for selling. Associated tools in the FirePond
Enterprise Workbench allow us, our partners, or the company to organize and
deploy this functionality in rapid time frames. Using the FirePond Business Rule
Engine to apply business rules intelligence to independent components of
functionality, companies can easily construct comprehensive e-commerce selling
sites that emulate the consultative nature of traditional sales channels. The
packaged functionality of FirePond Commerce allows customers to navigate through
an entire complex sales process in an e-commerce environment, beginning with an
interactive needs analysis session, creating a targeted product configuration
with a personalized price quote, exploring optimal financing recommendations,
comparing relevant competitive offerings, obtaining individualized product
content, generating a company-branded proposal, and completing 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 guided selling application which automates complex
selling activities for 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 packaged selling functionality of FirePond Sales, then use associated
tools in the FirePond Enterprise Workbench to organize the functionality to
represent their unique strategies and best practices for selling. FirePond Sales
provides the same functionality offered in FirePond Commerce to personalize
products, services and content to individual customers when they are ready to
buy. However, the functionality is typically presented differently due to the
presence of human interaction in the sales process. The underlying data model
and architecture that support 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 personalized
solution on a FirePond Commerce-enabled site, a sales person can access that
solution and use FirePond Sales to offer informed alternatives and optimize the
solution to further develop the opportunity.
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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 captured in those applications, 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 software systems and individuals in organized,
customer-driven processes. Using intuitive visual tools in FirePond Enterprise
Workbench, companies can design business processes for responding to 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 software systems to
each process. Companies then apply logic that defines how and when these
organizational roles, tasks, and software systems will be invoked, based on
different events. When events trigger these processes, FirePond Process Server
ensures that the process is triggered 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
customer information 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:
- author and manage business rules that support product configuration,
pricing and transactional personalization in the FirePond Business Rule
Engine;
- organize packaged FirePond selling functionality within FirePond Commerce
and FirePond Sales to comply with their strategies and best practices for
selling;
- develop and deploy additional e-business functionality that complements
the packaged application functions of FirePond Commerce, FirePond Sales
and FirePond Sales Manager;
- visually create, manage, and monitor transaction-based business processes
that span multiple applications;
- define connectivity and data flows between the FirePond Application Suite
and third-party applications; and
- assign users, manage security, and troubleshoot the distributed
components of a FirePond Application Suite deployment.
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PROFESSIONAL SERVICES AND SUPPORT
We offer a range of professional services that help companies use the
packaged software functionality of the FirePond Application Suite to create
deployments 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 determine how their individual selling
strategies can be reflected in our packaged technology, then provide specialized
professional services resources who use FirePond Enterprise Workbench to assist
in the creation of a functional application workflow, data models, automated
enterprise processes, highly branded user interfaces, and functional extensions
to our packaged software applications 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 the packaged product
functionality in the FirePond Commerce and FirePond Sales applications,
and for designing customer-focused business processes within FirePond
Process Server
- Product Architect -- Technical architecture specialist responsible for
compliance of the FirePond Application Suite with 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 that allow the FirePond Business Rule Engine to
reflect a company's product configuration, pricing and transactional
personalization strategies
- Interactive Consultant -- Graphic design specialist responsible for using
FirePond Enterprise Workbench to create a user interface for FirePond
Commerce and FirePond Sales systems, which reflect a company's individual
brand identity
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 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.
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We have multi-disciplined sales teams that consist of sales, technical and
sales support professionals. Our senior management also takes an active role in
our sales efforts. Frequently, we use FirePond Enterprise Workbench to develop
customer-specific demonstrations of FirePond Commerce and FirePond Sales to
support selling cycles which we or our partners then use as a basis for the
actual 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 or
multiple selling strategies 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 November 30, 1999, our world-wide
sales organization consisted of 62 employees.
A key element of our growth strategy is the formation of strategic
relationships with industry leaders whose business offerings complement our own.
We believe that these relationships allow us to scale our business rapidly and
effectively, by enabling the expansion of our:
- global brand exposure;
- pipeline of qualified sales opportunities;
- capacity to effectively implement our software offerings for new
customers; and
- ability to deliver enhanced value propositions to our customers.
FirePond has successfully established relationships with large,
international systems integrators and consulting services companies, including
Ernst & Young, Viant, EDS, Intelligroup, Debis Systemhaus, and WM Data. We
intend to aggressively expand these relationships and add new relationships in
this area to increase our capacity to sell and implement our products on a
global basis. With existing partners, such as Ernst & Young and Intelligroup, we
align our relationships to coincide with our target vertical markets, including
the healthcare/insurance, telecommunications, and automotive market sectors. We
will continue to aggressively pursue relationships that augment our vertical
market strategy.
FirePond also has relationships with vendors whose products are generally
believed to be complementary to our own, including E.piphany, Talus Solutions,
Silverstream, Sun Microsystems and Oberon Software. On an ongoing basis, we will
pursue additional technology relationships that increase our value proposition
to potential customers, expand our ability to offer integrated enterprise
solutions, and increase our market opportunities.
Recently, several companies have emerged that offer outsourced software
application hosting services to a wide variety of companies that may not want to
incur the cost of hosting and maintaining enterprise software applications
within their internal technology infrastructure. We believe that these
alternative hosting models provide a strong opportunity to expand our market
reach, because they offer a lower ownership cost to companies that might not
otherwise be able to justify a large software investment. We have commenced
pursuit of this opportunity by establishing a relationship with GTE
Internetworking that provides the FirePond Application Suite on a GTE hosted
platform. We will expand our pursuit of partners that offer alternative software
hosting models to increase our market reach into companies outside the Global
2000.
As of November 30, 1999, FirePond had 3 employees focused on the
development of corporate partnerships and strategic alliances. In addition, our
senior management takes an active role in the development of these key
relationships.
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 November 30, 1999, FirePond's marketing organization consisted of 11
employees.
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<PAGE> 39
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
Packard Bell/NEC
Peugeot SA
Renault V.I.
Savings Bank Life Insurance
Scania
Sprint
Subaru
Sunds Defibrator
- ------------
* Customer relationships based on custom development services exclusively
The following table is a list of customers from whom we derived revenues
equal to 10% or more of our total revenues during fiscal 1997, fiscal 1998 or
fiscal 1999, and whose loss would seriously harm our business:
<TABLE>
<CAPTION>
FISCAL 1997 REVENUES FISCAL 1998 REVENUES FISCAL 1999 REVENUES
--------------------------- --------------------------- ---------------------------
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
CUSTOMER AMOUNT TOTAL REVENUES AMOUNT TOTAL REVENUES AMOUNT TOTAL REVENUES
-------- ---------- -------------- ---------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
General Motors....... $6,005,000 21% $7,152,000 25% $8,143,000 24%
Blue Cross Blue
Shield Minnesota..... -- -- 147,000 1% 4,993,000 15%
</TABLE>
RESEARCH AND DEVELOPMENT
As of November 30, 1999, FirePond employed 87 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 based on
specifications provided by us and to provide implementation services to our
customers. The agreement expires in February 2002. As of November 30, 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 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 $9.6 million for fiscal 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.
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<PAGE> 40
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 believe that
the market for integrated e-business sales and marketing solutions is still in
its formative stage, and that no currently identified competitor represents a
dominant presence in this market.
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 our intellectual property 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 specified
events. This 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, this access could enable them to use our
intellectual property and source code to
36
<PAGE> 41
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 to enable us 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 that our existing or future
products infringe their proprietary rights. 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. Royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all.
EMPLOYEES
At November 30, 1999, we had a total of 350 employees, of which 87 were in
research and development, 73 were in sales and marketing, 58 were in finance and
administration, and 132 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> 42
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their ages as of November 30,
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............................ 48 Director
J. Michael Cline.......................... 39 Director
William O. Grabe.......................... 61 Director
Gerhard Schulmeyer........................ 61 Director
</TABLE>
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. Before 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. Mr. Besier is also a director of Intelligroup, a global professional
services firm.
Ilya G. Gorelik has served as our senior vice president of product strategy
and development since October 1998. Before 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. Parametric Technology Corporation is a leading
software supplier for the mechanical design automation market.
Edwin B. Lange has served as our senior vice president of North American
sales since September 1999. Before 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 a sales director at Andersen Consulting.
Graham S. Williams has served as our senior vice president and managing
director of Europe and Asia since June 1998. Before 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. Before 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, he
held various
38
<PAGE> 43
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. Before joining FirePond, from 1993 to 1997, he held various
marketing positions at Trilogy Software, Inc., a sales technology company,
including director of sales and marketing from 1996 to 1997. Before Trilogy, Mr.
Waters worked in the national high-technology investment banking 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.
Before 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. Before 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. Before joining General Atlantic, Mr. Cline helped found
AMC, a software company subsequently sold to Legent Corporation. Before 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. Before 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.
Gerhard Schulmeyer has been a director of FirePond since November 1999. Mr.
Schulmeyer is president and chief executive officer of Siemens Corporation in
the United States of America, having been president and chief executive officer
of Siemens Nixdorf Informationssysteme AG and chairman of its managing board
since 1994. Before joining Siemens Nixdorf, Mr. Schulmeyer was executive vice
president and a member of the executive committee of Asea Brown Boveri Ltd. as
well as president and chief executive officer of ABB Inc., U.S.A. From 1980 to
1989, he held various senior positions with Motorola Inc., culminating with that
of executive vice president, deputy to the chief executive officer, responsible
for European business. He is a member of the boards of Korn Ferry International,
Ingram Micro, Inc., Alcan Aluminum Ltd., Allied Zurich p.l.c., Zurich Financial
Services and Arthur D. Little, Inc.
Following this offering, the board of directors will consist of five
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. The members of the board of directors are currently classified as
follows:
- Mr. Cline and Mr. Schulmeyer are class I directors whose terms will
expire in 2001;
- Mr. Grabe is a class II director whose term will expire in 2002; and
- Mr. Besier and Mr. Butare are class III directors whose terms will expire
in 2003.
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<PAGE> 44
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 our stock option plans. 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.
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 presents the fiscal 1999 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 $100,000, collectively referred to below
as the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME & PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)
- ------------------------- --------- -------- --------------- ------------
<S> <C> <C> <C> <C>
Klaus P. Besier............................. $200,000 $ -- $ -- --
Chairman, President and Chief Executive
Officer
Graham S. Williams.......................... 213,850 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 $1,645 per month paid on behalf of Mr.
Williams.
(2) Represents amounts paid to the executive officer as reimbursement for
relocation expenses.
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<PAGE> 45
The following table presents information about stock options granted during
fiscal 1999 to the named executive officers. The percent of total options
granted to employees in the last fiscal year is based on options to purchase an
aggregate of 3,567,189 shares granted to officers and employees during fiscal
1999. The amounts shown as potential realizable value illustrate what might be
realized upon exercise immediately before expiration of the option term using
the 0%, 5% and 10% appreciation rates above the exercise price established in
regulations of the SEC, compounded annually. The potential realizable value is
not intended to predict future appreciation of the price of our common stock and
do not give effect to any actual appreciation after the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED
NUMBER OF SHARES % OF TOTAL ANNUAL RATES OF STOCK PRICE
UNDERLYING OPTIONS GRANTED TO EXERCISE APPRECIATION FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 0%($) 5%($) 10%($)
- ---- ---------------- ------------------ -------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Klaus P. Besier...... -- -- -- -- $ -- $ -- $ --
Graham S. Williams... 100,000(1) 2.8% $4.46 6/1/09 155,500 533,466 1,113,339
Ilya G. Gorelik...... 133,334(2) 3.7 4.46 6/16/09 207,334 711,291 1,484,460
Paul K. McDermott.... 283,334(1) 7.9 3.95 1/11/09 -- 702,949 1,781,410
56,667(1) 1.6 7.22 10/27/09 107,951 432,965 931,602
Steven J. Waters..... 100,000(1) 2.8 3.95 11/1/08 -- 248,099 628,731
33,334(3) 0.9 4.46 6/16/09 51,834 177,825 371,121
</TABLE>
- ------------
(1) 25% of the underlying shares vest on each anniversary of the date of grant
so long as the holder remains as an employee.
(2) Vest upon the occurrence of preestablished performance goals related to the
development of our new product, the FirePond Application Suite.
(3) 100% of the underlying shares vest immediately upon grant.
The following table presents 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. The values of the unexercised in-the-money options have been
calculated on the basis of the fair market value at October 31, 1999 of $9.12
per share, as determined by the board of directors.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FY-END(#) AT FY-END($)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Klaus P. Besier........................... 986,163 938,839 $5,103,394 $4,858,492
Graham S. Williams........................ 54,167 262,500 280,314 1,307,438
Ilya G. Gorelik........................... 241,667 325,000 1,182,627 1,681,875
Paul K. McDermott......................... -- 340,000 -- 1,574,204
Steven J. Waters.......................... 75,000 158,334 371,125 819,378
</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 December 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
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<PAGE> 46
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, however, under
present law, incentive stock options 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 persons holding more than 10% of the voting power of our 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
holder's employment or other service relationship with us. Upon the exercise of
options, the option exercise price must be paid in full by one of the following
means:
- cash;
- by certified or bank check;
- by another 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 holder
free of restrictions for at least six months.
The exercise price may also be delivered to us by a broker under irrevocable
instructions to the broker selling the underlying shares from the holder.
The purchase price, vesting dates and 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 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 the stock.
When we become subject to Section 162(m) of the Internal Revenue Code,
which denies a deduction to publicly held corporations for 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 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 the surviving 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. Upon a merger,
reorganization or sale, all awards issued under the 1999 stock option and grant
plan will terminate upon closing of the transaction. All participants under the
1999 stock option and grant plan will be permitted to exercise, for a period of
15 days before any termination of the 1999 stock option and grant plan, all
awards held by them which are then exercisable or will become exercisable upon
the closing of the transaction.
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<PAGE> 47
1999 DIRECTOR PLAN
Our 1999 director plan was adopted by our board of directors in September
1999 and received stockholder approval in December 1999. A total of 500,000
shares of common stock have been authorized of issuance under the 1999 director
plan.
The 1999 director plan is administered by our compensation committee. The
term of the 1999 director plan is ten years, unless sooner terminated by vote of
the board of directors. 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 continuing non-employee director will be automatically
granted on the date of our annual stockholders meeting an option to purchase
12,500 shares of our common stock.
Options granted under the 1999 director plan are subject to the following
terms:
- the exercise price will be equal to the fair market value of the common
stock on the date of grant;
- 25% of the options in each grant will become exercisable on each of the
first, second, third and fourth anniversaries of the date of grant and
will have 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;
and
- 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, 112,452 shares remain available for future issuance as
of November 30, 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.
The exercise price of options granted under the 1997 stock option plan is
determined by the board of directors or the committee. Under present law,
incentive stock options 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 persons
holding more than 10% of the voting power of our 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 holder's employment
or other service relationship with us. Upon the exercise of options, the option
exercise price must be paid in full by one of the following means:
- cash;
- by certified or bank check;
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<PAGE> 48
- by another 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 holder
free of restrictions for at least six months.
The purchase price, and vesting dates and 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 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 the 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.
On November 8, 1999, Mr. Besier received stock options under the 1997 stock
option plan to purchase 1,500,000 shares of our common stock at an exercise
price of $9.90 per share. The options vest monthly over four years and will be
fully vested on November 8, 2003.
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 performance goals
agreed upon by Mr. Besier and our board of directors before 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 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 registration rights for
all shares of our common stock which he acquires.
In the event of Mr. Besier's death during the term 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 for good
reason, 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 $213,850 commencing on June 1, 1998 and an annual bonus of up
to 50% of his annual salary based on our 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 option plan. These options 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 our 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. These options vest annually over four years
commencing on October 2, 1998. Upon the
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<PAGE> 49
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, 1999, an initial
bonus of $25,000 and an annual bonus of up to $50,000 based on our 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. These options
vest annually over four years commencing on January 4, 1999. In addition, 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 before 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. These options
vest annually over four years commencing on September 16, 1997. In addition, 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 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
later acquired under any by-law, agreement or vote of stockholders. We also have
directors' and officers' insurance against potential liabilities.
We have been advised that in the opinion of the SEC, although
indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers or controlling persons of FirePond as
described above, this indemnification is against public policy as expressed in
the Securities Act and may be unenforceable.
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<PAGE> 50
RELATED PARTY 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>
Entities associated with
General Atlantic Partners,
LLC......................... 4,188,880 100,000 7,604,563 841,751 7,604,563
Entities associated with
Technology Crossover
Ventures...................... -- -- -- 4,208,755 --
Entities associated with
Lehman Brothers............. -- -- -- 1,683,502 --
</TABLE>
In connection with the sale of our series F 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 preferred stockholders 7.5% of the
shares sold to the public in the offering. The shares are to be allocated among
the series F preferred stockholders on a pro rata basis based upon the number of
series F shares held. Entities associated with General Atlantic Partners, LLC,
Technology Crossover Ventures and Lehman Brothers are the series F preferred
stockholders.
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<PAGE> 51
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.
On November 12, 1999, we borrowed $6.0 million of subordinated indebtedness
from an outside investor, and entities associated with General Atlantic
Partners, LLC 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 or November 11, 2000. If we have not closed an
initial public offering of our stock by May 11, 2000 or if we enter into a sale
transaction before May 11, 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. FirePond 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 some of our stockholders upon consummation of this offering as
follows:
- an aggregate amount of $10,000,000 to holders of our shares of common
stock outstanding on May 20, 1997, other than those shares held by
entities associated with General Atlantic Partners, LLC;
- 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, a number of shares of
our common stock determined by dividing the amount payable by $12.00. Our board
of directors has elected to make these payments in 3,812,524 shares of common
stock upon consummation of this offering.
REGISTRATION RIGHTS AGREEMENTS
After this offering holders of 28,918,308 shares of our common stock and
preferred stock have registration rights for their shares of common stock,
including shares of common stock issuable upon conversion of their preferred
stock.
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
The following table presents information about the beneficial ownership of
common stock as of November 30, 1999 and as adjusted to reflect the sale of the
common stock offered by this prospectus, 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 for the shares of common stock listed opposite its name below,
subject to community property laws, where applicable. Beneficial ownership is
determined under the rules of the Securities and Exchange Commission. Percentage
of beneficial ownership is based on:
- 27,485,652 shares outstanding as of November 30, 1999; and
- 32,485,652 shares outstanding after completion of this offering.
All options exercisable within 60 days of November 30, 1999 are reported as
currently exercisable. The shares issuable under these options are treated as if
outstanding for computing the percentage ownership of the person holding these
options but are not treated as if outstanding for the purposes of computing the
percentage ownership of any other person.
The data below gives effect to the issuance of:
- 3,812,524 shares of common stock as priority payments to some of our
existing stockholders upon consummation of this offering; and
- 281,662 shares of common stock issuable upon the net exercise of warrants
to purchase series F preferred stock upon consummation of this offering.
In addition, the table below assumes that the underwriters do not exercise their
over-allotment option.
The address of the entities associated with General Atlantic Partners, LLC
is General Atlantic Partners, LLC, 3 Pickwick Plaza, Greenwich, Connecticut
06830. The address of the entities associated with Technology Crossover Ventures
is Technology Crossover Ventures, 575 High Street, Suite 400, Palo Alto,
California 94301. The address of Jerome D. Johnson is 2409 Northridge Drive,
North Mankato, Minnesota 56003.
<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY OWNED
NUMBER OF SHARES ---------------------------
BENEFICIALLY BEFORE THE AFTER THE
OWNED OFFERING OFFERING
---------------- ------------ ------------
<S> <C> <C> <C>
Entities associated with General Atlantic Partners,
LLC (1).......................................... 17,279,470 61.4% 52.2%
Entities associated with Technology Crossover
Ventures (2)..................................... 3,347,915 12.6 10.6
Jerome D. Johnson (3).............................. 2,946,033 10.7 9.1
Klaus P. Besier (4)................................ 1,222,233 4.2 3.5
Ilya G. Gorelik (5)................................ 257,192 less than 1% less than 1%
Graham S. Williams (6)............................. 57,303 less than 1% less than 1%
Paul K. McDermott (7).............................. 70,833 less than 1% less than 1%
Steven J. Waters (8)............................... 100,000 less than 1% less than 1%
Paul R. Butare..................................... -- -- --
J. Michael Cline................................... -- -- --
William O. Grabe (9)............................... 17,279,470 61.4 52.2
Gerhard Schulmeyer................................. -- -- --
All executive officers and directors as a group (10
persons) (10).................................... 19,036,031 63.9 54.7
</TABLE>
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<PAGE> 53
- ------------
(1) Consists of:
- 2,614,398 shares held by GAP Coinvestment Partners, L.P. and includes
96,837 shares underlying warrants exercisable within 60 days of November
30, 1999;
- 117,440 shares held by GAP Coinvestment Partners II L.P.;
- 11,157,797 shares held by General Atlantic Partners 40, L.P. and includes
537,957 shares underlying warrants exercisable within 60 days of November
30, 1999;
- 2,822,118 shares held by General Atlantic Partners 46, L.P.; and
- 567,717 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 entities associated
with General Atlantic Partners, LLC.
(2) Consists of:
- 24,317 shares held by TCV III (GP);
- 115,501 shares held by TCV III, L.P.;
- 3,069,878 shares held by TCV III (Q), L.P.; and
- 138,219 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 referred to, collectively, as entities associated with
Technology Crossover Ventures. Technology Crossover Management III, L.L.C.
is the general partner of each of the entities associated with Technology
Crossover Ventures.
(3) Includes 83,334 shares which may be sold if the underwriters exercise their
over-allotment option.
(4) Includes 1,191,223 shares underlying options granted to Mr. Besier
exercisable within 60 days of November 30, 1999.
(5) Includes 241,667 shares underlying options granted to Mr. Gorelik
exercisable within 60 days of November 30, 1999.
(6) Includes 54,166 shares underlying options granted to Mr. Williams
exercisable within 60 days of November 30, 1999.
(7) Includes 70,833 shares underlying options granted to Mr. McDermott
exercisable within 60 days of November 30, 1999.
(8) Includes 100,000 shares underlying options granted to Mr. Waters
exercisable within 60 days of November 30, 1999.
(9) Represents shares described in Note (1) above, beneficially owned by
entities associated with General Atlantic Partners, LLC. Mr. Grabe
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest in GAP Coinvestment Partners, L.P. and GAP Coinvestment
Partners II, L.P.
(10) Includes 1,643,306 shares underlying options granted to the executive
officers exercisable within 60 days of November 30, 1999.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
Immediately following the offering, our authorized capital stock will
consist of 100,000,000 shares of common stock of which 32,485,652 will be issued
and outstanding; and 5,000,000 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 November 30, 1999, there were outstanding:
- 10,073,943 shares of common stock held by approximately 75 stockholders
of record;
- 19,097,793 shares of preferred stock, convertible into 13,317,523 shares
of common stock upon completion of this offering;
- warrants to purchase 190,438 shares of series B preferred stock,
convertible into 634,794 shares of common stock upon completion of this
offering;
- warrants to purchase 673,401 shares of series F preferred stock,
convertible into 281,662 shares of common stock upon completion of this
offering if exercised on a net exercise basis.
- warrants to purchase 864,567 shares of common stock; and
- options to purchase an aggregate of 9,408,825 shares of common stock.
These outstanding shares do not include the 3,812,524 shares of common stock to
be issued as priority payments to some of our existing stockholders upon
consummation of this offering.
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 the
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.
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 has the authority to determine any of the following
for each series:
- The distinctive serial designation and the number of shares constituting
a series;
- The dividend rates or the amount of dividends to be paid on the shares of
a series, whether dividends shall be cumulative and, if so, from which
date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
- The voting rights and powers, full or limited, if any, of the shares of a
series;
- Whether the shares of a series shall be redeemable and, if so, the price
or prices at which, and the terms and conditions on which, the shares may
be redeemed;
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<PAGE> 55
- The amount or amounts payable upon the shares of a series and any
preferences applicable in the event of our voluntary or involuntary
liquidation, dissolution or winding up;
- Whether the shares of a series shall be entitled to the benefit of a
sinking or retirement fund to be applied to the purchase or redemption of
the shares, and if so entitled, the amount of the fund and the manner of
its application, including the price or prices at which the shares may be
redeemed or purchased through the application of the fund;
- Whether the shares of a series shall be convertible into, or exchangeable
for, shares of any other class or classes or of any other series of the
same or any other class or classes of our stock and, if so convertible or
exchangeable, the conversion price or prices, or the rate or rates of
exchange, and the adjustments, if any, at which a conversion or exchange
may be made, and any other terms and conditions of a conversion or
exchange;
- The consideration for which the shares of a series shall be issued;
- Whether the shares of a series which are redeemed or converted shall have
the status of authorized but unissued shares of undesignated preferred
stock, or a series, and whether the shares may be reissued as shares of
the same or any other class or series of stock; and
- Any other powers, preferences, rights, qualifications, limitations and
restrictions as the board of directors or any authorized committee may
deem advisable.
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 November 30, 1999, there were outstanding:
- warrants to purchase up to 190,438 shares of series B preferred stock at
an exercise price of $19.69 per share that were issued to General
Atlantic, 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;
- warrants to purchase up to 673,401 shares of series F preferred stock at
an exercise price of $3.56 per share that were issued to the purchasers
of series F preferred stock;
- 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;
- warrants to purchase an aggregate of up to 304,567 shares of common stock
at an exercise price of $7.22 per share that were issued to strategic
partners and a customer; and
- 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.
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<PAGE> 56
REGISTRATION RIGHTS
Under the terms of our registration rights agreement, after the closing of
this offering, several of our shareholders may demand that we file a
registration statement for the registration of all or any portion of their
shares, subject to 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 28,618,308
shares will be party to the registration rights agreement. 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 covering their shares of common
stock.
In addition, after the closing of this offering, these and another
stockholder holding an aggregate of 300,000 shares will be entitled to
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.
The registration rights of these stockholders, subject to some 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
registrations, except underwriting discounts and commissions. We also have
agreed to indemnify those stockholders under the terms of the registration
rights agreement.
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 related to the
amendment.
DELAWARE ANTI-TAKEOVER LAW AND OUR 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 that person became an interested stockholder unless:
- before that 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 that 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 is generally 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 provision electing to opt out of Section 203.
52
<PAGE> 57
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 the 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
shares of preferred stock 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
or proxy contest if the board of directors determines that a 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.
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 EquiServe.
53
<PAGE> 58
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 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.
NUMBER OF SHARES
After this offering, 32,485,652 shares of common stock will be outstanding,
assuming the issuance of an aggregate of 5,000,000 shares of common stock. The
number of shares outstanding after this offering is based on the number of
shares outstanding as of November 30, 1999, and assumes no exercise of
outstanding options. The 5,000,000 shares sold in this offering will be freely
tradable without restriction under the Securities Act.
The remaining 27,485,652 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 under the Securities Act, which are summarized below.
Of these restricted shares,
- 3,056,079 shares will be available for resale in the public market in
reliance on Rule 144(k) immediately following this offering, of which
2,402,695 shares are subject to lock-up agreements described below;
- 24,042,340 shares will be available for resale in the public market in
reliance on Rule 144 beginning 90 days following this offering, of which
24,042,340 shares are subject to lock-up agreements; and
- 343,065 shares become eligible for resale in the public market at various
dates thereafter, 320,284 of which shares are subject to lock-up
agreements.
LOCK-UP AGREEMENTS
Each of our executive officers and directors, and other stockholders who
will own in the aggregate 26,671,173 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 transfer 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 FleetBoston Robertson Stephens Inc.
FleetBoston 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, FleetBoston Robertson Stephens Inc. will consider 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.
We have agreed not to sell or 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 our stock option
plans.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
54
<PAGE> 59
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately 324,857 shares immediately after this offering;
or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 concerning that sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about
FirePond.
RULE 144(k)
Under Rule 144(k) as currently in effect, a person who has not been one of
our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering.
RULE 701
In general, our employees, officers, directors and consultants who
purchased shares of our common stock in connection with written compensatory
benefit plans or written contracts relating to the compensation of the
purchaser, may rely on Rule 701 to resell those shares. The Securities and
Exchange Commission has indicated that Rule 701 will apply to stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Exchange Act, along with the shares acquired upon exercises of those
options, including exercises after the date of this offering. Securities issued
in reliance on Rule 701 are restricted securities and 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
- may be sold by affiliates under Rule 144 without complying with its
one-year minimum holding requirement.
STOCK OPTIONS
At November 30, 1999:
- we had reserved an aggregate of 9,337,944 shares of common stock for
issuance under the 1997 stock option plan, and options to purchase
approximately 9,225,492 shares were outstanding under the 1997 stock
option plan;
- we had reserved an aggregate of 3,000,000 shares of common stock for
issuance under 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 under the 1999 director plan, and options to purchase 183,333
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 our stock option plans. This 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.
REGISTRATION RIGHTS
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.
55
<PAGE> 60
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated, SG Cowen
Securities Corporation and E*OFFERING Corp., have each agreed with us, subject
to the terms and conditions of the underwriting agreement, to purchase from us
the number of shares of common stock listed 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>
FleetBoston Robertson Stephens Inc. ........................
Dain Rauscher Incorporated..................................
SG Cowen Securities Corporation.............................
E*OFFERING Corp. ...........................................
---------
Total.................................................. 5,000,000
=========
</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 750,000 additional shares of common stock at
the same price per share as we will receive for the 5,000,000 shares that the
underwriters have agreed to purchase. If the underwriters exercise the option in
full, we will sell 666,666 additional shares and the selling stockholder will
sell 83,334 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 83,334 shares. To the extent that the underwriters exercise
this option, each of the underwriters will have a 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 5,000,000 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 5,000,000 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 5,000,000 shares of
common stock offered by this prospectus.
56
<PAGE> 61
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 $1,550,000.
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters, us and the selling stockholder against 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 most 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 transfer any:
- shares of common stock;
- options or warrants to purchase any shares of common stock; or
- any securities convertible into or exchangeable for shares of common
stock.
However, FleetBoston 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 before 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
FleetBoston Robertson Stephens Inc., (a) consent to the disposition of any
shares held by the stockholders before 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 based on 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. Before 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
57
<PAGE> 62
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 and the present state
of our development.
Stabilization. The representatives have advised us that, under Regulation
M under the Securities Exchange Act of 1934, some persons participating in this
offering may engage in transactions 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. These transaction may include
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, as described below:
- A stabilizing bid is a bid for or the purchase of common stock on behalf
of the underwriters for the purpose of fixing or maintaining the price of
the common stock.
- A syndicate covering transaction is the bid for or the purchase of common
stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering; a short position
results when an underwriter sells more shares than it has committed to
purchase.
- A penalty bid is an arrangement permitting the representatives to reclaim
the selling concession otherwise accruing to an underwriter or syndicate
member in connection with this offering if the common stock originally
sold by that underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not
been effectively placed by that underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market or through
other means such as privately negotiated transactions. If commenced, these
transactions may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for FirePond by McDermott, Will & Emery, Boston, Massachusetts.
Various legal matters related to the sale of the common stock offered by this
prospectus will be passed upon for the underwriters by Hale and Dorr LLP,
Boston, Massachusetts.
EXPERTS
The consolidated balance sheets as of October 31, 1998 and 1999 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended October 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 appearing in this prospectus and elsewhere in the
registration statement, and is included in reliance upon the authority of the
firm 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 for the
registration of the common stock offered by this prospectus. 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 about any contract or other document are
not necessarily complete. Statements made about any contract or document are
summaries of all material information about the documents summarized, but are
not complete descriptions of all terms. If we filed any of those documents as
exhibits to the registration statement, you may read the document itself for a
complete description of its terms.
58
<PAGE> 63
The registration statement can be inspected and copied at the Securities
and Exchange Commission's following locations:
<TABLE>
<S> <C> <C>
Public Reference Room Office New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Washington, D.C. 20549 Suite 1300 500 West Madison Street
New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
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 may obtain copies of the documents that
we file electronically with the SEC through the SEC's website located at
http://www.sec.gov. 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
Consolidated Balance Sheets as of October 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the Fiscal Years
Ended October 31, 1997, 1998 and 1999..................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Fiscal Years Ended October 31, 1997, 1998 and
1999...................................................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years
Ended October 31, 1997, 1998 and 1999..................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 65
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 Delaware corporation) and subsidiaries as of October 31, 1998 and 1999,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended October
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.
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, 1998 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended October 31, 1999, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 10, 1999 (except with respect to the
matters discussed in Notes 9(b) and 14, as to
which the date is January 4, 2000)
F-2
<PAGE> 66
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31, 1999
OCTOBER 31, ----------------
-------------------- PRO FORMA
1998 1999 (NOTE 2(b))
-------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,324 $ 2,120 $ 2,120
Accounts receivable, net of allowance for doubtful
accounts of $290 in 1998 and $410 in 1999............... 6,214 9,910 9,910
Unbilled services......................................... 845 1,191 1,191
Prepaid expenses and other current assets................. 405 1,265 1,265
-------- -------- ---------
9,788 14,486 14,486
Property and equipment, net................................. 8,443 6,048 6,048
Restricted cash............................................. -- 550 550
Other assets................................................ 555 576 576
-------- -------- ---------
$ 18,786 $ 21,660 $ 21,660
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Line of credit............................................ -- $ 6,740 $ 6,740
Current portion of long-term debt......................... 4,769 1,313 1,313
Accounts payable.......................................... 1,832 3,833 3,833
Accrued liabilities....................................... 4,813 5,700 5,700
Deferred revenue.......................................... 4,614 8,280 8,280
-------- -------- ---------
16,028 25,866 25,866
Long-term debt, less current portion........................ 1,727 702 702
Restructuring accrual, less current portion................. -- 446 446
Commitments and contingencies (Note 8)
Stockholders' equity (deficit):
Preferred stock, $0.01 par value --
Authorized -- 50,000,000 shares;
Issued and outstanding -- 12,363,785 shares in 1998,
19,097,793 shares in 1999 and no shares on a pro forma
basis (liquidation preference of $71,500,000 as of
October 31, 1999)..................................... 124 191 --
Common stock, $0.01 par value --
Authorized -- 100,000,000 shares;
Issued and outstanding -- 10,004,315 shares in 1998,
10,072,817 shares in 1999 and 27,537,895 shares on a
pro forma basis....................................... 100 101 275
Additional paid-in capital................................ 33,745 62,380 108,147
Accumulated deficit....................................... (32,938) (61,793) (107,543)
Deferred compensation..................................... -- (5,893) (5,893)
Cumulative translation adjustment......................... -- (327) (327)
Subscription receivables.................................. -- (13) (13)
-------- -------- ---------
Total stockholders' equity (deficit).................... 1,031 (5,354) (5,354)
-------- -------- ---------
$ 18,786 $ 21,660 $ 21,660
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 67
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
--------------------------------------------
1997 1998 1999
---------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Product-related revenues:
License(1)........................................... $ 416 $ 1,888 $ 9,777
Services and maintenance............................. -- 4,972 8,604
-------- -------- --------
Total product-related revenues..................... 416 6,860 18,381
Custom development services............................. 27,747 22,142 15,904
-------- -------- --------
Total revenues..................................... 28,163 29,002 34,285
-------- -------- --------
Cost of revenues:
License................................................. 178 192 238
Product-related services and maintenance(2)............. -- 3,061 5,677
Custom development services............................. 31,365 8,397 10,636
-------- -------- --------
Total cost of revenues............................. 31,543 11,650 16,551
-------- -------- --------
Gross profit (loss)....................................... (3,380) 17,352 17,734
Operating expenses:
Sales and marketing(2).................................. 8,080 13,680 23,609
Research and development(2)............................. 3,634 8,199 9,641
General and administrative(2)........................... 3,188 3,516 7,084
Stock-based compensation................................ 450 672 2,597
Restructuring charge.................................... 6,712 -- 3,027
-------- -------- --------
Total operating expenses........................... 22,064 26,067 45,958
-------- -------- --------
Loss from operations...................................... (25,444) (8,715) (28,224)
Interest expense.......................................... (1,536) (616) (850)
Other income (expense), net............................... (55) 290 219
-------- -------- --------
Net loss.................................................. $(27,035) $ (9,041) $(28,855)
======== ======== ========
Net loss per share (Note 3(a)):
Basic and diluted net loss per share.................... $ (2.62) $ (0.91) $ (2.88)
======== ======== ========
Basic and diluted weighted average common shares
outstanding.......................................... 10,319 9,925 10,024
======== ======== ========
Pro forma net loss per share (unaudited) (Note 3(b)):
Pro forma net loss per share............................ $ (1.12)
========
Pro forma basic and diluted weighted average common
shares outstanding................................... 25,799
========
</TABLE>
- ---------------
(1) Includes related-party revenues of $350 in fiscal 1997, see note 11(a).
(2) Excludes charge for stock-based compensation, see note 9(g).
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 68
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, 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, 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................................... (27,035) -- -- -- (27,035)
Comprehensive loss for the year ended
October 31, 1997.........................
-------- ----- ----- ----- --------
<CAPTION>
COMPREHENSIVE
INCOME (LOSS)
-------------
<S> <C>
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................................... $(27,035)
--------
Comprehensive loss for the year ended
October 31, 1997......................... $(27,035)
========
</TABLE>
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, 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........... -- -- 35,169 -- -- 139
Issuance of common stock................... -- -- 33,333 1 -- 278
Issuance of warrants to purchase common
stock to a customer...................... -- -- -- -- -- 106
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.......... -- -- -- -- -- 8,360
Stock-based compensation expense........... -- -- -- -- -- --
Cumulative translation adjustment.......... -- -- -- -- -- --
Net loss................................... -- -- -- -- -- --
Comprehensive loss for the year ended
October 31, 1999.........................
----------- ----- ---------- ---- -------- --------
Balance, October 31, 1999 --Consolidated... 19,097,793 191 10,072,817 101 -- 62,380
Conversion of preferred stock into common
stock (unaudited)........................ (19,097,793) (191) 13,403,396 134 -- 57
Issuance of common stock in settlement of
priority payments (unaudited)............ -- -- 3,812,524 38 -- 45,712
Exercise of Series F preferred stock
warrant and conversion into common stock
(unaudited).............................. -- -- 249,158 2 -- (2)
----------- ----- ---------- ---- -------- --------
Pro forma balance, October 31, 1999
(unaudited).............................. -- $ -- 27,537,895 $275 -- $108,147
=========== ===== ========== ==== ======== ========
<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... (23,897) -- -- (12) (986)
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................................... (9,041) -- -- -- (9,041)
Comprehensive loss for the year ended
October 31, 1998.........................
--------- ------- ----- ----- --------
Balance, October 31, 1998 -- Consolidated... (32,938) -- -- -- 1,031
Exercise of common stock options........... -- -- -- (13) 126
Issuance of common stock................... -- (130) -- -- 149
Issuance of warrants to purchase common
stock to a customer...................... -- -- -- -- 106
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.......... -- (8,360) -- -- --
Stock-based compensation expense........... -- 2,597 -- -- 2,597
Cumulative translation adjustment.......... -- -- (327) -- (327)
Net loss................................... (28,855) -- -- -- (28,855)
Comprehensive loss for the year ended
October 31, 1999.........................
--------- ------- ----- ----- --------
Balance, October 31, 1999 --Consolidated... (61,793) (5,893) (327) (13) (5,354)
Conversion of preferred stock into common
stock (unaudited)........................ -- -- -- -- --
Issuance of common stock in settlement of
priority payments (unaudited)............ (45,750) -- -- -- --
Exercise of Series F preferred stock
warrant and conversion into common stock
(unaudited).............................. -- -- -- -- --
--------- ------- ----- ----- --------
Pro forma balance, October 31, 1999
(unaudited).............................. $(107,543) $(5,893) $(327) $ (13) $ (5,354)
========= ======= ===== ===== ========
<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................................... $ (9,041)
--------
Comprehensive loss for the year ended
October 31, 1998......................... $ (9,041)
========
Balance, October 31, 1998 -- Consolidated...
Exercise of common stock options...........
Issuance of common stock...................
Issuance of warrants to purchase common
stock to a customer......................
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.......... $ (327)
Net loss................................... (28,855)
--------
Comprehensive loss for the year ended
October 31, 1999......................... $(29,182)
========
Balance, October 31, 1999 --Consolidated...
Conversion of preferred stock into common
stock (unaudited)........................
Issuance of common stock in settlement of
priority payments (unaudited)............
Exercise of Series F preferred stock
warrant and conversion into common stock
(unaudited)..............................
Pro forma balance, October 31, 1999
(unaudited)..............................
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 70
FIREPOND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
--------------------------------
1997 1998 1999
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(27,035) $ (9,041) $(28,855)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash restructuring charges........................... 3,984 -- 1,532
Write-off of capitalized software development costs..... 3,959 -- --
Issuance of warrants to a customer...................... -- -- 106
Exchange of stockholder receivable for consulting
services............................................... 200 -- --
Stock-based compensation expense........................ 450 672 2,597
Loss on disposal of property and equipment.............. 557 259 49
Depreciation and amortization........................... 3,419 2,282 2,851
Changes in assets and liabilities:
Accounts receivables.................................. (171) (1,699) (4,024)
Unbilled services..................................... 361 1,927 (346)
Prepaid expenses and other current assets............. (236) (57) (860)
Accounts payable...................................... (352) 138 2,001
Accrued liabilities................................... 8,832 (4,943) 1,334
Deferred revenue...................................... 2,327 2,294 3,666
Billings in excess of costs........................... 717 (2,305) --
-------- -------- --------
Net cash used in operating activities.............. (2,988) (10,473) (19,949)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....................... (3,606) (1,470) (3,916)
Proceeds from sale of property and equipment.............. -- -- 2,557
Additions to trademarks and patents....................... (101) -- --
Additions to capitalized computer software development
costs................................................... (2,648) -- --
Increase in restricted cash............................... -- -- (550)
Increase in investments and deposits...................... (235) (16) (236)
-------- -------- --------
Net cash used in investing activities.............. (6,590) (1,486) (2,145)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (payments) on line of credit............... (877) (2,790) 6,740
Payments on long-term debt................................ (4,248) (3,460) (4,959)
Proceeds from long-term debt.............................. 3,351 -- --
Proceeds from sale of preferred stock and warrants........ 20,853 9,985 19,842
Proceeds from common stock issuance....................... 150 419 288
Costs associated with exchange of preferred stock......... -- -- (23)
Distributions to stockholders............................. (167) -- --
Common stock repurchased.................................. (148) (30) --
Decrease (increase) in subscription receivables........... 361 12 (13)
-------- -------- --------
Net cash provided by financing activities.......... 19,275 4,136 21,875
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... -- -- 15
Net increase (decrease) in cash and cash equivalents........ 9,697 (7,823) (204)
Cash and cash equivalents, beginning of year................ 450 10,147 2,324
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 10,147 $ 2,324 $ 2,120
======== ======== ========
Supplemental cash flow information:
Interest paid............................................. $ 1,552 $ 777 $ 695
======== ======== ========
Noncash investing and financing activities:
Series D preferred stock exchanged for series E preferred
stock................................................... $ -- $ 9,989 $ --
======== ======== ========
Series E preferred stock exchanged for series G preferred
stock................................................... -- -- 19,974
======== ======== ========
Equipment acquired under capital lease obligations........ -- 179 477
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 71
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 several existing stockholders of
the Company. The subordinated notes bear interest at 12.0% per year and are due
upon the earlier of the closing of the Company's proposed initial public
offering or November 11, 2000. If an initial public offering is not completed by
May 11, 2000 or in the event of a sale transaction, as defined, before May 11,
2000, the subordinated notes, including accrued interest, are convertible into
shares of the Company's preferred stock having rights equivalent of FirePond
Inc.'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. The estimated fair value of these warrants totaling $2,789,000
was determined using the Black-Scholes valuation model with the following
variables: risk-free interest rate of 6.0%, dividend yield rate of 0%, term of
five years, and volatility of 80%. The Company has allocated the proceeds from
the subordinated notes payable of $6,000,000 in proportion to the relative fair
values of both the warrants and the subordinated notes payable. As a result, the
Company will record the warrants as a discount totaling $1,904,000 against the
carrying value of the subordinated notes payable. The discount will be amortized
to interest expense over the term of the subordinated notes payable.
During September 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 of $61,793,000 and a working capital deficit of $11,380,000
at October 31, 1999. 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 October 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
October 2000.
(b) Change in Control
In May 1997, investment funds associated with General Atlantic Partners, or
GAP, acquired a majority interest in the Company through acquisition of shares
from the Company and shares directly from several stockholders. In addition, the
Company granted warrants to purchase preferred stock from the Company and
options to purchase common stock from several 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.
F-8
<PAGE> 72
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. Because the entities were under common ownership before the
stock-for-stock exchange, the combination has been accounted for at historical
costs in a manner similar to a pooling-of-interests. All periods presented are
reported on a consolidated basis. All significant intercompany balances and
transactions have been eliminated in the accompanying consolidated financial
statements.
(b) Unaudited Pro Forma Presentation
The unaudited pro forma consolidated balance sheet as of October 31, 1999
reflects the following: (1) the issuance of 249,158 shares of common stock
issuable upon the exercise of warrants to purchase 673,401 shares of series F
preferred stock on a post-split, cashless exercise basis, (2) the issuance of
12,731,863 shares of common stock from the conversion of all outstanding shares
of convertible preferred stock that will occur automatically upon the closing of
the Company's proposed initial public offering, (3) the issuance of 3,812,524
shares of common stock issuable in settlement of priority payments to series A,
series C and series G preferred stockholders totaling $35,750,000, and holders
of the Company's common stock outstanding on May 20, 1997 other than GAP,
totaling $10,000,000, based on the mid-point of the filing range for the
proposed initial public offering, which is $12.00 per share, and (4) the
issuance of an additional 671,533 shares of common stock issuable to series F
preferred stockholders based upon their pro rata percentage of the priority
payments to all other shareholders. See note 9(d).
The issuance of shares of common stock as payment of the $35,750,000 in
priority payments to series A, series C, and series G preferred stockholders and
$10,000,000 to holders of the Company's common stock outstanding on May 20,
1997, other than GAP, will be accounted for as a stock dividend. In the period
in which this payment is made, the Company will record a charge of $45,750,000
to additional paid-in capital. For the period in which the payment is made, the
amount of the net loss attributable to common stockholders used in the
computation of net loss per share will be increased by $35,750,000, such amount
being paid to preferred stockholders.
(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 based on the provisions of Statement of
Position, or SOP, No. 97-2, Software Revenue Recognition, as amended by SOP No.
98-4, and SOP No. 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts. The American Institute of Certified Public
Accountants recently issued SOP No. 98-9, which provides amendments to SOP No.
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.
F-9
<PAGE> 73
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Product-Related Revenues
Product-related license revenues are generated from licensing the rights to
the perpetual use of the Company's packaged 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 customer's use of the software in arrangements where
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 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 performs custom development services under fixed-price
contracts, for which revenue is recognized using the percentage-of-completion
method. These services consist of the development of highly customized
applications utilizing core software technology. These contracts typically range
in terms of one to five years. 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.
The Company also provides ongoing services related to custom development
projects including software and data maintenance. Revenues from these
arrangements are recognized as the services are performed.
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. The Company bills customers under custom development
contracts upon achieving performance milestones or billing dates, as specified
in the contracts.
F-10
<PAGE> 74
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(e) 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(i).
(f) Cash and Cash Equivalents
The Company accounts for cash equivalents based on the guidance in
Statement of Financial Accounting Standards, or 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, 1998 and 1999 consist of
interest-bearing bank deposits.
(g) 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 ------------------
USEFUL LIFE 1998 1999
------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer equipment...................... 2-5 years $ 7,488 $ 7,251
Furniture and fixtures.................. 7 years 905 1,791
Leasehold improvements.................. Life of lease -- 541
Building................................ 30 years 3,624 --
------- -------
12,017 9,583
Accumulated depreciation................ (3,574) (3,535)
------- -------
$ 8,443 $ 6,048
======= =======
</TABLE>
Depreciation expense was $1,748,000 for fiscal 1997, $2,081,000 for fiscal
1998 and $2,590,000 for fiscal 1999.
(h) 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, 1998 and 1999 totaled $40,000 and
$64,000, respectively.
(i) Computer Software Development Costs and Research and Development Expenses
During fiscal 1996 and fiscal 1997, the Company capitalized software
development costs based on the guidance in 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
F-11
<PAGE> 75
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
were not realizable. In connection with its change in strategic focus, the
Company wrote off its capitalized software development costs relating to custom
development components of $3,959,000 as a charge to cost of custom development
services revenues in fiscal 1997. Amortization of capitalized software
development costs charged to cost of custom development services before this
write-off was $1,080,000 for 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 Company determines technological feasibility upon the
successful development of a working model, which occurs late in the development
cycle and close to general release of the products. Because the development
costs incurred between the time technological feasibility is established and
general release of the product are not material the Company expenses these costs
as incurred. Through May 1997, the Company capitalized $532,000 of costs related
to the development of its first software product. These costs were amortized
over three years. Amortization of these costs charged to costs of product
licenses was $178,000 in fiscal 1997, $177,000 in fiscal 1998 and $177,000 in
fiscal 1999.
(j) Impairment of Long-Lived Assets
The Company evaluates the carrying value of long-lived assets based on the
guidance in 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
$3,683,000 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 asset impairment charge of $1,532,000 during fiscal 1999 in
connection with the relocation of the Company's corporate headquarters from
Minnesota to Massachusetts, see note 5(b).
(k) 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 related to accounts receivable and unbilled services is limited to
several 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 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, 1997........................ 1 21% 3 42%
October 31, 1998...................... 3 47 3 48
October 31, 1999...................... 2 38 3 42
</TABLE>
F-12
<PAGE> 76
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(l) 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.
(m) 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, or 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 and
Emerging Issues Task Force, or EITF, No. 96-18, Accounting for Equity
Instruments that are Issued to other than Employees for Acquiring, or in
Conjunction with Selling, Goods, or Services.
(n) Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments, including 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.
(o) Foreign Currency Translation
Assets and liabilities of the foreign subsidiaries are translated based on
the guidance in SFAS No. 52, Foreign Currency Translation. Under 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.
(p) 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 LOSS PER SHARE
(a) Net Loss Per Share
Net loss per share is computed based on the guidance of SFAS No. 128,
Earnings per Share. SFAS No. 128 requires companies to report both basic 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
F-13
<PAGE> 77
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997, fiscal 1998 and fiscal 1999, all potential common shares were antidilutive
and were excluded from the diluted net loss per share calculations.
Under Securities and Exchange Commission Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued or granted for nominal
consideration before 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.
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,
--------------------------
1997 1998 1999
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Common stock options and warrants........................ 1,683 5,089 7,952
====== ====== ======
Convertible preferred stock.............................. 4,859 12,364 19,098
====== ====== ======
Preferred stock warrants (note 9(d))..................... 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 ENDED
OCTOBER 31,
1999
-----------------
(IN THOUSANDS)
<S> <C>
Pro forma basic and diluted:
Weighted average common shares outstanding used in computing
basic and diluted net loss per share........................ 10,024
Weighted average common shares issuable upon the
conversion of preferred stock.......................... 11,792
Weighted average common shares issuable upon settlement of
the priority payments.................................. 3,812
Weighted average common shares issuable upon exercise of
series F preferred stock warrants...................... 171
------
Weighted average common shares outstanding used in
computing pro forma basic and diluted net loss per
share.................................................. 25,799
======
</TABLE>
F-14
<PAGE> 78
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Loss contracts reserve...................................... $1,000 $ 500
Current portion of restructuring accrual.................... 304 799
Payroll and related costs................................... 1,101 1,740
Other....................................................... 2,408 2,661
------ ------
$4,813 $5,700
====== ======
</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 several of its business activities, change its management team
and reduce 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 several of its business
activities and asset impairments, see note 5(c). The costs to exit business
activities are related to the Company's investment in a virtual reality lab.
These costs included $813,000 in specialized equipment that was abandoned and
$425,000 in equity investments in a privately-held company assisting with the
project that was considered worthless and was written off. 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
Impairment of property and equipment........................ 2,595
Other costs................................................. 150
-------
$ 6,712
=======
</TABLE>
The employee severance cost component of the restructuring charge was
related to reductions in headcount. Under the plan, the Company terminated seven
sales and marketing, 17 general and administrative and 27 software development
personnel.
The costs to exit business activities component related to the write down
of assets of a virtual reality product line. The Company wrote off $813,000 in
capital equipment, consisting principally of a virtual reality lab. At the
termination of the product line, the Company abandoned the property, as it had
no alternative use. The Company had partnered with a privately-held company to
develop the virtual reality lab. The Company held an equity investment of
$425,000 in this company. When the virtual reality product line was abandoned,
the Company deemed the value of its equity investment worthless and wrote-off
this investment.
The impairment of property and equipment component consisted primarily of
outdated and obsolete computers and related furniture. The Company determined
that this equipment would have no future benefit to the Company. The Company
removed these fixed assets from service and disposed of them upon execution
F-15
<PAGE> 79
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the plan without any material proceeds from disposition. The Company ceased
depreciation of the fixed assets concurrent with the establishment of the
restructuring plan.
(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 5(c). 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.................................... 502
------
$3,027
======
</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 before 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.
Therefore, 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
October 31, 1999. As of October 31, 1999, approximately $367,000 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 impairment of property and equipment component consisted primarily of
excess and obsolete office furniture and computer equipment located in the
Mankato facility. The Company determined that this equipment would have no
future benefit to the Company. The Company has removed these fixed assets from
service and has commenced the process of disposing of such equipment. The
Company does not expect the proceeds from disposition to be significant. The
Company ceased depreciation of the fixed assets concurrent with the
establishment of the restructuring plan.
The employee severance cost component of the restructuring charge was
related to reductions in headcount. Under the plan, the Company terminated 12
general and administrative personnel. In October 1999, the Company's chairman,
who was located in the Mankato office, resigned. As part of his resignation, the
Company agreed to pay severance costs of $402,000. These costs have been
included as part of the severance component of the restructuring reserve.
F-16
<PAGE> 80
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(c) Restructuring Reserve
A summary of the restructuring reserve is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
---------------------------------
1997 1998 1999
------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Restructuring reserve:
Balance, beginning of period........................ $ -- $ 1,583 $ 304
Provision...................................... 6,712 -- 3,027
Asset impairment write-offs.................... (3,833) -- (1,532)
Severance and other payments................... (1,296) (1,279) (552)
------- ------- -------
Balance, end of period............................ $ 1,583 $ 304 $ 1,247
======= ======= =======
</TABLE>
The Company estimates that $799,000 of the restructuring accrual will be
paid in fiscal 2000, $208,000 will be paid in fiscal 2001, $109,000 will be paid
in fiscal 2002, $118,000 will be paid in fiscal 2003, and $13,000 will be paid
in fiscal 2004.
6. FINANCINGS
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, which was 8.25% at October
31, 1999, plus 2.0%, limited to a minimum of 8.0% per year, 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. At October 31, 1999,
$4,740,000 was outstanding under the line and the Company had approximately
$37,000 available for future borrowings.
Long-term debt obligations consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes payable in varying monthly installments,
including interest at 8.0% to 9.0%........................ $2,618 $ --
Notes payable in varying monthly installments, including
interest at 6.0% to 11.0%, through June 2001.............. 3,708 1,644
Capital lease obligations payable in varying monthly
installments, including interest at 8.0% to 11.0%, through
August 2004............................................... 170 371
------ ------
6,496 2,015
Less -- current portion..................................... 4,769 1,313
------ ------
$1,727 $ 702
====== ======
</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
F-17
<PAGE> 81
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 October
31, 1999:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
2000.................................................... $1,556
2001.................................................. 606
2002.................................................. 48
2003.................................................. 34
2004.................................................. 28
------
2,272
Less -- amounts representing interest................... 257
------
$2,015
======
</TABLE>
7. INCOME TAXES
Before 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
some 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.
Therefore, 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
based on the guidance in 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>
FISCAL YEARS ENDED OCTOBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal.................................................... $(9,192) $(3,074) $(5,882)
State taxes, net of federal benefits....................... (1,757) (588) (1,053)
Foreign.................................................... -- -- (3,982)
Other...................................................... 60 216 1,099
Net operating loss not benefited........................... 10,889 3,446 9,818
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>
F-18
<PAGE> 82
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes as of October 31, 1998 and 1999 relate to the
following temporary differences:
<TABLE>
<CAPTION>
OCTOBER 31,
-------------------
1998 1999
------- --------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss and credit carryforwards................. $ 7,947 $ 17,765
Nondeductible reserves and accruals......................... 1,398 2,722
Depreciation and amortization............................... (147) (1,365)
Valuation allowance......................................... (9,198) (19,122)
------- --------
$ -- $ --
======= ========
</TABLE>
As of October 31, 1999, the Company has available a net operating loss
carryforward of approximately $36,000,000 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 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%. The Company's wholly owned foreign subsidiaries have net operating loss
carryforwards of approximately $12 million.
(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. Rent expense under these agreements totaled
approximately $406,000 for fiscal 1997, $746,000 in fiscal 1998 and $2,349,000
in fiscal 1999.
At October 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,
2000................................................. $ 2,558
2001................................................. 2,402
2002................................................. 2,052
2003................................................. 1,935
2004................................................. 1,861
Thereafter........................................... 3,172
-------
$13,980
=======
</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
F-19
<PAGE> 83
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 October 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 January 4, 2000. In July 1997, the Company effected a five-for-one
stock split of its common stock. All shares and per share amounts of common
stock for all periods presented have been retroactively adjusted to reflect the
stock splits.
Before 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 100,000,000 shares of $0.01 par value common stock
and 5,000,000 shares of $0.01 par value preferred stock.
(c) Reserved Shares
As of October 31, 1999, 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.................................. 8,635,737
----------
22,451,328
==========
</TABLE>
In addition, the information above excludes 4,484,057 shares of common
stock that the Company expects to issue for the payment of priority payments to
some of our common stockholders and preferred stockholders, see note 9(d).
F-20
<PAGE> 84
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Preferred Stock
The following table summarizes the number of shares designated, issued and
outstanding:
<TABLE>
<CAPTION>
OCTOBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Series A convertible preferred stock;
-- 4,188,880 shares designated................................... 4,188,880 4,188,880
Series B convertible preferred stock;
- -- 190,438 shares designated....................................... -- --
Series C convertible preferred stock;
-- 570,342 shares designated..................................... 570,342 570,342
Series D convertible preferred stock;
-- 100,000 shares designated..................................... -- --
Series E convertible preferred stock;
-- 7,604,563 shares designated................................... 7,604,563 --
Series F convertible preferred stock;
-- 7,407,409 shares designated................................... -- 6,734,008
Series G convertible preferred stock;
-- 7,604,563 shares designated................................... -- 7,604,563
---------- ----------
12,363,785 19,097,793
========== ==========
</TABLE>
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 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. Based on the initial price range
for the proposed initial public offering, the conversion rate for the
outstanding shares of series F preferred stock would be adjusted to include the
issuance of 671,533 additional shares of common stock with a fair value of
$8,058,000.
F-21
<PAGE> 85
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the amount
set forth below, per share plus all declared and unpaid dividends before any
payments to common stockholders.
<TABLE>
<CAPTION>
SERIES OF PREFERRED STOCK LIQUIDATION AMOUNT PER SHARE
- ------------------------- ----------------------------
<S> <C>
Series A $ 7.16
Series B 19.69
Series C 2.63
Series F 2.97
Series G 2.63
</TABLE>
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 October 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 preferred stock shall be
entitled to receive $15,000,000, the holders of series C preferred stock shall
be entitled to receive $750,000, and some of the holders of our common stock
shall be entitled to receive $10,000,000. 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 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 holders of our
common stock outstanding on May 20, 1997 other than GAP, 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 each 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 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 this
plan. The exercise price and vesting are determined by the board of directors at
F-22
<PAGE> 86
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the date of grant. Options generally vest over two to four years and expire ten
years after the date of grant. As of October 31, 1999, 317,282 shares were
available for future issuance under the 1997 Plan.
In September 1999, the Company adopted the 1999 director stock option plan
for the grant of stock options to non-employee directors. The Company has
reserved 500,000 shares of common stock for issuance under this plan. As of
October 31, 1999, 366,667 shares were available for future issuance under this
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 and stock warrant grants to employees and
nonemployees during the fiscal year ended October 31, 1999, the Company recorded
deferred compensation of $8,360,000, which represents the aggregate difference
between the option exercise price and the 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. Under EITF 96-18, the fair value of
the nonemployee grants will be marked to market over the vesting term of the
warrants. The deferred compensation will be recognized as an expense over the
vesting period of the underlying stock options and warrants. The Company
recorded stock-based compensation expense of $2,597,000 in the fiscal year ended
October 31, 1999, related to these options and warrants.
Option activity for fiscal 1997, fiscal 1998 and fiscal 1999 was as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF PRICE PER EXERCISE
SHARES SHARE PRICE
--------- ------------- --------
<S> <C> <C> <C>
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........................................ 3,717,189 3.95 - 7.22 4.41
Exercised...................................... (35,169) 3.95 3.95
Canceled....................................... (915,476) 3.95 - 4.46 3.98
--------- ------------- -----
Outstanding, October 31, 1999.................... 7,655,121 $3.95 - $7.22 $4.17
========= ============= =====
Exercisable, October 31, 1999.................... 2,547,069 $3.95 - $7.22 $4.02
========= ============= =====
Exercisable, October 31, 1998.................... 804,119 $ 3.95 $3.95
========= ============= =====
Exercisable, October 31, 1997.................... 286,845 $ 3.95 $3.95
========= ============= =====
</TABLE>
F-23
<PAGE> 87
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During November 1999, the Company has granted options to employees and
non-employees to purchase 1,763,206 shares of common stock at a weighted-average
exercise price of $9.87 per share. The options granted to employees are subject
to vesting over a four-year period and were granted at exercise prices equal to
the fair value of common stock.
The following table summarizes information relating to currently
outstanding and exercisable options as of October 31, 1999.
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
--------------------------------------- --------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
- --------------- --------- ---------------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$3.95 5,158,526 8.0 $3.95 2,195,464 $3.95
4.46 2,326,749 9.7 4.46 348,272 4.46
7.22 169,846 10.0 7.22 3,333 7.22
--------- ---- ----- --------- -----
7,655,121 8.6 $4.17 2,547,069 $4.02
========= ==== ===== ========= =====
</TABLE>
In connection with their May 1997 investment in the Company, the investment
funds affiliated with GAP purchased 5,108,202 shares of common stock directly
from several 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
29,580 shares of common stock from these stockholders. The remaining options to
purchase 605,213 shares of common stock expired in May 1999.
(f) Pro Forma Stock-Based Compensation
Under 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, fiscal 1998 and fiscal 1999 using
the Black-Scholes option pricing model prescribed by SFAS No. 123. The weighted
average assumptions used were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
OCTOBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate..................... 5.8%-6.0% 4.2%-5.8% 4.5%-5.8%
Expected dividend yield..................... -- -- --
Expected lives.............................. 5 years 5 years 5 years
Expected volatility......................... 80% 80% 80%
Weighted average grant date fair value...... $2.70 $2.67 $4.75
Weighted average remaining contractual life
of options outstanding.................... 8.6 years 7.6 years 8.6 years
</TABLE>
F-24
<PAGE> 88
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
OCTOBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss, as reported................................. $(27,035) $ (9,041) $(28,855)
Net loss, pro forma................................... (28,244) (13,214) (37,359)
Diluted net loss per share, as reported............... $ (2.62) $ (0.91) $ (2.88)
Diluted net loss per share, pro forma................. (2.74) (1.33) (3.73)
</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) Stock-Based Compensation Charge
The Company has aggregated all of its stock-based compensation charges and
has presented them as a single caption in the accompanying consolidated
statements of operations for all periods presented.
The following summarizes the departmental allocation of the stock-based
compensation charge included in the accompanying consolidated statements of
operations:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
------------------------------
1997 1998 1999
------ ------ --------
(In thousands)
<S> <C> <C> <C>
Cost of revenues....................................... $ -- $ -- $ 40
Operating expenses:
Sales and marketing.................................. -- -- 1,327
Research and development............................. -- -- 913
General and administrative........................... 450 672 317
---- ---- ------
Total stock-based compensation......................... $450 $672 $2,597
==== ==== ======
</TABLE>
(h) 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
F-25
<PAGE> 89
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
In October 1999, the Company approved the future issuance of warrants to
purchase 500,000 shares of common stock to customers and strategic partners. In
connection with a license arrangement with a customer, the Company issued
fully-vested warrants to purchase an aggregate of 13,333 shares of common stock
under this program at an exercise price of $7.22 per share, exercisable within
12 months. The estimated value of the warrants totaled $106,000 and has been
recorded as a reduction in the amount of future revenue to be recognized
associated with this customer. The Company also issued warrants to a strategic
partner to purchase 83,334 shares of common stock at an exercise price of $7.22
per share, and vest over three years. The estimated value of these warrants
totaled $463,000 at the time of grant. Under EITF 96-18, the fair value of these
warrants will be marked to market over the vesting period.
All of the warrants mentioned above were outstanding as of October 31,
1999.
(i) 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.
(j) 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.
In September 1999, the Company sold 33,334 shares of its common stock at
$4.46 per share to an officer of the Company. The Company recorded stock-based
compensation expense of $130,000 to reflect the below fair market value purchase
price.
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 $321,000 for
fiscal 1997, $324,000 for fiscal 1998 and $551,000 for fiscal 1999.
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., or Scopus, under
which it licensed Scopus' software product. In
F-26
<PAGE> 90
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 original equipment manufacturing 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 prepaid 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 chief executive officer of the Company is a member of the board of
directors of Intelligroup, Inc.
(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 based
on 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 fiscal year ended October 31, 1999, the Company incurred a total of
$1,920,000 of software development costs under this contract which 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.
F-27
<PAGE> 91
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. VALUATION AND QUALIFYING ACCOUNTS
A summary of the allowance for doubtful accounts and reserve for loss
contracts is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED OCTOBER 31,
--------------------------------
1997 1998 1999
------ ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Allowance for doubtful accounts:
Balance, beginning of period......................... $ 221 $ 100 $ 290
Provision for doubtful accounts................. 76 318 120
Write-offs...................................... (197) (128) --
------ ------- ------
Balance, end of period............................. $ 100 $ 290 $ 410
====== ======= ======
Reserve for loss contracts:
Balance, beginning of period....................... $ -- $ 5,238 $1,000
Provision (reduction) for loss contracts
reserve....................................... 5,238 (2,379) --
Payments and/or costs incurred.................. -- (1,859) (500)
------ ------- ------
Balance, end of period............................. $5,238 $ 1,000 $ 500
====== ======= ======
</TABLE>
In fiscal 1998, the Company revised its estimated loss reserve requirements
due to the resolution of contingencies identified in fiscal 1997. As a result,
the Company recorded a reduction of $2,859,000 in the cost of custom development
services in the accompanying consolidated statement of operations in fiscal
1998. In fiscal 1998, the Company also recorded a provision of $480,000 for
estimated losses on other contracts.
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
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. Therefore, 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 and no additional disclosure
is required. The Company does not identify assets and liabilities by segment.
Therefore, identifiable assets, capital expenditures and depreciation and
amortization are not reported by segment.
F-28
<PAGE> 92
FIREPOND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 January 4, 2000 the
stockholders approved (1) the adoption of the 1999 stock option and grant plan
under which 3,000,000 shares of the Company's common stock have been reserved
for future issuance, (2) 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 (3) 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-29
<PAGE> 93
[FIREPOND LOGO]
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.
UNTIL , 2000, 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 REGARD TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 94
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 JANUARY 12, 2000
[FIREPOND LOGO]
5,000,000 SHARES
COMMON STOCK
FirePond, Inc. is offering 5,000,000 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 $11.00 and $13.00 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 its stockholders have granted the underwriters a 30-day
option to purchase up to 750,000 additional shares of common stock to cover
over-allotments. FleetBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on , 2000.
------------------------
ROBERTSON STEPHENS INTERNATIONAL
DAIN RAUSCHER WESSELS
SG COWEN
E*OFFERING
The date of this prospectus is , 2000
<PAGE> 95
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Dain Rauscher Incorporated, SG Cowen
Securities Corporation and E*OFFERING Corp., have each agreed with us, subject
to the terms and conditions of the underwriting agreement, to purchase from us
the number of shares of common stock listed 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>
FleetBoston Robertson Stephens Inc. ........................
Dain Rauscher Incorporated..................................
SG Cowen Securities Corporation.............................
E*OFFERING Corp. ...........................................
---------
INTERNATIONAL UNDERWRITERS
FleetBoston Robertson Stephens International Limited........
Dain Rauscher Incorporated..................................
SG Cowen Securities Corporation.............................
E*OFFERING Corp. ...........................................
---------
Total.................................................. 5,000,000
=========
</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 750,000 additional shares of common stock at
the same price per share as we will receive for the 5,000,000 shares that the
underwriters have agreed to purchase. If the underwriters exercise the option in
full, we will sell 666,666 additional shares and the selling stockholder will
sell 83,334 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 83,334 shares. To the extent that the underwriters exercise
this option, each of the underwriters will have a 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 5,000,000 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 5,000,000 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 5,000,000 shares of
common stock offered by this prospectus.
56
<PAGE> 96
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 $1,550,000.
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters, us and the selling stockholder against 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 most 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 transfer any:
- shares of common stock;
- options or warrants to purchase any shares of common stock; or
- any securities convertible into or exchangeable for shares of common
stock.
However, FleetBoston 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 before 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
FleetBoston Robertson Stephens Inc., (a) consent to the disposition of any
shares held by the stockholders before 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 based on 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. Before 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
57
<PAGE> 97
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 and the present state
of our development.
Stabilization. The representatives have advised us that, under Regulation
M under the Securities Exchange Act of 1934, some persons participating in this
offering may engage in transactions 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. These transaction may include
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, as described below:
- A stabilizing bid is a bid for or the purchase of common stock on behalf
of the underwriters for the purpose of fixing or maintaining the price of
the common stock.
- A syndicate covering transaction is the bid for or the purchase of common
stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering; a short position
results when an underwriter sells more shares than it has committed to
purchase.
- A penalty bid is an arrangement permitting the representatives to reclaim
the selling concession otherwise accruing to an underwriter or syndicate
member in connection with this offering if the common stock originally
sold by that underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not
been effectively placed by that underwriter or syndicate member.
These transactions may be effected on the Nasdaq National Market or through
other means such as privately negotiated transactions. If commenced, these
transactions may be discontinued at any time.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for FirePond by McDermott, Will & Emery, Boston, Massachusetts.
Various legal matters related to the sale of the common stock offered by this
prospectus will be passed upon for the underwriters by Hale and Dorr LLP,
Boston, Massachusetts.
EXPERTS
The consolidated balance sheets as of October 31, 1998 and 1999 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended October 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 appearing in this prospectus and elsewhere in the
registration statement, and is included in reliance upon the authority of the
firm 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 for the
registration of the common stock offered by this prospectus. 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 about any contract or other document are
not necessarily complete. Statements made about any contract or document are
summaries of all material information about the documents summarized, but are
not complete descriptions of all terms. If we filed any of those documents as
exhibits to the registration statement, you may read the document itself for a
complete description of its terms.
58
<PAGE> 98
The registration statement can be inspected and copied at the Securities
and Exchange Commission's following locations:
<TABLE>
<S> <C> <C>
Public Reference Room Office New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Washington, D.C. 20549 Suite 1300 500 West Madison Street
New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
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 may obtain copies of the documents that
we file electronically with the SEC through the SEC's website located at
http://www.sec.gov. You can also request copies of these documents, for a
copying fee, by writing to the SEC.
59
<PAGE> 99
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.......................... 90,000
Accounting Fees and Expenses................................ 450,000
Legal Fees and Expenses..................................... 550,000
Printing Expenses........................................... 250,000
Blue Sky Qualification Fees and Expenses.................... 15,000
Transfer Agent's Fee........................................ 10,000
Miscellaneous............................................... 156,150
----------
Total....................................................... 1,550,000
==========
</TABLE>
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
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<PAGE> 100
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.
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 249,158 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 November 30, 1999, FirePond granted stock options
to purchase an aggregate of 10,732,598 shares of common stock to
directors, employees and consultants with exercise prices ranging from
$3.95 to $9.90 per share pursuant to FirePond's 1997 Stock Option Plan.
As of November 30, 1999, 58,871 shares of common stock have been issued
upon exercise of options pursuant to Firepond's 1997 Stock Option Plan.
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<PAGE> 101
12. From September 9, 1999 to November 30, 1999, FirePond granted stock
options to purchase an aggregate of 183,333 shares of common stock to
non-employee directors with exercise prices ranging from $4.46 to $9.90
per share pursuant to FirePond's 1999 Director Plan.
13. Warrants to purchase an aggregate of 96,667 shares of common stock were
issued in private placement transactions in October 1999 to a customer
and strategic partner with an exercise price of $7.22 per share.
14. 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 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>
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Form of Second Amended and Restated Certificate of
Incorporation of the Registrant (to be filed prior to the
effectiveness of the offering).
3.3 Form of Third 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. dated January 23, 1999.
+**10.8 Software License Agreement between the Registrant and
Silverstream Software Inc. dated as of March 18, 1999.
**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 June
24, 1999.
**10.9.2 Second Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
July 8, 1999.
**10.9.3 Third 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.
</TABLE>
II-3
<PAGE> 102
<TABLE>
<S> <C>
**10.11 Offer Letter dated May 11, 1998 between Registrant and Graham S. Williams.
10.11.1 Employee Agreement Regarding Inventions, Confidentiality and Non-Competition between Registrant and
Graham Williams.
**10.12 Offer Letter dated October 21, 1998 between Registrant and Ilya G. Gorelik.
10.12.1 Employee Agreement Regarding Inventions, Confidentiality and Non-Competition for Ilya Gorelik.
**10.13 Offer Letter dated September 5, 1998 between Registrant and Steven J. Waters.
**10.14 Offer Letter dated December 11, 1998 between Registrant and Paul K. McDermott.
10.15 Product Use and General Services Agreement between the Registrant and General Motors dated as of
August 1, 1994.
+**10.15.1 Amendment to Product Use and General Services Agreement between Registrant and General Motors
Corporation dated as of June 26, 1998.
+**10.15.2 Purchase Order between Registrant and General Motors Corporation dated as of February 3, 1999.
+**10.15.3 Amendment to Product Use and General Services Agreement between Registrant and General Motors
Corporation dated as of February 24, 1999.
+**10.16 Signature Plus Software License Agreement between the Registrant and BCBSM, Inc. dated as of December
18, 1998.
**10.17 Sublease between Registrant and Dataworks Corporation dated as of November 2, 1998.
**10.17.1 Addendum to Sublease Agreement between Registrant and Dataworks Corporation dated November 2, 1998.
**10.18 Sublease Agreement between Registrant and International Poison Center Consortium, Inc. dated as of
December 8, 1998.
**21.1 Subsidiaries
*23.1 Consent of McDermott, Will & Emery (included in Exhibit 5.1 hereto).
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included on page II-6).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment to this Registration Statement.
** Previously filed.
+ Confidential treatment has been requested for certain portions of this
Exhibit. The confidential redacted information has been filed separately with
the Securities and Exchange Commission.
(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
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<PAGE> 103
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-5
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Waltham, Commonwealth of Massachusetts, on January 11, 2000.
FIREPOND, INC.
By: /s/ PAUL K. MCDERMOTT
------------------------------------
Paul K. McDermott
Chief Financial Officer and
Vice President of Finance and
Administration
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to the 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>
* Chairman, President, Chief January 11, 2000
- --------------------------------------------------- Executive Officer and
Klaus P. Besier Director (Principal Executive
Officer)
/s/ PAUL K. MCDERMOTT Chief Financial Officer and January 11, 2000
- --------------------------------------------------- Vice President of Finance and
Paul K. McDermott Administration (Principal
Financial Officer and
Principal Accounting Officer)
* Director January 11, 2000
- ---------------------------------------------------
Paul R. Butare
* Director January 11, 2000
- ---------------------------------------------------
J. Michael Cline
* Director January 11, 2000
- ---------------------------------------------------
William O. Grabe
* Director January 11, 2000
- ---------------------------------------------------
Gerhard Schulmeyer
*By: /s/ PAUL K. MCDERMOTT
---------------------------------------------
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 105
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the
Registrant.
3.2 Form of Second Amended and Restated Certificate of
Incorporation of the Registrant (to be filed prior to the
effectiveness of the offering).
3.3 Form of Third 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. dated January 23, 1999.
+**10.8 Software License Agreement between the Registrant and
Silverstream Software, Inc. dated as of March 18, 1999.
**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 the Loan and Security Agreement between
the Registrant and Greyrock Business Credit Company dated
June 24, 1999.
**10.9.2 Second Amendment to Loan and Security Agreement between
Registrant and Greyrock Business Credit Company dated as of
July 8, 1999.
**10.9.3 Third 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.
10.11.1 Employee Agreement Regarding Inventions, Confidentiality and
Non-Competition between Registrant and Graham Williams.
**10.12 Offer Letter dated October 21, 1998 between Registrant and
Ilya G. Gorelik.
10.12.1 Employee Agreement Regarding Inventions, Confidentiality and
Non-Competition for Ilya Gorelik.
**10.13 Offer Letter dated September 5, 1998 between Registrant and
Steven J. Waters.
**10.14 Offer Letter dated December 11, 1998 between Registrant and
Paul K. McDermott.
10.15 Product Use and General Services Agreement between the
Registrant and General Motors dated as of August 1, 1994.
+**10.15.1 Amendment to Product Use and General Services Agreement
between Registrant and General Motors Corporation dated as
of June 26, 1998.
+**10.15.2 Purchase Order between Registrant and General Motors
Corporation dated as of February 3, 1999.
+**10.15.3 Amendment to Product Use and General Services Agreement
between Registrant and General Motors Corporation dated as
of February 24, 1999.
+**10.16 Signature Plus Software License Agreement between the
Registrant and BCBSM, Inc. dated as of December 18, 1998.
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
**10.17 Sublease between Registrant and Dataworks Corporation dated
as of November 2, 1998.
**10.17.1 Addendum to Sublease Agreement between Registrant and
Dataworks Corporation dated as of November 2, 1998.
**10.18 Sublease Agreement between Registrant and International
Poison Center Consortium, Inc. dated as of December 8, 1998.
**21.1 Subsidiaries.
*23.1 Consent of McDermott, Will & Emery (included in Exhibit 5.1
hereto).
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney (included on page II-6).
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment to this Registration Statement.
** Previously filed.
+ Confidential treatment has been requested for certain portions of this
Exhibit. The confidential redacted information has been filed separately with
the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF FIREPOND, INC.
An original Certificate of Incorporation of FirePond, Inc. (the
"Corporation") was filed with the Secretary of State on November 4, 1999. This
Amended and Restated Certificate of Incorporation has been duly adopted by the
Corporation in accordance with Sections 242 and 245 of the General Corporation
Law of the State of Delaware ("DGCL").
ARTICLE I
NAME
The name of the corporation is FirePond, Inc.
ARTICLE II
REGISTERED OFFICE
The registered office of the Corporation in the State of Delaware is 1209
Orange Street, in the City of Wilmington, in the County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
PURPOSES
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
The authorized capital stock of this Corporation shall be 150,000,000
shares, consisting of (a) 92,391,800 shares of Common Stock, par value $.01 per
share (the "Common Stock"), (b) 7,608,200 shares of Class A Common Stock, par
value $.01 per share (the "Class A Common Stock") and (c) 50,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), of which (i)
30,038,668 of which shall be Undesignated Preferred Stock (as hereinafter
defined), (ii) 4,188,880 shares shall be designated as Series A Preferred Stock
(as hereinafter defined), (iii) 190,438 shares shall be designated as Series B
Preferred Stock (as hereinafter defined), (iv) 570,342 shares shall be
designated as Series C Preferred Stock (as hereinafter
1
<PAGE> 2
defined), (v) 7,407,409 shares shall be designated as Series F Preferred Stock
(as hereinafter defined) and (vi) 7,604,563 shares shall be designated as Series
G Preferred Stock (as hereinafter defined). The designations and the powers,
preferences and rights, and the qualifications, limitations or restrictions of
the shares of each class of stock shall be as follows:
A. COMMON STOCK
Section 1. COMMON STOCK. A total of 92,391,800 shares of the
Corporation's Capital Stock shall be designated as a series known as "Common
Stock" (the "Common Stock"). Subject to all of the rights of the Class A Common
Stock and the Preferred Stock, and except as may be expressly provided with
respect to the Class A Common Stock and the Preferred Stock herein, by law or by
the Board of Directors pursuant to this Article IV, the Common Stock shall have
the rights, preferences and privileges set forth below in this Section A.1.
Section 1.1 DIVIDENDS. Dividends may be declared and paid or set
apart for payment upon the Common Stock out of any assets or funds of the
Corporation legally available for the payment of dividends. In the event
any dividends are declared and paid to the holders of Common Stock, at such
time, an equal dividend per share, shall be declared and paid to the
holders of Class A Common Stock.
Section 1.2 VOTING RIGHTS. Holders of Common Stock shall have the
right to vote for the election of directors and on all other matters
requiring stockholder action, each share being entitled to one vote. The
holders of Common Stock shall not be entitled to cumulative voting rights.
Section 1.3 LIQUIDATION. Upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the net assets
of the Corporation shall be distributed pro rata to the holders of the
Common Stock in accordance with their respective share ownership after any
payment or distribution of assets to holders of any shares of each other
class or series of Capital Stock of the Corporation currently existing or
hereafter created which expressly ranks senior to the Common Stock upon the
occurrence of such an event.
Section 1.4 PREFERENTIAL RIGHTS. The holders of Common Stock shall
have no preferential, preemptive or other rights to subscribe for, purchase
or acquire any shares of the Corporation of any class, whether unissued or
now or hereafter authorized, or any obligations or other securities
convertible into or exchangeable for any such shares.
Section 1.5 RANK. The Common Stock shall have the ranking as set
forth in Section A.3 of this Article IV.
Section 2. CLASS A COMMON STOCK. A total of 7,608,200 shares of the
Corporation's Common Stock shall be designated as a series known as "Class A
Common Stock" (the "Class A Common Stock"). Subject to all of the rights of the
Preferred Stock, and except as may be
2
<PAGE> 3
expressly provided with respect to the Preferred Stock herein, by law or by the
Board of Directors pursuant to this Article IV, the Class A Common Stock shall
have the rights, preferences and privileges as set forth below in this Section
A.2.
Section 2.1 DIVIDENDS. Dividends may be declared and paid or set
apart for payment upon the Class A Common Stock out of any assets or funds
of the Corporation legally available for the payment of dividends. In the
event any dividends are declared and paid to the holders of Class A Common
Stock, at such time, an equal dividend per share, shall be declared and
paid to holders of Common Stock.
Section 2.2 VOTING RIGHTS. The holders of Class A Common Stock
shall have the right to vote for the election of directors and on all other
matters requiring stockholder action, each share being entitled to one
vote. The holders of Class A Common Stock shall not be entitled to
cumulative voting rights.
Section 2.3 LIQUIDATION. Upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the net assets
of the Corporation shall be distributed pro rata to the holders of the
Class A Common Stock in accordance with their respective share ownership
after any payment or distribution of assets to holders of any shares of
each other class or series of Capital Stock of the Corporation currently
existing or hereafter created which expressly ranks senior to the Class A
Common Stock upon the occurrence of such an event.
Section 2.4 PREFERENTIAL RIGHTS. The holders of Class A Common
Stock shall have no preferential, preemptive or other rights to subscribe
for, purchase or acquire any shares of the Corporation of any class,
whether unissued or now or hereafter authorized, or any obligations or
other securities convertible into or exchangeable for any such shares.
Section 2.5 COMMON PRIORITY PAYMENT. Upon a Sale of Assets, a
Merger or an Initial Public Offering (each a "Liquidity Event") and in
accordance with the provisions of Section B.9 of this Article IV, the
holders of Class A Common Stock then outstanding shall each be entitled to
receive as a class, out of the assets of the Corporation available for
distribution to its stockholders (in the case of a Sale of Assets or
Merger) or out of the net proceeds to the Corporation in the case of an
Initial Public Offering (collectively the "Available Assets"), a payment in
an aggregate amount equal to $10 million (the "Common Priority Payment"),
before any payment shall be made or any assets distributed to holders of
any shares of each other class or series of Capital Stock of the
Corporation currently existing or hereafter created which does not
expressly rank pari passu with or senior to the Class A Common Stock with
respect to the Common Priority Payment. The Common Priority Payment will be
paid pro rata among all holders of Class A Common Stock at the same time
that all other Priority Payments (as hereinafter defined) and the Series F
Liquidation Preference (as hereinafter defined) are paid to the holders of
Preferred Stock entitled to such Priority Payments and the holders of
Series F Preferred
3
<PAGE> 4
Stock entitled to such Series F Liquidation Preference. If the Available
Assets are not sufficient to pay in full the Priority Payments and the
Series F Liquidation Preference, then the holders of all shares of Class A
Common Stock and Preferred Stock entitled to a Priority Payment and the
holders of Series F Preferred Stock shall be entitled to receive their
share of the Available Assets calculated in accordance with the amount that
would be payable if the amounts to which the holders of outstanding shares
of Class A Common Stock and Preferred Stock entitled to such Priority
Payments and the Series F Liquidation Preference were paid in full.
Section 2.6 RANK. The Class A Common Stock shall have the ranking
as set forth in Section A.3 of this Article IV.
Section 2.7 CONVERSION. Each outstanding share of Class A Common
Stock shall convert into one share of Common Stock automatically upon the
closing of the Initial Public Offering of the Corporation's Common Stock;
PROVIDED, HOWEVER, that no conversion of the Class A Common Stock shall be
deemed to have occurred until the holders of shares of Class A Common Stock
receive any Common Priority Payment to which such holders are entitled
pursuant to Section A.2.5 of this Article IV.
Section 3. RANK. The Common Stock and the Class A Common Stock shall
rank PARI PASSU with each other with respect to any payment or distribution of
assets in the event of a Liquidation or Liquidity Event after the payment of any
Preferred Liquidation Amounts or Priority Payments. The Class A Common Stock
shall rank PARI PASSU with the Series A Preferred Stock, Series C Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock with respect to
payment of the Priority Payments and the Series F Liquidation Preference upon
the occurrence of a Liquidity Event.
B. PREFERRED STOCK
Section 1. PREFERRED STOCK. The Preferred Stock may be issued from time
to time by the Board of Directors as shares of one or more series. Subject to
the provisions hereof and the limitations prescribed by law, the Board of
Directors is expressly authorized, by adopting resolutions providing for the
issuance of shares of any particular series and, if and to the extent from time
to time required by law, by filing with the Delaware Secretary of State a
statement with respect to the adoption of the resolutions pursuant to the DGCL
(or other law hereafter in effect relating to the same or substantially similar
subject matter), to establish the number of shares to be included in each such
series and to fix the designation and relative powers, preferences and rights
and qualifications and limitations or restrictions thereof relating to the
shares of each such series, prior to such designation, any shares of Preferred
Stock that have not been so designated shall constitute "Undesignated Preferred
Stock." The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
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<PAGE> 5
(a) the distinctive serial designation of such series and
the number of shares constituting such series;
(b) the annual dividend rate on shares of such series, if
any, whether dividends shall be cumulative and, if so, from which
date or dates;
(c) whether the shares of such series shall be redeemable
and, if so, the terms and conditions of such redemption,
including the date or dates upon and after which such shares
shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
(d) the obligation, if any, of the Corporation to retire
shares of such series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or
classes and, if so, the terms and conditions of such conversion
or exchange, including the price or prices or the rate or rates
of conversion or exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting
rights, in addition to the voting rights provided by law, and, if
so, the terms of such voting rights;
(g) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; and
(h) any other relative rights, powers, preferences,
qualifications, limitations or restrictions thereof relating to
such series.
The shares of Preferred Stock of any one series shall be identical with
each other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative.
Section 2. SERIES A PREFERRED STOCK.
Section 2.1 DESIGNATION. A total of 4,188,880 shares of the
Corporation's Preferred Stock shall be designated as a series known as
"Series A Convertible Participating Preferred Stock" (the "Series A
Preferred Stock"). Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED that no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less
than that of the shares of Series A Preferred Stock then outstanding, plus
the number of shares of Series A Preferred Stock issuable upon exercise of
outstanding rights, options or warrants or upon conversion.
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Section 2.2 LIQUIDATION PREFERENCE. In the event of a Liquidation,
the holders of shares of Series A Preferred Stock then outstanding, shall
be entitled to be paid for each share of Series A Preferred Stock held
thereby, out of the assets of the Corporation available for distribution to
its stockholders, at the same time that the Preferred Liquidation Amounts
(as hereinafter defined) are paid to the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, but before any payment shall
be made or any assets distributed to the holders of any shares of Junior
Stock (as hereinafter defined), an amount (the "Series A Liquidation
Amount") in cash equal to (i) $7.1618 per share (subject to adjustment as
provided in Section B.11.1 of this Article IV) plus (ii) all declared and
unpaid dividends thereon to the date fixed for the Liquidation. If the
assets of the Corporation are not sufficient to pay in full the Preferred
Liquidation Amounts to the holders of outstanding shares of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock, then the holders of all
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
shall share ratably, and at the same time, in such distribution of assets
in accordance with the amount that would be payable on such distribution if
the amounts to which the holders of outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock are entitled were paid in
full.
Section 2.3 SERIES A PREFERRED PRIORITY PAYMENT. Upon a Liquidity
Event and in accordance with the provisions of Section B.9 of this Article
IV, the holders of Series A Preferred Stock then outstanding shall each be
entitled to receive as a class, out of the Available Assets, a payment in
an aggregate amount equal to $15 million (the "Series A Preferred Priority
Payment") before any payment shall be made or any assets distributed to
holders of any shares of each other class or series of Capital Stock of the
Corporation hereafter created which does not expressly rank PARI PASSU with
or senior to the Series A Preferred Stock with respect to the Series A
Preferred Priority Payment. The Series A Preferred Priority Payment will be
paid pro rata among all holders of Series A Preferred Stock at the same
time that all other Priority Payments and the Series F Liquidation
Preference, if applicable, are paid to the holders of Preferred Stock and
Class A Common Stock entitled to such Priority Payments and the holders of
Series F Preferred Stock entitled to such Series F Liquidation Preference,
if applicable. If the Available Assets are not sufficient to pay in full
the Priority Payments and the Series F Liquidation Preference, then the
holders of all shares of Class A Common Stock and Preferred Stock entitled
to such Priority Payments and the holders of the Series F Preferred Stock
shall be entitled to receive, at the same time, their share of the
Available Assets calculated in accordance with the amount that would be
payable if the amounts to which the holders of outstanding shares of Class
A Common Stock and Preferred Stock entitled to such Priority Payments and
the holders of Series F Preferred Stock entitled to such Series F
Liquidation Preference were paid in full.
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Section 2.4 PARTICIPATION.
(a) In addition to the Series A Preferred Priority Payment
to which such holders are entitled under Section B.2.3 of this Article
IV the holders of Series A Preferred Stock shall also have the right
to receive the following (the "Series A Pro Rata Share" and, together
with the Series A Preferred Priority Payment payable to such holders
in accordance with Section B.2.3 of this Article IV, the "Series A
Participation Amount"):
(i) In the event of a Sale of Assets, each holder of
Series A Preferred Stock shall have the right to convert its
shares of Series A Preferred Stock into the kind and amount
of securities, assets or cash receivable upon such Sale of
Assets by a holder of the number of shares of Common Stock
into which such shares of Series A Preferred Stock could
have been converted (subject to adjustment as provided in
Section B.11.1 of this Article IV) immediately prior to such
Sale of Assets;
(ii) In the event of a Merger, each holder of Series A
Preferred Stock shall have the right to convert its shares
of Series A Preferred Stock into, at the option of the
Corporation, either (x) the kind and amount of securities of
the surviving Person or other consideration receivable upon
such Merger by a holder of the number of shares of Common
Stock into which such shares of Series A Preferred Stock
could have been converted (subject to adjustment as provided
in Section B.11.1 of this Article IV) immediately prior to
such Merger or (y) the amount of cash equal to the value of
such securities of the surviving Person calculated in
accordance with Sections B.9(a)(i) and B.9(a)(ii) of this
Article IV; and
(iii) In the event of the Initial Public Offering, the
shares of Series A Preferred Stock shall be converted into,
at the option of the Corporation, either (x) the number of
shares of Common Stock receivable upon such Initial Public
Offering by a holder of the number of shares of Common Stock
into which such shares of Series A Preferred Stock could
have been converted (subject to adjustment as provided in
Section B.11.1 of this Article IV) immediately prior to such
Initial Public Offering (the "Series A Newly Issued Shares")
or (y) the amount of cash equal to the number of such Series
A Newly Issued Shares multiplied by the IPO Price.
(iv) Notwithstanding the foregoing, no conversion of
the Series A Preferred Stock shall be deemed to have
occurred until the holders of shares of Series A Preferred
Stock receive any Series A Preferred Priority Payment to
which such holders are entitled pursuant to Section B.2.3 of
this Article IV.
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(b) Written notice of a Sale of Assets, Merger or Initial
Public Offering stating a payment date, the Series A
Participation Amount and the place where such Series A
Participation Amount shall be payable, shall be
delivered in person, mailed by certified mail, return
receipt requested, mailed by overnight mail or sent by
telecopier, not less than ten (10) days prior to the
payment date stated therein, to the holders of record
of the Series A Preferred Stock such notice to be
addressed to each such holder at its address as shown
by the records of the Corporation.
Section 2.5 CONVERSION.
(a) Any holder of Series A Preferred Stock shall have the
right, at its option, at any time and from time to time, to convert,
subject to the terms and provisions of this Section B.2.5 and Section
B.11 of this Article IV, any or all of such holder's shares of Series
A Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as is equal to the product of the number of
shares of Series A Preferred Stock being so converted multiplied by
the quotient of (i) $2.626 divided by (ii) the conversion price of
$2.626 per share, subject to adjustment as provided in Section B.11.1
of this Article IV (the "Series A Conversion Price"), then in effect.
Such conversion right shall be exercised by the surrender of the
shares of Series A Preferred Stock to be converted to the Corporation
at any time during usual business hours at its principal place of
business to be maintained by it, accompanied by written notice that
the holder elects to convert such shares of Series A Preferred Stock
and specifying the name or names (with address) in which a certificate
or certificates for shares of Common Stock are to be issued and (if so
required by the Corporation) by a written instrument or instruments of
transfer in form reasonably satisfactory to the Corporation duly
executed by the holder or its duly authorized legal representative and
transfer tax stamps or funds therefor, if required pursuant to Section
B.11.7 of this Article IV. All shares of Series A Preferred Stock
surrendered for conversion shall be delivered to the Corporation for
cancellation and canceled by it and no shares of Series A Preferred
Stock shall be issued in lieu thereof.
(b) As promptly as practicable after the surrender, as
herein provided, of any shares of Series A Preferred Stock for
conversion pursuant to Section B.2.5(a) of this Article IV, the
Corporation shall deliver to or upon the written order of the holder
of such shares of Series A Preferred Stock so surrendered a
certificate or certificates representing the number of fully paid and
non-assessable shares of Common Stock into which such shares of Series
A Preferred Stock may be or have been converted in accordance with the
provisions of this Section B.2.5 and Section B.11 of this Article IV.
Subject to the following provisions of this Section B.2.5(b) and of
Section B.11.1 of this Article IV, such conversion shall be
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deemed to have been made immediately prior to the close of business on
the date that such shares of Series A Preferred Stock shall have been
surrendered in satisfactory form for conversion, and the Person or
Persons entitled to receive the shares of Common Stock deliverable
upon conversion of such shares of Series A Preferred Stock shall be
treated for all purposes as having become the record holder or holders
of such shares of Common Stock at such appropriate time, and such
conversion shall be at the Series A Conversion Price in effect at such
time; PROVIDED, HOWEVER, that no surrender shall be effective to
constitute the Person or Persons entitled to receive the shares of
Common Stock deliverable upon such conversion as the record holder or
holders of such shares of Common Stock while the share transfer books
of the Corporation shall be closed (but not for any period in excess
of five days), but such surrender shall be effective to constitute the
Person or Persons entitled to receive such shares of Common Stock as
the record holder or holders thereof for all purposes immediately
prior to the close of business on the next succeeding day on which
such share transfer books are open, and such conversion shall be
deemed to have been made at, and shall be made at the Series A
Conversion Price in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series A
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series A Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the
shares of Common Stock issued upon such conversion.
Section 2.6 RANK. The Series A Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 2.7 DIVIDENDS. The Series A Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 2.8 VOTING.
(a) The Series A Preferred Stock shall have the voting
rights as set forth below in Section B.2.8(b) of this Article IV and
Section B.10 of this Article IV.
(b) If General Atlantic Partners 40, L.P., a Delaware
limited partnership ("GAP 40"), GAP Coinvestment Partners, L.P., a New
York limited partnership ("GAP Coinvestment"), and/or any Affiliate
thereof own in the aggregate (i) at least a majority of the
outstanding shares of Series A Preferred Stock and (ii) shares of
Common Stock and/or Series A Preferred Stock or other securities of
the Corporation convertible into or exchangeable for shares of voting
Capital Stock of the Corporation that represent (after giving effect
to any adjustments) at least 3% of the total number of shares of
Common Stock
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outstanding on an as converted basis, then the holders of the Series A
Preferred Stock, voting as a separate series, shall be entitled to
elect one director of the Corporation; PROVIDED, HOWEVER, that the
foregoing right to elect a director shall not apply if holders of the
Series A Preferred Stock elect a director solely by virtue of their
right under Section 6.3(b) of the Amended and Restated Shareholders
Agreement. The Series A Preferred Stock shall vote together with all
other classes and series of stock of the Corporation as a single class
with respect to the election of all of the other directors of the
Corporation; PROVIDED, HOWEVER, that if the conditions set forth in
the first sentence of this Section 2.8(b) necessary for the holders of
the Series A Preferred Stock to vote as a separate series for the
election of one director are not satisfied, the Series A Preferred
Stock shall vote together with all other classes and series of stock
of the Corporation as a single class with respect to the election of
all of the directors of the Corporation. At any meeting (or in a
written consent in lieu thereof) held for the purpose of electing
directors at a time when the Series A Preferred Stock is entitled to
vote for the election of a director, the presence in person or by
proxy (or the written consent) of the holders of a majority of the
shares of Series A Preferred Stock then outstanding shall constitute a
quorum of the Series A Preferred Stock for the election of the
director to be elected solely by the holders of the Series A Preferred
Stock. A vacancy in the directorship elected by the holders of the
Series A Preferred Stock pursuant to this Section 2.8(b) shall be
filled only by vote or written consent of the holders of the Series A
Preferred Stock.
Section 3. SERIES B PREFERRED STOCK
Section 3.1 DESIGNATION AND NUMBER OF SHARES. A total of 190,438
shares of the Corporation's Preferred Stock shall be designated as a series
known as "Series B Convertible Preferred Stock" (the "Series B Preferred
Sock"). Such number of shares may be increased or decreased by resolution
of the Board of Directors; PROVIDED that no decrease shall reduce the
number of shares of Series B Preferred Stock to a number less than that of
the shares of Series B Preferred Stock then outstanding, plus the number of
shares of Series B Preferred Stock issuable upon exercise of outstanding
rights, options or warrants or upon conversion.
Section 3.2 LIQUIDATION PREFERENCE. In the event of a Liquidation,
the holders of shares of Series B Preferred Stock then outstanding shall be
entitled to be paid for each share of Series B Preferred Stock held
thereby, out of the assets of the Corporation available for distribution to
its stockholders, at the same time that the Preferred Liquidation Amounts
are paid to the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock, but before any payment shall be made or any assets
distributed to the holders of any shares of Junior Stock, an amount in cash
(the "Series B Liquidation Amount") equal to the amount determined by (i)
multiplying (A) the aggregate number of
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shares of Series B Preferred Stock and Common Stock issued by the
Corporation and sold by stockholders of the Corporation upon exercise of
those certain Warrants, dated as of May 20, 1997, issued by the Corporation
and sold by stockholders of the Corporation to GAP 40 and GAP Coinvestment
by (B) $19.69 (the "Series B Exercise Price") per share (the "Series B
Liquidation Preference") (subject to adjustment as provided in Section
B.11.1 of this Article IV) plus (ii) all declared and unpaid dividends
thereon to the date fixed for the Liquidation. If the assets of the
Corporation are not sufficient to pay in full the Preferred Liquidation
Amounts to the holders of outstanding shares of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, then the holders of all
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
shall share ratably, and at the same time, in such distribution of assets
in accordance with the amount that would be payable on such distribution if
the amounts to which the holders of outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock are entitled were paid in
full.
Section 3.3 CONVERSION.
(a) Any holder of Series B Preferred Stock shall have the
right, at its option, at any time and from time to time, to convert,
subject to the terms and provisions of this Section B.3.3 and Section
B.11 of this Article IV, any or all of such holder's shares of Series
B Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as is equal to the product of the number of
shares of Series B Preferred Stock being so converted multiplied by
the quotient of (i) the Series B Exercise Price divided by (ii) the
conversion price of $3.938 per share, subject to adjustment as
provided in Section B.11.1 of this Article IV (the "Series B
Conversion Price"), then in effect. Such conversion right shall be
exercised by the surrender of the shares of Series B Preferred Stock
to be converted to the Corporation at any time during usual business
hours at its principal place of business to be maintained by it,
accompanied by written notice that the holder elects to convert such
shares of Series B Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates for shares of
Common Stock are to be issued and (if so required by the Corporation)
by a written instrument or instruments of transfer in form reasonably
satisfactory to the Corporation duly executed by the holder or its
duly authorized legal representative and transfer tax stamps or funds
therefor, if required pursuant to Section B.11.7 of this Article IV).
All shares of Series B Preferred Stock surrendered for conversion
shall be delivered to the Corporation for cancellation and canceled by
it and no shares of Series B Preferred Stock shall be issued in lieu
thereof.
(b) As promptly as practicable after the surrender, as
herein provided, of any shares of Series B Preferred Stock for
conversion pursuant to Section
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B.3.3(a) of this Article IV, the Corporation shall deliver to or upon
the written order of the holder of such shares of Series B Preferred
Stock so surrendered a certificate or certificates representing the
number of fully paid and non-assessable shares of Common Stock into
which such shares of Series B Preferred Stock may be or have been
converted in accordance with the provisions of this Section B.3.3.
Subject to the following provisions of this Section B.3.3(b) and of
Section B.11.1 of this Article IV, such conversion shall be deemed to
have been made immediately prior to the close of business on the date
that such shares of Series B Preferred Stock shall have been
surrendered in satisfactory form for conversion, and the Person or
Persons entitled to receive the shares of Common Stock deliverable
upon conversion of such shares of Series B Preferred Stock shall be
treated for all purposes as having become the record holder or holders
of such shares of Common Stock at such appropriate time, and such
conversion shall be at the Series B Conversion Price in effect at such
time; PROVIDED, HOWEVER, that no surrender shall be effective to
constitute the Person or Persons entitled to receive the shares of
Common Stock deliverable upon such conversion as the record holder or
holders of such shares of Common Stock while the share transfer books
of the Corporation shall be closed (but not for any period in excess
of five days), but such surrender shall be effective to constitute the
Person or Persons entitled to receive such shares of Common Stock as
the record holder or holders thereof for all purposes immediately
prior to the close of business on the next succeeding day on which
such share transfer books are open, and such conversion shall be
deemed to have been made at, and shall be made at the Series B
Conversion Price in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series B
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series B Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the
shares of Common Stock issued upon such conversion.
Section 3.4 RANK. The Series B Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 3.5 DIVIDENDS. The Series B Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 3.6 VOTING. The Series B Preferred Stock shall have the
voting rights as set forth in Section B.10 of this Article IV.
Section 4. SERIES C PREFERRED STOCK
Section 4.1 DESIGNATION AND NUMBER OF SHARES. A total of 570,342
shares of the Corporation's Preferred Stock shall be designated as a series
known as "Series C
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Convertible Participating Preferred Stock" (the "Series C Preferred
Stock"). Such number of shares may be increased or decreased by resolution
of the Board of Directors; PROVIDED that no decrease shall reduce the
number of shares of Series C Preferred Stock to a number less than that of
the shares of Series C Preferred Stock then outstanding plus the number of
shares of Series C Preferred Stock issuable upon exercise of outstanding
rights, options or warrants or upon conversion.
Section 4.2 LIQUIDATION PREFERENCE. In the event of a Liquidation,
the holders of shares of Series C Preferred Stock then outstanding shall be
entitled to be paid for each share of Series C Preferred Stock held
thereby, out of the assets of the Corporation available for distribution to
its stockholders, at the same time that the Preferred Liquidation Amounts
are paid to the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock, but before any payment shall be made or any assets
distributed to the holders of any shares of Junior Stock, an amount (the
"Series C Liquidation Amount") in cash equal to (i) $2.63 per share (the
"Series C Liquidation Preference") (subject to adjustment as provided in
Section B.11.1 of this Article IV) plus (ii) all declared and unpaid
dividends thereon to the date fixed for the Liquidation. If the assets of
the Corporation are not sufficient to pay in full the Preferred Liquidation
Amounts to the holders of outstanding shares of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, then the holders of all
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
shall share ratably in such distribution of assets in accordance with the
amount that would be payable on such distribution if the amounts to which
the holders of outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock are entitled were paid in full.
Section 4.3 SERIES C PREFERRED PRIORITY PAYMENT. Upon a Liquidity
Event, and in accordance with the provisions of Section B.9 of this Article
IV, the holders of Series C Preferred Stock then outstanding shall be
entitled to be paid for each share of Series C Preferred Stock held
thereby, out of the Available Assets, a payment in amount equal to the
product obtained by multiplying (i) .50 by (ii) the Series C Liquidation
Preference per share then in effect (the "Series C Preferred Priority
Payment"), before any payment shall be made or any assets distributed to
holders of any shares of each other class or series of Capital Stock of the
Corporation hereafter created which does not expressly rank PARI PASSU with
or senior to the Series C Preferred Stock with respect to the Series C
Preferred Priority Payment. The Series C Preferred Priority Payment shall
be paid to the holders of Series C Preferred Stock at the same time that
all other Priority Payments and the Series F Liquidation Preference, if
applicable, are paid to the holders of Preferred Stock and Class A Common
Stock entitled to such Priority Payments and holders of Series F Preferred
Stock entitled to such Series F Liquidation Preference, if applicable. If
the Available Assets are not sufficient to pay in full the Priority
Payments and the Series F Liquidation Preference, then the holders of all
shares of Preferred Stock
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and Class A Common Stock entitled to such Priority Payments and the holders
of the Series F Preferred Stock shall be entitled to receive, at the same
time, their share of the Available Assets calculated in accordance with the
amount that would be payable if the amounts to which the holders of
outstanding shares of Preferred Stock and Class A Common Stock entitled to
such Priority Payments and the holders of Series F Preferred Stock entitled
to such Series F Liquidation Preference were paid in full.
Section 4.4 PARTICIPATION.
(a) In addition to the Series C Preferred Priority Payment
to which such holders are entitled under Section B.4.3 of this Article
IV, the holders of Series C Preferred Stock shall also have the right
to receive the following (the "Series C Pro Rata Share" and, together
with the Series C Preferred Priority Payment payable to such holders
in accordance with Section B.4.3 of this Article IV, the "Series C
Participation Amount"):
(i) In the event of a Sale of Assets, each holder of
Series C Preferred Stock shall have the right to convert its
shares of Series C Preferred Stock into the kind and amount
of securities, assets or cash receivable upon such Sale of
Assets by a holder of the number of shares of Common Stock
into which such shares of Series C Preferred Stock could
have been converted (subject to adjustment as provided in
Section B.11.1 of this Article IV) immediately prior to such
Sale of Assets;
(ii) In the event of a Merger, each holder of Series C
Preferred Stock shall have the right to convert its shares
of Series C Preferred Stock into, at the option of the
Corporation, either (x) the kind and amount of securities of
the surviving Person or other consideration receivable upon
such Merger by a holder of the number of shares of Common
Stock into which such shares of Series C Preferred Stock
could have been converted (subject to adjustment as provided
in Section B.11.1 of this Article IV) immediately prior to
such Merger or (y) the amount of cash equal to the value of
such securities of the surviving Person calculated in
accordance with Sections B.9(a)(i) and B.9(a)(ii) of this
Article IV; and
(iii) In the event of the Initial Public Offering, the
shares of Series C Preferred Stock shall be converted into,
at the option of the Corporation, either (x) the number of
shares of Common Stock receivable upon such Initial Public
Offering by a holder of the number of shares of Common Stock
into which such shares of Series C Preferred Stock could
have been converted (subject to adjustment as provided in
Section B.11.1 of this Article IV) immediately prior to such
Initial Public Offering (the "Series C Newly Issued Shares")
or (y) the amount of cash equal to the number of such Series
C Newly Issued Shares multiplied by the IPO Price.
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(iv) Notwithstanding the foregoing, no conversion of
the Series C Preferred Stock shall be deemed to have
occurred until the holders of shares of Series C Preferred
Stock receive any Series C Preferred Priority Payment to
which such holders are entitled pursuant to Section B.4.3 of
this Article IV.
(b) Written notice of a Sale of Assets, Merger or Initial
Public Offering stating a payment date, the Series C Participation
Amount and the place where such Series C Participation Amount shall be
payable, shall be delivered in person, mailed by certified mail,
return receipt requested, mailed by overnight mail or sent by
telecopier, not less than ten (10) days prior to the payment date
stated therein, to the holders of record of the Series C Preferred
Stock, such notice to be addressed to each such holder at its address
as shown by the records of the Corporation.
Section 4.5 CONVERSION.
(a) Any holder of Series C Preferred Stock shall have the
right, at its option, at any time and from time to time, to convert,
subject to the terms and provisions of this Section B.4.5 and Section
B.11 of this Article IV, any or all of such holder's shares of Series
C Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as is equal to the product of the number of
shares of Series C Preferred Stock being so converted multiplied by
the quotient of (i) $2.63 divided by (ii) the conversion price of
$2.63 per share, subject to adjustment as provided in Section B.11.1
of this Article IV (the "Series C Conversion Price"), then in effect.
Such conversion right shall be exercised by the surrender of the
shares of Series C Preferred Stock to be converted to the Corporation
at any time during usual business hours at its principal place of
business to be maintained by it, accompanied by written notice that
the holder elects to convert such shares of Series C Preferred Stock
and specifying the name or names (with address) in which a certificate
or certificates for shares of Common Stock are to be issued and (if so
required by the Corporation) by a written instrument or instruments of
transfer in form reasonably satisfactory to the Corporation duly
executed by the holder or its duly authorized legal representative and
transfer tax stamps or funds therefor, if required pursuant to Section
B.11.7 of this Article IV. All shares of Series C Preferred Stock
surrendered for conversion shall be delivered to the Corporation for
cancellation and canceled by it and no shares of Series C Preferred
Stock shall be issued in lieu thereof.
(b) As promptly as practicable after the surrender, as
herein provided, of any shares of Series C Preferred Stock for
conversion pursuant to Section B.4.5(a) of this Article IV, the
Corporation shall deliver to or upon the written
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order of the holder of such shares of Series C Preferred Stock so
surrendered a certificate or certificates representing the number of
fully paid and non-assessable shares of Common Stock into which such
shares of Series C Preferred Stock may be or have been converted in
accordance with the provisions of this Section B.4.5. Subject to the
following provisions of this Section B.4.5(b) and of Section B.11 of
this Article IV, such conversion shall be deemed to have been made
immediately prior to the close of business on the date that such
shares of Series C Preferred Stock shall have been surrendered in
satisfactory form for conversion, and the Person or Persons entitled
to receive the shares of Common Stock deliverable upon conversion of
such shares of Series C Preferred Stock shall be treated for all
purposes as having become the record holder or holders of such shares
of Common Stock at such appropriate time, and such conversion shall be
at the Series C Conversion Price in effect at such time; PROVIDED,
HOWEVER, that no surrender shall be effective to constitute the Person
or Persons entitled to receive the shares of Common Stock deliverable
upon such conversion as the record holder or holders of such shares of
Common Stock while the share transfer books of the Corporation shall
be closed (but not for any period in excess of five days), but such
surrender shall be effective to constitute the Person or Persons
entitled to receive such shares of Common Stock as the record holder
or holders thereof for all purposes immediately prior to the close of
business on the next succeeding day on which such share transfer books
are open, and such conversion shall be deemed to have been made at,
and shall be made at the Series C Conversion Price in effect at such
time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series C
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series C Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the
shares of Common Stock issued upon such conversion.
Section 4.6 RANK. The Series C Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 4.7 DIVIDENDS. The Series C Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 4.8 VOTING. The Series C Preferred Stock shall have the
voting rights as set forth in Section B.10 of this Article IV.
Section 5. SERIES F PREFERRED STOCK
Section 5.1 DESIGNATION AND NUMBER OF SHARES. A total of 7,407,409
shares of the Corporation's Preferred Stock shall be designated as a series
known as "Series F Convertible Preferred Stock" (the "Series F Preferred
Stock"). The number of shares
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designated as Series F Preferred Stock may be increased by resolution of
the Board of Directors only with the approval of the holders of a majority
of the Common Stock issuable upon conversion of the then outstanding shares
of Series F Preferred Stock, and such number may be decreased by resolution
of the Board of Directors, PROVIDED that no such decrease shall reduce the
number of shares of Series F Preferred Stock to a number less than that of
the shares of Series F Preferred Stock then outstanding plus the number of
shares of Series F Preferred Stock issuable upon exercise of outstanding
rights, options or warrants.
Section 5.2 SERIES F LIQUIDATION PREFERENCE.
(a) In the event of a Liquidation, Sale of Assets or
Merger, the holders of the shares of Series F Preferred Stock then
outstanding shall be entitled to be paid for each share of Series F
Preferred Stock held thereby, either (i) out of the assets of the
Corporation available for distribution to its stockholders, in the
case of a Liquidation, or (ii) out of any consideration received by
the stockholders and any consideration or assets available for
distribution by the Corporation, in the case of a Sale of Assets or
Merger (clauses (i) and (ii), the "Series F Liquidation Available
Assets"), an amount (the "Series F Liquidation Preference") equal to
the greater of:
(i) the sum of $2.97 for each outstanding share of
Series F Preferred Stock, plus declared but unpaid dividends
on such share (subject to adjustment for any stock splits,
stock dividends, combinations, recapitalizations or the
like); or
(ii) the quotient obtained by dividing (A) the product
obtained by multiplying the Series F Liquidation Available
Assets by a fraction (the "Series F Share"), the numerator
of which equals the aggregate number of shares of Common
Stock into which the Series F Preferred Stock then
outstanding could have been converted immediately prior to
such Liquidation, Sale of Assets or Merger, and the
denominator of which equals the sum of the number of shares
of Common Stock outstanding on a fully-diluted basis
(excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any
outstanding options, warrants, rights or convertible
securities) immediately prior to such Liquidation, Sale of
Assets or Merger, by (B) the aggregate number of shares of
Series F Preferred Stock then outstanding.
(b) LIQUIDATION. If upon a Liquidation, the Series F
Liquidation Available Assets shall be insufficient to permit payment
in full to the holders of Series F Preferred Stock of the Series F
Liquidation Preference, then the Series F Liquidation Available Assets
shall be distributed or paid ratably among the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock (and, to
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<PAGE> 18
the extent applicable, among holders of shares of Capital Stock of the
Corporation entitled to payments ranking PARI PASSU with the Series F
Liquidation Preference), calculated in accordance with the amount that
would be payable to such holders if the Preferred Liquidation Amounts
had been paid in full. Upon any such Liquidation, after the holders of
Series F Preferred Stock shall have been paid in full the amounts to
which they shall be entitled hereunder, the holders of Series F
Preferred Stock shall not be entitled to be paid any additional
amounts from the assets of the Corporation (other than as set forth
herein) and the remaining net assets of the Corporation may be
distributed to the holders of Capital Stock of the Corporation in
accordance with this Certificate of Incorporation, as amended or
supplemented from time to time. In the case of a Liquidation, the
Series F Liquidation Preference shall be paid in cash.
(c) SALE OF ASSETS; MERGER. If upon a Sale of Assets or
Merger, the Series F Liquidation Available Assets shall be
insufficient to permit payment in full to the holders of Series F
Preferred Stock of the Series F Liquidation Preference, then the
Series F Liquidation Available Assets shall be distributed or paid
ratably among the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock,
Series G Preferred Stock and Class A Common Stock (and, to the extent
applicable, among holders of shares of Capital Stock of the
Corporation entitled to payments ranking PARI PASSU with the Series F
Liquidation Preference), calculated in accordance with the amount that
would be payable to such holders if the Series F Liquidation
Preference and the Priority Payments had been paid in full. Upon any
such Sale of Assets or Merger, after the holders of Series F Preferred
Stock shall have been paid in full the amounts to which they shall be
entitled hereunder, the remaining Series F Liquidation Available
Assets may be distributed to the holders of Capital Stock of the
Corporation in accordance with this Certificate of Incorporation, as
amended or supplemented from time to time.
In the case of a Sale of Assets or Merger, the Series F Liquidation
Preference shall be paid in the form of the consideration received by the
holders of Common Stock of the Corporation in connection with such Sale of
Assets or Merger; PROVIDED, that any securities of any surviving Person to
be delivered to the holders of the Series F Preferred Stock pursuant to
this Section B.5.2 shall be valued in the same manner as the securities to
be delivered to the holders of Common Stock in such transaction.
Section 5.3 CONVERSION.
(a) Each outstanding share of Series F Preferred Stock
shall convert into shares of Common Stock of the Corporation (i)
automatically upon the closing of the Initial Public Offering of the
Corporation's Common Stock, the public offering price of which is not
less than $4.50 per share (as adjusted for any stock splits, stock
dividends, recapitalizations or the like), provided that such
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<PAGE> 19
$4.50 per share price may be reduced by the written consent or
agreement of not less than ninety percent (90%) of the shares of
Series F Preferred Stock then outstanding, and (ii) at any time and
from time to time, at the option of the holder thereof, in either
case, subject to the terms and provisions of this Section B.5.3. Upon
any such automatic or optional conversion, any or all of such holder's
shares of Series F Preferred Stock shall be converted into such number
of fully paid and non-assessable shares of Common Stock as is equal to
the product of the number of shares of Series F Preferred Stock being
so converted multiplied by the quotient of (i) $2.97 divided by (ii)
the conversion price of $2.97 per share, subject to adjustment as
provided in Section B.5.4 and Section B.11.1 of this Article IV (the
"Series F Conversion Price"), then in effect. Such conversion right
shall be exercised by the surrender of the shares of Series F
Preferred Stock to be converted to the Corporation at any time during
usual business hours at its principal place of business to be
maintained by it, accompanied by written notice that the holder elects
to convert such shares of Series F Preferred Stock and specifying the
name or names (with address) in which a certificate or certificates
for shares of Common Stock are to be issued and (if so required by the
Corporation) by a written instrument or instruments of transfer in
form reasonably satisfactory to the Corporation duly executed by the
holder or its duly authorized legal representative and transfer tax
stamps or funds therefor, if required pursuant to Section B.11.7 of
this Article IV. All shares of Series F Preferred Stock surrendered
for conversion shall be delivered to the Corporation for cancellation
and canceled by it and no shares of Series F Preferred Stock shall be
issued in lieu thereof.
(b) As promptly as practicable after the surrender, as
herein provided, of any shares of Series F Preferred Stock for
conversion pursuant to Section B.5.3(a), the Corporation shall deliver
to or upon the written order of the holder of such shares of Series F
Preferred Stock so surrendered a certificate or certificates
representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Series F Preferred Stock may be
or have been converted in accordance with the provisions of this
Section B.5.3. Subject to the following provisions of this Section
B.5.3(b), Section B.5.4 and of Section B.11.1 of this Article IV, such
conversion shall be deemed to have been made immediately prior to the
close of business on the date that such shares of Series F Preferred
Stock shall have been surrendered in satisfactory form for conversion,
and the Person or Persons entitled to receive the shares of Common
Stock deliverable upon conversion of such shares of Series F Preferred
Stock shall be treated for all purposes as having become the record
holder or holders of such shares of Common Stock at such appropriate
time, and such conversion shall be at the Series F Conversion Price in
effect at such time; PROVIDED, HOWEVER, that in the event of automatic
conversion of outstanding shares of Series F Preferred Stock pursuant
to Section B.5.3(a)(i), such conversion shall be deemed to have been
made upon the closing of the Corporation's Initial Public Offering;
and provided
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further, however, that no surrender shall be effective to constitute
the Person or Persons entitled to receive the shares of Common Stock
deliverable upon such conversion as the record holder or holders of
such shares of Common Stock while the share transfer books of the
Corporation shall be closed (but not for any period in excess of five
(5) days), but such surrender shall be effective to constitute the
Person or Persons entitled to receive such shares of Common Stock as
the record holder or holders thereof for all purposes immediately
prior to the close of business on the next succeeding day on which
such share transfer books are open, and such conversion shall be
deemed to have been made at, and shall be made at the Series F
Conversion Price in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series F
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series F Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the
shares of Common Stock issued upon such conversion.
Section 5.4 SPECIAL ADJUSTMENT TO THE SERIES F CONVERSION PRICE.
(a) In the event of the conversion of the Series F
Preferred Stock pursuant to Section B.5.3(a)(i) of this Article IV,
the Series F Conversion Price in effect immediately prior to such
conversion shall be adjusted (and any other appropriate actions shall
be taken by the Corporation) so that the number of shares of Common
Stock that all holders of Series F Preferred Stock shall be entitled
to receive upon conversion of all shares of Series F Preferred Stock
then outstanding shall be equal to the sum of (A) the number of shares
of Common Stock that such holders would have been entitled to receive
had all such shares of Series F Preferred Stock been converted
immediately prior to the adjustment under this Section B.5.4(a) plus
(B) the number of shares of Common Stock equal to the quotient of:
(i) the quotient of (x) the product of the Series F
Share (calculated immediately prior to the adjustment under
this Section 5.4(a) and the payment of any Priority
Payments) multiplied by the aggregate value of the Priority
Payments to be made in connection with the Initial Public
Offering (with any Priority Payments made in Common Stock
valued at the IPO Price) divided by (y) the difference of
one minus such Series F Share;
DIVIDED BY
(ii) the IPO Price.
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Section 5.5 RANK. The Series F Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 5.6 DIVIDENDS. The Series F Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 5.7 VOTING. The Series F Preferred Stock shall have the
voting rights as set forth in Section B.10 of this Article IV.
Section 6. SERIES G PREFERRED STOCK
Section 6.1 DESIGNATION AND NUMBER OF SHARES. A total of 7,604,563
shares of the Corporation's Preferred Stock shall be designated as a series
known as "Series G Convertible Participating Preferred Stock" (the "Series
G Preferred Stock"). Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED that no decrease shall
reduce the number of shares of Series G Preferred Stock to a number less
than that of the shares of Series G Preferred Stock then outstanding, plus
the number of shares of Series G Preferred Stock issuable upon exercise of
outstanding rights, options or warrants or upon conversion.
Section 6.2 AVAILABLE CASH PAYMENT. If, at any time prior to a
Liquidation or the occurrence of a Liquidity Event, the Corporation's
unaudited balance sheet with respect to any fiscal quarter or audited
balance sheet with respect to any fiscal year reflects that the Corporation
has Available Cash (as hereinafter defined) in excess of $10,000,000, then
the Corporation may pay to each holder of the Series G Preferred Stock its
pro rata portion of such excess (each such payment, an "Available Cash
Payment"); PROVIDED, that the Corporation shall not be obligated to make
any Available Cash Payments except to the extent that a majority of the
Corporation's disinterested directors, in their sole discretion, so elect;
PROVIDED, FURTHER, that the Corporation shall not make, nor shall the
holders of Series G Preferred Stock be entitled to receive, any Available
Cash Payments unless a majority in interest of the holders of the then
outstanding shares of Series F Preferred Stock shall have consented in
writing to the payment of such Available Cash Payment; PROVIDED, FURTHER,
that Available Cash Payments made hereunder shall not in the aggregate
exceed $20,000,000; and PROVIDED, FURTHER, that the Series G Aggregate
Preferred Priority Payment (as hereinafter defined) payable pursuant to
Section B.6.3 of this Article IV, if any, shall be reduced by the aggregate
of all Available Cash Payments made hereunder, if any. For purposes hereof,
the term disinterested directors includes the current Chief Executive
Officer of the Corporation and means directors who are not employees of GAP
40, GAP Coinvestment or any Affiliates of either entity.
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Section 6.3 LIQUIDATION PREFERENCE; PREFERRED PAYMENTS.
(a) Upon the occurrence of (i) a Liquidation or (ii) a
Liquidity Event in which the IPO Price (in the case of an Initial
Public Offering) or the Per Share Value (in the case of a Liquidation,
Sale of Assets or Merger) is not greater than $13.15 per share
(subject to adjustment for stock splits, stock dividends,
recapitalizations or other similar events affecting the Common Stock),
the holders of the shares of Series G Preferred Stock shall be
entitled to be paid an amount equal to $2.63 per share (subject to
adjustment for stock splits, stock dividends, recapitalizations or
other similar events affecting the Series G Preferred Stock) plus all
accrued and unpaid dividends on the Series G Preferred Stock (the
"Series G Preferred Priority Payment," and the total of all such
payments to holders of Series G Preferred Stock, the "Series G
Aggregate Preferred Priority Payment"), before any distribution of
assets or payment is made upon any stock ranking on Liquidation or a
Liquidity Event junior to the Series G Preferred Stock; PROVIDED,
HOWEVER, that if the IPO Price or the Per Share Value, as the case may
be, is greater than $10.52 per share but is not greater than $13.15
per share (subject in each case to adjustment for stock splits, stock
dividends, recapitalizations or other similar events affecting the
Common Stock), then the Series G Preferred Priority Payment payable
with respect to each share of Series G Preferred Stock shall be
adjusted by subtracting therefrom the amount by which such IPO Price
or Per Share Value, as the case may be, is greater than $10.52 per
share (or such other amount as may be applicable following adjustment
for stock splits, stock dividends, recapitalizations or other similar
events affecting the Common Stock); and PROVIDED, FURTHER, that if,
prior to a Liquidation or a Liquidity Event, the Corporation shall
have made any Available Cash Payments pursuant to Section B.6.2
hereof, the Series G Aggregate Preferred Priority Payment payable
hereunder, if any, shall be reduced by the total of such Available
Cash Payments so made. If upon such Liquidation or Liquidity Event,
the assets to be distributed (in the case of a Liquidation) or the
proceeds to be received by the Corporation (in the case of a Liquidity
Event other than a Liquidation) shall be insufficient to pay in full
the Series F Liquidation Preference to the holders of the outstanding
shares of the Series F Preferred Stock and the Priority Payments to
the holders of the outstanding shares of the Class A Common Stock,
Series A Preferred Stock, Series C Preferred Stock and Series G
Preferred Stock, respectively, then the holders of all shares of Class
A Common Stock, Series A Preferred Stock, Series C Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock shall be
entitled to receive their share of such assets calculated in
accordance with the amount that would be payable if the amounts to
which the holders of outstanding shares of Class A Common Stock,
Series A Preferred Stock, Series C Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock were paid in full.
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(b) The Series G Preferred Priority Payment shall be
payable (A) in the case of a Liquidation, in cash on the date of the
Liquidation, (B) in the case of an Initial Public Offering, in cash
or, at the option of the Corporation, in shares of Common Stock based
on the IPO Price, which cash or shares of Common Stock will be
delivered or issued on the closing date of the Initial Public
Offering, or (C) in the case of a Merger or Sale of Assets, at the
option of the holder of the Series G Preferred Stock, in cash or in
securities of the surviving Person or other consideration received by
the holders of Common Stock, PROVIDED that if any holder of Series G
Preferred Stock elects to receive its Series G Preferred Priority
Payment other than in cash, it shall provide the Corporation with no
less than five (5) days notice of such election, and shall specify in
such notice the consideration it elects to receive, and PROVIDED,
FURTHER, that any securities of the surviving Person otherwise to be
delivered to the holders of the Series G Preferred Stock pursuant to
this Section B.6.3(b) in the case of a Sale of Assets or a Merger
shall be valued in the same manner as the securities to be delivered
to the holders of Common Stock in such transaction.
Section 6.4 PARTICIPATION.
(a) In addition to the Series G Preferred Priority Payment
to which such holders are entitled under Section B.6.3(a) of this
Article IV, if any, the holders of Series G Preferred Stock shall in
all cases have the right to receive the following (the "Series G Pro
Rata Share" and, together with the Series G Aggregate Preferred
Priority Payment payable to such holders in accordance with Section
B.6.3(a) of this Article IV, the "Series G Participation Amount"):
(i) In the event of a Liquidation, the shares of
Series G Preferred Stock shall be converted into the amount
of cash receivable upon such Liquidation by a holder of the
number of shares of Common Stock into which the Series G
Preferred Stock could have been converted (subject to
adjustment as provided in Section B.11.1 of this Article IV)
immediately prior to such Liquidation;
(ii) In the event of a Sale of Assets, the shares of
Series G Preferred Stock shall be converted into the kind
and amount of securities, assets or cash, as the case may
be, receivable upon such Sale of Assets by a holder of the
number of shares of Common Stock into which such shares of
Series G Preferred Stock could have been converted (subject
to adjustment as provided in Section B.11.1 of this Article
IV) immediately prior to such Sale of Assets;
(iii) In the event of a Merger, the shares of Series G
Preferred Stock shall be converted into the kind and amount
of securities of the surviving Person or other consideration
receivable upon such Merger by a
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holder of the number of shares of Common Stock into which
such shares of Series G Preferred Stock could have been
converted (subject to adjustment as provided in Section
B.11.1 of this Article IV) immediately prior to such Merger;
(iv) In the event of an Initial Public Offering, the
shares of Series G Preferred Stock shall be converted into
the number of shares of Common Stock receivable upon such
Initial Public Offering by a holder of the number of shares
of Common Stock into which such shares of Series G Preferred
Stock could have been converted (subject to adjustment as
provided in Section B.11.1 of this Article IV) immediately
prior to such Initial Public Offering; and
(v) Notwithstanding the foregoing, no conversion of
the Series G Preferred Stock shall be deemed to have
occurred until the holders of shares of Series G Preferred
Stock receive any Series G Preferred Priority Payment to
which such holders are entitled pursuant to Section B.6.3(a)
of this Article IV.
(b) Written notice of a Liquidation or Liquidity Event, as
the case may be, stating a payment date, the amount of the Series G
Participation Amount and the place where such Series G Participation
Amount shall be payable, shall be delivered in person, mailed by
certified mail, return receipt requested, mailed by overnight mail or
sent by telecopier, not less than ten (10) days prior to the payment
date stated therein, to the holders of record of the Series G
Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation.
Section 6.5 CONVERSION.
(a) Any holder of Series G Preferred Stock shall have the
right, at its option, at any time and from time to time, to convert,
subject to the terms and provisions of this Section 6.5 and Section
B.11.1 of this Article IV, any or all of such holder's shares of
Series G Preferred Stock into such number of fully paid and
non-assessable shares of Common Stock as is equal to the product of
the number of shares of Series G Preferred Stock being so converted
multiplied by the quotient of (i) $2.63 divided by (ii) the conversion
price of $2.63 per share, subject to adjustment as provided in Section
B.11.1 of this Article IV (the "Series G Conversion Price"), then in
effect. Such conversion right shall be exercised by the surrender of
the shares of Series G Preferred Stock to be converted to the
Corporation at any time during usual business hours at its principal
place of business to be maintained by it, accompanied by written
notice that the holder elects to convert such shares of Series G
Preferred Stock and specifying the name or names (with address) in
which a certificate or certificates for shares of
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Common Stock are to be issued and (if so required by the Corporation)
by a written instrument or instruments of transfer in form reasonably
satisfactory to the Corporation duly executed by the holder or its
duly authorized legal representative and transfer tax stamps or funds
therefor, if required pursuant to Section B.11.7 of this Article IV.
All shares of Series G Preferred Stock surrendered for conversion
shall be delivered to the Corporation for cancellation and canceled by
it and no shares of Series G Preferred Stock shall be issued in lieu
thereof. Holders of shares of Common Stock delivered upon an optional
conversion of shares of Series G Preferred Stock pursuant to this
Section 6.5(a), unless such conversion occurred in connection with a
Liquidation or Liquidity Event, shall not be entitled to receive any
Preferred Payment or Participation Amount pursuant to Section 9 of
this Article IV.
(b) As promptly as practicable after the surrender, as
herein provided, of any shares of Series G Preferred Stock for
conversion pursuant to Section B.6.5(a) of this Article IV, the
Corporation shall deliver to or upon the written order of the holder
of such shares of Series G Preferred Stock so surrendered a
certificate or certificates representing the number of fully paid and
non-assessable shares of Common Stock into which such shares of Series
G Preferred Stock may be or have been converted in accordance with the
provisions of this Section B.6.5 and Section B.11 of this Article IV.
Subject to the following provisions of this Section B.6.5(b) and of
Section B.11 of this Article IV, such conversion shall be deemed to
have been made immediately prior to the close of business on the date
that such shares of Series G Preferred Stock shall have been
surrendered in satisfactory form for conversion, and the Person or
Persons entitled to receive the shares of Common Stock deliverable
upon conversion of such shares of Series G Preferred Stock shall be
treated for all purposes as having become the record holder or holders
of such shares of Common Stock at such appropriate time, and such
conversion shall be at the Series G Conversion Price in effect at such
time; PROVIDED, HOWEVER, that no surrender shall be effective to
constitute the Person or Persons entitled to receive the shares of
Common Stock deliverable upon such conversion as the record holder or
holders of such shares of Common Stock while the share transfer books
of the Corporation shall be closed (but not for any period in excess
of five (5) days), but such surrender shall be effective to constitute
the Person or Persons entitled to receive such shares of Common Stock
as the record holder or holders thereof for all purposes immediately
prior to the close of business on the next succeeding day on which
such share transfer books are open, and such conversion shall be
deemed to have been made at, and shall be made at the Series G
Conversion Price in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series G
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series G Preferred Stock so converted to the date of
conversion shall be immediately due
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and payable and must accompany the shares of Common Stock issued upon
such conversion.
Section 6.6 RANK. The Series G Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 6.7 DIVIDENDS. The Series G Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 6.8 VOTING. The Series G Preferred Stock shall have the
voting rights as set forth in Section B.10 of this Article IV.
Section 7. RANK.
(a) The Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock shall with respect to payment of the Preferred
Liquidation Amounts upon the occurrence of a Liquidation rank (i) PARI
PASSU with each other, and (ii) senior to all other payments or
distributions to holders of Capital Stock of the Corporation,
including without limitation, all payments or distributions to (A) all
classes of Common Stock of the Corporation (including, without
limitation, the Common Stock and Class A Common Stock) and (B) each
series of Capital Stock of the Corporation hereafter created which
does not expressly rank PARI PASSU with or senior to the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock (clauses (A) and
(B) collectively the "Junior Stock").
(b) The Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock and the Class A Common Stock shall with respect to payment of
the Priority Payments and the Series F Liquidation Preference upon the
occurrence of a Liquidity Event rank (i) PARI PASSU with each other,
and (ii) senior to all other payments or distributions to holders of
Capital Stock of the Corporation, including, without limitation, all
other payments or distributions to the Junior Stock.
Section 8. DIVIDENDS. Beginning on the date of issuance of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock if the Board of Directors of the
Corporation shall declare a dividend or make any other distribution (including,
without limitation, in cash or other property or assets), to holders of shares
of Common Stock, then the holders of each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock shall be entitled to receive, out of funds legally
available therefor, a dividend or distribution in an amount equal to the amount
of such dividend or distribution received by a holder of the number of shares of
Common Stock for which such share of Series A Preferred Stock, Series B
Preferred
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Stock, Series C Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock is convertible on the record date for such dividend or distribution. Any
such amount shall be paid to the holders of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock at the same time such dividend or distribution is made
to holders of Common Stock.
Section 9. PRIORITY PAYMENTS.
(a) The Priority Payments shall be payable (i) in the case
of a Liquidation, in cash on the date of the Liquidation, (ii) in the
case of an Initial Public Offering, in cash or, at the option of the
Corporation, in shares of Common Stock based on the IPO Price, which
cash or shares of Common Stock will be delivered or issued on the
closing date of the Initial Public Offering or (iii) in the case of a
Merger or Sale of Assets, in cash, or at the option of the
Corporation, in securities of the surviving Person or other
consideration received by the holders of Common Stock; PROVIDED, that
the Corporation shall make the same election as to form of payment
with respect to each of the Priority Payments unless a different
election shall be approved by a majority of the holders of each class
of Common Stock and Preferred Stock entitled to a Priority Payment.
Any securities of the surviving Person otherwise to be delivered to
the holders of each class of Common Stock and Preferred Stock entitled
to a Priority Payment pursuant to this paragraph (a) shall be valued
as follows:
(i) Securities that do not constitute "restricted
securities," as such term is defined in Rule 144(a)(3)
promulgated under the Securities Act:
(1) if traded on a securities exchange, the value
shall be deemed to be the average of the closing prices
of the securities on such exchange over the 30-day
period ending three (3) days prior to the date of
distribution;
(2) if actively traded over-the-counter, the
value shall be deemed to be the average of the closing
bid prices over the 30-day period ending three (3) days
prior to the date of distribution;
(3) if there is no active public market, the
value shall be the fair market value thereof, as
mutually determined by the Board of Directors and
consented to by the holders of not less than a majority
of the shares of each class of Common Stock and
Preferred Stock entitled to a Priority Payment, which
consent shall not be unreasonably withheld; or
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(4) if the fair market value cannot be determined
pursuant to clause (3) above, the value shall be
determined by an appraiser chosen by the Board of
Directors and consented to by the holders of a majority
of the shares of each class of Common Stock and
Preferred Stock entitled to a Priority Payment or, if
no such appraiser is so chosen prior to the tenth day
after notice of the necessity of such calculation shall
have been delivered by the Corporation to the holders
of each class of Common Stock and Preferred Stock
entitled to a Priority Payment, then by an appraiser
chosen by a nationally recognized investment banking
firm experienced in the valuation of corporations
engaged in the information technology software business
and acceptable to the holders of a majority of the
shares of each class of Common Stock and Preferred
Stock entitled to a Priority Payment.
(ii) The method of valuation of securities acquired for
investment in a non-public transaction or otherwise
restricted in their marketability that are of the same class
or series as securities that are publicly traded shall be to
make an appropriate discount from the market value
determined as set forth above in clauses (1) or (2) to
reflect the appropriate fair market value thereof, as
mutually determined by the Board of Directors and consented
to by the holders of a majority of each class of Common
Stock and Preferred Stock entitled to a Priority Payment,
which consent shall not be unreasonably withheld, or if
applicable, shall be in accordance with clause (4), giving
appropriate weight, if any, to such restriction.
Section 10. VOTING RIGHTS. Except as otherwise required under Delaware
law, so long as the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock is
outstanding, each share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
shall entitle the holder thereof to vote, in person or by proxy, at a special or
annual meeting of stockholders, on all matters entitled to be voted on by
holders of Common Stock voting together as a single class with other shares
entitled to vote thereon. With respect to any such vote, each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall entitle the holder thereof to
cast that number of votes per share as is equal to the number of votes that such
holder would be entitled to cast had such holder converted its shares of Series
B Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and Series
G Preferred Stock into shares of Common Stock on the record date for determining
the stockholders of the Corporation eligible to vote on any such matters.
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Section 11. CONVERSION PRICE.
Section 11.1 ADJUSTMENT TO THE CONVERSION PRICE. The Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series F Conversion Price and Series G Conversion Price (collectively, the
"Conversion Prices and each individually a Conversion Price") shall be
subject to adjustment as follows:
(a) In the event that the Corporation shall at any time
after the date of filing of this Certificate of Incorporation (w) pay
a dividend or make a distribution on the outstanding shares of Common
Stock payable in Common Stock, (x) subdivide the outstanding shares of
Common Stock into a larger number of shares, (y) combine the
outstanding shares of Common Stock into a smaller number of shares or
(z) issue any shares of its Capital Stock in a reclassification of the
Common Stock, then, and in each such case, the Conversion Price for
each respective series of Preferred Stock in effect immediately prior
to such event shall be adjusted (and any other appropriate actions
shall be taken by the Corporation) so that the holder of any share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series F Preferred Stock or Series G Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other securities of the Corporation that
such holder would have owned or would have been entitled to receive
upon or by reason of any of the events described above, had such share
of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock
been converted immediately prior to the occurrence of such event. An
adjustment made pursuant to this Section B.11.1 shall become effective
retroactively (x) in the case of any such dividend or distribution, to
a date immediately following the close of business on the record date
for the determination of holders of Common Stock entitled to receive
such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business
on the day upon which such corporate action becomes effective.
(b) In the case the Corporation shall at any time or from
time to time distribute to all holders of shares of its Common Stock
(including any such distribution made in connection with a merger or
consolidation in which the Corporation is the resulting or surviving
Person and the Common Stock is not changed or exchanged) cash,
evidences of indebtedness of the Corporation or another issuer,
securities of the Corporation or another issuer or other assets
(excluding dividends or distributions paid or made to holders of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
in the manner provided in Section B.8 of this Article IV, and
dividends payable in shares of Common Stock for which adjustment is
made under Section 11.1(a) of this Article IV) or rights or warrants
to subscribe for or purchase securities of the Corporation (excluding
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those distributions in respect of which an adjustment in the
Conversion Prices is made pursuant to Section 11.1(a) of this Article
IV), then, and in each such case, the Conversion Prices then in effect
shall be adjusted (and any other appropriate actions shall be taken by
the Corporation) by multiplying each Conversion Price in effect
immediately prior to the date of such distribution by a fraction (x)
the numerator of which shall be such current market price of the
Common Stock less the then fair market value (as determined by the
Board of Directors) of the portion of the cash, evidences of
indebtedness, securities or other assets so distributed or of such
subscription rights or warrants applicable to one share of Common
Stock and (y) the denominator of which shall be the current market
price of the Common Stock on the record date referred to below (but
such denominator shall not be less than one); PROVIDED, HOWEVER, that
no adjustment shall be made with respect to any distribution of rights
to purchase securities of the Corporation if the holder of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series F Preferred Stock or Series G Preferred Stock would
otherwise be entitled to receive such rights upon conversion at any
time of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock
into Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively to a
date immediately following the close of business on the record date
for the determination of stockholders entitled to receive such
distribution.
(c) In the case the Corporation, at any time after the date
of filing of this Certificate of Incorporation, shall take any action
affecting its Common Stock similar to or having an effect similar to
any of the actions described in Sections B.11.1(a) or B.11.4 of this
Article IV (but not including any action described in any such
Section) and the Board of Directors in good faith determines that it
would be equitable in the circumstances to adjust the Conversion
Prices as a result of such action, then, and in each such case, the
Conversion Prices shall be adjusted in such a manner and at such time
as the Board of Directors of the Corporation in good faith determines
would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed
to the holders of the shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock
and Series G Preferred Stock); PROVIDED, HOWEVER, that the Board of
Directors effects an appropriate adjustment to the Conversion Price of
each other series of Preferred Stock, as may exist from time to time,
which is affected by such action.
(d) In the event the Corporation shall at any time, after
the date of filing of this Certificate of Incorporation, issue, sell
or exchange any shares of Common Stock, or securities exercisable or
exchangeable for shares of Common Stock, for a consideration per share
less than the Series F Conversion Price or
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Series G Conversion Price in effect immediately prior to the issuance,
sale or exchange of such shares (other than (x) issuances of Common
Stock upon the exercise of currently outstanding options, warrants or
convertible securities or (y) up to 11,808,872 shares of Common Stock
issued under the Corporation's stock option or grant plans to
management, employees or consultants (the "Excluded Shares")), then,
and thereafter successively upon each such issuance, sale or exchange,
the Series F Conversion Price or Series G Conversion Price in effect
immediately prior to the issuance, sale or exchange of such shares
shall forthwith be reduced to an amount determined by multiplying such
Series F Conversion Price or Series G Conversion Price by a fraction:
(i) the numerator of which shall be (x) the number of
shares of Common Stock of all classes outstanding
immediately prior to the issuance of such additional shares
of Common Stock (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise
of any outstanding options, warrants, rights or convertible
securities), plus (y) the number of shares of Common Stock
which the net aggregate consideration received by the
Corporation for the total number of such additional shares
of Common Stock so issued would purchase at the Series F
Conversion Price or Series G Conversion Price (prior to
adjustment), and
(ii) the denominator of which shall be (x) the number
of shares of Common Stock of all classes outstanding
immediately prior to the issuance of such additional shares
of Common Stock (excluding treasury shares but including all
shares of Common Stock issuable upon conversion or exercise
of any outstanding options, warrants, rights or convertible
securities), plus (y) the number of such additional shares
of Common Stock so issued.
(e) In the event the Corporation shall, at any time after
the date of filing of this Certificate of Incorporation, issue
options, warrants or rights to subscribe for shares of Common Stock,
or issue any securities convertible into or exchangeable for shares of
Common Stock (other than any options or warrants for Excluded Shares),
for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined below) by the aggregate number
of shares of Common Stock that would be issued if all such options,
warrants, rights or convertible securities were exercised or converted
to the fullest extent permitted by their terms) less than the Series F
Conversion Price or Series G Conversion Price in effect immediately
prior to the issuance of such options or rights or convertible or
exchangeable securities, the Series F Conversion Price or Series G
Conversion Price in effect immediately prior to the issuance of such
options, warrants, rights or convertible securities shall be reduced
to an amount
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determined by multiplying such Series F Conversion Price or Series G
Conversion Price by a fraction:
(i) the numerator of which shall be (x) the number of
shares of Common Stock of all classes outstanding
immediately prior to the issuance of such options, rights or
convertible securities (excluding treasury shares but
including all shares of Common Stock issuable upon
conversion or exercise of any outstanding options, warrants,
rights or convertible securities), plus (y) the number of
shares of Common Stock which the total amount of
consideration received by the Corporation for the issuance
of such options, warrants, rights or convertible securities
plus the minimum amount set forth in the terms of such
security as payable to the Corporation upon the exercise or
conversion thereof (the "Net Aggregate Consideration") would
purchase at the Series F Conversion Price or Series G
Conversion Price for each respective series of Preferred
Stock prior to adjustment, and
(ii) the denominator of which shall be (x) the number
of shares of Common Stock of all classes outstanding
immediately prior to the issuance of such options, warrants,
rights or convertible securities (excluding treasury shares
but including all shares of Common Stock issuable upon
conversion or exercise of any outstanding options, warrants,
rights or convertible securities), plus (y) the aggregate
number of shares of Common Stock that would be issued if all
such options, warrants, rights or convertible securities
were exercised or converted.
(f) If the consideration per share provided for in any
options or rights to subscribe for shares of Common Stock, or any
securities exchangeable for or convertible into shares of Common
Stock, changes at any time the Conversion Price for each respective
series of Preferred Stock in effect at the time of such change shall
be readjusted to the Conversion Price for each respective series of
Preferred Stock which would have been in effect at such time had such
options or convertible securities provided for such changed
consideration per share (determined as provided in Section B.11.1(e)
of this Article IV), at the time initially granted, issued or sold;
PROVIDED, that such adjustment of the Conversion Price will be made
only as and to the extent that the Conversion Price effective upon
such adjustment remains less than or equal to the Conversion Price
that would be in effect if such options, rights or securities had not
been issued. No adjustment of a Conversion Price shall be made under
this Section B.11.1 upon the issuance of any additional shares of
Common Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant
to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been
made upon the issuance of such warrants, options or other rights. Any
adjustment of a Conversion Price
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shall be disregarded if, as, when and to the extent that the rights to
acquire shares of Common Stock upon exercise or conversion of the
warrants, options, rights or convertible securities which gave rise to
such adjustment expire or are canceled without having been exercised,
so that each Conversion Price effective immediately upon such
cancellation or expiration shall be equal to the Conversion Price in
effect at the time of the issuance of the expired or canceled
warrants, options, rights or convertible securities (subject to
adjustment to the extent that any of such warrants, options, rights or
convertible securities were so exercised or converted), with such
additional adjustments as would have been made to that Conversion
Price had the expired or canceled warrants, options, rights or
convertible securities not been issued.
(g) Notwithstanding anything herein to the contrary, no
adjustment under this Section B.11.1 need be made to a Conversion Price
unless such adjustment would require an increase or decrease of at least 1%
of the Conversion Price then in effect. Any lesser adjustment shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment, which, together with any adjustment or adjustments
so carried forward, shall amount to an increase or decrease of at least 1%
of such Conversion Price. Any adjustment to a Conversion Price carried
forward and not theretofore made shall be made immediately prior to the
conversion of any shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock pursuant hereto.
Section 11.2 ABANDONMENT OF DIVIDEND OR DISTRIBUTION. If the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution, and
shall thereafter and before the distribution to stockholders thereof
legally abandon its plan to pay or deliver such dividend or distribution,
then thereafter no adjustment in a Conversion Price then in effect shall be
required by reason of the taking of such record.
Section 11.3 NOTICE OF ADJUSTMENT. Upon any increase or decrease in
a Conversion Price, then, and in each such case, the Corporation shall
within a reasonable period (not to exceed 45 days) following any of the
foregoing transactions deliver to each registered holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock a certificate, signed by the
President or a Vice President and by the Treasurer, Assistant Treasurer,
the Secretary or an Assistant Secretary of the Corporation, setting forth
in reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the increased or
decreased Conversion Price then in effect following such adjustment.
Section 11.4 REORGANIZATION. In case of any capital reorganization
or reclassification or other change of outstanding shares of Common Stock
(other than a change in par value, or from par value to no par value, or
from no par value to par value),
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the Corporation shall execute and deliver to each holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock at least ten (10) Business
Days prior to effecting such reorganization or reclassification a
certificate that the holder of each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock then outstanding shall have the right
thereafter to convert such share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock into the kind and amount of shares of stock or
other securities, property or cash receivable upon such reorganization or
reclassification by a holder of the number of shares of Common Stock into
which such share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock could have been converted immediately prior to such reorganization or
reclassification, and provision shall be made therefor in any agreement
relating to such reorganization or reclassification. Such certificate shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section B.11. The
provisions of this Section B.11.4 and any equivalent thereof in any such
certificate similarly shall apply to successive transactions.
Section 11.5 NOTICE OF EVENTS In case at any time or from time to
time:
(a) the Corporation shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(b) the Corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or
warrants;
(c) there shall be any reorganization or reclassification
of the Common Stock; or
(d) there shall occur a Liquidation, Sale of Assets or
Merger;
then the Corporation shall mail to each holder of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock at such holder's address as
it appears on the transfer books of the Corporation, as promptly as
possible but in any event at least ten (10) days prior to the applicable
date hereinafter specified, a notice stating (A) the date on which a record
is to be taken for the purpose of such dividend, distribution or rights or
warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution or rights are to be determined, or (B) the date on which such
reclassification or Liquidation, Sale of Assets or Merger is expected to
become effective; PROVIDED that in the case of any event to which Section
B.11.4 of this Article IV applies, the Corporation shall give at least ten
(10) Business Days' prior
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written notice as aforesaid. Such notice also shall specify the date as of
which it is expected that holders of Common Stock of record shall be
entitled to exchange their Common Stock for shares of stock or other
securities or property or cash deliverable upon such reclassification or
Liquidation, Sale of Assets or Merger.
Section 11.6 RESERVATION OF SHARES OF COMMON STOCK. The Corporation
shall at all times reserve and keep available for issuance upon the
conversion of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock, such number of its authorized but unissued shares of Common Stock as
will from time to time be sufficient to permit the conversion of all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock, and shall take all action required to increase the authorized number
of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation
or to permit the conversion of all outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock.
Section 11.7 ISSUANCE OF CERTIFICATES OF COMMON STOCK. The issuance
or delivery of certificates for Common Stock upon the conversion of shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock shall be made
without charge to the converting holder of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock for such certificates or for
any tax in respect of the issuance or delivery of such certificates or the
securities represented thereby, and such certificates shall be issued or
delivered in the respective names of, or (subject to compliance with the
applicable provisions of federal and state securities laws) in such names
as may be directed by, the holders of the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock converted; provided, however,
that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
any such certificate in a name other than that of the holder of the shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock converted, and
the Corporation shall not be required to issue or deliver such certificate
unless or until the Person or Persons requesting the issuance or delivery
thereof shall have paid to the Corporation the amount of such tax or shall
have established to the reasonable satisfaction of the Corporation that
such tax has been paid.
Section 12. SALE OF ASSETS OR MERGER. In the event that, upon a Merger
or a Sale of Assets, the Corporation receives consideration in more than one
form, the Corporation shall pay or distribute such various forms of
consideration to the holders of its Capital Stock ratably in proportion to the
total amount of consideration to be received by such holders, such that each
such holder receives a proportionate share of each such form of consideration.
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Section 13. REDEMPTION. The shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock shall not be subject to mandatory redemption at the option of
the Corporation or any holder thereof, or otherwise.
Section 14. CERTAIN REMEDIES. Any registered holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Certificate of
Incorporation and to enforce specifically the terms and provisions of this
Certificate of Incorporation in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
such holder may be entitled at law or in equity.
Section 15. BUSINESS DAY. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
Section 16. DEFINITIONS. As used in this Certificate of Incorporation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"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 Corporation shall be considered an Affiliate of GAP 40,
GAP 46, GAP 52, GAP Coinvestment, GAP Coinvestment II, Lehman, TCV or the
Ramsey/Beirne Stockholders or any of the Sasson Stockholders.
"Amended and Restated Shareholders Agreement" shall mean the Amended and
Restated Shareholders Agreement, dated February 23, 1999, among the Corporation
and the shareholders named therein, as amended from time to time.
"Available Assets" shall have the meaning ascribed to it in Section A.2.5
of this Article IV.
"Available Cash" means, with respect to the Corporation's unaudited balance
sheet for any fiscal quarter or audited balance sheet for any fiscal year, the
amount equal to the excess, if
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any, of (i) the sum of all cash (or cash equivalents) plus the fair market value
(as determined by the Board of Directors) of all marketable securities of the
Corporation that are listed on a securities exchange or traded in the
over-the-counter market, over (ii) the sum of the Corporation's short-term and
long-term indebtedness for borrowed money.
"Available Cash Payment" shall have the meaning ascribed to it in Section
B.6.2 of this Article IV.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means any day except a Saturday, a Sunday, or other day on
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
"Common Stock" shall have the meaning ascribed to it in Section A.1 of this
Article IV.
"Class A Common Stock" shall have the meaning ascribed to it in Section A.2
of this Article IV.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Priority Payment" shall have the meaning ascribed to it in Section
A.2.5 of this Article IV
"Common Stock" shall have the meaning ascribed to it in the first paragraph
of this Article IV.
"Conversion Price" shall have the meaning ascribed to it in Section B.11.1
of this Article IV.
"Corporation" shall have the meaning ascribed to it in Article I hereof.
"DGCL" shall have the meaning ascribed to it in the first paragraph of this
Certificate.
"Exchange Act" means the Securities Exchange Act of 1934, and the rules and
regulations of the Commission promulgated thereunder.
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"Excluded Shares" shall have the meaning ascribed to it in Section
B.11.1(d) of this Article IV.
"GAP Coinvestment" shall have the meaning ascribed to it in Section
B.2.8(b) of this Article IV.
"GAP Coinvestment II" shall mean GAP Coinvestment Partners II, L.P. a
Delaware limited partnership.
"GAP LLC" shall mean General Atlantic Partners, LLC, a Delaware limited
liability company and the general partner of GAP 40, GAP 46 and GAP 52, and any
successor to such entities.
"GAP 40" shall have the meaning ascribed to it in Section B.2.8(b) of this
Article IV.
"GAP 46" shall mean General Atlantic Partners 46, L.P. a Delaware limited
partnership.
"GAP 52" shall mean General Atlantic Partners 52, L.P. a Delaware limited
partnership.
"Initial Public Offering" shall mean a firm commitment underwritten initial
public offering pursuant to an effective registration statement under the
Securities Act.
"IPO Price" shall mean the mid-point of the anticipated price per share of
the Common Stock to be offered in the Initial Public Offering, based on
information provided in the registration statement in order to calculate the
filing fee payable to the Commission.
"Junior Stock" shall have the meaning ascribed to it in Section B.7(a) of
this Article IV hereof.
"Lehman" shall mean Lehman Brothers VC Partners L.P. a Delaware limited
partnership.
"Liquidation" shall mean the voluntary or involuntary liquidation under
applicable bankruptcy or reorganization legislation, dissolution or winding up
of the Corporation.
"Liquidity Event" shall have the meaning ascribed to it in Section A.2.5 of
this Article IV.
"Merger" shall mean (x) the merger or consolidation of the Corporation with
one or more other Persons or (y) the merger or consolidation of one or more
Persons into or with the Corporation, if, in the case of (x) or (y), the
stockholders of the Corporation prior to such merger or consolidation do not
retain at least a majority of the voting power of the surviving Person.
"Net Aggregate Consideration" shall have the meaning ascribed to it in
Section B.11.1(e)(i) of this Article IV.
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"Per Share Value" shall mean (i) with respect to a Merger or Sale of
Assets, the value of the consideration payable for one share of Common Stock in
such Merger or Sale of Assets and (ii) with respect to a Liquidation, the value
of the assets and rights distributable for each share of Common Stock.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any kind.
"Preferred Liquidation Amount" means the Series A Liquidation Amount, the
Series B Liquidation Amount, the Series C Liquidation Amount, the Series F
Liquidation Preference and the Series G Aggregate Preferred Priority Payment
collectively.
"Preferred Stock" shall have the meaning ascribed to it in the first
paragraph of this Article IV.
"Priority Payments" shall mean the Common Priority Payment, Series A
Preferred Priority Payment, Series C Preferred Priority Payment and the Series G
Aggregate Preferred Priority Payment.
"Ramsey Beirne Shareholders" shall mean Ramsey/Beirne Associates and any
Permitted Transferees thereof to which shares of Capital Stock may be
transferred in accordance with Section 2.2 of the Amended and Restated
Shareholders Agreement.
"Sale of Assets" shall mean the voluntary sale, conveyance, exchange or
transfer to another Person of all or substantially all of the assets of the
Corporation.
"Sasson Shareholders" shall mean Ori Sasson and any Permitted Transferees
thereof to which shares of Capital Stock may be transferred in accordance with
Section 2.2 of the Amended and Restated Shareholders Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Series A Conversion Price" shall have the meaning ascribed to it in
Section B.2.5(a) of this Article IV.
"Series A Liquidation Amount" shall have the meaning ascribed to it in
Section B.2.2 of this Article IV.
"Series A Newly Issued Shares" shall have the meaning ascribed to it in
Section B.2.4(a)(iii) of this Article IV.
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"Series A Participation Amount" shall have the meaning ascribed to it in
Section B.2.4(a) of this Article IV.
"Series A Preferred Priority Payment" shall have the meaning ascribed to it
in Section B.2.3 of this Article IV.
"Series A Preferred Stock" shall have the meaning ascribed to it in Section
B.2.1 of this Article IV.
"Series A Pro Rata Share" shall have the meaning ascribed to it in Section
B.2.4(a) of this Article IV.
"Series B Conversion Price" shall have the meaning ascribed to it in
Section B.3.3(a) of this Article IV.
"Series B Exercise Price" shall have the meaning ascribed to it in Section
B.3.2 of this Article IV.
"Series B Liquidation Amount" shall have the meaning ascribed to it in
Section B.3.2 of this Article IV.
"Series B Liquidation Preference" shall have the meaning ascribed to it in
Section B.3.2 of this Article IV.
"Series B Preferred Stock" shall have the meaning ascribed to it in Section
B.3.1 of this Article IV.
"Series C Conversion Price" shall have the meaning ascribed to it in
Section B.4.5(a) of this Article IV.
"Series C Liquidation Amount" shall have the meaning ascribed to it in
Section B.4.2 of this Article IV.
"Series C Liquidation Preference" shall have the meaning ascribed to it in
Section B.4.2 of this Article IV.
"Series C Newly Issued Shares" shall have the meaning ascribed to it in
Section B.4.4(a)(iii) of this Article IV.
"Series C Participation Amount" shall have the meaning ascribed to it in
Section B.4.4(a) of this Article IV.
"Series C Preferred Priority Payment" shall have the meaning ascribed to it
in Section B.4.3 of this Article IV.
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"Series C Preferred Stock" shall have the meaning ascribed to it in Section
B.4.1 of this Article IV.
"Series C Pro Rata Share" shall have the meaning ascribed to it in Section
B.4.4(a) of this Article IV.
"Series F Conversion Price" shall have the meaning ascribed to it in
Section B.5.3(a) of this Article IV.
"Series F Liquidation Available Assets" shall have the meaning ascribed to
it in Section B.5.2(a) of this Article IV.
"Series F Liquidation Preference" shall have the meaning ascribed to it in
Section B.5.2(a) of this Article IV.
"Series F Preferred Stock" shall have the meaning ascribed to it in Section
B.5.1 of this Article IV.
"Series F Share" shall have the meaning ascribed to it in Section
B.5.2(a)(ii) of this Article IV.
"Series G Aggregate Preferred Priority Payment" shall have the meaning
ascribed to it in Section B.6.3(a) of this Article IV.
"Series G Conversion Price" shall have the meaning ascribed to it in
Section B.6.5(a) of this Article IV.
"Series G Participation Amount" shall have the meaning ascribed to it in
Section B.6.4(a) of this Article IV.
"Series G Preferred Priority Payment" shall have the meaning ascribed to it
in Section B.6.3(a) of this Article IV.
"Series G Preferred Stock" shall have the meaning ascribed to it in Section
B.6.1 of this Article IV.
"Series G Pro Rata Share" shall have the meaning ascribed to it in Section
B.6.4(a) of this Article IV.
"TCV" shall mean TCV III (GP), a Delaware limited partnership, TCV III,
L.P., a Delaware limited partnership, TCV III (Q), L.P., a Delaware limited
partnership, TCV III Strategic Partners, L.P., a Delaware limited partnership.
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"Undesignated Preferred Stock" shall have the meaning ascribed to it in
Section B.1 of this Article IV.
ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend, or repeal the
bylaws of the Corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed in the manner
provided in the bylaws.
ARTICLE VII
No director of this corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders; (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the DGCL; or (v) for any
transaction from which the director improper personal benefit.
The provisions of this Article VII shall not be deemed to limit or preclude
indemnification of a director by the corporation for any liability of a director
which has not been eliminated by the provisions of this article.
If the DGCL hereafter are 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 amended DGCL.
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IN WITNESS WHEREOF, I have executed and subscribed this certificate and do
affirm the foregoing as true under penalties of perjury this ____ day of
December, 1999.
/s/ Thomas F. Carretta
--------------------------------
Thomas F. Carretta, Secretary
FirePond, Inc.
890 Winter Street, Suite 300
Waltham, Massachusetts 02451
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EXHIBIT 3.2
FORM OF
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FIREPOND, INC.
FirePond, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is FirePond, Inc. The date of the
filing of its original Certificate of Incorporation (the "Original Certificate")
with the Secretary of State of the State of Delaware was November 4, 1999. The
Original Certificate was amended on December ____, 1999.
2. This Second Amended and Restated Certificate of Incorporation
amends, restates and integrates the provisions of the Original Certificate, as
heretofore amended, and (i) was duly adopted by the Board of Directors in
accordance with the provisions of Section 245 of the Delaware General
Corporation Law (the "DGCL"), (ii) was declared by the Board of Directors to be
advisable and in the best interests of the Corporation and was directed by the
Board of Directors to be submitted to and be considered by the stockholders of
the Corporation entitled to vote thereon for approval by the affirmative vote of
such stockholders in accordance with Section 242 of the DGCL and (iii) was duly
adopted by a consent in lieu of a meeting of the holders of the Corporation's
common stock, par value $.01 per share (the "Common Stock"), in accordance with
the provisions of Sections 228 and 242 of the DGCL and the terms of the Original
Certificate of Incorporation, as amended, such holders being all of the holders
of the Corporation's capital stock entitled to vote thereon.
3. The text of the Original Certificate, as amended, is hereby
amended and restated in its entirety to provide as herein set forth in full.
ARTICLE I
NAME
The name of the corporation is FirePond, Inc.
ARTICLE II
REGISTERED OFFICE
The registered office of the Corporation in the State of Delaware is 1209
Orange Street, in the City of Wilmington, in the County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
<PAGE> 2
ARTICLE III
PURPOSES
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
The authorized capital stock of this Corporation shall be [150,000,000]
shares, consisting of (a) 92,391,800 shares of Common Stock, par value $.01 per
share (the "Common Stock"), (b) 7,608,200 shares of Class A Common Stock, par
value $.01 per share (the "Class A Common Stock") and (c) 50,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), of which (i)
30,038,668 of which shall be Undesignated Preferred Stock (as hereinafter
defined), (ii) 4,188,880 shares shall be designated as Series A Preferred Stock
(as hereinafter defined), (iii) 190,438 shares shall be designated as Series B
Preferred Stock (as hereinafter defined), (iv) 570,342 shares shall be
designated as Series C Preferred Stock (as hereinafter defined), (v) 7,407,409
shares shall be designated as Series F Preferred Stock (as hereinafter defined)
and (vi) 7,604,563 shares shall be designated as Series G Preferred Stock (as
hereinafter defined). The designations and the powers, preferences and rights,
and the qualifications, limitations or restrictions of the shares of each class
of stock shall be as follows:
A. COMMON STOCK
Section 1. COMMON STOCK. A total of 92,391,800 shares of the
Corporation's Capital Stock shall be designated as a series known as "Common
Stock" (the "Common Stock"). Subject to all of the rights of the Class A Common
Stock and the Preferred Stock, and except as may be expressly provided with
respect to the Class A Common Stock and the Preferred Stock herein, by law or by
the Board of Directors pursuant to this Article IV, the Common Stock shall have
the rights, preferences and privileges set forth below in this Section A.1.
Section 1.1 DIVIDENDS. Dividends may be declared and paid or set
apart for payment upon the Common Stock out of any assets or funds of the
Corporation legally available for the payment of dividends. In the event
any dividends are declared and paid to the holders of Common Stock, at such
time, an equal dividend per share, shall be declared and paid to the
holders of Class A Common Stock.
Section 1.2 VOTING RIGHTS. Holders of Common Stock shall have the
right to vote for the election of directors and on all other matters
requiring stockholder action, each share being entitled to one vote. The
holders of Common Stock shall not be entitled to cumulative voting rights.
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Section 1.3 LIQUIDATION. Upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the net assets
of the Corporation shall be distributed pro rata to the holders of the
Common Stock in accordance with their respective share ownership after any
payment or distribution of assets to holders of any shares of each other
class or series of Capital Stock of the Corporation currently existing or
hereafter created which expressly ranks senior to the Common Stock upon the
occurrence of such an event.
Section 1.4 PREFERENTIAL RIGHTS. The holders of Common Stock shall
have no preferential, preemptive or other rights to subscribe for, purchase
or acquire any shares of the Corporation of any class, whether unissued or
now or hereafter authorized, or any obligations or other securities
convertible into or exchangeable for any such shares.
Section 1.5 RANK. The Common Stock shall have the ranking as set
forth in Section A.3 of this Article IV.
Section 2. CLASS A COMMON STOCK. A total of 7,608,200 shares of the
Corporation's Common Stock shall be designated as a series known as "Class A
Common Stock" (the "Class A Common Stock"). Subject to all of the rights of the
Preferred Stock, and except as may be expressly provided with respect to the
Preferred Stock herein, by law or by the Board of Directors pursuant to this
Article IV, the Class A Common Stock shall have the rights, preferences and
privileges as set forth below in this Section A.2.
Section 2.1 DIVIDENDS. Dividends may be declared and paid or set
apart for payment upon the Class A Common Stock out of any assets or funds
of the Corporation legally available for the payment of dividends. In the
event any dividends are declared and paid to the holders of Class A Common
Stock, at such time, an equal dividend per share, shall be declared and
paid to holders of Common Stock.
Section 2.2 VOTING RIGHTS. The holders of Class A Common Stock
shall have the right to vote for the election of directors and on all other
matters requiring stockholder action, each share being entitled to one
vote. The holders of Class A Common Stock shall not be entitled to
cumulative voting rights.
Section 2.3 LIQUIDATION. Upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the net assets
of the Corporation shall be distributed pro rata to the holders of the
Class A Common Stock in accordance with their respective share ownership
after any payment or distribution of assets to holders of any shares of
each other class or series of Capital Stock of the Corporation currently
existing or hereafter created which expressly ranks senior to the Class A
Common Stock upon the occurrence of such an event.
Section 2.4 PREFERENTIAL RIGHTS. The holders of Class A Common
Stock shall have no preferential, preemptive or other rights to subscribe
for, purchase or acquire any
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shares of the Corporation of any class, whether unissued or now or
hereafter authorized, or any obligations or other securities convertible
into or exchangeable for any such shares.
Section 2.5 COMMON PRIORITY PAYMENT. Upon a Sale of Assets, a
Merger or an Initial Public Offering (each a "Liquidity Event") and in
accordance with the provisions of Section B.9 of this Article IV, the
holders of Class A Common Stock then outstanding shall each be entitled to
receive as a class, out of the assets of the Corporation available for
distribution to its stockholders (in the case of a Sale of Assets or
Merger) or out of the net proceeds to the Corporation in the case of an
Initial Public Offering (collectively the "Available Assets"), a payment in
an aggregate amount equal to $10 million (the "Common Priority Payment"),
before any payment shall be made or any assets distributed to holders of
any shares of each other class or series of Capital Stock of the
Corporation currently existing or hereafter created which does not
expressly rank PARI PASSU with or senior to the Class A Common Stock with
respect to the Common Priority Payment. The Common Priority Payment will be
paid pro rata among all holders of Class A Common Stock at the same time
that all other Priority Payments (as hereinafter defined) and the Series F
Liquidation Preference (as hereinafter defined) are paid to the holders of
Preferred Stock entitled to such Priority Payments and the holders of
Series F Preferred Stock entitled to such Series F Liquidation Preference.
If the Available Assets are not sufficient to pay in full the Priority
Payments and the Series F Liquidation Preference, then the holders of all
shares of Class A Common Stock and Preferred Stock entitled to a Priority
Payment and the holders of Series F Preferred Stock shall be entitled to
receive their share of the Available Assets calculated in accordance with
the amount that would be payable if the amounts to which the holders of
outstanding shares of Class A Common Stock and Preferred Stock entitled to
such Priority Payments and the Series F Liquidation Preference were paid in
full.
Section 2.6 RANK. The Class A Common Stock shall have the ranking
as set forth in Section A.3 of this Article IV.
Section 2.7 CONVERSION. Each outstanding share of Class A Common
Stock shall convert into one share of Common Stock automatically upon the
closing of the Initial Public Offering of the Corporation's Common Stock;
provided, however, that no conversion of the Class A Common Stock shall be
deemed to have occurred until the holders of shares of Class A Common Stock
receive any Common Priority Payment to which such holders are entitled
pursuant to Section A.2.5 of this Article IV.
Section 3. RANK. The Common Stock and the Class A Common Stock shall
rank PARI PASSU with each other with respect to any payment or distribution of
assets in the event of a Liquidation or Liquidity Event after the payment of any
Preferred Liquidation Amounts or Priority Payments. The Class A Common Stock
shall rank PARI PASSU with the Series A Preferred Stock, Series C Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock with
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respect to payment of the Priority Payments and the Series F Liquidation
Preference upon the occurrence of a Liquidity Event.
B. PREFERRED STOCK
Section 1. PREFERRED STOCK. The Preferred Stock may be issued from time
to time by the Board of Directors as shares of one or more series. Subject to
the provisions hereof and the limitations prescribed by law, the Board of
Directors is expressly authorized, by adopting resolutions providing for the
issuance of shares of any particular series and, if and to the extent from time
to time required by law, by filing with the Delaware Secretary of State a
statement with respect to the adoption of the resolutions pursuant to the DGCL
(or other law hereafter in effect relating to the same or substantially similar
subject matter), to establish the number of shares to be included in each such
series and to fix the designation and relative powers, preferences and rights
and qualifications and limitations or restrictions thereof relating to the
shares of each such series, prior to such designation, any shares of Preferred
Stock that have not been so designated shall constitute "Undesignated Preferred
Stock." The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the following:
(a) the distinctive serial designation of such series and
the number of shares constituting such series;
(b) the annual dividend rate on shares of such series, if
any, whether dividends shall be cumulative and, if so, from which
date or dates;
(c) whether the shares of such series shall be redeemable
and, if so, the terms and conditions of such redemption,
including the date or dates upon and after which such shares
shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
(d) the obligation, if any, of the Corporation to retire
shares of such series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible
into, or exchangeable for, shares of stock of any other class or
classes and, if so, the terms and conditions of such conversion
or exchange, including the price or prices or the rate or rates
of conversion or exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting
rights, in addition to the voting rights provided by law, and, if
so, the terms of such voting rights;
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(g) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; and
(h) any other relative rights, powers, preferences,
qualifications, limitations or restrictions thereof relating to
such series.
The shares of Preferred Stock of any one series shall be identical with
each other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative.
Section 2. SERIES A PREFERRED STOCK.
Section 2.1 DESIGNATION. A total of 4,188,880 shares of the
Corporation's Preferred Stock shall be designated as a series known as
"Series A Convertible Participating Preferred Stock" (the "Series A
Preferred Stock"). Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED that no decrease shall
reduce the number of shares of Series A Preferred Stock to a number less
than that of the shares of Series A Preferred Stock then outstanding, plus
the number of shares of Series A Preferred Stock issuable upon exercise of
outstanding rights, options or warrants or upon conversion.
Section 2.2 LIQUIDATION PREFERENCE. In the event of a Liquidation,
the holders of shares of Series A Preferred Stock then outstanding, shall
be entitled to be paid for each share of Series A Preferred Stock held
thereby, out of the assets of the Corporation available for distribution to
its stockholders, at the same time that the Preferred Liquidation Amounts
(as hereinafter defined) are paid to the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, but before any payment shall
be made or any assets distributed to the holders of any shares of Junior
Stock (as hereinafter defined), an amount (the "Series A Liquidation
Amount") in cash equal to (i) $7.1618 per share (subject to adjustment as
provided in Section B.11.1 of this Article IV) plus (ii) all declared and
unpaid dividends thereon to the date fixed for the Liquidation. If the
assets of the Corporation are not sufficient to pay in full the Preferred
Liquidation Amounts to the holders of outstanding shares of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock, then the holders of all
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
shall share ratably, and at the same time, in such distribution of assets
in accordance with the amount that would be payable on such distribution if
the amounts to which the holders of outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock are entitled were paid in
full.
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Section 2.3 SERIES A PREFERRED PRIORITY PAYMENT. Upon a Liquidity
Event and in accordance with the provisions of Section B.9 of this Article
IV, the holders of Series A Preferred Stock then outstanding shall each be
entitled to receive as a class, out of the Available Assets, a payment in
an aggregate amount equal to $15 million (the "Series A Preferred Priority
Payment") before any payment shall be made or any assets distributed to
holders of any shares of each other class or series of Capital Stock of the
Corporation hereafter created which does not expressly rank PARI PASSU with
or senior to the Series A Preferred Stock with respect to the Series A
Preferred Priority Payment. The Series A Preferred Priority Payment will be
paid pro rata among all holders of Series A Preferred Stock at the same
time that all other Priority Payments and the Series F Liquidation
Preference, if applicable, are paid to the holders of Preferred Stock and
Class A Common Stock entitled to such Priority Payments and the holders of
Series F Preferred Stock entitled to such Series F Liquidation Preference,
if applicable. If the Available Assets are not sufficient to pay in full
the Priority Payments and the Series F Liquidation Preference, then the
holders of all shares of Class A Common Stock and Preferred Stock entitled
to such Priority Payments and the holders of the Series F Preferred Stock
shall be entitled to receive, at the same time, their share of the
Available Assets calculated in accordance with the amount that would be
payable if the amounts to which the holders of outstanding shares of Class
A Common Stock and Preferred Stock entitled to such Priority Payments and
the holders of Series F Preferred Stock entitled to such Series F
Liquidation Preference were paid in full.
Section 2.4 PARTICIPATION.
(a) In addition to the Series A Preferred Priority Payment to
which such holders are entitled under Section B.2.3 of this Article IV
the holders of Series A Preferred Stock shall also have the right to
receive the following (the "Series A Pro Rata Share" and, together
with the Series A Preferred Priority Payment payable to such holders
in accordance with Section B.2.3 of this Article IV, the "Series A
Participation Amount"):
(i) In the event of a Sale of Assets, each holder of Series
A Preferred Stock shall have the right to convert its shares of
Series A Preferred Stock into the kind and amount of securities,
assets or cash receivable upon such Sale of Assets by a holder of
the number of shares of Common Stock into which such shares of
Series A Preferred Stock could have been converted (subject to
adjustment as provided in Section B.11.1 of this Article IV)
immediately prior to such Sale of Assets;
(ii) In the event of a Merger, each holder of Series A
Preferred Stock shall have the right to convert its shares of
Series A Preferred Stock into, at the option of the Corporation,
either (x) the kind and amount of securities of the surviving
Person or other consideration receivable upon such Merger by a
holder of the number of shares of Common Stock into
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which such shares of Series A Preferred Stock could have been
converted (subject to adjustment as provided in Section B.11.1 of
this Article IV) immediately prior to such Merger or (y) the
amount of cash equal to the value of such securities of the
surviving Person calculated in accordance with Sections B.9(a)(i)
and B.9.(a)(ii) of this Article IV; and
(iii) In the event of the Initial Public Offering, the
shares of Series A Preferred Stock shall be converted into, at
the option of the Corporation, either (x) the number of shares of
Common Stock receivable upon such Initial Public Offering by a
holder of the number of shares of Common Stock into which such
shares of Series A Preferred Stock could have been converted
(subject to adjustment as provided in Section B.11.1 of this
Article IV) immediately prior to such Initial Public Offering
(the "Series A Newly Issued Shares") or (y) the amount of cash
equal to the number of such Series A Newly Issued Shares
multiplied by the IPO Price.
(iv) Notwithstanding the foregoing, no conversion of the
Series A Preferred Stock shall be deemed to have occurred until
the holders of shares of Series A Preferred Stock receive any
Series A Preferred Priority Payment to which such holders are
entitled pursuant to Section B.2.3 of this Article IV.
(b) Written notice of a Sale of Assets, Merger or Initial Public
Offering stating a payment date, the Series A Participation Amount and
the place where such Series A Participation Amount shall be payable,
shall be delivered in person, mailed by certified mail, return receipt
requested, mailed by overnight mail or sent by telecopier, not less
than ten (10) days prior to the payment date stated therein, to the
holders of record of the Series A Preferred Stock such notice to be
addressed to each such holder at its address as shown by the records
of the Corporation.
Section 2.5 CONVERSION.
(a) Any holder of Series A Preferred Stock shall have the right,
at its option, at any time and from time to time, to convert, subject
to the terms and provisions of this Section B.2.5 and Section B.11 of
this Article IV, any or all of such holder's shares of Series A
Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as is equal to the product of the number of
shares of Series A Preferred Stock being so converted multiplied by
the quotient of (i) $2.626 divided by (ii) the conversion price of
$2.626 per share, subject to adjustment as provided in Section B.11.1
of this Article IV (the "Series A Conversion Price"), then in effect.
Such conversion right shall be exercised by the surrender of the
shares of Series A Preferred Stock to be converted to the Corporation
at any time during usual business hours at its
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principal place of business to be maintained by it, accompanied by
written notice that the holder elects to convert such shares of Series
A Preferred Stock and specifying the name or names (with address) in
which a certificate or certificates for shares of Common Stock are to
be issued and (if so required by the Corporation) by a written
instrument or instruments of transfer in form reasonably satisfactory
to the Corporation duly executed by the holder or its duly authorized
legal representative and transfer tax stamps or funds therefor, if
required pursuant to Section B.11.7 of this Article IV. All shares of
Series A Preferred Stock surrendered for conversion shall be delivered
to the Corporation for cancellation and canceled by it and no shares
of Series A Preferred Stock shall be issued in lieu thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any shares of Series A Preferred Stock for conversion
pursuant to Section B.2.5(a) of this Article IV, the Corporation shall
deliver to or upon the written order of the holder of such shares of
Series A Preferred Stock so surrendered a certificate or certificates
representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Series A Preferred Stock may be
or have been converted in accordance with the provisions of this
Section B.2.5 and Section B.11 of this Article IV. Subject to the
following provisions of this Section B.2.5(b) and of Section B.11.1 of
this Article IV, such conversion shall be deemed to have been made
immediately prior to the close of business on the date that such
shares of Series A Preferred Stock shall have been surrendered in
satisfactory form for conversion, and the Person or Persons entitled
to receive the shares of Common Stock deliverable upon conversion of
such shares of Series A Preferred Stock shall be treated for all
purposes as having become the record holder or holders of such shares
of Common Stock at such appropriate time, and such conversion shall be
at the Series A Conversion Price in effect at such time; PROVIDED,
HOWEVER, that no surrender shall be effective to constitute the Person
or Persons entitled to receive the shares of Common Stock deliverable
upon such conversion as the record holder or holders of such shares of
Common Stock while the share transfer books of the Corporation shall
be closed (but not for any period in excess of five days), but such
surrender shall be effective to constitute the Person or Persons
entitled to receive such shares of Common Stock as the record holder
or holders thereof for all purposes immediately prior to the close of
business on the next succeeding day on which such share transfer books
are open, and such conversion shall be deemed to have been made at,
and shall be made at the Series A Conversion Price in effect at, such
time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series A
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series A Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the
shares of Common Stock issued upon such conversion.
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Section 2.6 RANK. The Series A Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 2.7 DIVIDENDS. The Series A Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 2.8 VOTING.
(a) The Series A Preferred Stock shall have the voting rights as
set forth below in Section B.2.8(b) of this Article IV and Section
B.10 of this Article IV.
(b) If General Atlantic Partners 40, L.P., a Delaware limited
partnership ("GAP 40"), GAP Coinvestment Partners, L.P., a New York
limited partnership ("GAP Coinvestment"), and/or any Affiliate thereof
own in the aggregate (i) at least a majority of the outstanding shares
of Series A Preferred Stock and (ii) shares of Common Stock and/or
Series A Preferred Stock or other securities of the Corporation
convertible into or exchangeable for shares of voting Capital Stock of
the Corporation that represent (after giving effect to any
adjustments) at least 3% of the total number of shares of Common Stock
outstanding on an as converted basis, then the holders of the Series A
Preferred Stock, voting as a separate series, shall be entitled to
elect one director of the Corporation; PROVIDED, HOWEVER, that the
foregoing right to elect a director shall not apply if holders of the
Series A Preferred Stock elect a director solely by virtue of their
right under Section 6.3(b) of the Second Amended and Restated
Shareholders Agreement. The Series A Preferred Stock shall vote
together with all other classes and series of stock of the Corporation
as a single class with respect to the election of all of the other
directors of the Corporation; PROVIDED, HOWEVER, that if the
conditions set forth in the first sentence of this Section 2.8(b)
necessary for the holders of the Series A Preferred Stock to vote as a
separate series for the election of one director are not satisfied,
the Series A Preferred Stock shall vote together with all other
classes and series of stock of the Corporation as a single class with
respect to the election of all of the directors of the Corporation. At
any meeting (or in a written consent in lieu thereof) held for the
purpose of electing directors at a time when the Series A Preferred
Stock is entitled to vote for the election of a director, the presence
in person or by proxy (or the written consent) of the holders of a
majority of the shares of Series A Preferred Stock then outstanding
shall constitute a quorum of the Series A Preferred Stock for the
election of the director to be elected solely by the holders of the
Series A Preferred Stock. A vacancy in the directorship elected by the
holders of the Series A Preferred Stock pursuant to this Section
2.8(b) shall be filled only by vote or written consent of the holders
of the Series A Preferred Stock.
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Section 3. SERIES B PREFERRED STOCK
Section 3.1 DESIGNATION AND NUMBER OF SHARES. A total of 190,438
shares of the Corporation's Preferred Stock shall be designated as a series
known as "Series B Convertible Preferred Stock" (the "Series B Preferred
Sock"). Such number of shares may be increased or decreased by resolution
of the Board of Directors; PROVIDED that no decrease shall reduce the
number of shares of Series B Preferred Stock to a number less than that of
the shares of Series B Preferred Stock then outstanding, plus the number of
shares of Series B Preferred Stock issuable upon exercise of outstanding
rights, options or warrants or upon conversion.
Section 3.2 LIQUIDATION PREFERENCE. In the event of a Liquidation,
the holders of shares of Series B Preferred Stock then outstanding shall be
entitled to be paid for each share of Series B Preferred Stock held
thereby, out of the assets of the Corporation available for distribution to
its stockholders, at the same time that the Preferred Liquidation Amounts
are paid to the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock, but before any payment shall be made or any assets
distributed to the holders of any shares of Junior Stock, an amount in cash
(the "Series B Liquidation Amount") equal to the amount determined by (i)
multiplying (A) the aggregate number of shares of Series B Preferred Stock
and Common Stock issued by the Corporation and sold by stockholders of the
Corporation upon exercise of those certain Warrants, dated as of May 20,
1997, issued by the Corporation and sold by stockholders of the Corporation
to GAP 40 and GAP Coinvestment by (B) $19.69 (the "Series B Exercise
Price") per share (the "Series B Liquidation Preference") (subject to
adjustment as provided in Section B.11.1 of this Article IV) plus (ii) all
declared and unpaid dividends thereon to the date fixed for the
Liquidation. If the assets of the Corporation are not sufficient to pay in
full the Preferred Liquidation Amounts to the holders of outstanding shares
of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock,
then the holders of all shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock shall share ratably, and at the same time, in such
distribution of assets in accordance with the amount that would be payable
on such distribution if the amounts to which the holders of outstanding
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock are
entitled were paid in full.
Section 3.3 CONVERSION.
(a) Any holder of Series B Preferred Stock shall have the right,
at its option, at any time and from time to time, to convert, subject
to the terms and provisions of this Section B.3.3 and Section B.11 of
this Article IV, any or all of such holder's shares of Series B
Preferred Stock into such number of fully paid
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<PAGE> 12
and non-assessable shares of Common Stock as is equal to the product
of the number of shares of Series B Preferred Stock being so converted
multiplied by the quotient of (i) the Series B Exercise Price divided
by (ii) the conversion price of $3.938 per share, subject to
adjustment as provided in Section B.11.1 of this Article IV (the
"Series B Conversion Price"), then in effect. Such conversion right
shall be exercised by the surrender of the shares of Series B
Preferred Stock to be converted to the Corporation at any time during
usual business hours at its principal place of business to be
maintained by it, accompanied by written notice that the holder elects
to convert such shares of Series B Preferred Stock and specifying the
name or names (with address) in which a certificate or certificates
for shares of Common Stock are to be issued and (if so required by the
Corporation) by a written instrument or instruments of transfer in
form reasonably satisfactory to the Corporation duly executed by the
holder or its duly authorized legal representative and transfer tax
stamps or funds therefor, if required pursuant to Section B.11.7 of
this Article IV). All shares of Series B Preferred Stock surrendered
for conversion shall be delivered to the Corporation for cancellation
and canceled by it and no shares of Series B Preferred Stock shall be
issued in lieu thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any shares of Series B Preferred Stock for conversion
pursuant to Section B.3.3(a) of this Article IV, the Corporation shall
deliver to or upon the written order of the holder of such shares of
Series B Preferred Stock so surrendered a certificate or certificates
representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Series B Preferred Stock may be
or have been converted in accordance with the provisions of this
Section B.3.3. Subject to the following provisions of this Section
B.3.3(b) and of Section B.11.1 of this Article IV, such conversion
shall be deemed to have been made immediately prior to the close of
business on the date that such shares of Series B Preferred Stock
shall have been surrendered in satisfactory form for conversion, and
the Person or Persons entitled to receive the shares of Common Stock
deliverable upon conversion of such shares of Series B Preferred Stock
shall be treated for all purposes as having become the record holder
or holders of such shares of Common Stock at such appropriate time,
and such conversion shall be at the Series B Conversion Price in
effect at such time; PROVIDED, HOWEVER, that no surrender shall be
effective to constitute the Person or Persons entitled to receive the
shares of Common Stock deliverable upon such conversion as the record
holder or holders of such shares of Common Stock while the share
transfer books of the Corporation shall be closed (but not for any
period in excess of five days), but such surrender shall be effective
to constitute the Person or Persons entitled to receive such shares of
Common Stock as the record holder or holders thereof for all purposes
immediately prior to the close of business on the next succeeding day
on which such share transfer books are open, and such conversion shall
be
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deemed to have been made at, and shall be made at the Series B
Conversion Price in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series B
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series B Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the
shares of Common Stock issued upon such conversion.
Section 3.4 RANK. The Series B Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 3.5 DIVIDENDS. The Series B Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 3.6 VOTING. The Series B Preferred Stock shall have the
voting rights as set forth in Section B.10 of this Article IV.
Section 4. SERIES C PREFERRED STOCK
Section 4.1 DESIGNATION AND NUMBER OF SHARES. A total of 570,342
shares of the Corporation's Preferred Stock shall be designated as a series
known as "Series C Convertible Participating Preferred Stock" (the "Series
C Preferred Stock"). Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED that no decrease shall
reduce the number of shares of Series C Preferred Stock to a number less
than that of the shares of Series C Preferred Stock then outstanding plus
the number of shares of Series C Preferred Stock issuable upon exercise of
outstanding rights, options or warrants or upon conversion.
Section 4.2 LIQUIDATION PREFERENCE. In the event of a Liquidation,
the holders of shares of Series C Preferred Stock then outstanding shall be
entitled to be paid for each share of Series C Preferred Stock held
thereby, out of the assets of the Corporation available for distribution to
its stockholders, at the same time that the Preferred Liquidation Amounts
are paid to the holders of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock, but before any payment shall be made or any assets
distributed to the holders of any shares of Junior Stock, an amount (the
"Series C Liquidation Amount") in cash equal to (i) $2.63 per share (the
"Series C Liquidation Preference") (subject to adjustment as provided in
Section B.11.1 of this Article IV) plus (ii) all declared and unpaid
dividends thereon to the date fixed for the Liquidation. If the assets of
the Corporation are not sufficient to pay in full the Preferred Liquidation
Amounts to the holders of outstanding shares of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock, then the holders of all
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
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<PAGE> 14
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
shall share ratably in such distribution of assets in accordance with the
amount that would be payable on such distribution if the amounts to which
the holders of outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock are entitled were paid in full.
Section 4.3 SERIES C PREFERRED PRIORITY PAYMENT. Upon a Liquidity
Event, and in accordance with the provisions of Section B.9 of this Article
IV, the holders of Series C Preferred Stock then outstanding shall be
entitled to be paid for each share of Series C Preferred Stock held
thereby, out of the Available Assets, a payment in amount equal to the
product obtained by multiplying (i) .50 by (ii) the Series C Liquidation
Preference per share then in effect (the "Series C Preferred Priority
Payment"), before any payment shall be made or any assets distributed to
holders of any shares of each other class or series of Capital Stock of the
Corporation hereafter created which does not expressly rank PARI PASSU with
or senior to the Series C Preferred Stock with respect to the Series C
Preferred Priority Payment. The Series C Preferred Priority Payment shall
be paid to the holders of Series C Preferred Stock at the same time that
all other Priority Payments and the Series F Liquidation Preference, if
applicable, are paid to the holders of Preferred Stock and Class A Common
Stock entitled to such Priority Payments and holders of Series F Preferred
Stock entitled to such Series F Liquidation Preference, if applicable. If
the Available Assets are not sufficient to pay in full the Priority
Payments and the Series F Liquidation Preference, then the holders of all
shares of Preferred Stock and Class A Common Stock entitled to such
Priority Payments and the holders of the Series F Preferred Stock shall be
entitled to receive, at the same time, their share of the Available Assets
calculated in accordance with the amount that would be payable if the
amounts to which the holders of outstanding shares of Preferred Stock and
Class A Common Stock entitled to such Priority Payments and the holders of
Series F Preferred Stock entitled to such Series F Liquidation Preference
were paid in full.
Section 4.4 PARTICIPATION.
(a) In addition to the Series C Preferred Priority Payment to
which such holders are entitled under Section B.4.3 of this Article
IV, the holders of Series C Preferred Stock shall also have the right
to receive the following (the "Series C Pro Rata Share" and, together
with the Series C Preferred Priority Payment payable to such holders
in accordance with Section B.4.3 of this Article IV, the "Series C
Participation Amount"):
(i) In the event of a Sale of Assets, each holder of Series
C Preferred Stock shall have the right to convert its shares of
Series C Preferred Stock into the kind and amount of securities,
assets or cash receivable upon such Sale of Assets by a holder of
the number of shares of Common Stock into which such shares of
Series C Preferred Stock could
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<PAGE> 15
have been converted (subject to adjustment as provided in Section
B.11.1 of this Article IV) immediately prior to such Sale of
Assets;
(ii) In the event of a Merger, each holder of Series C
Preferred Stock shall have the right to convert its shares of
Series C Preferred Stock into, at the option of the Corporation,
either (x) the kind and amount of securities of the surviving
Person or other consideration receivable upon such Merger by a
holder of the number of shares of Common Stock into which such
shares of Series C Preferred Stock could have been converted
(subject to adjustment as provided in Section B.11.1 of this
Article IV) immediately prior to such Merger or (y) the amount of
cash equal to the value of such securities of the surviving
Person calculated in accordance with Sections B.9(a)(i) and
B.9(a)(ii) of this Article IV; and
(iii) In the event of the Initial Public Offering, the
shares of Series C Preferred Stock shall be converted into, at
the option of the Corporation, either (x) the number of shares of
Common Stock receivable upon such Initial Public Offering by a
holder of the number of shares of Common Stock into which such
shares of Series C Preferred Stock could have been converted
(subject to adjustment as provided in Section B.11.1 of this
Article IV) immediately prior to such Initial Public Offering
(the "Series C Newly Issued Shares") or (y) the amount of cash
equal to the number of such Series C Newly Issued Shares
multiplied by the IPO Price.
(iv) Notwithstanding the foregoing, no conversion of the
Series C Preferred Stock shall be deemed to have occurred until
the holders of shares of Series C Preferred Stock receive any
Series C Preferred Priority Payment to which such holders are
entitled pursuant to Section B.4.3 of this Article IV.
(b) Written notice of a Sale of Assets, Merger or Initial Public
Offering stating a payment date, the Series C Participation Amount and
the place where such Series C Participation Amount shall be payable,
shall be delivered in person, mailed by certified mail, return receipt
requested, mailed by overnight mail or sent by telecopier, not less
than ten (10) days prior to the payment date stated therein, to the
holders of record of the Series C Preferred Stock, such notice to be
addressed to each such holder at its address as shown by the records
of the Corporation.
Section 4.5 CONVERSION.
(a) Any holder of Series C Preferred Stock shall have the right,
at its option, at any time and from time to time, to convert, subject
to the terms and provisions of this Section B.4.5 and Section B.11 of
this Article IV, any or all of
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<PAGE> 16
such holder's shares of Series C Preferred Stock into such number of
fully paid and non-assessable shares of Common Stock as is equal to
the product of the number of shares of Series C Preferred Stock being
so converted multiplied by the quotient of (i) $2.63 divided by (ii)
the conversion price of $2.63 per share, subject to adjustment as
provided in Section B.11.1 of this Article IV (the "Series C
Conversion Price"), then in effect. Such conversion right shall be
exercised by the surrender of the shares of Series C Preferred Stock
to be converted to the Corporation at any time during usual business
hours at its principal place of business to be maintained by it,
accompanied by written notice that the holder elects to convert such
shares of Series C Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates for shares of
Common Stock are to be issued and (if so required by the Corporation)
by a written instrument or instruments of transfer in form reasonably
satisfactory to the Corporation duly executed by the holder or its
duly authorized legal representative and transfer tax stamps or funds
therefor, if required pursuant to Section B.11.7 of this Article IV.
All shares of Series C Preferred Stock surrendered for conversion
shall be delivered to the Corporation for cancellation and canceled by
it and no shares of Series C Preferred Stock shall be issued in lieu
thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any shares of Series C Preferred Stock for conversion
pursuant to Section B.4.5(a) of this Article IV, the Corporation shall
deliver to or upon the written order of the holder of such shares of
Series C Preferred Stock so surrendered a certificate or certificates
representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Series C Preferred Stock may be
or have been converted in accordance with the provisions of this
Section B.4.5. Subject to the following provisions of this Section
B.4.5(b) and of Section B.11 of this Article IV, such conversion shall
be deemed to have been made immediately prior to the close of business
on the date that such shares of Series C Preferred Stock shall have
been surrendered in satisfactory form for conversion, and the Person
or Persons entitled to receive the shares of Common Stock deliverable
upon conversion of such shares of Series C Preferred Stock shall be
treated for all purposes as having become the record holder or holders
of such shares of Common Stock at such appropriate time, and such
conversion shall be at the Series C Conversion Price in effect at such
time; PROVIDED, HOWEVER, that no surrender shall be effective to
constitute the Person or Persons entitled to receive the shares of
Common Stock deliverable upon such conversion as the record holder or
holders of such shares of Common Stock while the share transfer books
of the Corporation shall be closed (but not for any period in excess
of five days), but such surrender shall be effective to constitute the
Person or Persons entitled to receive such shares of Common Stock as
the record holder or holders thereof for all purposes immediately
prior to the close of business on the next succeeding day on which
such share transfer books are open, and such conversion shall be
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<PAGE> 17
deemed to have been made at, and shall be made at the Series C
Conversion Price in effect at such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series C
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series C Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the
shares of Common Stock issued upon such conversion.
Section 4.6 RANK. The Series C Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 4.7 DIVIDENDS. The Series C Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 4.8 VOTING. The Series C Preferred Stock shall have the
voting rights as set forth in Section B.10 of this Article IV.
Section 5. SERIES F PREFERRED STOCK
Section 5.1 DESIGNATION AND NUMBER OF SHARES. A total of 7,407,409
shares of the Corporation's Preferred Stock shall be designated as a series
known as "Series F Convertible Preferred Stock" (the "Series F Preferred
Stock"). The number of shares designated as Series F Preferred Stock may be
increased by resolution of the Board of Directors only with the approval of
the holders of a majority of the Common Stock issuable upon conversion of
the then outstanding shares of Series F Preferred Stock, and such number
may be decreased by resolution of the Board of Directors, PROVIDED that no
such decrease shall reduce the number of shares of Series F Preferred Stock
to a number less than that of the shares of Series F Preferred Stock then
outstanding plus the number of shares of Series F Preferred Stock issuable
upon exercise of outstanding rights, options or warrants.
Section 5.2 SERIES F LIQUIDATION PREFERENCE.
(a) In the event of a Liquidation, Sale of Assets or Merger, the
holders of the shares of Series F Preferred Stock then outstanding
shall be entitled to be paid for each share of Series F Preferred
Stock held thereby, either (i) out of the assets of the Corporation
available for distribution to its stockholders, in the case of a
Liquidation, or (ii) out of any consideration received by the
stockholders and any consideration or assets available for
distribution by the Corporation, in the case of a Sale of Assets or
Merger (clauses (i) and (ii), the "Series F Liquidation Available
Assets"), an amount (the "Series F Liquidation Preference") equal to
the greater of:
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(i) the sum of $2.97 for each outstanding share of Series F
Preferred Stock, plus declared but unpaid dividends on such share
(subject to adjustment for any stock splits, stock dividends,
combinations, recapitalizations or the like); or
(ii) the quotient obtained by dividing (A) the product
obtained by multiplying the Series F Liquidation Available Assets
by a fraction (the "Series F Share"), the numerator of which
equals the aggregate number of shares of Common Stock into which
the Series F Preferred Stock then outstanding could have been
converted immediately prior to such Liquidation, Sale of Assets
or Merger, and the denominator of which equals the sum of the
number of shares of Common Stock outstanding on a fully-diluted
basis (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any
outstanding options, warrants, rights or convertible securities)
immediately prior to such Liquidation, Sale of Assets or Merger,
by (B) the aggregate number of shares of Series F Preferred Stock
then outstanding.
(b) LIQUIDATION. If upon a Liquidation, the Series F Liquidation
Available Assets shall be insufficient to permit payment in full to
the holders of Series F Preferred Stock of the Series F Liquidation
Preference, then the Series F Liquidation Available Assets shall be
distributed or paid ratably among the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock (and, to the
extent applicable, among holders of shares of Capital Stock of the
Corporation entitled to payments ranking PARI PASSU with the Series F
Liquidation Preference), calculated in accordance with the amount that
would be payable to such holders if the Preferred Liquidation Amounts
had been paid in full. Upon any such Liquidation, after the holders of
Series F Preferred Stock shall have been paid in full the amounts to
which they shall be entitled hereunder, the holders of Series F
Preferred Stock shall not be entitled to be paid any additional
amounts from the assets of the Corporation (other than as set forth
herein) and the remaining net assets of the Corporation may be
distributed to the holders of Capital Stock of the Corporation in
accordance with this Certificate of Incorporation, as amended or
supplemented from time to time. In the case of a Liquidation, the
Series F Liquidation Preference shall be paid in cash.
(c) SALE OF ASSETS; MERGER. If upon a Sale of Assets or Merger,
the Series F Liquidation Available Assets shall be insufficient to
permit payment in full to the holders of Series F Preferred Stock of
the Series F Liquidation Preference, then the Series F Liquidation
Available Assets shall be distributed or paid ratably among the
holders of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock and Class A Common Stock (and, to the extent applicable, among
holders of shares of Capital Stock of the Corporation entitled to
payments ranking PARI
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PASSU with the Series F Liquidation Preference), calculated in
accordance with the amount that would be payable to such holders if
the Series F Liquidation Preference and the Priority Payments had been
paid in full. Upon any such Sale of Assets or Merger, after the
holders of Series F Preferred Stock shall have been paid in full the
amounts to which they shall be entitled hereunder, the remaining
Series F Liquidation Available Assets may be distributed to the
holders of Capital Stock of the Corporation in accordance with this
Certificate of Incorporation, as amended or supplemented from time to
time.
In the case of a Sale of Assets or Merger, the Series F Liquidation
Preference shall be paid in the form of the consideration received by the
holders of Common Stock of the Corporation in connection with such Sale of
Assets or Merger; PROVIDED, that any securities of any surviving Person to
be delivered to the holders of the Series F Preferred Stock pursuant to
this Section B.5.2 shall be valued in the same manner as the securities to
be delivered to the holders of Common Stock in such transaction.
Section 5.3 CONVERSION.
(a) Each outstanding share of Series F Preferred Stock shall
convert into shares of Common Stock of the Corporation (i)
automatically upon the closing of the Initial Public Offering of the
Corporation's Common Stock, the public offering price of which is not
less than $4.50 per share (as adjusted for any stock splits, stock
dividends, recapitalizations or the like), provided that such $4.50
per share price may be reduced by the written consent or agreement of
not less than ninety percent (90%) of the shares of Series F Preferred
Stock then outstanding, and (ii) at any time and from time to time, at
the option of the holder thereof, in either case, subject to the terms
and provisions of this Section B.5.3. Upon any such automatic or
optional conversion, any or all of such holder's shares of Series F
Preferred Stock shall be converted into such number of fully paid and
non-assessable shares of Common Stock as is equal to the product of
the number of shares of Series F Preferred Stock being so converted
multiplied by the quotient of (i) $2.97 divided by (ii) the conversion
price of $2.97 per share, subject to adjustment as provided in Section
B.5.4 and Section B.11.1 of this Article IV (the "Series F Conversion
Price"), then in effect. Such conversion right shall be exercised by
the surrender of the shares of Series F Preferred Stock to be
converted to the Corporation at any time during usual business hours
at its principal place of business to be maintained by it, accompanied
by written notice that the holder elects to convert such shares of
Series F Preferred Stock and specifying the name or names (with
address) in which a certificate or certificates for shares of Common
Stock are to be issued and (if so required by the Corporation) by a
written instrument or instruments of transfer in form reasonably
satisfactory to the Corporation duly executed by the holder or its
duly authorized legal representative and transfer tax stamps or funds
therefor, if required pursuant to Section B.11.7 of this Article IV.
All shares of Series F Preferred Stock
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surrendered for conversion shall be delivered to the Corporation for
cancellation and canceled by it and no shares of Series F Preferred
Stock shall be issued in lieu thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any shares of Series F Preferred Stock for conversion
pursuant to Section B.5.3(a), the Corporation shall deliver to or upon
the written order of the holder of such shares of Series F Preferred
Stock so surrendered a certificate or certificates representing the
number of fully paid and non-assessable shares of Common Stock into
which such shares of Series F Preferred Stock may be or have been
converted in accordance with the provisions of this Section B.5.3.
Subject to the following provisions of this Section B.5.3(b), Section
B.5.4 and of Section B.11.1 of this Article IV, such conversion shall
be deemed to have been made immediately prior to the close of business
on the date that such shares of Series F Preferred Stock shall have
been surrendered in satisfactory form for conversion, and the Person
or Persons entitled to receive the shares of Common Stock deliverable
upon conversion of such shares of Series F Preferred Stock shall be
treated for all purposes as having become the record holder or holders
of such shares of Common Stock at such appropriate time, and such
conversion shall be at the Series F Conversion Price in effect at such
time; PROVIDED, HOWEVER, that in the event of automatic conversion of
outstanding shares of Series F Preferred Stock pursuant to Section
B.5.3(a)(i), such conversion shall be deemed to have been made upon
the closing of the Corporation's Initial Public Offering; and provided
further, however, that no surrender shall be effective to constitute
the Person or Persons entitled to receive the shares of Common Stock
deliverable upon such conversion as the record holder or holders of
such shares of Common Stock while the share transfer books of the
Corporation shall be closed (but not for any period in excess of five
(5) days), but such surrender shall be effective to constitute the
Person or Persons entitled to receive such shares of Common Stock as
the record holder or holders thereof for all purposes immediately
prior to the close of business on the next succeeding day on which
such share transfer books are open, and such conversion shall be
deemed to have been made at, and shall be made at the Series F
Conversion Price in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Series F
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series F Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the
shares of Common Stock issued upon such conversion.
Section 5.4 SPECIAL ADJUSTMENT TO THE SERIES F CONVERSION PRICE.
(a) In the event of the conversion of the Series F Preferred
Stock pursuant to Section B.5.3(a)(i) of this Article IV, the Series F
Conversion Price in
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effect immediately prior to such conversion shall be adjusted (and any
other appropriate actions shall be taken by the Corporation) so that
the number of shares of Common Stock that all holders of Series F
Preferred Stock shall be entitled to receive upon conversion of all
shares of Series F Preferred Stock then outstanding shall be equal to
the sum of (A) the number of shares of Common Stock that such holders
would have been entitled to receive had all such shares of Series F
Preferred Stock been converted immediately prior to the adjustment
under this Section B.5.4(a) plus (B) the number of shares of Common
Stock equal to the quotient of:
(i) the quotient of (x) the product of the Series F Share
(calculated immediately prior to the adjustment under this
Section 5.4(a) and the payment of any Priority Payments)
multiplied by the aggregate value of the Priority Payments to be
made in connection with the Initial Public Offering (with any
Priority Payments made in Common Stock valued at the IPO Price)
divided by (y) the difference of one minus such Series F Share;
DIVIDED BY
(ii) the IPO Price.
Section 5.5 RANK. The Series F Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 5.6 DIVIDENDS. The Series F Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 5.7 VOTING. The Series F Preferred Stock shall have the
voting rights as set forth in Section B.10 of this Article IV.
Section 6. SERIES G PREFERRED STOCK
Section 6.1 DESIGNATION AND NUMBER OF SHARES. A total of
7,604,563 shares of the Corporation's Preferred Stock shall be designated
as a series known as "Series G Convertible Participating Preferred Stock"
(the "Series G Preferred Stock"). Such number of shares may be increased or
decreased by resolution of the Board of Directors; provided that no
decrease shall reduce the number of shares of Series G Preferred Stock to a
number less than that of the shares of Series G Preferred Stock then
outstanding, plus the number of shares of Series G Preferred Stock issuable
upon exercise of outstanding rights, options or warrants or upon
conversion.
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Section 6.2 AVAILABLE CASH PAYMENT. If, at any time prior to a
Liquidation or the occurrence of a Liquidity Event, the Corporation's
unaudited balance sheet with respect to any fiscal quarter or audited
balance sheet with respect to any fiscal year reflects that the Corporation
has Available Cash (as hereinafter defined) in excess of $10,000,000, then
the Corporation may pay to each holder of the Series G Preferred Stock its
pro rata portion of such excess (each such payment, an "Available Cash
Payment"); PROVIDED, that the Corporation shall not be obligated to make
any Available Cash Payments except to the extent that a majority of the
Corporation's disinterested directors, in their sole discretion, so elect;
PROVIDED, FURTHER, that the Corporation shall not make, nor shall the
holders of Series G Preferred Stock be entitled to receive, any Available
Cash Payments unless a majority in interest of the holders of the then
outstanding shares of Series F Preferred Stock shall have consented in
writing to the payment of such Available Cash Payment; PROVIDED, FURTHER,
that Available Cash Payments made hereunder shall not in the aggregate
exceed $20,000,000; and PROVIDED, FURTHER, that the Series G Aggregate
Preferred Priority Payment (as hereinafter defined) payable pursuant to
Section B.6.3 of this Article IV, if any, shall be reduced by the aggregate
of all Available Cash Payments made hereunder, if any. For purposes hereof,
the term disinterested directors includes the current Chief Executive
Officer of the Corporation and means directors who are not employees of GAP
40, GAP Coinvestment or any Affiliates of either entity.
Section 6.3 LIQUIDATION PREFERENCE; PREFERRED PAYMENTS.
(a) Upon the occurrence of (i) a Liquidation or (ii) a Liquidity
Event in which the IPO Price (in the case of an Initial Public
Offering) or the Per Share Value (in the case of a Liquidation, Sale
of Assets or Merger) is not greater than $13.15 per share (subject to
adjustment for stock splits, stock dividends, recapitalizations or
other similar events affecting the Common Stock), the holders of the
shares of Series G Preferred Stock shall be entitled to be paid an
amount equal to $2.63 per share (subject to adjustment for stock
splits, stock dividends, recapitalizations or other similar events
affecting the Series G Preferred Stock) plus all accrued and unpaid
dividends on the Series G Preferred Stock (the "Series G Preferred
Priority Payment," and the total of all such payments to holders of
Series G Preferred Stock, the "Series G Aggregate Preferred Priority
Payment"), before any distribution of assets or payment is made upon
any stock ranking on Liquidation or a Liquidity Event junior to the
Series G Preferred Stock; PROVIDED, HOWEVER, that if the IPO Price or
the Per Share Value, as the case may be, is greater than $10.52 per
share but is not greater than $13.15 per share (subject in each case
to adjustment for stock splits, stock dividends, recapitalizations or
other similar events affecting the Common Stock), then the Series G
Preferred Priority Payment payable with respect to each share of
Series G Preferred Stock shall be adjusted by subtracting therefrom
the amount by which such IPO Price or Per Share Value, as the case may
be, is greater than $10.52 per share (or such other
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<PAGE> 23
amount as may be applicable following adjustment for stock splits,
stock dividends, recapitalizations or other similar events affecting
the Common Stock); and PROVIDED, FURTHER, that if, prior to a
Liquidation or a Liquidity Event, the Corporation shall have made any
Available Cash Payments pursuant to Section B.6.2 hereof, the Series G
Aggregate Preferred Priority Payment payable hereunder, if any, shall
be reduced by the total of such Available Cash Payments so made. If
upon such Liquidation or Liquidity Event, the assets to be distributed
(in the case of a Liquidation) or the proceeds to be received by the
Corporation (in the case of a Liquidity Event other than a
Liquidation) shall be insufficient to pay in full the Series F
Liquidation Preference to the holders of the outstanding shares of the
Series F Preferred Stock and the Priority Payments to the holders of
the outstanding shares of the Class A Common Stock, Series A Preferred
Stock, Series C Preferred Stock and Series G Preferred Stock,
respectively, then the holders of all shares of Class A Common Stock,
Series A Preferred Stock, Series C Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock shall be entitled to receive their
share of such assets calculated in accordance with the amount that
would be payable if the amounts to which the holders of outstanding
shares of Class A Common Stock, Series A Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
were paid in full.
(b) The Series G Preferred Priority Payment shall be payable (A)
in the case of a Liquidation, in cash on the date of the Liquidation,
(B) in the case of an Initial Public Offering, in cash or, at the
option of the Corporation, in shares of Common Stock based on the IPO
Price, which cash or shares of Common Stock will be delivered or
issued on the closing date of the Initial Public Offering, or (C) in
the case of a Merger or Sale of Assets, at the option of the holder of
the Series G Preferred Stock, in cash or in securities of the
surviving Person or other consideration received by the holders of
Common Stock, PROVIDED that if any holder of Series G Preferred Stock
elects to receive its Series G Preferred Priority Payment other than
in cash, it shall provide the Corporation with no less than five (5)
days notice of such election, and shall specify in such notice the
consideration it elects to receive, and PROVIDED, FURTHER, that any
securities of the surviving Person otherwise to be delivered to the
holders of the Series G Preferred Stock pursuant to this Section
B.6.3(b) in the case of a Sale of Assets or a Merger shall be valued
in the same manner as the securities to be delivered to the holders of
Common Stock in such transaction.
Section 6.4 PARTICIPATION.
(a) In addition to the Series G Preferred Priority Payment to
which such holders are entitled under Section B.6.3(a) of this Article
IV, if any, the holders of Series G Preferred Stock shall in all cases
have the right to receive the following (the "Series G Pro Rata Share"
and, together with the Series G
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<PAGE> 24
Aggregate Preferred Priority Payment payable to such holders in
accordance with Section B.6.3(a) of this Article IV, the "Series G
Participation Amount"):
(i) In the event of a Liquidation, the shares of Series G
Preferred Stock shall be converted into the amount of cash
receivable upon such Liquidation by a holder of the number of
shares of Common Stock into which the Series G Preferred Stock
could have been converted (subject to adjustment as provided in
Section B.11.1 of this Article IV) immediately prior to such
Liquidation;
(ii) In the event of a Sale of Assets, the shares of Series
G Preferred Stock shall be converted into the kind and amount of
securities, assets or cash, as the case may be, receivable upon
such Sale of Assets by a holder of the number of shares of Common
Stock into which such shares of Series G Preferred Stock could
have been converted (subject to adjustment as provided in Section
B.11.1 of this Article IV) immediately prior to such Sale of
Assets;
(iii) In the event of a Merger, the shares of Series G
Preferred Stock shall be converted into the kind and amount of
securities of the surviving Person or other consideration
receivable upon such Merger by a holder of the number of shares
of Common Stock into which such shares of Series G Preferred
Stock could have been converted (subject to adjustment as
provided in Section B.11.1 of this Article IV) immediately prior
to such Merger;
(iv) In the event of an Initial Public Offering, the shares
of Series G Preferred Stock shall be converted into the number of
shares of Common Stock receivable upon such Initial Public
Offering by a holder of the number of shares of Common Stock into
which such shares of Series G Preferred Stock could have been
converted (subject to adjustment as provided in Section B.11.1 of
this Article IV) immediately prior to such Initial Public
Offering; and
(v) Notwithstanding the foregoing, no conversion of the
Series G Preferred Stock shall be deemed to have occurred until
the holders of shares of Series G Preferred Stock receive any
Series G Preferred Priority Payment to which such holders are
entitled pursuant to Section B.6.3(a) of this Article IV.
(b) Written notice of a Liquidation or Liquidity Event, as the
case may be, stating a payment date, the amount of the Series G
Participation Amount and the place where such Series G Participation
Amount shall be payable, shall be delivered in person, mailed by
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<PAGE> 25
certified mail, return receipt requested, mailed by overnight mail or
sent by telecopier, not less than ten (10) days prior to the payment
date stated therein, to the holders of record of the Series G
Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation.
Section 6.5 CONVERSION.
(a) Any holder of Series G Preferred Stock shall have the right,
at its option, at any time and from time to time, to convert, subject
to the terms and provisions of this Section 6.5 and Section B.11.1 of
this Article IV, any or all of such holder's shares of Series G
Preferred Stock into such number of fully paid and non-assessable
shares of Common Stock as is equal to the product of the number of
shares of Series G Preferred Stock being so converted multiplied by
the quotient of (i) $2.63 divided by (ii) the conversion price of
$2.63 per share, subject to adjustment as provided in Section B.11.1
of this Article IV (the "Series G Conversion Price"), then in effect.
Such conversion right shall be exercised by the surrender of the
shares of Series G Preferred Stock to be converted to the Corporation
at any time during usual business hours at its principal place of
business to be maintained by it, accompanied by written notice that
the holder elects to convert such shares of Series G Preferred Stock
and specifying the name or names (with address) in which a certificate
or certificates for shares of Common Stock are to be issued and (if so
required by the Corporation) by a written instrument or instruments of
transfer in form reasonably satisfactory to the Corporation duly
executed by the holder or its duly authorized legal representative and
transfer tax stamps or funds therefor, if required pursuant to Section
B.11.7 of this Article IV. All shares of Series G Preferred Stock
surrendered for conversion shall be delivered to the Corporation for
cancellation and canceled by it and no shares of Series G Preferred
Stock shall be issued in lieu thereof. Holders of shares of Common
Stock delivered upon an optional conversion of shares of Series G
Preferred Stock pursuant to this Section 6.5(a), unless such
conversion occurred in connection with a Liquidation or Liquidity
Event, shall not be entitled to receive any Preferred Payment or
Participation Amount pursuant to Section 9 of this Article IV.
(b) As promptly as practicable after the surrender, as herein
provided, of any shares of Series G Preferred Stock for conversion
pursuant to Section B.6.5(a) of this Article IV, the Corporation shall
deliver to or upon the written order of the holder of such shares of
Series G Preferred Stock so surrendered a certificate or certificates
representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Series G Preferred Stock may be
or have been converted in accordance with the provisions of this
Section B.6.5 and Section B.11 of this Article IV. Subject to the
following provisions of this Section B.6.5(b) and of Section B.11 of
this Article IV, such conversion shall be deemed to have been made
immediately prior to the close of
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business on the date that such shares of Series G Preferred Stock
shall have been surrendered in satisfactory form for conversion, and
the Person or Persons entitled to receive the shares of Common Stock
deliverable upon conversion of such shares of Series G Preferred Stock
shall be treated for all purposes as having become the record holder
or holders of such shares of Common Stock at such appropriate time,
and such conversion shall be at the Series G Conversion Price in
effect at such time; PROVIDED, HOWEVER, that no surrender shall be
effective to constitute the Person or Persons entitled to receive the
shares of Common Stock deliverable upon such conversion as the record
holder or holders of such shares of Common Stock while the share
transfer books of the Corporation shall be closed (but not for any
period in excess of five (5) days), but such surrender shall be
effective to constitute the Person or Persons entitled to receive such
shares of Common Stock as the record holder or holders thereof for all
purposes immediately prior to the close of business on the next
succeeding day on which such share transfer books are open, and such
conversion shall be deemed to have been made at, and shall be made at
the Series G Conversion Price in effect at, such time on such next
succeeding day.
(c) To the extent permitted by law, when shares of Series G
Preferred Stock are converted, all dividends declared and unpaid on
the shares of Series G Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the
shares of Common Stock issued upon such conversion.
Section 6.6 RANK. The Series G Preferred Stock shall have the
ranking as set forth in Section B.7 of this Article IV.
Section 6.7 DIVIDENDS. The Series G Preferred Stock shall be
entitled to dividends as set forth in Section B.8 of this Article IV.
Section 6.8 VOTING. The Series G Preferred Stock shall have the
voting rights as set forth in Section B.10 of this Article IV.
Section 7. RANK.
(a) The Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock shall with respect to payment of the Preferred
Liquidation Amounts upon the occurrence of a Liquidation rank (i) pari
passu with each other, and (ii) senior to all other payments or
distributions to holders of Capital Stock of the Corporation,
including without limitation, all payments or distributions to (A) all
classes of Common Stock of the Corporation (including, without
limitation, the Common Stock and Class A Common Stock) and (B) each
series of Capital Stock of the Corporation hereafter created which
does not expressly rank PARI PASSU with or
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senior to the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock (clauses (A) and (B) collectively the "Junior Stock").
(b) The Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock and the Class A Common Stock shall with respect to payment of
the Priority Payments and the Series F Liquidation Preference upon the
occurrence of a Liquidity Event rank (i) PARI PASSU with each other,
and (ii) senior to all other payments or distributions to holders of
Capital Stock of the Corporation, including, without limitation, all
other payments or distributions to the Junior Stock.
Section 8. DIVIDENDS. Beginning on the date of issuance of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock if the Board of Directors of the
Corporation shall declare a dividend or make any other distribution (including,
without limitation, in cash or other property or assets), to holders of shares
of Common Stock, then the holders of each share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and
Series G Preferred Stock shall be entitled to receive, out of funds legally
available therefor, a dividend or distribution in an amount equal to the amount
of such dividend or distribution received by a holder of the number of shares of
Common Stock for which such share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock is convertible on the record date for such dividend or
distribution. Any such amount shall be paid to the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock at the same time such dividend or
distribution is made to holders of Common Stock.
Section 9. PRIORITY PAYMENTS.
(a) The Priority Payments shall be payable (i) in the case of a
Liquidation, in cash on the date of the Liquidation, (ii) in the case
of an Initial Public Offering, in cash or, at the option of the
Corporation, in shares of Common Stock based on the IPO Price, which
cash or shares of Common Stock will be delivered or issued on the
closing date of the Initial Public Offering or (iii) in the case of a
Merger or Sale of Assets, in cash, or at the option of the
Corporation, in securities of the surviving Person or other
consideration received by the holders of Common Stock; PROVIDED, that
the Corporation shall make the same election as to form of payment
with respect to each of the Priority Payments unless a different
election shall be approved by a majority of the holders of each class
of Common Stock and Preferred Stock entitled to a Priority Payment.
Any securities of the surviving Person otherwise to be delivered to
the holders of each class of Common Stock and Preferred Stock entitled
to a Priority Payment pursuant to this paragraph (a) shall be valued
as follows:
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(i) Securities that do not constitute "restricted
securities," as such term is defined in Rule 144(a)(3)
promulgated under the Securities Act:
(1) if traded on a securities exchange, the value
shall be deemed to be the average of the closing prices of
the securities on such exchange over the 30-day period
ending three (3) days prior to the date of distribution;
(2) if actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices
over the 30-day period ending three (3) days prior to the
date of distribution;
(3) if there is no active public market, the value
shall be the fair market value thereof, as mutually
determined by the Board of Directors and consented to by the
holders of not less than a majority of the shares of each
class of Common Stock and Preferred Stock entitled to a
Priority Payment, which consent shall not be unreasonably
withheld; or
(4) if the fair market value cannot be determined
pursuant to clause (3) above, the value shall be determined
by an appraiser chosen by the Board of Directors and
consented to by the holders of a majority of the shares of
each class of Common Stock and Preferred Stock entitled to a
Priority Payment or, if no such appraiser is so chosen prior
to the tenth day after notice of the necessity of such
calculation shall have been delivered by the Corporation to
the holders of each class of Common Stock and Preferred
Stock entitled to a Priority Payment, then by an appraiser
chosen by a nationally recognized investment banking firm
experienced in the valuation of corporations engaged in the
information technology software business and acceptable to
the holders of a majority of the shares of each class of
Common Stock and Preferred Stock entitled to a Priority
Payment.
(ii) The method of valuation of securities acquired for
investment in a non-public transaction or otherwise restricted in
their marketability that are of the same class or series as
securities that are publicly traded shall be to make an
appropriate discount from the market value determined as set
forth above in clauses (1) or (2) to reflect the appropriate fair
market value thereof, as mutually determined by the Board of
Directors and consented to by the holders of a majority of each
class of Common Stock and Preferred Stock entitled to a Priority
Payment, which
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consent shall not be unreasonably withheld, or if applicable,
shall be in accordance with clause (4), giving appropriate
weight, if any, to such restriction.
Section 10. VOTING RIGHTS. Except as otherwise required under Delaware
law, so long as the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock is
outstanding, each share of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
shall entitle the holder thereof to vote, in person or by proxy, at a special or
annual meeting of stockholders, on all matters entitled to be voted on by
holders of Common Stock voting together as a single class with other shares
entitled to vote thereon. With respect to any such vote, each share of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall entitle the holder thereof to
cast that number of votes per share as is equal to the number of votes that such
holder would be entitled to cast had such holder converted its shares of Series
B Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and Series
G Preferred Stock into shares of Common Stock on the record date for determining
the stockholders of the Corporation eligible to vote on any such matters.
Section 11. CONVERSION PRICE.
Section 11.1 ADJUSTMENT TO THE CONVERSION PRICE. The Series A
Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series F Conversion Price and Series G Conversion Price (collectively, the
"Conversion Prices and each individually a Conversion Price") shall be
subject to adjustment as follows:
(a) In the event that the Corporation shall at any time
after the date of filing of this Certificate of Incorporation (w) pay
a dividend or make a distribution on the outstanding shares of Common
Stock payable in Common Stock, (x) subdivide the outstanding shares of
Common Stock into a larger number of shares, (y) combine the
outstanding shares of Common Stock into a smaller number of shares or
(z) issue any shares of its Capital Stock in a reclassification of the
Common Stock, then, and in each such case, the Conversion Price for
each respective series of Preferred Stock in effect immediately prior
to such event shall be adjusted (and any other appropriate actions
shall be taken by the Corporation) so that the holder of any share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series F Preferred Stock or Series G Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other securities of the Corporation that
such holder would have owned or would have been entitled to receive
upon or by reason of any of the events described above, had such share
of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock or
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Series G Preferred Stock been converted immediately prior to the
occurrence of such event. An adjustment made pursuant to this Section
B.11.1 shall become effective retroactively (x) in the case of any
such dividend or distribution, to a date immediately following the
close of business on the record date for the determination of holders
of Common Stock entitled to receive such dividend or distribution or
(y) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such
corporate action becomes effective.
(b) In the case the Corporation shall at any time or from time
to time distribute to all holders of shares of its Common Stock
(including any such distribution made in connection with a merger or
consolidation in which the Corporation is the resulting or surviving
Person and the Common Stock is not changed or exchanged) cash,
evidences of indebtedness of the Corporation or another issuer,
securities of the Corporation or another issuer or other assets
(excluding dividends or distributions paid or made to holders of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
in the manner provided in Section B.8 of this Article IV, and
dividends payable in shares of Common Stock for which adjustment is
made under Section 11.1(a) of this Article IV) or rights or warrants
to subscribe for or purchase securities of the Corporation (excluding
those distributions in respect of which an adjustment in the
Conversion Prices is made pursuant to Section 11.1(a) of this Article
IV), then, and in each such case, the Conversion Prices then in effect
shall be adjusted (and any other appropriate actions shall be taken by
the Corporation) by multiplying each Conversion Price in effect
immediately prior to the date of such distribution by a fraction (x)
the numerator of which shall be such current market price of the
Common Stock less the then fair market value (as determined by the
Board of Directors) of the portion of the cash, evidences of
indebtedness, securities or other assets so distributed or of such
subscription rights or warrants applicable to one share of Common
Stock and (y) the denominator of which shall be the current market
price of the Common Stock on the record date referred to below (but
such denominator shall not be less than one); PROVIDED, HOWEVER, that
no adjustment shall be made with respect to any distribution of rights
to purchase securities of the Corporation if the holder of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series F Preferred Stock or Series G Preferred Stock would
otherwise be entitled to receive such rights upon conversion at any
time of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock or Series G Preferred Stock
into Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively to a
date immediately following the close of business on the record date
for the determination of stockholders entitled to receive such
distribution.
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(c) In the case the Corporation, at any time after the date of
filing of this Certificate of Incorporation, shall take any action
affecting its Common Stock similar to or having an effect similar to
any of the actions described in Sections B.11.1(a) or B.11.4 of this
Article IV (but not including any action described in any such
Section) and the Board of Directors in good faith determines that it
would be equitable in the circumstances to adjust the Conversion
Prices as a result of such action, then, and in each such case, the
Conversion Prices shall be adjusted in such a manner and at such time
as the Board of Directors of the Corporation in good faith determines
would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed
to the holders of the shares of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock
and Series G Preferred Stock); PROVIDED, HOWEVER, that the Board of
Directors effects an appropriate adjustment to the Conversion Price of
each other series of Preferred Stock, as may exist from time to time,
which is affected by such action.
(d) In the event the Corporation shall at any time, after the
date of filing of this Certificate of Incorporation, issue, sell or
exchange any shares of Common Stock, or securities exercisable or
exchangeable for shares of Common Stock, for a consideration per share
less than the Series F Conversion Price or Series G Conversion Price
in effect immediately prior to the issuance, sale or exchange of such
shares (other than (x) issuances of Common Stock upon the exercise of
currently outstanding options, warrants or convertible securities or
(y) up to 11,808,872 shares of Common Stock issued under the
Corporation's stock option or grant plans to management, employees or
consultants (the "Excluded Shares")), then, and thereafter
successively upon each such issuance, sale or exchange, the Series F
Conversion Price or Series G Conversion Price in effect immediately
prior to the issuance, sale or exchange of such shares shall forthwith
be reduced to an amount determined by multiplying such Series F
Conversion Price or Series G Conversion Price by a fraction:
(i) the numerator of which shall be (x) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such additional shares of Common Stock
(excluding treasury shares but including all shares of Common
Stock issuable upon conversion or exercise of any outstanding
options, warrants, rights or convertible securities), plus (y)
the number of shares of Common Stock which the net aggregate
consideration received by the Corporation for the total number of
such additional shares of Common Stock so issued would purchase
at the Series F Conversion Price or Series G Conversion Price
(prior to adjustment), and
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(ii) the denominator of which shall be (x) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such additional shares of Common Stock
(excluding treasury shares but including all shares of Common
Stock issuable upon conversion or exercise of any outstanding
options, warrants, rights or convertible securities), plus (y)
the number of such additional shares of Common Stock so issued.
(e) In the event the Corporation shall, at any time after the
date of filing of this Certificate of Incorporation, issue options,
warrants or rights to subscribe for shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common
Stock (other than any options or warrants for Excluded Shares), for a
consideration per share (determined by dividing the Net Aggregate
Consideration (as determined below) by the aggregate number of shares
of Common Stock that would be issued if all such options, warrants,
rights or convertible securities were exercised or converted to the
fullest extent permitted by their terms) less than the Series F
Conversion Price or Series G Conversion Price in effect immediately
prior to the issuance of such options or rights or convertible or
exchangeable securities, the Series F Conversion Price or Series G
Conversion Price in effect immediately prior to the issuance of such
options, warrants, rights or convertible securities shall be reduced
to an amount determined by multiplying such Series F Conversion Price
or Series G Conversion Price by a fraction:
(i) the numerator of which shall be (x) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such options, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any
outstanding options, warrants, rights or convertible securities),
plus (y) the number of shares of Common Stock which the total
amount of consideration received by the Corporation for the
issuance of such options, warrants, rights or convertible
securities plus the minimum amount set forth in the terms of such
security as payable to the Corporation upon the exercise or
conversion thereof (the "Net Aggregate Consideration") would
purchase at the Series F Conversion Price or Series G Conversion
Price for each respective series of Preferred Stock prior to
adjustment, and
(ii) the denominator of which shall be (x) the number of
shares of Common Stock of all classes outstanding immediately
prior to the issuance of such options, warrants, rights or
convertible securities (excluding treasury shares but including
all shares of Common Stock issuable upon conversion or exercise
of any outstanding options, warrants, rights or convertible
securities), plus (y) the aggregate number of shares of
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Common Stock that would be issued if all such options, warrants,
rights or convertible securities were exercised or converted.
(f) If the consideration per share provided for in any options
or rights to subscribe for shares of Common Stock, or any securities
exchangeable for or convertible into shares of Common Stock, changes
at any time the Conversion Price for each respective series of
Preferred Stock in effect at the time of such change shall be
readjusted to the Conversion Price for each respective series of
Preferred Stock which would have been in effect at such time had such
options or convertible securities provided for such changed
consideration per share (determined as provided in Section B.11.1(e)
of this Article IV), at the time initially granted, issued or sold;
PROVIDED, that such adjustment of the Conversion Price will be made
only as and to the extent that the Conversion Price effective upon
such adjustment remains less than or equal to the Conversion Price
that would be in effect if such options, rights or securities had not
been issued. No adjustment of a Conversion Price shall be made under
this Section B.11.1 upon the issuance of any additional shares of
Common Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant
to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been
made upon the issuance of such warrants, options or other rights. Any
adjustment of a Conversion Price shall be disregarded if, as, when and
to the extent that the rights to acquire shares of Common Stock upon
exercise or conversion of the warrants, options, rights or convertible
securities which gave rise to such adjustment expire or are canceled
without having been exercised, so that each Conversion Price effective
immediately upon such cancellation or expiration shall be equal to the
Conversion Price in effect at the time of the issuance of the expired
or canceled warrants, options, rights or convertible securities
(subject to adjustment to the extent that any of such warrants,
options, rights or convertible securities were so exercised or
converted), with such additional adjustments as would have been made
to that Conversion Price had the expired or canceled warrants,
options, rights or convertible securities not been issued.
(g) Notwithstanding anything herein to the contrary, no
adjustment under this Section B.11.1 need be made to a Conversion
Price unless such adjustment would require an increase or decrease of
at least 1% of the Conversion Price then in effect. Any lesser
adjustment shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment, which, together with
any adjustment or adjustments so carried forward, shall amount to an
increase or decrease of at least 1% of such Conversion Price. Any
adjustment to a Conversion Price carried forward and not theretofore
made shall be made immediately prior to the conversion of any shares
of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
pursuant hereto.
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Section 11.2 ABANDONMENT OF DIVIDEND OR DISTRIBUTION. If the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution, and
shall thereafter and before the distribution to stockholders thereof
legally abandon its plan to pay or deliver such dividend or distribution,
then thereafter no adjustment in a Conversion Price then in effect shall be
required by reason of the taking of such record.
Section 11.3 NOTICE OF ADJUSTMENT. Upon any increase or decrease in
a Conversion Price, then, and in each such case, the Corporation shall
within a reasonable period (not to exceed 45 days) following any of the
foregoing transactions deliver to each registered holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock a certificate, signed by the
President or a Vice President and by the Treasurer, Assistant Treasurer,
the Secretary or an Assistant Secretary of the Corporation, setting forth
in reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the increased or
decreased Conversion Price then in effect following such adjustment.
Section 11.4 REORGANIZATION. In case of any capital reorganization
or reclassification or other change of outstanding shares of Common Stock
(other than a change in par value, or from par value to no par value, or
from no par value to par value), the Corporation shall execute and deliver
to each holder of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock at least ten (10) Business Days prior to effecting such
reorganization or reclassification a certificate that the holder of each
share of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock then
outstanding shall have the right thereafter to convert such share of Series
A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series F Preferred Stock and Series G Preferred Stock into the kind and
amount of shares of stock or other securities, property or cash receivable
upon such reorganization or reclassification by a holder of the number of
shares of Common Stock into which such share of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series F Preferred
Stock and Series G Preferred Stock could have been converted immediately
prior to such reorganization or reclassification, and provision shall be
made therefor in any agreement relating to such reorganization or
reclassification. Such certificate shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Section B.11. The provisions of this Section B.11.4
and any equivalent thereof in any such certificate similarly shall apply to
successive transactions.
Section 11.5 NOTICE OF EVENTS In case at any time or from time to
time:
(a) the Corporation shall declare a dividend (or any other
distribution) on its shares of Common Stock;
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(b) the Corporation shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
(c) there shall be any reorganization or reclassification of the
Common Stock; or
(d) there shall occur a Liquidation, Sale of Assets or Merger;
then the Corporation shall mail to each holder of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock at such holder's address as
it appears on the transfer books of the Corporation, as promptly as
possible but in any event at least ten (10) days prior to the applicable
date hereinafter specified, a notice stating (A) the date on which a record
is to be taken for the purpose of such dividend, distribution or rights or
warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution or rights are to be determined, or (B) the date on which such
reclassification or Liquidation, Sale of Assets or Merger is expected to
become effective; provided that in the case of any event to which Section
B.11.4 of this Article IV applies, the Corporation shall give at least ten
(10) Business Days' prior written notice as aforesaid. Such notice also
shall specify the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their Common Stock for shares
of stock or other securities or property or cash deliverable upon such
reclassification or Liquidation, Sale of Assets or Merger.
Section 11.6 RESERVATION OF SHARES OF COMMON STOCK. The Corporation
shall at all times reserve and keep available for issuance upon the
conversion of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock, such number of its authorized but unissued shares of Common Stock as
will from time to time be sufficient to permit the conversion of all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series F Preferred Stock and Series G Preferred
Stock, and shall take all action required to increase the authorized number
of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation
or to permit the conversion of all outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock.
Section 11.7 ISSUANCE OF CERTIFICATES OF COMMON STOCK. The issuance
or delivery of certificates for Common Stock upon the conversion of shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series F Preferred Stock and Series G Preferred Stock shall be made
without charge to the converting holder of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock,
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Series F Preferred Stock and Series G Preferred Stock for such certificates
or for any tax in respect of the issuance or delivery of such certificates
or the securities represented thereby, and such certificates shall be
issued or delivered in the respective names of, or (subject to compliance
with the applicable provisions of federal and state securities laws) in
such names as may be directed by, the holders of the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series
F Preferred Stock and Series G Preferred Stock converted; provided,
however, that the Corporation shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of
the shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series F Preferred Stock and Series G Preferred Stock
converted, and the Corporation shall not be required to issue or deliver
such certificate unless or until the Person or Persons requesting the
issuance or delivery thereof shall have paid to the Corporation the amount
of such tax or shall have established to the reasonable satisfaction of the
Corporation that such tax has been paid.
Section 12. SALE OF ASSETS OR MERGER. In the event that, upon a Merger
or a Sale of Assets, the Corporation receives consideration in more than one
form, the Corporation shall pay or distribute such various forms of
consideration to the holders of its Capital Stock ratably in proportion to the
total amount of consideration to be received by such holders, such that each
such holder receives a proportionate share of each such form of consideration.
Section 13. REDEMPTION. The shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock shall not be subject to mandatory redemption at the option of
the Corporation or any holder thereof, or otherwise.
Section 14. CERTAIN REMEDIES. Any registered holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series F
Preferred Stock and Series G Preferred Stock shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Certificate of
Incorporation and to enforce specifically the terms and provisions of this
Certificate of Incorporation in any court of the United States or any state
thereof having jurisdiction, this being in addition to any other remedy to which
such holder may be entitled at law or in equity.
Section 15. BUSINESS DAY. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
Section 16. DEFINITIONS. As used in this Certificate of Incorporation,
the following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
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"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 Corporation shall be considered an Affiliate of GAP 40,
GAP 46, GAP 52, GAP Coinvestment, GAP Coinvestment II, Lehman, TCV or the
Ramsey/Beirne Stockholders or any of the Sasson Stockholders.
"Second Amended and Restated Shareholders Agreement" shall mean the Second
Amended and Restated Shareholders Agreement, dated December [___], 1999, among
the Corporation and the shareholders named therein, as amended from time to
time.
"Available Assets" shall have the meaning ascribed to it in Section A.2.5
of this Article IV.
"Available Cash" means, with respect to the Corporation's unaudited balance
sheet for any fiscal quarter or audited balance sheet for any fiscal year, the
amount equal to the excess, if any, of (i) the sum of all cash (or cash
equivalents) plus the fair market value (as determined by the Board of
Directors) of all marketable securities of the Corporation that are listed on a
securities exchange or traded in the over-the-counter market, over (ii) the sum
of the Corporation's short-term and long-term indebtedness for borrowed money.
"Available Cash Payment" shall have the meaning ascribed to it in Section
B.6.2 of this Article IV.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means any day except a Saturday, a Sunday, or other day on
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
"Common Stock" shall have the meaning ascribed to it in Section A.1 of this
Article IV.
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"Class A Common Stock" shall have the meaning ascribed to it in Section A.2
of this Article IV.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Priority Payment" shall have the meaning ascribed to it in Section
A.2.5 of this Article IV
"Common Stock" shall have the meaning ascribed to it in the first paragraph
of this Article IV.
"Conversion Price" shall have the meaning ascribed to it in Section B.11.1
of this Article IV.
"Corporation" shall have the meaning ascribed to it in Article I hereof.
"DGCL" shall have the meaning ascribed to it in the first paragraph of this
Certificate.
"Exchange Act" means the Securities Exchange Act of 1934, and the rules and
regulations of the Commission promulgated thereunder.
"Excluded Shares" shall have the meaning ascribed to it in Section
B.11.1(d) of this Article IV.
"GAP Coinvestment" shall have the meaning ascribed to it in Section
B.2.8(b) of this Article IV.
"GAP Coinvestment II" shall mean GAP Coinvestment Partners II, L.P. a
Delaware limited partnership.
"GAP LLC" shall mean General Atlantic Partners, LLC, a Delaware limited
liability company and the general partner of GAP 40, GAP 46 and GAP 52, and any
successor to such entities.
"GAP 40" shall have the meaning ascribed to it in Section B.2.8(b) of this
Article IV.
"GAP 46" shall mean General Atlantic Partners 46, L.P. a Delaware limited
partnership.
"GAP 52" shall mean General Atlantic Partners 52, L.P. a Delaware limited
partnership.
"Initial Public Offering" shall mean a firm commitment underwritten initial
public offering pursuant to an effective registration statement under the
Securities Act.
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"IPO Price" shall mean the mid-point of the anticipated price per share of
the Common Stock to be offered in the Initial Public Offering, based on
information provided in the registration statement in order to calculate the
filing fee payable to the Commission.
"Junior Stock" shall have the meaning ascribed to it in Section B.7(a) of
this Article IV hereof.
"Lehman" shall mean Lehman Brothers VC Partners L.P. a Delaware limited
partnership.
"Liquidation" shall mean the voluntary or involuntary liquidation under
applicable bankruptcy or reorganization legislation, dissolution or winding up
of the Corporation.
"Liquidity Event" shall have the meaning ascribed to it in Section A.2.5 of
this Article IV.
"Merger" shall mean (x) the merger or consolidation of the Corporation with
one or more other Persons or (y) the merger or consolidation of one or more
Persons into or with the Corporation, if, in the case of (x) or (y), the
stockholders of the Corporation prior to such merger or consolidation do not
retain at least a majority of the voting power of the surviving Person.
"Net Aggregate Consideration" shall have the meaning ascribed to it in
Section B.11.1(e)(i) of this Article IV.
"Per Share Value" shall mean (i) with respect to a Merger or Sale of
Assets, the value of the consideration payable for one share of Common Stock in
such Merger or Sale of Assets and (ii) with respect to a Liquidation, the value
of the assets and rights distributable for each share of Common Stock.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any kind.
"Preferred Liquidation Amount" means the Series A Liquidation Amount, the
Series B Liquidation Amount, the Series C Liquidation Amount, the Series F
Liquidation Preference and the Series G Aggregate Preferred Priority Payment
collectively.
"Preferred Stock" shall have the meaning ascribed to it in the first
paragraph of this Article IV.
"Priority Payments" shall mean the Common Priority Payment, Series A
Preferred Priority Payment, Series C Preferred Priority Payment and the Series G
Aggregate Preferred Priority Payment.
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"Ramsey Beirne Shareholders" shall mean Ramsey/Beirne Associates and any
Permitted Transferees thereof to which shares of Capital Stock may be
transferred in accordance with Section 2.2 of the Second Amended and Restated
Shareholders Agreement.
"Sale of Assets" shall mean the voluntary sale, conveyance, exchange or
transfer to another Person of all or substantially all of the assets of the
Corporation.
"Sasson Shareholders" shall mean Ori Sasson and any Permitted Transferees
thereof to which shares of Capital Stock may be transferred in accordance with
Section 2.2 of the Second Amended and Restated Shareholders Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Series A Conversion Price" shall have the meaning ascribed to it in
Section B.2.5(a) of this Article IV.
"Series A Liquidation Amount" shall have the meaning ascribed to it in
Section B.2.2 of this Article IV.
"Series A Newly Issued Shares" shall have the meaning ascribed to it in
Section B.2.4(a)(iii) of this Article IV.
"Series A Participation Amount" shall have the meaning ascribed to it in
Section B.2.4(a) of this Article IV.
"Series A Preferred Priority Payment" shall have the meaning ascribed to it
in Section B.2.3 of this Article IV.
"Series A Preferred Stock" shall have the meaning ascribed to it in Section
B.2.1 of this Article IV.
"Series A Pro Rata Share" shall have the meaning ascribed to it in Section
B.2.4(a) of this Article IV.
"Series B Conversion Price" shall have the meaning ascribed to it in
Section B.3.3(a) of this Article IV.
"Series B Exercise Price" shall have the meaning ascribed to it in Section
B.3.2 of this Article IV.
"Series B Liquidation Amount" shall have the meaning ascribed to it in
Section B.3.2 of this Article IV.
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"Series B Liquidation Preference" shall have the meaning ascribed to it in
Section B.3.2 of this Article IV.
"Series B Preferred Stock" shall have the meaning ascribed to it in Section
B.3.1 of this Article IV.
"Series C Conversion Price" shall have the meaning ascribed to it in
Section B.4.5(a) of this Article IV.
"Series C Liquidation Amount" shall have the meaning ascribed to it in
Section B.4.2 of this Article IV.
"Series C Liquidation Preference" shall have the meaning ascribed to it in
Section B.4.2 of this Article IV.
"Series C Newly Issued Shares" shall have the meaning ascribed to it in
Section B.4.4(a)(iii) of this Article IV.
"Series C Participation Amount" shall have the meaning ascribed to it in
Section B.4.4(a) of this Article IV.
"Series C Preferred Priority Payment" shall have the meaning ascribed to it
in Section B.4.3 of this Article IV.
"Series C Preferred Stock" shall have the meaning ascribed to it in Section
B.4.1 of this Article IV.
"Series C Pro Rata Share" shall have the meaning ascribed to it in Section
B.4.4(a) of this Article IV.
"Series F Conversion Price" shall have the meaning ascribed to it in
Section B.5.3(a) of this Article IV.
"Series F Liquidation Available Assets" shall have the meaning ascribed to
it in Section B.5.2(a) of this Article IV.
"Series F Liquidation Preference" shall have the meaning ascribed to it in
Section B.5.2(a) of this Article IV.
"Series F Preferred Stock" shall have the meaning ascribed to it in Section
B.5.1 of this Article IV.
"Series F Share" shall have the meaning ascribed to it in Section
B.5.2(a)(ii) of this Article IV.
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"Series G Aggregate Preferred Priority Payment" shall have the meaning
ascribed to it in Section B.6.3(a) of this Article IV.
"Series G Conversion Price" shall have the meaning ascribed to it in
Section B.6.5(a) of this Article IV.
"Series G Participation Amount" shall have the meaning ascribed to it in
Section B.6.4(a) of this Article IV.
"Series G Preferred Priority Payment" shall have the meaning ascribed to it
in Section B.6.3(a) of this Article IV.
"Series G Preferred Stock" shall have the meaning ascribed to it in Section
B.6.1 of this Article IV.
"Series G Pro Rata Share" shall have the meaning ascribed to it in Section
B.6.4(a) of this Article IV.
"TCV" shall mean TCV III (GP), a Delaware limited partnership, TCV III,
L.P., a Delaware limited partnership, TCV III (Q), L.P., a Delaware limited
partnership, TCV III Strategic Partners, L.P., a Delaware limited partnership.
"Undesignated Preferred Stock" shall have the meaning ascribed to it in
Section B.1 of this Article IV.
ARTICLE V
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of
the Corporation at any annual or special meeting of stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders and may not be taken or effected by a written consent of
stockholders in lieu thereof.
ARTICLE VI
DIRECTORS
Section 1. GENERAL. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors except as
otherwise provided herein or required by law.
Section 2. ELECTION OF DIRECTORS. Election of Directors need not be by
written ballot unless the By-laws of the Corporation shall so provide.
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Section 3. TERMS OF DIRECTORS. The number of Directors of the
Corporation shall be fixed by resolution duly adopted from time to time by the
Board of Directors. The Directors, other than those who may be elected by the
holders of any series of Undesignated Preferred Stock of the Corporation, shall
be classified, with respect to the term for which they severally hold office,
into three classes, as nearly equal in number as possible. The initial Class I
Directors of the Corporation shall be J. Michael Cline and Gerhard Schulmeyer;
the initial Class II Director of the Corporation shall be William O. Grabe; and
the initial Class III Directors of the Corporation shall be Paul R. Butare and
Klaus P. Besier. The initial Class I Directors shall serve for a term expiring
at the annual meeting of stockholders to be held in 2001, the initial Class II
Directors shall serve for a term expiring at the annual meeting of stockholders
to be held in 2002, and the initial Class III Director shall serve for a term
expiring at the annual meeting of stockholders to be held in 2003. At each
annual meeting of stockholders, the successor or successors of the class of
Directors whose term expires at that meeting shall be elected by a plurality of
the votes cast at such meeting and shall hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election. The Directors elected to each class shall hold office until
their successors are duly elected and qualified or until their earlier
resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Second Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Undesignated Preferred Stock shall have the
right, voting separately as a series or together with holders of other such
series, to elect Directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Second Amended and Restated
Certificate of Incorporation and any certificate of designations applicable
thereto, and such Directors so elected shall not be divided into classes
pursuant to this Article VI.3.
During any period when the holders of any series of Undesignated
Preferred Stock have the right to elect additional Directors as provided for or
fixed pursuant to the provisions of Article IV hereof, then upon commencement
and for the duration of the period during which such right continues: (i) the
then otherwise total authorized number of Directors of the Corporation shall
automatically be increased by such specified number of Directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional Directors so provided for or fixed pursuant to said provisions, and
(ii) each such additional Director shall serve until such Director's successor
shall have been duly elected and qualified, or until such Director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such Director's earlier death, disqualification, resignation
or removal. Except as otherwise provided by the Board of Directors in the
resolution or resolutions establishing such series, whenever the holders of any
series of Undesignated Preferred Stock having such right to elect additional
Directors are divested of such right pursuant to the provisions of such stock,
the terms of office of all such additional Directors elected by the holders of
such stock, or elected to fill any vacancies resulting from the death,
resignation, disqualification or removal of such additional Directors, shall
automatically terminate and the total and authorized number of Directors of the
Corporation shall be reduced accordingly.
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Section 4. VACANCIES. Subject to the rights, if any, of the holders of
any series of Undesignated Preferred Stock to elect Directors and to fill
vacancies in the Board of Directors relating thereto, any and all vacancies in
the Board of Directors, however occurring, including, without limitation, by
reason of an increase in size of the Board of Directors, or the death,
resignation, disqualification or removal of a Director, shall be filled solely
by the affirmative vote of a majority of the remaining Directors then in office,
even if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors, when the number of Directors is
increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of Directors shall be
apportioned; provided, however, that no decrease in the number of Directors
shall shorten the term of any incumbent Director. In the event of a vacancy in
the Board of Directors, the remaining Directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
Section 5. REMOVAL. Subject to the rights, if any, of any series of
Undesignated Preferred Stock to elect Directors and to remove any Director whom
the holders of any such stock have the right to elect, any Director (including
persons elected by Directors to fill vacancies in the Board of Directors) may be
removed from office (i) only with cause and (ii) only by the affirmative vote of
the holders of two-thirds of the shares then entitled to vote at an election of
directors. At least 30 days prior to any meeting of stockholders at which it is
proposed that any Director be removed from office, written notice of such
proposed removal shall be sent to the Director whose removal will be considered
at the meeting.
ARTICLE VII
LIMITATION OF LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Second Amended and Restated Certificate
of Incorporation to authorize corporate action further eliminating or limiting
the personal liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or
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omissions occurring before such repeal or modification of a person serving as a
Director at the time of such repeal or modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Section 1. AMENDMENT BY DIRECTORS. Except as otherwise provided by law,
the By-laws of the Corporation may be amended or repealed by the Board of
Directors by the affirmative vote of a majority of the Directors then in office.
Section 2. AMENDMENT BY STOCKHOLDERS. The By-laws of the Corporation
may be amended or repealed at any annual meeting of stockholders, or special
meeting of stockholders called for such purpose as provided in the By-laws, by
the affirmative vote of at least two-thirds of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
repeal, voting together as a single class; provided, however, that if the Board
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal by
holders of voting stock, voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this Second
Amended and Restated Certificate of Incorporation in the manner now or hereafter
prescribed by statute and this Second Amended and Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation. No amendment or repeal of this Second Amended and
Restated Certificate of Incorporation shall be made unless the same is first
approved by the Board of Directors pursuant to a resolution adopted by the Board
of Directors in accordance with Section 242 of the DGCL, and, except as
otherwise provided by law, thereafter approved by the stockholders. Whenever any
vote of the holders of voting stock is required, and in addition to any other
vote of holders of voting stock that is required by this Second Amended and
Restated Certificate of Incorporation or by law, the affirmative vote of the
majority of the outstanding shares entitled to vote on such amendment or repeal,
and the affirmative vote of the majority of the outstanding shares of each class
entitled to vote therein as a class, at a duly constituted meeting of
stockholders called expressly for such purpose shall be required to amend or
repeal any provisions of this Second Amended and Restated Certificate of
Incorporation; provided, however, that the affirmative vote of not less than
two-thirds of the outstanding shares entitled to vote on such amendment or
repeal and the affirmative vote of not less than two-thirds of the outstanding
shares of each class entitled to vote thereon as a class, shall be required to
amend or repeal any of the provisions of Article V, Article VI, Article VII or
Article IX of this Second Amended and Restated Certificate of Incorporation.
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IN WITNESS WHEREOF, I have executed and subscribed this certificate and do
affirm the foregoing as true under penalties of perjury this ____ day of
January, 2000.
_____________________________
Thomas F. Carretta,
Secretary and General Counsel
FirePond, Inc.
890 Winter Street, Suite 300
Waltham, Massachusetts 02451
<PAGE> 1
EXHIBIT 3.3
FORM OF
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FIREPOND, INC.
FirePond, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is FirePond Merger Subsidiary, Inc.
The date of the filing of its original Certificate of Incorporation (the
"Original Certificate") with the Secretary of State of the State of Delaware was
November 4, 1999. The Original Certificate was amended on [_________], 1999 and
further amended on [_________], 2000.
2. This Third Amended and Restated Certificate of Incorporation
amends, restates and integrates the provisions of the Original Certificate, as
heretofore amended, and (i) was duly adopted by the Board of Directors in
accordance with the provisions of Section 245 of the General Corporation Law of
the State of Delaware (the "DGCL"), (ii) was declared by the Board of Directors
to be advisable and in the best interests of the Corporation and was directed by
the Board of Directors to be submitted to and be considered by the stockholders
of the Corporation entitled to vote thereon for approval by the affirmative vote
of such stockholders in accordance with Section 242 of the DGCL and (iii) was
duly adopted by a consent in lieu of a meeting of the holders of the
Corporation's common stock, par value $.01 per share (the "Common Stock"), in
accordance with the provisions of Sections 228 and 242 of the DGCL and the terms
of the Original Certificate of Incorporation, as amended, such holders being a
majority of the holders of the Corporation's capital stock entitled to vote
thereon.
3. The text of the Original Certificate, as amended, is hereby
amended and restated in its entirety to provide as herein set forth in full.
ARTICLE I
The name of the Corporation is FirePond, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is c/o The Corporation Trust Company, 1209 Orange Street in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
<PAGE> 2
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is 105,000,000 shares, of which (i) 100,000,000 shares
shall be common stock par value $.01 per share (the "Common Stock"), and (ii)
5,000,000 shares shall be preferred stock, par value $.01 per share (the
"Preferred Stock"), of which 5,000,000 shares shall be undesignated preferred
stock, par value $.01 per share (the "Undesignated Preferred Stock"). Except as
otherwise restricted by this Third Amended and Restated Certificate of
Incorporation, the Corporation is authorized to issue, from time to time, all or
any portion of the capital stock of the Corporation which may have been
authorized but not issued, to such person or persons and for such lawful
consideration as it may deem appropriate, and generally in its absolute
discretion to determine the terms and manner of any disposition of such
authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has
been paid or delivered shall be deemed fully paid shares of capital stock, and
the holder of such shares shall not be liable for any further call or assessment
or any other payment thereon.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the shares of Common Stock entitled to vote, without a vote of the holders of
the Undesignated Preferred Stock.
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
A. COMMON STOCK
Subject to all the rights, powers and preferences of the Undesignated
Preferred Stock, and except as provided by law or in this Article IV (or in any
certificate of designation of any series of Preferred Stock);
(a) the holders of the Common Stock shall have the exclusive
right to vote for the election of directors and on all other matters requiring
stockholder action, each share being entitled to one vote;
(b) dividends may be declared and paid or set apart for payment
upon the Common Stock out of any assets or funds of the Corporation legally
available for
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the payment of dividends, but only when and as declared by the Board of
Directors or any authorized committee thereof; and
(c) upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with their
respective rights and interests.
B. PREFERRED STOCK
1. UNDESIGNATED PREFERRED STOCK.
(a) AUTHORITY TO ISSUE. The total number of shares of
Undesignated Preferred Stock which the Corporation shall have authority to issue
is 5,000,000 shares. Subject to any limitations prescribed by law, the Board of
Directors or any authorized committee thereof is expressly authorized to provide
for the issuance of the shares of Undesignated Preferred Stock in one or more
series of such stock, and by filing a certificate pursuant to applicable law of
the State of Delaware, to establish or change from time to time the number of
shares to be included in each such series, and to fix the designations, powers,
preferences and the relative, participating, optional or other special rights of
the shares of each series and any qualifications, limitations and restrictions
thereof. Any action by the Board of Directors or any authorized committee
thereof under this Article B shall require the affirmative vote of a majority of
the directors then in office or a majority of the members of such committee.
(b) POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTION OF EACH SERIES OF UNDESIGNATED PREFERRED STOCK. The Board of
Directors or any authorized committee thereof shall have the right to determine
or fix one or more of the following with respect to each series of Undesignated
Preferred Stock to the fullest extent permitted by law:
(i) The distinctive serial designation and the number of
shares constituting such series;
(ii) The dividend rates or the amount of dividends to be
paid on the shares of such series, whether dividends shall be cumulative
and, if so, from which date or dates, the payment date or dates for
dividends, and the participating and other rights, if any, with respect to
dividends;
(iii) The voting rights and powers, full or limited, if
any, of the shares of such series;
(iv) Whether the shares of such series shall be redeemable
and, if so, the price or prices at which, and the terms and conditions on
which, such shares may be redeemed;
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<PAGE> 4
(v) The amount or amounts payable upon the shares of such
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(vi) Whether the shares of such series shall be entitled
to the benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the amount of
such fund and the manner of its application, including the price or prices
at which such shares may be redeemed or purchased through the application
of such fund;
(vii) Whether the shares of such series shall be
convertible into, or exchangeable for, shares of any other class or classes
or of any other series of the same or any other class or classes of stock
of the Corporation and, if so convertible or exchangeable, the conversion
price or prices, or the rate or rates of exchange, and the adjustments
thereof, if any, at which such conversion or exchange may be made, and any
other terms and conditions of such conversion or exchange;
(viii) The consideration for which the shares of such series
shall be issued;
(ix) Whether the shares of such series which are redeemed
or converted shall have the status of authorized but unissued shares of
Undesignated Preferred Stock (or series thereof) and whether such shares
may be reissued as shares of the same or any other class or series of
stock; and
(x) Such other powers, preferences, rights,
qualifications, limitations and restrictions thereof as the Board of
Directors or any authorized committee thereof may deem advisable.
ARTICLE V
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of
the Corporation at any annual or special meeting of stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders and may not be taken or effected by a written consent of
stockholders in lieu thereof.
ARTICLE VI
DIRECTORS
1. GENERAL. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided herein or required by law.
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2. ELECTION OF DIRECTORS. Election of Directors need not be by written
ballot unless the By-laws of the Corporation shall so provide.
3. TERMS OF DIRECTORS. The number of Directors of the Corporation
shall be fixed by resolution duly adopted from time to time by the Board of
Directors. The Directors, other than those who may be elected by the holders of
any series of Undesignated Preferred Stock of the Corporation, shall be
classified, with respect to the term for which they severally hold office, into
three classes, as nearly equal in number as possible. The initial Class I
Director of the Corporation shall be J. Michael Cline and Gerhard Schulmeyer;
the initial Class II Director of the Corporation shall be William O. Grabe and
the initial Class III Directors of the Corporation shall be Klaus P. Besier and
Paul R. Butare. The initial Class I Directors shall serve for a term expiring at
the annual meeting of stockholders to be held in 2001, the initial Class II
Director shall serve for a term expiring at the annual meeting of stockholders
to be held in 2002, and the initial Class III Directors shall serve for a term
expiring at the annual meeting of stockholders to be held in 2003. At each
annual meeting of stockholders, the successor or successors of the class of
Directors whose term expires at that meeting shall be elected by a plurality of
the votes cast at such meeting and shall hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election. The Directors elected to each class shall hold office until
their successors are duly elected and qualified or until their earlier
resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Second Amended and Restated Certificate of Incorporation, the
holders of any one or more series of Undesignated Preferred Stock shall have the
right, voting separately as a series or together with holders of other such
series, to elect Directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Second Amended and Restated
Certificate of Incorporation and any certificate of designations applicable
thereto, and such Directors so elected shall not be divided into classes
pursuant to this Article VI, Section 3.
During any period when the holders of any series of Undesignated
Preferred Stock have the right to elect additional Directors as provided for or
fixed pursuant to the provisions of Article IV hereof, then upon commencement
and for the duration of the period during which such right continues: (i) the
then otherwise total authorized number of Directors of the Corporation shall
automatically be increased by such specified number of Directors, and the
holders of such Undesignated Preferred Stock shall be entitled to elect the
additional Directors so provided for or fixed pursuant to said provisions, and
(ii) each such additional Director shall serve until such Director's successor
shall have been duly elected and qualified, or until such Director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such Director's earlier death, disqualification, resignation
or removal. Except as otherwise provided by the Board of Directors in the
resolution or resolutions establishing such series, whenever the holders of any
series of Undesignated Preferred Stock having such right to elect additional
Directors are divested of such right pursuant to the provisions of such stock,
the terms of office of all
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such additional Directors elected by the holders of such stock, or elected to
fill any vacancies resulting from the death, resignation, disqualification or
removal of such additional Directors, shall automatically terminate and the
total and authorized number of Directors of the Corporation shall be reduced
accordingly.
4. VACANCIES. Subject to the rights, if any, of the holders of any
series of Undesignated Preferred Stock to elect Directors and to fill vacancies
in the Board of Directors relating thereto, any and all vacancies in the Board
of Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of Directors in which the new directorship was
created or the vacancy occurred and until such Director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors, when the number of Directors is
increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of Directors shall be
apportioned; provided, however, that no decrease in the number of Directors
shall shorten the term of any incumbent Director. In the event of a vacancy in
the Board of Directors, the remaining Directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
5. REMOVAL. Subject to the rights, if any, of any series of
Undesignated Preferred Stock to elect Directors and to remove any Director whom
the holders of any such stock have the right to elect, any Director (including
persons elected by Directors to fill vacancies in the Board of Directors) may be
removed from office (i) only with cause and (ii) only by the affirmative vote of
the holders of two-thirds of the shares then entitled to vote at an election of
directors. At least 30 days prior to any meeting of stockholders at which it is
proposed that any Director be removed from office, written notice of such
proposed removal shall be sent to the Director whose removal will be considered
at the meeting.
ARTICLE VII
LIMITATION OF LIABILITY
A Director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (a) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the Director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Second Amended and Restated Certificate
of Incorporation to authorize corporate action further eliminating or limiting
the
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personal liability of Directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the DGCL, as so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a Director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
1. AMENDMENT BY DIRECTORS. Except as otherwise provided by law, the
By-laws of the Corporation may be amended or repealed by the Board of Directors
by the affirmative vote of a majority of the Directors then in office.
2. AMENDMENT BY STOCKHOLDERS. The By-laws of the Corporation may be
amended or repealed at any annual meeting of stockholders, or special meeting of
stockholders called for such purpose as provided in the By-laws, by the
affirmative vote of at least two-thirds of the shares present in person or
represented by proxy at such meeting and entitled to vote on such amendment or
repeal, voting together as a single class; PROVIDED, HOWEVER, that if the Board
of Directors recommends that stockholders approve such amendment or repeal at
such meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the shares present in person or represented
by proxy at such meeting and entitled to vote on such amendment or repeal by
holders of voting stock, voting together as a single class.
ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this Second
Amended and Restated Certificate of Incorporation in the manner now or hereafter
prescribed by statute and this Second Amended and Restated Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation. No amendment or repeal of this Second Amended and
Restated Certificate of Incorporation shall be made unless the same is first
approved by the Board of Directors pursuant to a resolution adopted by the Board
of Directors in accordance with Section 242 of the DGCL, and, except as
otherwise provided by law, thereafter approved by the stockholders. Whenever any
vote of the holders of voting stock is required, and in addition to any other
vote of holders of voting stock that is required by this Second Amended and
Restated Certificate of Incorporation or By-law, the affirmative vote of the
majority of the outstanding shares entitled to vote on such amendment or repeal,
and the affirmative vote of the majority of the outstanding shares of each class
entitled to vote therein as a class, at a duly constituted meeting of
stockholders called expressly for such purpose shall be required to amend or
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repeal any provisions of this Second Amended and Restated Certificate of
Incorporation; provided, however, that the affirmative vote of not less than
two-thirds of the outstanding shares entitled to vote on such amendment or
repeal and the affirmative vote of not less than two-thirds of the outstanding
shares of each class entitled to vote thereon as a class, shall be required to
amend or repeal any of the provisions of Article V, Article VI, Article VII or
Article IX of this Second Amended and Restated Certificate of Incorporation.
* * *
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THIS SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION is executed
as of this ____ day of January, 2000.
FIREPOND, INC.
By:_________________________
Name: Thomas F. Carretta
Title: Secretary and General
Counsel
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EXHIBIT 3.4
BY-LAWS
of
FIREPOND, INC.
ARTICLE I
STOCKHOLDERS
1. ANNUAL MEETING. The annual meeting of stockholders shall be held each
year at the place, date and time determined by the Board of Directors or the
President, provided that the date of the meeting is within six months after the
end of the fiscal year of the corporation. The purposes for which the annual
meeting is to be held, in addition to those prescribed by law, by the
Certificate of Incorporation (the "Certificate of Incorporation") or by these
By-laws, may be specified by the Board of Directors or the President. If no
annual meeting has been held on the date fixed above, a special meeting in lieu
thereof may be held or there may be action by written consent of the
stockholders on matters to be voted on at the annual meeting, and such special
meeting or written consent shall have for the purposes of these By-Laws or
otherwise all the force and effect of an annual meeting.
2. SPECIAL MEETINGS. Special meetings of stockholders may be called by the
President or by the Board of Directors. Special meetings shall be called by the
Secretary, or in case of death, absence, incapacity or refusal of the Secretary,
by any other officer, upon written application of one or more stockholders who
hold at least twenty-five percent in interest of the capital stock entitled to
vote at such meeting. The call for the meeting shall state the place, date, hour
and purposes of the meeting. Only the purposes specified in the notice of
special meeting shall be considered or dealt with at such special meeting.
3. NOTICE OF MEETINGS. A written notice stating the place, date and hour of
all meetings of stockholders, and in the case of special meetings, the purposes
of the meeting shall be given by the Secretary (or other person authorized by
these By-Laws or by law) not less than ten nor more than sixty days before the
meeting to each stockholder entitled to vote thereat and to each stockholder
who, under the Certificate of Incorporation or under these By-laws is entitled
to such notice, by delivering such notice to him or by mailing it, postage
prepaid, and addressed to such stockholder at his address as it appears in the
records of the corporation. Notice need not be given to a stockholder if a
written waiver of notice is executed before or after the meeting by such
stockholder, if communication with such stockholder is unlawful, or if such
stockholder attends the meeting in question, unless such attendance was for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting was not lawfully called or
convened. If a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place are announced at the
meeting at which the adjournment is taken, except that if the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
<PAGE> 2
4. QUORUM. The holders of a majority in interest of all stock issued,
outstanding and entitled to vote at a meeting shall constitute a quorum. Any
meeting may be adjourned from time to time by a majority of the votes properly
cast upon the question, whether or not a quorum is present. The stockholders
present at a duly constituted meeting may continue to transact business until
adjournment notwithstanding the withdrawal of enough stockholders to reduce the
voting shares below a quorum.
5. VOTING AND PROXIES. Stockholders shall have one vote for each share of
stock entitled to vote owned by them of record according to the books of the
corporation unless otherwise provided by law or by the Certificate of
Incorporation. Stockholders may vote either in person or by written proxy or
express directly or by written proxy their consent or dissent to a corporate
action taken without a meeting, but no proxy shall be voted or acted upon after
three years from its date, unless the proxy provides for a longer period or is
irrevocable and coupled with an interest. Proxies shall be filed with the
Secretary of the meeting, or of any adjournment thereof. Except as otherwise
limited therein, proxies shall entitle the persons authorized thereby to vote at
any adjournment of such meeting.
6. ACTION AT MEETING. When a quorum is present, any matter before the
meeting shall be decided by vote of the holders of a majority of the shares of
stock voting on such matter except where a larger vote is required by law, by
the Certificate of Incorporation or by these By-laws. Any election by
stockholders shall be determined by a plurality of the votes cast, except where
a larger vote is required by law, by the Certificate of Incorporation or by
these By-laws. The corporation shall not directly or indirectly vote any share
of its own stock; provided, however, that the corporation may vote shares which
it holds in a fiduciary capacity to the extent permitted by law.
7. ACTION WITHOUT A MEETING. Any action required or permitted by law to be
taken at any annual or special meeting of stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
all of the outstanding shares of stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office, by hand or by
certified mail, return receipt requested or to the corporation's principal place
of business or to the officer of the corporation having custody of the minute
book. Every written consent shall bear the date of signature and no written
consent shall be effective unless, within sixty days of the earliest dated
consent delivered pursuant to these By-laws, written consents signed by a
sufficient number of stockholders entitled to take action are delivered to the
corporation in the manner set forth in these By-laws. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
8. STOCKHOLDER LISTS. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the
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address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
ARTICLE II
DIRECTORS
1. POWERS. The business of the corporation shall be managed by or under the
direction of a Board of Directors who may exercise all the powers of the
corporation except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2. ELECTION AND QUALIFICATION. Unless otherwise provided in the Certificate
of Incorporation or in these By-laws, the number of Directors which shall
constitute the whole board shall be determined by vote of the Board of Directors
or by the stockholders at the annual meeting. Directors need not be
stockholders.
3. VACANCIES: REDUCTION OF BOARD. A majority of the Directors then in
office, although less than a quorum, or a sole remaining Director, may fill
vacancies in the Board of Directors occurring for any reason and newly created
directorships resulting from any increase in the authorized number of Directors.
In lieu of filling any vacancy the stockholders or the Board of Directors may
reduce the number of Directors.
4. ENLARGEMENT OF THE BOARD. The Board of Directors may be enlarged by the
stockholders at any meeting or by vote of a majority of the Directors then in
office.
5. TENURE. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws, Directors shall hold office until their
successors are elected and qualified or until their earlier resignation or
removal. Any Director may resign by delivering his written resignation to the
corporation. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
6. REMOVAL. To the extent permitted by law, a Director may be removed from
office with or without cause by vote of the holders of a majority of the shares
of stock entitled to vote in the election of Directors. A Director may be
removed for cause only after reasonable notice and opportunity to be heard
before the body proposing to remove him.
7. MEETINGS. Regular meetings of the Board of Directors may be held without
notice at such time, date and place as the Board of Directors may from time to
time determine. Special
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meetings of the Board of Directors may be called, orally or in writing, by the
President, Treasurer or two or more Directors, designating the time, date and
place thereof. Directors may participate in meetings of the Board of Directors
by means of conference telephone or similar communications equipment by means of
which all Directors participating in the meeting can hear each other, and
participation in a meeting in accordance herewith shall constitute presence in
person at such meeting.
8. NOTICE OF MEETINGS. Notice of the time, date and place of all special
meetings of the Board of Directors shall be given to each Director by the
Secretary, or Assistant Secretary, or in case of the death, absence, incapacity
or refusal of such persons, by the officer or one of the Directors calling the
meeting. Notice shall be given to each Director in person or by telephone or by
telegram sent to his business or home address at least twenty-four hours in
advance of the meeting, or by written notice mailed to his business or home
address at least forty-eight hours in advance of the meeting. Notice need not be
given to any Director if a written waiver of notice is executed by him before or
after the meeting, or if communication with such Director is unlawful. A notice
or waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
9. QUORUM. At any meeting of the Board of Directors, a majority of the
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice.
a. ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless a larger number is required
by law, by the Certificate of Incorporation or by these By-laws.
b. ACTION BY CONSENT. Any action required or permitted to be taken at
any meeting of the Board of Directors may be taken without a meeting if a
written consent thereto is signed by all the Directors and filed with the
records of the meetings of the Board of Directors. Such consent shall be treated
as a vote of the Board of Directors for all purposes.
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c. COMMITTEES. The Board of Directors, by vote of a majority of the
Directors then in office, may establish one or more committees, each committee
to consist of one or more Directors, and may delegate thereto some or all of its
powers except those which by law, by the Certificate of Incorporation, or by
these By-laws may not be delegated. Except as the Board of Directors may
otherwise determine, any such committee may make rules for the conduct of its
business, but in the absence of such rules its business shall be conducted so
far as possible in the same manner as is provided in these By-laws for the Board
of Directors. All members of such committees shall hold their committee offices
at the pleasure of the Board of Directors, and the Board may abolish any
committee at any time. Each such committee shall report its action to the Board
of Directors who shall have power to rescind any action of any committee without
retroactive effect.
ARTICLE III
OFFICERS
1. ENUMERATION. The officers of the corporation shall consist of a
President, a Treasurer, a Secretary, and such other officers, including one or
more Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the
Board of Directors may determine.
2. ELECTION. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at their first meeting following the annual
meeting of stockholders. Other officers may be chosen by the Board of Directors
at such meeting or at any other meeting.
3. QUALIFICATION. No officer need be a stockholder or Director. Any two or
more offices may be held by the same person. Any officer may be required by the
Board of Directors to give bond for the faithful performance of his duties in
such amount and with such sureties as the Board of Directors may determine.
4. TENURE. Except as otherwise provided by the Certificate of Incorporation
or by these By-laws, each of the officers of the corporation shall hold his
office until his successor is elected and qualified or until his earlier
resignation or removal. Any officer may resign by delivering his written
resignation to the corporation, and such resignation shall be effective upon
receipt unless it is specified to be effective at some other time or upon the
happening of some other event.
5. REMOVAL. The Board of Directors may remove any officer with or without
cause by a vote of a majority of the entire number of Directors then in office;
provided, that an officer may be removed for cause only after reasonable notice
and opportunity to be heard by the Board of Directors.
6. VACANCIES. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
7. PRESIDENT AND VICE PRESIDENT. The President shall be the chief operating
officer of the corporation and shall have general charge of its business
operations, subject to the direction of
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the Board of Directors. The President shall preside, when present, at all
meetings of stockholders and the Board of Directors. The Board of Directors
shall have the authority to appoint a temporary presiding officer to serve at
any meeting of the stockholders or Board of Directors if the President is unable
to do so for any reason.
Any Vice President shall have such powers and shall perform such duties as
the Board of Directors may from time to time designate. In the absence of the
President or in the event of his inability or refusal to act, the Vice President
(or in the event there be more than one Vice President, the Vice Presidents in
the order designated by the directors, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all the powers and responsible of and be subject
to all the restrictions upon the President.
8. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall, subject to the
direction of the Board of Directors, have general charge of the financial
affairs of the corporation and shall cause to be kept accurate books of account.
He shall have custody of all funds, securities, and valuable documents of the
corporation, except as the Board of Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
9. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record the
proceedings of all meetings of the stockholders and the Board of Directors in
books kept for that purpose. In his absence from any such meeting an Assistant
Secretary, or if he is absent, a temporary secretary chosen at the meeting,
shall record the proceedings thereof.
The Secretary shall have charge of the stock ledger (which may, however, be
kept by any transfer or other agent of the corporation) and shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the President.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors may from time to time designate.
10. OTHER POWERS AND DUTIES. Subject to these By-laws, each officer of the
corporation shall have in addition to the duties and powers specifically set
forth in these By-laws, such duties and powers as are customarily incident to
his office, and such duties and powers as may be designated from time to time by
the Board of Directors.
ARTICLE IV
CAPITAL STOCK
1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to a
certificate of the capital stock of the corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the President or a Vice President and by the
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Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary.
Such signatures may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed on such
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the time
of its issue. Every certificate for shares of stock which are subject to any
restriction on transfer and every certificate issued when the corporation is
authorized to issue more than one class or series of stock shall contain such
legend with respect thereto as is required by law. The corporation shall be
permitted to issue fractional shares.
2. TRANSFERS. Subject to any restrictions on transfer, shares of stock may
be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment or power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the corporation or its transfer agent may
reasonably require.
3. RECORD HOLDERS. Except as may otherwise be required by law, by the
Certificate of Incorporation or by these By-laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect thereto, regardless of any transfer, pledge or other
disposition of such stock, until the shares have been transferred on the books
of the corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to, notify the corporation of his
post office address.
4. RECORD DATE. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not precede the date on which it is established, and which shall not be more
than sixty nor less than ten days before the date of such meeting, more than ten
days after the date on which the record date for stockholder consent without a
meeting is established, nor more than sixty days prior to any other action. In
such case only stockholders of record on such record date shall be so entitled
notwithstanding any transfer of stock on the books of the corporation after the
record date.
If no record date is fixed, (a) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, (b) the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is necessary,
shall be the first date on which a signed written
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consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in this state, to its
principal place of business, or to an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded, and (c) the record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss, destruction or
mutilation of a certificate of stock, a duplicate certificate may be issued in
place thereof, upon such terms as the Board of Directors may prescribe.
ARTICLE V
INDEMNIFICATION
1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall
indemnify, to the fullest extent permitted by the General Corporation Law of the
State of Delaware any person who was or is a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise, and whether by or in the right of the corporation,
its stockholders, a third party or otherwise (a "Proceeding"), by reason of the
fact that he is or was a Director or officer of the corporation, or is or was a
Director or officer of the corporation serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against all expense (including, but not limited to,
attorneys' fees), liability, loss, judgments, fines, excise taxes, penalties and
amounts paid in settlement actually and reasonably incurred by him in connection
with such Proceeding, including expenses incurred in seeking such
indemnification. In addition, the corporation shall grant such indemnification
to each of its Directors and officers with respect to any matter in a Proceeding
as to which his liability is limited pursuant to Section 9 of the Certificate of
Incorporation of the corporation. However, such indemnification shall exclude
(i) indemnification with respect to any improper personal benefit which a
Director or officer is determined to have received and of the expenses of
defending against an improper personal benefit claim unless the Director or
officer is successful on the merits in said defense, and (ii) indemnification of
present or former officers, directors, employees or agents of a constituent
corporation absorbed in a merger or consolidation transaction with this
corporation with respect to their activities prior to said transaction, unless
specifically authorized by the Board of Directors or stockholders of this
corporation. Such indemnification shall include prompt payment of expenses
incurred by a Director or officer in defending a Proceeding in advance of the
final disposition of such Proceeding, upon receipt of an undertaking by or on
behalf of the Director or officer to repay such amounts if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation under
this Article V, which undertaking shall be an unsecured general obligation of
the Director or officer and may be accepted without regard to his ability to
make repayment.
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2. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The corporation may, to the
extent authorized from time to time by the Board of Directors, grant rights to
indemnification and to an advancement of expenses, pursuant to the provisions of
this Article V, to any person who was or is a party or is threatened to be made
a party to or is otherwise involved in any Proceeding by reason of the fact that
he is or was an employee or agent of the corporation or is or was serving at the
request of the corporation, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
3. NATURE OF INDEMNIFICATION RIGHTS. The indemnification rights provided in
this Article V shall be a contract right and shall not be deemed exclusive of
any other rights to which any person, whether or not entitled to be indemnified
hereunder, may be entitled under any statute, by-law, agreement, vote of
stockholders or Directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a Director, officer, employee
or agent and inure to the benefit of the heirs, executors and administrators of
such a person. A Director or officer shall be entitled to the benefit of any
amendment of the Delaware General Corporation Law which enlarges indemnification
rights hereunder, but any such amendment which adversely affects indemnification
rights with respect to prior activities shall not apply to him without his
consent unless otherwise required by law. Each person who is or becomes a
Director or officer of the corporation shall be deemed to have served or to have
continued to serve in such capacity in reliance upon the indemnity provided for
in this Article V.
4. AMENDMENT. The provisions of this Article may be amended as provided in
Article VI; however, no amendment or repeal of such provisions which adversely
affects the rights of a Director or officer under this Article V with respect to
his acts or omissions prior to such amendment or repeal, shall apply to him
without his consent.
ARTICLE VI
MISCELLANEOUS PROVISIONS
1. FISCAL YEAR. Except as otherwise determined by the Board of Directors,
the fiscal year of the corporation shall end on October 31 of each year.
2. SEAL. The Board of Directors shall have power to adopt and alter the
seal of the corporation.
3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers, contracts,
bonds, notes and other obligations authorized to be executed by an officer of
the corporation in its behalf shall be signed by the President or Treasurer, or
by any other officer of the corporation designated by the Board of Directors,
except as the Board of Directors may generally or in particular cases otherwise
determine.
4. VOTING OF SECURITIES. Unless otherwise provided by the Board of
Directors, the or President or Treasurer may waive notice of and act on behalf
of this corporation, or appoint
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another person or persons to act as proxy or attorney in fact for this
corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this corporation.
5. RESIDENT AGE. The Board of Directors may appoint a resident agent upon
whom legal process may be served in any action or proceeding against the
corporation.
6. CORPORATE RECORDS. The original or attested copies of the Certificate of
Incorporation, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock and transfer records,
which shall contain the names of all stockholders, their record addresses and
the amount of stock held by each, shall be kept at the principal office of the
corporation, at the office of its counsel, or at an office of its transfer
agent.
7. CERTIFICATE OF INCORPORATION. All references in these By-laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
8. AMENDMENTS. These By-laws may be amended or repealed or additional
By-laws adopted by the stockholders or by the Board of Directors; provided, that
(a) the Board of Directors may not amend or repeal Article V or this Section 8
of Article VI or any provision of these By-laws which by law, by the Certificate
of Incorporation or by these By-laws requires action by the stockholders, and
(b) any amendment or repeal of these By-laws by the Board of Directors and any
By-law adopted by the Board of Directors may be amended or repealed by the
stockholders.
Adopted November 8, 1999
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EXHIBIT 3.5
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
FIREPOND, INC.
(the "Corporation")
ARTICLE I
STOCKHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of stockholders (any such
meeting being referred to in these By-laws as an "Annual Meeting") shall be held
at the hour, date and place within or without the United States which is fixed
by the majority of the Board of Directors, the Chairman of the Board, if one is
elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors. If no Annual Meeting has
been held for a period of thirteen months after the Corporation's last Annual
Meeting, a special meeting in lieu thereof may be held, and such special meeting
shall have, for the purposes of these By-laws or otherwise, all the force and
effect of an Annual Meeting. Any and all references hereafter in these By-laws
to an Annual Meeting or Annual Meetings also shall be deemed to refer to any
special meeting(s) in lieu thereof.
Section 2. SPECIAL MEETINGS. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office.
Section 3. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(a) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be considered by
the stockholders may be made at an Annual Meeting (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this By-law, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this By-law.
(2) For nominations or other business to be properly
brought before an Annual Meeting by a stockholder pursuant to clause (c) of
paragraph (a)(1) of this By-law, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must be a proper matter for stockholder action. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the 90th day nor earlier
than the close
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of business on the 120th day prior to the first anniversary of the preceding
year's Annual Meeting; PROVIDED, HOWEVER, that in the event that the date of the
Annual Meeting is more than 30 days before or more than 60 days after such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the close of business on the 120th day prior to such Annual
Meeting and not later than the close of business on the later of the 90th day
prior to such Annual Meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. In no event shall the
public announcement of an adjournment of an Annual Meeting commence a new time
period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner, and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this By-law to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
Corporation at least 100 days prior to the first anniversary of the preceding
year's Annual Meeting, a stockholder's notice required by this By-law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this By-law, who shall be
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-law. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any such stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in the Corporation's
notice of meeting, if the stockholder's notice required by paragraph (a)(2) of
this By-law shall be delivered to the
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Secretary at the principal executive offices of the Corporation not earlier than
the close of business on the 120th day prior to such special meeting and not
later than the close of business on the later of the 90th day prior to such
special meeting or the 10th day following the day on which public announcement
is first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public announcement of an adjournment of a special meeting commence a new time
period for the giving of a stockholder's notice as described above.
(c) GENERAL.
(1) Only such persons who are nominated in accordance with
the procedures set forth in this By-law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this By-law. If the Board of Directors or a designated committee thereof
determines that any stockholder proposal or nomination was not made in a timely
fashion in accordance with the provisions of this By-law or that the information
provided in a stockholder's notice does not satisfy the information requirements
of this By-law in any material respect, such proposal or nomination shall not be
presented for action at the Annual Meeting in question. If neither the Board of
Directors nor such committee makes a determination as to the validity of any
stockholder proposal or nomination in the manner set forth above, the presiding
officer of the Annual Meeting shall determine whether the stockholder proposal
or nomination was made in accordance with the terms of this By-law. If the
presiding officer determines that any stockholder proposal or nomination was not
made in a timely fashion in accordance with the provisions of this By-law or
that the information provided in a stockholder's notice does not satisfy the
information requirements of this By-law in any material respect, such proposal
or nomination shall not be presented for action at the Annual Meeting in
question. If the Board of Directors, a designated committee thereof or the
presiding officer determines that a stockholder proposal or nomination was made
in accordance with the requirements of this By-law, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such proposal or nomination.
(2) For purposes of this By-law, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission (including,
without limitation, a Form 8-K) pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this
By-law, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this By-law. Nothing in this By-law shall be deemed to
affect any rights of (i) stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) the holders of any series of preferred stock to elect directors under
specified circumstances.
Section 4. MATTERS TO BE CONSIDERED AT SPECIAL MEETING. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
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Section 5. NOTICE OF MEETINGS: ADJOURNMENTS. A written notice of each
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Certificate of Incorporation of the
Corporation (as the same may hereafter be amended and/or restated, the
"Certificate") or under these By-laws, is entitled to such notice, by delivering
such notice to him or by mailing it, postage prepaid, addressed to such
stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be given when
hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for Annual Meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an Annual Meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any Annual Meeting or special meeting of stockholders need be
specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously scheduled
Annual Meeting or special meeting of stockholders and any record date with
respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 3 of this
Article I of these By-laws or otherwise. In no event shall the public
announcement of an adjournment, postponement or rescheduling of any previously
scheduled meeting of stockholders commence a new time period for the giving of a
stockholder's notice under Section 3 of this Article I of these By-laws.
When any meeting is convened, the presiding officer may adjourn the meeting
if (a) no quorum is present for the transaction of business, (b) the Board of
Directors determines that adjournment is necessary or appropriate to enable the
stockholders to consider fully information which the Board of Directors
determines has not been made sufficiently or timely available to stockholders,
or (c) the Board of Directors determines that adjournment is otherwise in the
best interests of the Corporation. When any Annual Meeting or special meeting of
stockholders is adjourned to another hour, date or place, notice need not be
given of the adjourned meeting other than an announcement at the meeting at
which the adjournment is taken of the hour, date and place to which the meeting
is adjourned; PROVIDED, HOWEVER, that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote thereat and each stockholder who, by law or under the
Certificate or these By-laws, is entitled to such notice.
Section 6. QUORUM. A majority of the shares entitled to vote, present
in person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a
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quorum is present at a meeting, the holders of voting stock representing a
majority of the voting power present at the meeting or the presiding officer may
adjourn the meeting from time to time, and the meeting may be held as adjourned
without further notice, except as provided in Section 5 of this Article I. At
such adjourned meeting at which a quorum is present, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly constituted meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 7. VOTING AND PROXIES. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by written proxy, but no
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period. Proxies shall be filed with the Secretary of
the meeting before being voted. Except as otherwise limited therein or as
otherwise provided by law, proxies shall entitle the persons authorized thereby
to vote at any adjournment of such meeting, but they shall not be valid after
final adjournment of such meeting. A proxy with respect to stock held in the
name of two or more persons shall be valid if executed by or on behalf of any
one of them unless at or prior to the exercise of the proxy the Corporation
receives a specific written notice to the contrary from any one of them.
Section 8. ACTION AT MEETING. When a quorum is present, any matter
before any meeting of stockholders shall be decided by the affirmative vote of
the majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the Certificate or by these By-laws. Any election by stockholders shall
be determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate or
by these By-laws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote shares
which it holds in a fiduciary capacity to the extent permitted by law.
Section 9. STOCKHOLDER LISTS. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these By-laws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 10. PRESIDING OFFICER. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the President, shall
preside at all Annual Meetings or special meetings of stockholders and shall
have the power, among other things, to adjourn such meeting
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at any time and from time to time, subject to Sections 5 and 6 of this Article
I. The order of business and all other matters of procedure at any meeting of
the stockholders shall be determined by the presiding officer.
Section 11. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and, if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
DIRECTORS
Section 1. POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
Section 2. NUMBER AND TERMS. The number of directors of the Corporation
shall be fixed by resolution duly adopted from time to time by the Board of
Directors. The directors shall hold office in the manner provided in the
Certificate.
Section 3. QUALIFICATION. No director need be a stockholder of the
Corporation.
Section 4. VACANCIES. Subject to the rights, if any, of the holders of
any series of preferred stock to elect directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director appointed in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been duly elected and qualified or until his or her earlier resignation or
removal. Subject to the rights, if any, of the holders of any series of
preferred stock to elect directors, when the number of directors is
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increased or decreased, the Board of Directors shall determine the class or
classes to which the increased or decreased number of directors shall be
apportioned; provided, however, that no decrease in the number of directors
shall shorten the term of any incumbent director. In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.
Section 5. REMOVAL. Directors may be removed from office in the manner
provided in the Certificate.
Section 6. RESIGNATION. A director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the President or
the Secretary. A resignation shall be effective upon receipt, unless the
resignation otherwise provides.
Section 7. REGULAR MEETINGS. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 7, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
Section 9. NOTICE OF MEETINGS. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the President or such other officer designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each director in person, by telephone,
or by facsimile, telex, telecopy, telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting, or by written notice mailed to his or her business or
home address, at least 48 hours in advance of the meeting. Such notice shall be
deemed to be delivered when hand delivered to such address, read to such
director by telephone, deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if faxed, telexed or telecopied, or
when delivered to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
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A written waiver of notice signed before or after a meeting by a director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Certificate or by these
By-laws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
Section 10. QUORUM. At any meeting of the Board of Directors, a majority
of the directors then in office shall constitute a quorum for the transaction of
business, but if less than a quorum is present at a meeting, a majority of the
directors present may adjourn the meeting from time to time, and the meeting may
be held as adjourned without further notice, except as provided in Section 9 of
this Article II. Any business which might have been transacted at the meeting as
originally noticed may be transacted at such adjourned meeting at which a quorum
is present.
Section 11. ACTION AT MEETING. At any meeting of the Board of Directors
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
Section 12. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
Section 13. MANNER OF PARTICIPATION. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
Section 14. COMMITTEES. The Board of Directors, by vote of a majority of
the directors then in office, may elect from its number one or more committees,
including, without limitation, an Executive Committee, a Compensation Committee,
a Stock Option Committee and an Audit Committee, and may delegate thereto some
or all of its powers except those which by law, by the Certificate or by these
By-laws may not be delegated. Except as the Board of Directors may otherwise
determine, any such committee may make rules for the conduct of its business,
but unless otherwise provided by the Board of Directors or in such rules, its
business shall be conducted so far as possible in the same manner as is provided
by these By-laws for the Board of Directors. All members of such committees
shall hold such offices at the pleasure of the Board of Directors. The Board of
Directors may abolish any such committee at any time. Any committee to which the
Board of Directors delegates any of its powers or duties shall keep records of
its meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.
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Section 15. COMPENSATION OF DIRECTOR. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
ARTICLE III
OFFICERS
Section 1. ENUMERATION. The officers of the Corporation shall consist
of a President, a Treasurer, a Secretary and such other officers, including,
without limitation, a Chairman of the Board of Directors, a Chief Executive
Officer and one or more Vice Presidents (including Executive Vice Presidents or
Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and
Assistant Secretaries, as the Board of Directors may determine.
Section 2. ELECTION. At the regular annual meeting of the Board
following the Annual Meeting, the Board of Directors shall elect the President,
the Treasurer and the Secretary. Other officers may be elected by the Board of
Directors at such regular annual meeting of the Board of Directors or at any
other regular or special meeting.
Section 3. QUALIFICATION. No officer need be a stockholder or a
director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.
Section 4. TENURE. Except as otherwise provided by the Certificate or
by these By-laws, each of the officers of the Corporation shall hold office
until the regular annual meeting of the Board of Directors following the next
Annual Meeting and until his or her successor is elected and qualified or until
his or her earlier resignation or removal.
Section 5. RESIGNATION. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the President or the
Secretary, and such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
Section 6. REMOVAL. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
Section 7. ABSENCE OR DISABILITY. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
Section 8. VACANCIES. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
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Section 9. PRESIDENT. The President shall, subject to the direction of
the Board of Directors, have general supervision and control of the
Corporation's business. If there is no Chairman of the Board or if he or she is
absent, the President shall preside, when present, at all meetings of
stockholders and of the Board of Directors. The President shall have such other
powers and perform such other duties as the Board of Directors may from time to
time designate.
Section 10. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
Section 11. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if one
is elected, shall have such powers and shall perform such duties as the Board of
Directors may from time to time designate.
Section 12. VICE PRESIDENTS AND ASSISTANT VICE PRESIDENT. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
Section 13. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
Section 14. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record
all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however, be kept by any transfer or other agent of
the Corporation). The Secretary shall have custody of the seal of the
Corporation, and the Secretary, or an Assistant Secretary, shall have authority
to affix it to any instrument requiring it, and, when so affixed, the seal may
be attested by his or her signature or that of an Assistant Secretary. The
Secretary shall have such other duties and powers as may be designated from time
to time by the Board of Directors or the Chief Executive Officer. In the absence
of the Secretary, any Assistant Secretary may perform his or her duties and
responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer may from time to time
designate.
Section 15. OTHER POWERS AND DUTIES. Subject to these By-laws and to such
limitations as the Board of Directors may from time to time prescribe, the
officers of the
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Corporation shall each have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as from time to time may
be conferred by the Board of Directors or the Chief Executive Officer.
ARTICLE IV
CAPITAL STOCK
Section 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the President or a Vice
President and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary. The Corporation seal and the signatures by the
Corporation's officers, the transfer agent or the registrar may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on such certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the time of its issue. Every certificate
for shares of stock which are subject to any restriction on transfer and every
certificate issued when the Corporation is authorized to issue more than one
class or series of stock shall contain such legend with respect thereto as is
required by law.
Section 2. TRANSFERS. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
Section 3. RECORD HOLDERS. Except as may otherwise be required by law,
by the Certificate or by these By-laws, the Corporation shall be entitled to
treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock, until the shares have been transferred on the books of the
Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of his
or her post office address and any changes thereto.
Section 4. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by
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law, not be more than sixty nor less than ten days before the date of such
meeting and (b) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (i) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held and (ii) the record
date for determining stockholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
Section 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
INDEMNIFICATION
Section 1. DEFINITIONS. For purposes of this Article:
(a) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors of the Corporation.
(b) "Officer" means any person who serves or has served the
Corporation as an officer appointed by the Board of Directors of the
Corporation;
(c) "Non-Officer Employee" means any person who serves or has
served as an employee of the Corporation, but who is not or was not a Director
or Officer;
(d) "Proceeding" means any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of expert witnesses, private investigators
and professional advisors (including, without limitation, accountants and
investment bankers), travel expenses, duplicating costs, printing and binding
costs, costs of preparation of demonstrative evidence and other courtroom
presentation aids and devices, costs incurred in connection with document
review, organization, imaging and computerization, telephone charges, postage,
delivery service fees, and all other disbursements, costs or expenses of the
type customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, being or preparing to be a witness in,
settling or otherwise participating in, a Proceeding;
(f) "Corporate Status" describes the status of a person who (i)
in the case of a Director, is or was a director of the Corporation and is or was
acting in such capacity, (ii) in the case of an Officer, is or was an officer,
employee or agent of the Corporation or is or was a director, officer, employee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such Officer is or was serving at the
request of the Corporation, and (iii) in the case of a Non-Officer Employee, is
or was an employee of the
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Corporation or is or was a director, officer, employee or agent of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such Non-Officer Employee is or was serving at the request of
the Corporation. For purposes of subsection (ii) of this Section 1(f), an
officer or director of the Company who is serving as a director, partner,
trustee, officer, employee or agent of a Subsidiary shall be deemed to be
serving at the request of the Company;
(g) "Disinterested Director" means, with respect to each
Proceeding in respect of which indemnification is sought hereunder, a Director
of the Corporation who is not and was not a party to such Proceeding; and
(h) "Subsidiary" shall mean any corporation, partnership,
limited liability company, joint venture, trust or other entity of which the
Corporation owns (either directly or through or together with another Subsidiary
of the Corporation) either (i) a general partner, managing member or other
similar interest or (ii) (A) 50% or more of the voting power of the voting
capital equity interests of such corporation, partnership, limited liability
company, joint venture or other entity, or (B) 50% or more of the outstanding
voting capital stock or other voting equity interests of such corporation,
partnership, limited liability company, joint venture or other entity.
Section 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Subject to the
operation of Section 5.4 of these By-laws, each Director and Officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director's
or Officer's behalf in connection with any threatened, pending or completed
Proceeding or any claim, issue or matter therein, which such Director or Officer
is, or is threatened to be made, a party to or participant in by reason of such
Director's or Officer's Corporate Status, if such Director or Officer acted in
good faith and in a manner such Director or Officer reasonably believed to be in
or not opposed to the best interests of the Corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 5.2 shall
continue as to a Director or Officer after he or she has ceased to be a Director
or Officer and shall inure to the benefit of his or her heirs, executors,
administrators and personal representatives. Notwithstanding the foregoing, the
Corporation shall indemnify any Director or Officer seeking indemnification in
connection with a Proceeding initiated by such Director or Officer only if such
Proceeding was authorized by the Board of Directors of the Corporation, unless
such Proceeding was brought to enforce an Officer or Director's rights to
Indemnification under these By-laws.
Section 3. INDEMNIFICATION OF NON-OFFICER EMPLOYEES. Subject to the
operation of Section 5.4 of these By-laws, each Non-Officer Employee may, in the
discretion of the Board of Directors of the Corporation, be indemnified by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended, against any or all Expenses, judgments, penalties,
fines and amounts reasonably paid in settlement that are incurred by such
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Non-Officer Employee or on such Non-Officer Employee's behalf in connection with
any threatened, pending or completed Proceeding, or any claim, issue or matter
therein, which such Non-Officer Employee is, or is threatened to be made, a
party to or participant in by reason of such Non-Officer Employee's Corporate
Status, if such Non-Officer Employee acted in good faith and in a manner such
Non-Officer Employee reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 5.3 shall exist as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall inure
to the benefit of his or her heirs, personal representatives, executors and
administrators. Notwithstanding the foregoing, the Corporation may indemnify any
Non-Officer Employee seeking indemnification in connection with a Proceeding
initiated by such Non-Officer Employee only if such Proceeding was authorized by
the Board of Directors of the Corporation.
Section 4. GOOD FAITH. Unless ordered by a court, no indemnification
shall be provided pursuant to this Article V to a Director, to an Officer or to
a Non-Officer Employee unless a determination shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal Proceeding, such person had no reasonable cause to believe his or
her conduct was unlawful. Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) a committee comprised of Disinterested Directors, such
committee having been designated by a majority vote of the Disinterested
Directors (even though less than a quorum), (c) if there are no such
Disinterested Directors, or if a majority of Disinterested Directors so directs,
by independent legal counsel in a written opinion, or (d) by the stockholders of
the Corporation.
Section 5. ADVANCEMENT OF EXPENSES TO DIRECTORS PRIOR TO FINAL
DISPOSITION. The Corporation shall advance all Expenses incurred by or on behalf
of any Director in connection with any Proceeding in which such Director is
involved by reason of such Director's Corporate Status within 10 days after the
receipt by the Corporation of a written statement from such Director requesting
such advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by such Director and shall be preceded or
accompanied by an undertaking by or on behalf of such Director to repay any
Expenses so advanced if it shall ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.
Section 6. ADVANCEMENT OF EXPENSES TO OFFICERS AND NON-OFFICER
EMPLOYEES PRIOR TO FINAL DISPOSITION.
(a) ADVANCEMENT TO OFFICERS. The Corporation may, at the
discretion of the Board of Directors of the Corporation, advance any or all
Expenses incurred by or on behalf of any Officer in connection with any
Proceeding in which such is involved by reason of such Officer's Corporate
Status upon the receipt by the Corporation of a statement or statements from
such Officer requesting such advance or advances from time to time, whether
prior to or after final disposition of such Proceeding. Such statement or
statements shall reasonably evidence the Expenses incurred by such Officer and
shall be preceded or accompanied by an undertaking by
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or on behalf of such to repay any Expenses so advanced if it shall ultimately be
determined that such Officer is not entitled to be indemnified against such
Expenses.
(b) ADVANCEMENT TO NON-OFFICER EMPLOYEES. The Corporation may,
at the discretion of the Board of Directors or of any Officer who is authorized
to act on behalf of the Corporation, advance any or all Expenses incurred by or
on behalf of any Non-Officer Employee in connection with any Proceeding in which
such Non-Officer Employee is involved by reason of such Non-Officer Employee's
Corporate Status upon the receipt by the Corporation of a statement or
statements from such Non-Officer Employee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Non-Officer Employee and shall be preceded or accompanied by an
undertaking by or on behalf of such Non-Officer Employee to repay any Expenses
so advanced if it shall ultimately be determined that such Non-Officer Employee
is not entitled to be indemnified against such Expenses.
Section 7. CONTRACTUAL NATURE OF RIGHTS. The foregoing provisions of
this Article V shall be deemed to be a contract between the Corporation and each
Director and Officer entitled to the benefits hereof at any time while this
Article V is in effect, and any repeal or modification thereof shall not affect
any rights or obligations then existing with respect to any state of facts then
or theretofore existing or any Proceeding theretofore or thereafter brought
based in whole or in part upon any such state of facts. If a claim for
indemnification or advancement of Expenses hereunder by a Director or Officer is
not paid in full by the Corporation within (a) 60 days after receipt by the
Corporation's of a written claim for indemnification, or (b) in the case of a
Director, 10 days after receipt by the Corporation of documentation of Expenses
and the required undertaking, such Director or Officer may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim, and if successful in whole or in part, such Director or Officer shall
also be entitled to be paid the expenses of prosecuting such claim. The failure
of the Corporation (including its Board of Directors or any committee thereof,
independent legal counsel, or stockholders) to make a determination concerning
the permissibility of such indemnification or, in the case of a Director,
advancement of Expenses, under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
Section 8. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Certificate or these
By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
Section 9. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
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ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 1. FISCAL YEAR. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of
October of each year.
Section 2. SEAL. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
Section 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the President or the Treasurer or any other officer, employee or agent
of the Corporation as the Board of Directors or Executive Committee may
authorize.
Section 4. VOTING OF SECURITIES. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the President
or the Treasurer may waive notice of and act on behalf of this Corporation, or
appoint another person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any meeting of stockholders or shareholders of any other corporation or
organization, any of whose securities are held by this Corporation.
Section 5. RESIDENT AGENT. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
Section 6. CORPORATE RECORDS. The original or attested copies of the
Certificate, By-laws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
Section 7. AMENDMENT OF BY-LAWS.
(a) AMENDMENT BY DIRECTORS. Except as provided otherwise by law,
these By-laws may be amended or repealed by the Board of Directors by the
affirmative vote of a majority of the directors then in office.
(b) AMENDMENT BY STOCKHOLDERS. These By-laws may be amended or
repealed at any Annual Meeting, or special meeting of stockholders called for
such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a
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single class. Notwithstanding the foregoing, stockholder approval shall not be
required unless mandated by the Articles of Organization, these By-laws, or
other applicable law.
Adopted November 8, 1999 and effective as of ____________ __, 2000.
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Exhibit 10.2
FIREPOND, INC.
1997 STOCK PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS
The name of this plan is the FirePond, Inc. 1997 Stock Plan (the
"Plan"). The purpose of the Plan is to enable FirePond, Inc. (the "Company") to
retain and attract executives and other key employees, directors and consultants
who contribute to the Company's success by their ability, ingenuity and
industry, and to enable such individuals to participate in the long-term success
and growth of the Company by giving them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "BOARD" means the Board of Directors of the Company as it may
be comprised from time to time.
b. "CAUSE" means a felony conviction of a participant, the
failure of a participant to contest prosecution for a felony,
willful misconduct, dishonesty or intentional violation of a
statute, rule or regulation, any of which, in the judgment of
the Company, is directly and materially harmful to the
business or reputation of the Company, or a repeated refusal
of a participant to comply with reasonable directions of the
Board of Directors, or the reckless or willful misconduct in
the performance of duties assigned by the Board of Directors.
c. "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute
d. "COMMITTEE" means the Committee referred to in Section 2 of
the Plan. If at any time no Committee shall be in office, then
the functions of the Committee specified in the Plan shall be
exercised by the Board, unless the Plan specifically states
otherwise.
e. "CONSULTANT" means any person, including an advisor, engaged
by the Company or a Parent Corporation or a Subsidiary of the
Company to render services and who is compensated for such
services and who is not an employee of the Company or any
Parent Corporation or Subsidiary of the Company. A director
who is not an employee may serve as a Consultant.
f. "COMPANY" means FirePond, Inc., a corporation organized under
the laws of the State of Minnesota (or any successor
corporation).
g. "DEFERRED STOCK" means an award made pursuant to Section 8
below of the right to receive stock at the end of a specified
deferral period.
h. "DISABILITY" means permanent and total disability as
determined by the Committee.
<PAGE> 2
i. "EARLY RETIREMENT" means retirement, with consent of the
Committee at the time of retirement, from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company.
j. "FAIR MARKET VALUE" of Stock on any given date shall be
determined by the Committee as follows: (a) if the Stock is
listed for trading on one or more national securities
exchanges, or is traded on The Nasdaq Stock Market, the last
reported sales price on the principal such exchange or The
Nasdaq Stock Market on the date in question, or if such Stock
shall not have been traded on such principal exchange on such
date, the last reported sales price on such principal exchange
or The Nasdaq Stock Market on the first day prior thereto on
which such Stock was so traded, or (b) if the Stock is not
listed for trading on a national securities exchange or The
Nasdaq Stock Market, but is traded in the over-the-counter
market, including The Nasdaq Small Cap Market, the closing bid
price for such Stock on the date in question, or if there is
no such bid price for such Stock on such date the closing bid
price on the first day prior thereto on which such price
existed; or (c) if neither (a) or (b) is applicable, by any
means fair and reasonable by the Committee, which
determination shall be final and binding on all parties.
k. "INCENTIVE STOCK OPTION" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
l. "NON-EMPLOYEE DIRECTOR" shall have the meaning set forth in
Rule 16b-3(b)(3) as promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as
amended, or any successor definition adopted by the
Commission.
m. "NON-QUALIFIED STOCK OPTION" means any Stock Option that is
not an Incentive Stock Option, and is intended to be and is
designated as a "Non-Qualified Stock Option."
n. "NORMAL RETIREMENT" means retirement from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company on or after age 65.
o. "OUTSIDE DIRECTOR" means a director who (a) is not a current
employee of the Company or any member of an affiliated group
which includes the Company, (b) is not a former employee of
the Company who receives compensation for prior services
(other than benefits under a tax-qualified retirement plan)
during the taxable year, (c) has not been an officer of the
Company; (d) does not receive remuneration from the Company,
either directly or indirectly, in any capacity other than as a
director, except as otherwise permitted under Code Section
162(m) and regulations thereunder. For this purpose,
remuneration includes any payment in exchange for goods or
services. This definition shall be further governed by the
provisions of Code Sections 162(m) and regulations promulgated
thereunder.
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<PAGE> 3
p. "PARENT CORPORATION" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if each of the corporations (other than the Company)
owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in the chain.
q. "RESTRICTED STOCK" means an award of shares of Stock that are
subject to restrictions under Section 7 below.
r. "RETIREMENT" means Normal Retirement or Early Retirement.
s. "STOCK" means the Common Stock of the Company.
t. "STOCK APPRECIATION RIGHT" means the right pursuant to an
award granted under Section 6 below to surrender to the
Company all or a portion of a Stock Option in exchange for an
amount equal to the difference between (i) Fair Market Value,
as of the date such Stock Option or such portion thereof is
surrendered, of the shares of Stock covered by such Stock
Option or such portion thereof and (ii) the aggregate exercise
price of such Stock Option or such portion thereof.
u. "STOCK OPTION" means any option to purchase shares of Stock
granted pursuant to Section 5 below.
v. "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one
of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors or by a
Committee of not less than two directors, all of whom shall be Non-Employee
Directors upon the Company becoming subject to the insider reporting
requirements of Section 16 of the Securities Exchange Act of 1934, as amended,
and also Outside Directors upon the Company becoming subject to the requirements
of Rule 162(m) of the Code. Committee members shall be appointed by the Board of
Directors of the Company and shall serve at the pleasure of the Board. Any and
all functions of the Committee specified in the Plan may be exercised by the
Board, unless the Plan specifically states otherwise.
The Committee shall have the power and authority to grant to eligible
employees, directors or Consultants, pursuant to the terms of the Plan: (i)
Stock Options, (d) Stock Appreciation Rights, (iii) Restricted Stock, or (iv)
Deferred Stock awards.
In particular, the Committee shall have the authority:
(i) to select the officers, directors and other key employees of
the Company and its Subsidiaries and other eligible persons to
whom Stock Options,
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<PAGE> 4
Stock Appreciation Rights, Restricted Stock and Deferred Stock
awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation
Rights, Restricted Stock and Deferred Stock awards, or a
combination of the foregoing, are to be granted hereunder,
(iii) to determine the number of shares to be covered by each such
award granted hereunder,
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including but not limited to, any restriction on any Stock
Option or other award and/or the shares of Stock relating
thereto), which authority shall be exclusively vested in the
Committee (and not the Board) for purposes of establishing
performance criteria used with Restricted Stock and Deferred
Stock awards provided, however, in the event of a merger or
asset sale, the applicable provisions of Sections 5(c) and
7(c) of the Plan shall govern. the acceleration of the vesting
of any Stock option or awards;
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to
an award under this Plan shall be deferred either
automatically or at the election of the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
form time to time, deem advisable; to interpret the terms and provisions of the
Plan as it shall, from time to time, deem advisable; to interpret the terms and
provisions of the Plan and any award issued under the Plan (and any agreements
relating thereto); and to otherwise supervise the administration of the Plan.
The Committee may delegate to executive officers of the Company the authority to
exercise the powers specified in (i), (ii), (iii), (iv) and (v) above with
respect to persons who are not executive officers of the Company.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 14,095,222. Such shares may consist, in
whole or in part, of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that
have been optioned cease to be subject to Stock Options or if any shares subject
to any Restricted Stock or Deferred Stock award granted hereunder are forfeited
or such award otherwise terminates without a payment being made to the
participant, such shares shall again be available for distribution in connection
with future awards under the Plan.
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<PAGE> 5
In the event of any merger; reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding options granted under the Plan, and in the number of
shares subject to Restricted Stock or Deferred Stock awards granted under the
Plan as may be determined by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
Such adjusted option price shall also be used to determine the amount payable by
the Company upon the exercise of any Stock Appreciation Right associated with
any Option.
SECTION 4. ELIGIBILITY
Officers, directors, other key employees of the Company and
Subsidiaries, and Consultants who are responsible for or contribute to the
management, growth and profitability of the business of the Company and its
Subsidiaries are eligible to be granted Stock Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock awards under the Plan. The optionees
and participants under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the Committee
shall determine, in its sole discretion, the number of shares covered by each
award.
Notwithstanding the foregoing, upon the Company becoming subject to the
requirements of Section 162(m) of the Code, no person shall receive grants or
awards under this Plan which exceed 1,500,000 shares during any fiscal year of
the Company.
SECTION 5. STOCK OPTIONS.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after May 7, 2007.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify its an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Stock
Option as an Incentive Stock Option provided the optionee consents in writing to
the modification or amendment.
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<PAGE> 6
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) OPTION PRICE. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option be less than 100% of Fair Market Value on the date the option is
granted. If an employee owns or is deemed to own (by reason of the attribution
rules applicable under Section 424(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Parent Corporation or
Subsidiary and an Incentive Stock Option is granted to such employee, the option
price shall be no less than 110% of the Fair Market Value of the Stock on the
date the option is granted.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) EXERCISABILITY. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time, provided, however, that upon the Company becoming subject to the
requirements of Section 16 of the Securities Exchange Act of 1934, as amended, a
Stock Option granted to an officer, director or 10% shareholder of the Company
shall not be exercisable for a period of six (6) months after the date of grant
unless the Stock Option has been approved by the Board, the Committee or
shareholders of the Company. Notwithstanding anything contained in the Plan to
the contrary, the Committee may, in its discretion, accelerate, extend or vary
the term of any Stock Option or any installment thereof, whether or not the
optionee is then employed by the Company, if such action is deemed to be in the
best interests of the Company
The grant of an option pursuant to the Plan shall not limit in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge,
exchange or consolidate or to dissolve, liquidate, sell or transfer all or any
part of its business or assets.
(d) METHOD OF EXERCISE. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by check,
or by any other form of legal consideration deemed sufficient by the Committee
and consistent with the Plan's purpose and applicable law, including promissory
notes or a properly executed exercise notice together with irrevocable
instructions to a broker acceptable to the Company to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price. As
determined by the Committee at the time of grant or exercise, in its sole
discretion, payment in full or in part may also be made in the form of Stock
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<PAGE> 7
already owned by the optionee (which in the case of Stock acquired upon exercise
of an option have been owned for more than six months on the date of surrender)
or, in the case of the exercise of a Non-Qualified Stock Option, Restricted
Stock or Deferred Stock subject to an award hereunder (based, in each case, on
the Fair Market Value of the Stock on the date the option is exercised, as
determined by the Committee), provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares may be authorized only at the time the option is granted, and provided
further that in the event payment is made in the form of shares of Restricted
Stock or a Deferred Stock award, the optionee will receive a portion of the
option shares in the form of and in an amount equal to, the Restricted Stock or
Deferred Stock award tendered as payment by the optionee. If the terms of an
option so permit, an optionee may elect to pay all or part of the option
exercise price by having the Company withhold from the shares of Stock that
would otherwise be issued upon exercise that number of shares of Stock having a
Fair Market Value equal to the aggregate option exercise price for the shares
with respect to which such election is made. No shares of Stock shall be issued
until full payment therefor has been made. An optionee shall generally have the
rights to dividends and other rights of a shareholder with respect to shares
subject to the option when the optionee has given written notice of exercise,
has paid in full for such shares, and, if requested, has given the
representation described in paragraph (a) of Section 12.
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) TERMINATION BY DEATH. Unless otherwise provided by the Committee,
if an optionee's employment by the Company and any Subsidiary or Parent
Corporation terminates by reason of death, the Stock Option may thereafter be
immediately exercised, to the extent then exercisable, by the legal
representative of the estate or by the legatee of the optionee under the will,
of the optionee, for a Period of three months from the date of such death or
until the expiration of the stated term of the option, whichever period is
shorter.
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise provided by
the Committee, if an optionee's employment by the Company and any Subsidiary or
Parent Corporation terminates by reason of Disability, any Stock Option held by
such optionee may thereafter be exercised, to the extent it was exercisable at
the time of termination due to Disability, but may not be exercised after twelve
months from the date of such termination of employment or the expiration of the
stated term of the option, whichever period is the shorter. In the event of
termination of employment by reason of Disability, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be treated as a
Non-Qualified Stock Option.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise provided by
the Committee, if an optionee's employment by the Company and any Subsidiary or
Parent Corporation terminates by reason of Retirement and the terms of the Stock
Option so provide, any Stock Option held by such optionee may thereafter be
exercised to the extent it was exercisable at the time of such Retirement, but
may not be exercised after three months from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by reason of
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<PAGE> 8
Retirement, if an Incentive Stock Option is exercised after the expiation of the
exercise periods that apply for purposes of Section 422 of the Code, the option
will thereafter be treated as a Non-Qualified Stock Option.
(i) OTHER TERMINATION. In the event an Optionee's continuous status as
an employee or Consultant terminates (other than upon the optionee's death,
Retirement or Disability), the Optionee may exercise his or her Option, but only
within such period of time as is determined by the Committee, and only to the
extent that the Optionee was entitled to exercise it at the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Notice of Grant). In the case of an Incentive Stock Option, the
Committee shall determine such period of time when the Option is granted. If
such period of time with respect to an Incentive Stock Option exceeds 90 days
and the Option is exercised after 90 days from the date of termination, such
Option shall thereafter be treated as a Non-Qualified Stock Option. In the event
an optionee's employment with the Company is terminated for Cause, or under such
other circumstances as the Committee shall define in the option grant, all Stock
Options granted to such optionee shall immediately terminate.
(j) ANNUAL LIMIT ON INCENTIVE STOCK OPTION. The aggregate Fair Market
Value (determined as of the time the Stock Option is granted) of the Common
Stock with respect to which an Incentive Stock Option under this Plan or any
other plan of the Company and any Subsidiary or Parent Corporation is
exercisable for the first time by an optionee during any calendar year shall not
exceed $100,000.
(k) DIRECTORS. The Board of Directors may amend this Plan to provide
for annual automatic grants to directors who are not employees of the Company
upon such terms and conditions as the Board deems advisable. In the event
discretionary Stock Options are granted to members of the Committee, such Stock
Options shall be granted by the Board.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of the grant of the Stock
Option.
In the event Stock Appreciation Rights are granted to members of the
Committee, such rights shall be granted by the Board.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related stock Option shall not be reduced until the exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with paragraph (b) of this Section 6, by surrendering the applicable
portion of the related Stock
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Option. Upon such exercise and surrender, the optionee shall be entitled to
receive an amount determined in the manner prescribed in paragraph (b) of this
Section 6. Stock Options which have been so surrendered, in whole or in part,
shall no longer be exercisable to the extent the related Stock Appreciation
Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and this Section 6 of
the Plan.
(i) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an amount in
cash or shares of Stock equal in value to the excess of the Fair Market Value of
one share of Stock over the option price per share specified in the related
option multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(ii) Stock Appreciation Rights shall be transferable only when
and to the extent that the underlying Stock Option would be transferable under
Section 5 of the Plan.
(iii) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the limitation set
forth in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan, but only to the extent of the number of shares issued or
issuable under the Stock Appreciation Right at the time of exercise based on the
value of the Stock Appreciation Right at such time.
(iv) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price of the
Stock subject to the Incentive Stock Option exceeds the exercise price of such
Option.
SECTION 7. RESTRICTED STOCK.
(a) ADMINISTRATION. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers, directors, key employees and Consultants of the Company
and Subsidiaries to whom, and the time or times at which, grants of Restricted
Stock will be made, the number of shares to be awarded, the time or times within
which such awards may be subject to forfeiture, and all other conditions of the
awards. The Committee may also condition the grant of Restricted Stock upon the
attainment of specified performance goals. The provisions of Restricted Stock
awards need not be the same with respect to each recipient.
In the event Restricted Stock awards are granted to members of the
Committee, such awards shall be granted by the Board.
9
<PAGE> 10
(b) AWARDS AND CERTIFICATES. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in
respect of shares of Restricted Stock awarded under the Plan. Such certificate
shall be registered in the name of the participant and shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to such
award, substantially in the following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the FirePond, Inc. 1997
Stock Plan and an Agreement entered into between the
registered owner and FirePond, Inc. Copies of such Plan and
Agreement are on file in the offices of FirePond, Inc.,
Waltham Woods Corporate Center, 890 Winter Street, Waltham, MA
02451."
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Restricted Stock
award, the participant shall have delivered a stock power, endorsed in blank,
relating to the Stock covered by such award.
(c) RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the date of such
award (the "Restriction Period"), the participant shall not be permitted to
sell, transfer, pledge or assign shares of Restricted Stock awarded under the
Plan. Within these limits, the Committee may provide for the lapse of such
restrictions in installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 7,
the participant shall have, with respect to the shares of Restricted Stock all
of the rights of a shareholder of the Company, including the right to vote the
shares and the right to receive any cash dividends. The Committee, in its sole
discretion, may permit or require the payment of cash dividends to be deferred
and, if the Committee so determines, reinvested in additional shares of
Restricted Stock (to the extent shares are available under Section 3 and subject
to paragraph (f) of Section 12). Certificates for shares of unrestricted Stock
shall be delivered to the grantee promptly after, and only after, the period of
forfeiture shall have expired without forfeiture in respect of such shares of
Restricted Stock.
(iii) Subject to the provisions of the award agreement and
paragraph (c)(iv) of this Section 7, upon termination of employment directorship
(if the award was based on services as a director) or consulting relationship
for any reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
10
<PAGE> 11
(iv) In the event of special hardship circumstances of a
participant whose employment is unforeseeable emergency of a participant still
in service, the Committee may, in its sole terminated (other than for Cause),
including death, Disability or Retirement or in the event of an discretion, when
it finds that a waiver would be in the best interest of the Company, waive in
whole or in part any or all remaining restrictions with respect to such
participant's shares of Restricted Stock.
(v) Notwithstanding anything contained in the Plan to the
contrary, the Committee may, in its discretion, accelerate, extend or vary the
terms or the lapsing of the restrictions placed on any Restricted Stock award
granted pursuant to this Plan if such action is deemed to be in the best
interests of the Company.
SECTION 8. DEFERRED STOCK AWARDS.
(a) ADMINISTRATION. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers, directors, key employees and Consultants of the Company and
Subsidiaries to whom and the time or times at which Deferred Stock shall be
awarded, the number of Shares of Deferred Stock to be awarded to any participant
or group of participants, the duration of the period (the "Deferral Period")
during which and the conditions under which, receipt of the Stock will be
deferred, and the terms and conditions of the award in addition to those
contained in paragraph (b) of this Section 8. The Committee may also condition
the grant of Deferred Stock upon the attainment of specified performance goals.
The provisions of Deferred Stock awards need not be the same with respect to
each recipient.
In the event Deferred Stock awards are granted to members of the
Committee, such awards shall be granted by the Board.
(b) TERMS AND CONDITIONS
(i) Subject to the provisions of this Plan and the award
agreement, Deferred Stock awards may not be sold, assigned, transferred, pledged
or otherwise encumbered during the Deferral Period. At the expiration of the
Deferral Period (or Elective Deferral Period, where applicable), share
certificates shall be delivered to the participant, or his legal representative,
in a number equal to the shares covered by the Deferred Stock award.
(ii) Amounts equal to any dividends declared during the
Deferral Period with respect to the number of shares covered by a Deferred Stock
award will be paid to the participant currently or deferred and deemed to be
reinvested in additional Deferred Stock or otherwise reinvested, all as
determined at the time of the award by the Committee, in its sole discretion.
(iii) Subject to the provisions of the award agreement and
paragraph (b)(iv) of this Section 8, upon termination of employment,
directorship (if the award was based on services as a director) or consulting
relationship for any reason during the Deferral Period for a given award, the
Deferred Stock in question shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause) including
death, Disability or Retirement, or in
11
<PAGE> 12
the event of an unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver would be in
the best interest of the Company, waive in whole or in part any or all of the
remaining deferral limitations imposed hereunder with respect to any or all of
the participant's Deferred Stock.
(v) A participant may elect to further defer receipt of the
award for a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such terms as
are determined by the Committee, all in its sole discretion. Subject to any
exceptions adopted by the Committee, such election must generally be made prior
to completion of one half of the Deferral Period for a Deferred Stock award (or
for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Stock agreement executed by the Company and the
participant.
SECTION 9. TRANSFER LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 10. AMENDMENTS AND TERMINATION.
The Board may amend, after, or discontinue the Plan, but no amendment
alteration, or discontinuation shall be made (i) which would adversely impair
the rights of an optionee or participant under a Stock Option, Restricted Stock
or other Stock-based award theretofore granted, without the optionee's or
participant's consent, or (ii) which without the approval of the shareholders of
the Company would cause the Plan to no longer comply with Rule 16b-3 under the
Securities Exchange Act of 1934, Section 422 of the Code or any other regulatory
requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively to the extent such amendment is
consistent with the terms of this Plan, but no such amendment shall impair the
rights of any holder without his or her consent except to the extent authorized
under the Plan. The Committee may also substitute new Stock
12
<PAGE> 13
Options for previously granted Stock Options, including previously granted Stock
Options having higher Stock Option prices.
SECTION 11. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an unfunded plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 12. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan pursuant
to any Restricted Stock, Deferred Stock or other Stock-based awards shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem, advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the
13
<PAGE> 14
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant. With respect to any award
under the Plan, if the terms of such award so permit, a participant may elect by
written notice to the Company to satisfy part or all of the withholding tax
requirements associated with the award by (1) authorizing the Company to retain
from the number of shares of Stock that would otherwise be deliverable to the
participant, or (ii) delivering to the Company from shares of Stock already
owned by the participant, that number of shares having an aggregate Fair Market
Value equal to part or all of the tax payable by the participant under this
Section 12(d). Any such election shall be in accordance with, and subject to,
applicable tax and securities laws, regulations and rulings.
(e) At the time grant, the Committee may provide in connection with any
grant made under this Plan that the shares of Stock received as a result of such
grant shall be subject to a repurchase right in favor of the Company, pursuant
to which the participant shall be required to offer to the Company upon
termination of employment for any reason any shares that the participant
acquired under the Plan, with the price being the then Fair Market Value of the
Stock or, in the case of a termination for Cause, an amount equal to the cash
consideration paid for the Stock, subject to such other terms and conditions as
the Committee may specify at the time of grant. The Committee may, at the time
of the grant of an award under the Plan, provide the Company with the right to
repurchase, or require the forfeiture of shares of Stock acquired pursuant to
the Plan by any participant who at any time within two years after termination
of employment with the Company, directly or indirectly competes with, or is
employed by a competitor of the Company.
(f) The reinvestment of dividends in additional Restricted Stock (or in
Deferred Stock or other types of Plan awards) at the time of any dividend
payment shall only be permissible in the Committee (or the company's chief
financial officer) certifies in writing that under Section 3 sufficient shares
are available for such reinvestment (taking into account then outstanding Stock
Options and other Plan awards).
(g) The Plan is expressly made subject to the approval by shareholders
of the Company. If the Plan is not so approved by the shareholders on or before
one year after this Plan's adoption by the Board of Directors, this Plan shall
not come into effect. The offering of the shares hereunder shall be also subject
to the effecting by the Company of any registration or qualification of the
shares under any federal or state law or the obtaining of the consent or
approval of any governmental regulatory body which the Company shall determine,
in its sole discretion, is necessary or desirable as a condition to or in
connection with, the offering or the issue or purchase of the shares covered
thereby.
- --------------------------------------------------
Approved by the shareholders on May 7, 1997
14
<PAGE> 1
Exhibit 10.4
FIREPOND, INC.
1999 DIRECTOR PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN, DEFINITIONS
----------------------------------------
The name of the plan is the 1999 Director Plan (the "Plan"). The
purpose of the Plan is to enable FirePond, Inc. (the "Company") to attract and
retain non-employee directors and further align their interests with those of
the shareholders by providing for or increasing their equity interests in the
Company. It is anticipated that providing such persons with a direct stake in
the Company's welfare will assure a closer identification of their interests
with those of the Company, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Fair Market Value" of the Stock on any given date means (i) if the
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall not be less than the average of the highest bid and lowest asked prices of
the Stock reported for such date or, if no bid and asked prices were reported
for such date, for the last day preceding such date for which such prices were
reported; or (ii) if the Stock is admitted to trading on a national securities
exchange or the NASDAQ National Market System, then clause (i) shall not apply
and the Fair Market Value on any date shall not be less than the closing price
reported for the Stock on such exchange or system for such date or, if no sales
were reported for such date, for the last date preceding such date for which a
sale was reported; or (iii) if the Stock is not publicly traded on a securities
exchange or traded in the over-the-counter market or, if traded or quoted, there
are no transactions or quotations within the last ten trading days or trading
has been halted for extraordinary reasons, the Fair Market Value on any given
date shall be determined in good faith by the Committee; and (iv)
notwithstanding the foregoing, the Fair Market Value of the Stock on the
effective date of the Initial Public Offering shall be the offering price to the
public of the Stock on such date.
"Option" or "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5.
"Non-Qualified Stock Option" means any Stock Option that is not
designated and qualified as an "incentive stock option" as defined in Section
422 of the Code.
<PAGE> 2
"Service Relationship" means any relationship as a non-employee
director of the Company or any Subsidiary of the Company.
"Stock" means the Common Stock, par value $.01 per share, of the
Company, subject to adjustments pursuant to Section 3.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities beginning with
the Company if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50 percent or more of the economic interest or the total combined
voting power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE
---------------------------------
(a) ADMINISTRATION OF PLAN. The Plan shall be administered by the
Board, or at the discretion of the Board, by a committee or committees of the
Board, comprised, except as contemplated by Section 2(c), of not less than two
directors. All references herein to the Committee shall be deemed to refer to
the group then responsible for administration of the Plan at the relevant time
(i.e., either the Board or a committee or committees of the Board, as
applicable).
(b) POWERS OF COMMITTEE. The Committee shall have the power and
authority to grant Options consistent with the terms of the Plan, including the
power and authority:
(i) to determine and modify from time to time the terms and
conditions, including restrictions, not inconsistent with the terms of the Plan,
of any Option, which terms and conditions may differ among individual Options
and participants, and to approve the form of written instruments evidencing the
Options;
(ii) to accelerate at any time the exercisability or vesting
of all or any portion of any Option;
(iii) to impose any limitations on Options granted under the
Plan, including limitations on transfers, repurchase provisions and the like and
to exercise repurchase rights or obligations;
(iv) to extend at any time the period in which Stock Options
may be exercised; and
(v) at any time to adopt, alter and repeal such rules,
guidelines and practices for administration of the Plan and for its own acts and
proceedings as it shall deem advisable; to interpret the terms and provisions of
the Plan and any Option (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to decide
all disputes arising in connection with the Plan; and to otherwise supervise the
administration of the Plan.
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<PAGE> 3
All decisions and interpretations of the Board shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN: MERGERS: SUBSTITUTION
----------------------------------------------------
(a) STOCK ISSUABLE. The maximum number of shares of Stock reserved and
available for issuance under the Plan shall be 750,000 shares of Common Stock
subject to adjustment as provided in Section 3(b). For purposes of this
limitation, the shares of Stock underlying any Options which are forfeited,
canceled, reacquired by the Company, satisfied without the issuance of Stock or
otherwise terminated (other than by exercise) shall be added back to the shares
of Stock available for issuance under the Plan. The shares available for
issuance under the Plan may be authorized but unissued shares of Stock or shares
of Stock reacquired by the Company and held in its treasury.
(b) CHANGES IN STOCK. Subject to Section 3(c) hereof, if, as a result
of any reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar change in the Company's capital
stock, the outstanding shares of Stock are increased or decreased or are
exchanged for a different number or kind of shares or other securities of the
Company, or additional shares or new or different shares or other securities of
the Company or other non-cash assets are distributed with respect to such shares
of Stock or other securities, the Board shall make an appropriate or
proportionate adjustment in (i) the maximum number of shares reserved for
issuance under the Plan, (ii) the number of Stock Options that can be granted to
any one individual participant, (iii) the number and kind of shares or other
securities subject to any then outstanding Options under the Plan, and (iv) the
exercise price and/or exchange price for each share subject to any then
outstanding Stock Options under the Plan, without changing the aggregate
exercise price (i.e., the exercise price multiplied by the number of Stock
Options ) as to which such Stock Options remain exercisable. The adjustment by
the Board shall be final, binding and conclusive. No fractional shares of Stock
shall be issued under the Plan resulting from any such adjustment, but the Board
in its discretion may make a cash payment in lieu of fractional shares.
The Board may also adjust the number of shares subject to outstanding
Options and the exercise price and the terms of outstanding Options to take into
consideration material changes in accounting practices or principles,
extraordinary dividends, acquisitions or dispositions of stock or property or
any other event if it is determined by the Board that such adjustment is
appropriate to avoid distortion in the operation of the Plan.
(c) MERGERS AND OTHER SALE EVENTS. In the case of (i) the dissolution
or liquidation of the Company, (ii) the sale of all or substantially all of the
assets of the Company on a consolidated basis to an unrelated person or entity,
(iii) a merger, reorganization or consolidation between the Company and another
person or entity (other than a holding company or Subsidiary of the Company) as
a result of which, the holders of the Company's outstanding voting power
immediately prior to such transaction do not own a majority of the outstanding
voting power of the surviving or resulting entity immediately upon completion of
such transaction, (iv) the sale of all of the Stock of the Company to an
unrelated person or entity or (v) any other transaction in which the owners of
the Company's outstanding voting power prior to such transaction do not own at
least a majority of the outstanding voting power of the relevant entity after
the
-3-
<PAGE> 4
transaction, in each case, regardless of the form thereof (in each case, a
"Transaction"), unless provision is made in connection with the Transaction for
the assumption of the Options heretofore granted, or the substitution of such
Options with new Options of the successor entity or parent thereof, with
appropriate adjustment as to the number and kind of shares and, if appropriate,
the per share exercise prices, as provided in Section 3(b) above Transaction all
unvested shares of Stock subject to outstanding Options, to the extent not then
fully vested and/or exercisable, shall become fully vested and exercisable upon
and subject to the consummation of the Transaction, except with respect to
specific Options as the Board otherwise determines at the time of grant of such
Options.
SECTION 4. ELIGIBILITY
-----------
Each member of the Board who is not an employee of the Company or any
of its Subsidiaries (a "Non-Employee Director") shall be eligible for the grant
of Options under this Plan.
SECTION 5. STOCK OPTIONS
-------------
Any Stock Option granted under the Plan shall be pursuant to a Stock
Option Agreement. Stock Options granted under the Plan shall be Non-Qualified
Stock Options. All grants of Options to Non-Employee Directors under this Plan
shall be automatic and non-discretionary and shall be made strictly in
accordance with this Section 5. No person shall have any discretion to select
which Non-Employee Directors shall be granted Options or to determine the number
of shares to be covered by such Options.
(a) TERMS OF STOCK OPTIONS. Stock Options granted under the Plan shall
be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan.
(i) INITIAL GRANTS. Each person who is a Non-Employee
Director, other than Paul Butare, shall, on September 9, 1999 without further
action by the Board automatically be granted an Option to purchase 75,000 shares
of Stock, subject to adjustment as provided in Section 3(b) hereof. Paul Butare
shall, on September 9, 1999 without further action by the Board automatically be
granted an Option to purchase 50,000 shares of Stock, subject to adjustment as
provided in Section (3)(b) hereof. In addition, each person who first becomes a
Non-Employee Director after September 9, 1999 shall, on the date such person
becomes a Non-Employee Director, without further action by the Board,
automatically be granted an Option to purchase 75,000 shares of Stock, subject
to adjustment as provided in Section 3(b) hereof.
(ii) ANNUAL GRANTS. On the date of the Company's annual
meeting of stockholders (provided that in no event shall such date be more than
180 days after the fiscal year end), or, if such date shall not be a business
day, the business day immediately preceding such date, and so long as shares
remain available for issuance under the Plan, each person who is a CONTINUING
Non-Employee Director shall without further action by the Board automatically be
granted an Option to purchase 18,750 Common Shares, subject to adjustment as
provided in Section 3(b) hereof.
-4-
<PAGE> 5
(iii) INSUFFICIENT SHARES. Notwithstanding the foregoing, if,
on any date upon which Options are to be granted under Section 5(a)(i) or
5(a)(ii) hereof, the shares of Stock remaining available for issuance under this
Plan is insufficient for the grant of Options to purchase the total number of
shares of Stock specified in such section, then each Non-Employee Director
entitled to receive an Option on such date shall be granted an Option to
purchase a proportionate amount of the available number of shares of Stock
(rounded down to the greatest number of whole shares). Except for the specified
Options referred to in Section 5(a)(i) or 5(a)(ii) above, no other Options shall
be granted under this Plan
(iv) EXERCISABILITY; RIGHTS OF A STOCKHOLDER. Stock Options
shall become exercisable at such time or times as set forth in the Stock Option
Agreement. The Board may at any time accelerate the exercisability of all or any
portion of any Stock Option. An optionee shall have the rights of a stockholder
only as to shares acquired upon the exercise of a Stock Option and not as to
unexercised Stock Options.
(v) METHOD OF EXERCISE. Stock Options may be exercised in
whole or in part, by giving written notice of exercise to the Company,
specifying the number of shares to be purchased. Payment of the purchase price
may be made by one or more of the following methods to the extent provided in
the Stock Option Agreement:
(A) In cash, by certified or bank check, or other
instrument acceptable to the Committee in U.S. funds payable to the order of the
Company in an amount equal to the purchase price of such Option Shares;
(B) If permitted by the Board, through the delivery
(or attestation to the ownership) of shares of Stock that have been purchased by
the optionee on the open market or have been beneficially owned by the optionee
for at least six months and are not then subject to restrictions under any
Company plan. Such surrendered shares shall be valued at Fair Market Value on
the exercise date; or
(C) If permitted by the Board, by the optionee
delivering to the Company a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company cash or
a check payable and acceptable to the Company to pay the purchase price;
provided that in the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the Board shall
prescribe as a condition of such payment procedure.
Payment instruments will be received subject to collection. No
certificates for Option Shares so purchased will be issued to optionee until the
Company has completed all steps required by law to be taken in connection with
the issuance and sale of the shares, including without limitation (i) receipt of
a representation from the optionee at the time of exercise of the Option that
the optionee is purchasing the Option Shares for the optionee's own account and
not with a view to any sale or distribution thereof, (ii) the legending of any
certificate representing the shares to evidence the foregoing representations
and restrictions, and (iii) obtaining from optionee payment or provision for all
withholding taxes due as a result of the exercise of the Option. The delivery of
certificates representing the shares of Stock to be purchased pursuant to
-5-
<PAGE> 6
the exercise of a Stock Option will be contingent upon receipt from the optionee
(or a purchaser acting in his or her stead in accordance with the provisions of
the Stock Option) by the Company of the full purchase price for such shares and
the fulfillment of any other requirements contained in the Stock Option or
applicable provisions of laws.
(b) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee, or by the optionee's legal
representative or guardian in the event of the optionee's incapacity.
Notwithstanding the foregoing the optionee may transfer, without consideration
for the transfer, his or her Stock Options to members of his or her immediate
family, to trusts for the benefit of such family members, or to partnerships in
which such family members are the only partners, provided that the transferee
agrees in writing with the Company to be bound by all of the terms and
conditions of this Plan and the applicable Option.
(c) TERMINATION. Unless otherwise provided in the option agreement or
determined by the Board, upon the termination of the optionee's Service
Relationship with the Company or its Subsidiaries, the optionee's rights in his
or her Stock Options shall automatically terminate upon the effective date of
such termination.
SECTION 6. TAX WITHHOLDING
---------------
(a) PAYMENT BY PARTICIPANT. Each participant shall, no later than the
date as of which the value of an Option or of any Stock or other amounts
received thereunder first becomes includable in the gross income of the
participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Board regarding payment of, any federal, state,
or local taxes of any kind required by law to be withheld with respect to such
income. The Company and its Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any kind otherwise
due to the participant.
(b) PAYMENT IN STOCK. Subject to approval by the Board, a participant
may elect to have the minimum required tax withholding obligation satisfied, in
whole or in part, by (i) authorizing the Company to withhold from shares of
Stock to be issued pursuant to any Option a number of shares with an aggregate
Fair Market Value (as of the date the withholding is effected) that would
satisfy the withholding amount due, or (ii) transferring to the Company shares
of Stock owned by the participant with an aggregate Fair Market Value (as of the
date the withholding is effected) that would satisfy the withholding amount due.
SECTION 7. AMENDMENTS AND TERMINATION
--------------------------
The Board may, at any time, amend or discontinue the Plan and the Board
may, at any time, amend or cancel any outstanding Option (or provide substitute
Options at the same or reduced exercise or purchase price or with no exercise or
purchase price in a manner not inconsistent with the terms of the Plan), but
such price, if any, must satisfy the requirements which would apply to the
substitute or amended Option if it were then initially granted under this Plan
for the purpose of satisfying changes in law or for any other lawful purpose,
but no such action shall adversely affect rights under any outstanding Option
without the holder's consent.
-6-
<PAGE> 7
SECTION 8. STATUS OF PLAN
--------------
With respect to the portion of any Option that has not been exercised
and any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Board shall otherwise expressly determine in
connection with any Option or Options. In its sole discretion, the Board may
authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Options hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
SECTION 9. GENERAL PROVISIONS
------------------
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Board may
require each person acquiring Stock pursuant to an Option to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof. No shares of Stock shall be issued
pursuant to an Option until all applicable securities law and other legal and
stock exchange or similar requirements have been satisfied. The Board may
require the placing of such stop-orders and restrictive legends on certificates
for Stock and Options as it deems appropriate.
(b) DELIVERY OF STOCK CERTIFICATES. Stock certificates to participants
under this Plan shall be deemed delivered for all purposes when the Company or a
stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the participant, at the participant's last
known address on file with the Company.
(c) OTHER COMPENSATION ARRANGEMENTS; NO EMPLOYMENT RIGHTS. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases.
(d) TRADING POLICY RESTRICTIONS. Option exercises under the Plan shall
be subject to such Company's insider-trading-policy-related restrictions, terms
and conditions as may be established by the Board, or in accordance with
policies set by the Board, from time to time.
SECTION 10. EFFECTIVE DATE OF PLAN
----------------------
This Plan shall become effective and shall be deemed to have been
adopted on September 9, 1999, subject to approval by the holders of a majority
of the votes cast at a meeting of stockholders at which a quorum is present or
by written consent in accordance with applicable law within twelve months after
such vote.
SECTION 11. GOVERNING LAW
-------------
This Plan and all Options and actions taken thereunder shall be
governed by the laws of the State of Delaware, applied without regard to
conflict of law principles thereof.
-7-
<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 10.5
EXHIBIT "A"
LEGAL DESCRIPTION OF LAND
-------------------------
Lot 2, Block 1, Eastwood Industrial Centre, Blue Earth County,
Minnesota.
<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
EXHIBIT "C"
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 10.11.1
---------------
CWC INCORPORATED
EMPLOYEE AGREEMENT
REGARDING INVENTIONS, CONFIDENTIALITY
AND NON-COMPETITION
-------------------
Graham Williams
June 1, 1998
In consideration of my employment by CWC Incorporated (the "Company"),
I, the above-named Employee, hereby agree with the Company as follows:
1. DEFINITIONS.
(a) PROPRIETARY INFORMATION. As used in this Agreement, "Proprietary
Information" means information which the Company possesses or to which the
Company has rights which has commercial value. Proprietary Information includes,
by way of example and without limitation, trade secrets, product ideas, designs,
configurations, processes, techniques, formulas, software, improvements,
inventions, data, know-how, copyrightable materials, marketing plans and
strategies, sales and financial reports and forecasts, lists of present and
prospective customers, and information relating to research, development,
programming, purchasing, accounting, engineering, merchandising and licensing.
Proprietary Information includes information developed by me in the course of my
employment by the Company or otherwise relating to Inventions which belong to
the Company under Section 4 below, as well as other information to which I may
have access in connection with my employment.
(b) INVENTIONS AND DEVELOPMENTS. As used in this Agreement,
"Inventions and Developments" means any and all inventions, developments,
creative works and useful ideas of any description whatsoever, whether or not
patentable. Inventions and Developments include, by way of example and without
limitation, discoveries and improvements which consist of or relate to any form
of Proprietary Information.
(c) COMPANY-RELATED INVENTIONS AND DEVELOPMENTS. For purposes of this
Agreement, "Company-Related Inventions and Developments" means all Inventions
and Developments which either (a) relate at the time of conception or
development to the actual or demonstrably anticipated business of the Company or
to its actual or demonstrably anticipated research and development; (b) result
from or relate to any work performed for the Company, whether or not during
normal business hours; (c) are developed on Company time; or (d) are developed
through the use of the Company's Proprietary Information, equipment and
software, or other facilities or resources.
(d) COMPANY. For purposes of this Agreement, all references to the
"Company" will be deemed to include the Company and its direct or indirect
subsidiaries and affiliates.
<PAGE> 2
(e) CONFLICTING PRODUCT. As used in this Agreement, a "Conflicting
Product" means any computer program, product, process, system, or service of any
person or organization other than, the Company, in existence or under
development, which is the same as, or similar to, or competes with a computer
program, product, process, system or service marketed or under development by
the Company at any time during my employment with the Company.
(f) CONFLICTING ORGANIZATION. As used in this Agreement, a
"Conflicting Organization" means any person or organization other than the
Company which is engaged in or is about to become engaged in the design,
research, development, production, marketing, distribution, leasing, licensing,
selling, or servicing of a Conflicting Product.
2. CONFIDENTIAL. I understand and agree that my employment creates a
relationship of confidence and trust between me and the Company with respect to
(a) all Proprietary Information, and (b) the confidential information of others
with which the Company has a business relationship. The information referred to
in clauses (a) and (b) of the preceding sentence is referred to in this
Agreement, collectively, as "Confidential Information." At all times, both
during my employment with the Company and after its termination, I will keep in
confidence and trust all such Confidential Information, and will not use or
disclose any such Confidential Information without the written consent of the
Company, except as may be necessary in the ordinary course of performing my
duties to the Company. The restrictions set forth in this Section 2 will not
apply to information which is generally known to the public or in the trade,
unless such knowledge results from an unauthorized disclosure by me, but this
exception will not affect the application of any other provision of this
Agreement to such information in accordance with the terms of such provision. I
likewise agree to report to my supervisor immediately any violation of the
Company's security measures or prohibited disclosure of Confidential Information
by any person or organization. I agree to report to my supervisor immediately
the names of any persons or organizations that attempt to obtain Confidential
Information from me.
3. DOCUMENTS, RECORDS, ETC. All documents, records, apparatus, equipment
and other physical property, including but not limited to papers, notebooks,
manuals, reports, computer files, software, vehicles, tools, keys, entry cards
or badges, credit authorizations, user identifications and passwords, whether or
not pertaining to Proprietary Information, which are furnished to me by the
Company or are produced by me in connection with my employment will be and
remain the sole property of the Company. I will return to the Company all such
materials and property as and when requested by the Company. In any event, I
will return all such materials and property immediately upon termination of my
employment for any reason. I will not take with me any such material or property
or any copies thereof upon such termination.
4. OWNERSHIP OF INVENTIONS AND DEVELOPMENTS. I agree that all
Company-Related Inventions and Developments which I conceive or develop, in
whole or in part, either alone or jointly with others, during the term of my
employment with the Company will be the sole property of the Company. The
Company will be the sole owner of all patents, copyrights and other proprietary
rights in and with respect to such Company-Related Inventions and Developments.
To the fullest extent permitted by law, such Company-Related Inventions and
Developments will be deemed works made for hire. I hereby transfer and assign to
the Company
-2-
<PAGE> 3
any proprietary rights which I may have or acquire in any such Company-Related
Inventions and Developments, and I waive any moral rights or other special
rights which I may have or accrue therein. I agree to execute any documents and
take any actions that may be required to effect and confirm such transfer and
assignment and waiver. The provisions of this Section 4 will apply to all
Company-Related Inventions and Developments which are conceived or developed
during the term of my employment with the Company, whether before or after the
date of this Agreement, and whether or not further development or reduction to
practice may take place after termination of my employment, for which purpose it
will be presumed that any Company-Related Inventions and Developments conceived
by me which are reduced to practice within one year after termination of my
employment were conceived during the term of my employment with the Company
unless I am able to establish a later conception date by clear and convincing
written evidence. The provisions of this Section 4 will not apply, however, to
any Inventions and Developments which may be disclosed in a separate Schedule
attached to this Agreement prior to its acceptance by the Company, representing
Inventions and Developments made by me prior to my employment by the Company.
5. DISCLOSURE OF INVENTIONS AND DEVELOPMENTS. I agree promptly to disclose
to the Company, or any persons designated by it, in writing, all Company-Related
Inventions and Developments which are or may be subject to the provisions of
Section 4.
6. OBTAINING AND ENFORCING PROPRIETARY RIGHT. I agree to assist the
Company, at the Company's request from time to time and at the Company's
expense, to obtain and enforce patents, copyrights or other proprietary rights
with respect to Company-Related Inventions and Developments in any and all
countries. I will execute all documents reasonably necessary or appropriate for
this purpose. This obligation will survive the termination of my employment,
provided that the Company will compensate me at a reasonable rate after such
termination for time actually spent by me at the Company's request on such
assistance. In the event that the Company is unable for any reason whatsoever to
secure my signature to any document reasonably necessary or appropriate for any
of the foregoing purposes (including renewals, extensions, continuations,
divisions or continuations in part), I hereby irrevocably designate and appoint
the Company and its duly authorized officers and agents as my agents and
attorneys- in-fact to act for me and on my behalf, but only for the purpose of
executing and filing any such document and doing all other lawfully permitted
acts to accomplish the foregoing purposes with the same legal force and effect
as if executed by me.
7. COMPETITIVE ACTIVITIES. During the term of my employment with the
Company and for a period of 12 months thereafter (the "Non-competition Period"),
I will not, directly or indirectly, whether as owner, partner, shareholder,
director, officer, consultant, agent, employee, co-venturer or otherwise: (a)
participate in, invest in, organize or assist in organizing, work for or
contract with, any Conflicting Organization; or (b) sell or assist in the
design, development, manufacture, licensing, sale or support of any Conflicting
Product. I understand that the restrictions set forth in this Section 7 are
intended to protect the Company's legitimate interest in its Proprietary
Information and established customer relationships and goodwill, and agree that
such restrictions are necessary, reasonable and appropriate for this purpose.
-3-
<PAGE> 4
8. THIRD-PARTY AGREEMENTS AND RIGHTS. I hereby confirm that I am not bound
by the terms of any agreement with any previous employer or other party which
restricts in any way my use or disclosure of information or my engagement in any
business, except as may be disclosed in a separate Schedule attached to this
Agreement prior to its acceptance by the Company. I have delivered to the
Company true and complete copies of any agreements listed on said Schedule. I
represent to the Company that my execution of this Agreement, my employment with
the Company and the performance of my proposed duties for the Company will not
violate any obligations I may have to any such previous employer or other party.
In my work for the Company, I will not disclose or make use of any information
in violation of any agreements with or rights of any such previous employer or
other party, and I will not bring to the premises of the Company any copies or
other tangible embodiments of non-public information belonging to or obtained
from any such previous employment or other party.
9. OTHER EMPLOYMENT. During the term of my employment with the Company, I
agree to keep the Company informed of any outside employment rendered by me. For
a period of one (1) year after the termination of my employment with the
Company, I will inform any prospective employer, before accepting such
employment, of the terms of this Agreement.
10. EQUITABLE REMEDIES. I agree that it would be difficult to measure any
damages caused to the Company which might result from any breach by me of the
terms of this Agreement, and that in any event money damages would be an
inadequate remedy for any such breach. Accordingly, I agree that if I breach, or
propose to breach, any portion of this Agreement, the Company shall be entitled,
in addition to all other remedies that it may have, to an injunction or other
appropriate equitable relief to restrain any such breach without showing or
proving any actual damage to the Company.
11. BINDING EFFECT. This Agreement will be binding upon me and my heirs,
executors, administrators and legal representatives and will inure to the
benefit of the Company, any subsidiary of the Company, and its and their
respective successors and assigns.
12. ENFORCEABILITY. If any portion or provision of this Agreement is to any
extent declared illegal or unenforceable by a court of competent jurisdiction,
then the remainder of this Agreement, or the application of such portion or
provision in circumstances other than those as to which it is so declared
illegal or unenforceable, will not be affected thereby, and each portion and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law. In the event that any provision of this Agreement is
determined by any court of competent jurisdiction to be unenforceable by reason
of excessive scope as to geographic, temporal or functional coverage, such
provision will be deemed to extend only over the maximum geographic, temporal
and functional scope as to which it may be enforceable.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the Company and myself with respect to the subject matter hereof, and
supersedes all prior representations and agreements with respect to such subject
matter, This Agreement May not be amended, modified or waived except by a
written instrument duly executed by the person against whom enforcement of such
amendment, modification or waiver is sought. The failure of any party to require
the performance of any term or obligation of this Agreement, or the waiver by
-4-
<PAGE> 5
any party of any breach of this Agreement, in any particular case will not
prevent any subsequent enforcement of such term or obligation or to be deemed a
waiver of any separate or subsequent breach.
14. NOT A CONTRACT OF EMPLOYMENT. I understand that this Agreement does not
create any obligation on the part of the Company to continue my employment for
any fixed term, and that my employment may be terminated by the Company at any
time for any reason, except as may be otherwise provided in a written agreement
executed by a duly authorized officer of the Company.
15. NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement will be sufficient if in writing and delivered in
person or sent by registered or certified mail, postage prepaid, to me at the
last address which I have filed in writing with the Company or, in the case of
any notice to the Company, at its main offices, to the attention of its Chief
Executive Officer.
16. GOVERNING LAW. This is a Minnesota contract and shall be construed
under and be governed in all respects by the laws of Minnesota, without giving
effect to the conflict of laws principles of Minnesota law.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE READ IT
CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.
/s/ GRAHAM WILLIAMS
---------------------------------
Signature of Employee
Accepted and Agreed to by
CWC Incorporated
By: /s/ SHIRLEY SPOORS
------------------------------
Name: Shirley Spoors
Title: Director, Human Resources
-5-
<PAGE> 6
SCHEDULE OF PRIOR INVENTIONS
----------------------------
Graham Williams
June 1, 1998
/s/ William Graham
-------------------------------
Employee Signature
Accepted and Agreed to by
CWC INCORPORATED
By: /s/ Shirley Spoors
-------------------------------
Name: Shirley Spoors
Title: Director, Human Resources
-6-
<PAGE> 7
SCHEDULE OF THIRD-PARTY AGREEMENTS
----------------------------------
Graham Williams
June 1, 1998
/s/ Graham Williams
------------------------------
Employee Signature
Accepted by
CWC INCORPORATED
By: /s/ Shirley Spoors
-------------------------------
Name: Shirley Spoors
Title: Director, Human Resources
-7-
<PAGE> 1
EXHIBIT 10.12.1
---------------
EMPLOYEE AGREEMENT
REGARDING INVENTIONS, CONFIDENTIALITY
AND NON-COMPETITION
Employee Name: Ilya Gorelik
In consideration of FirePond, Inc.'s (the "Company") grant of stock options
to me pursuant to the Incentive Stock Option Agreement dated October 2, 1998
(the "Stock Option Agreement"), I, the above-named Employee, hereby agree with
the Company as follows:
1. DEFINITIONS.
(a) PROPRIETARY INFORMATION. As used in this Agreement, "Proprietary
Information" means information which the Company possesses or to which the
Company has rights which has commercial value. Proprietary Information includes,
by way of example and without limitation, trade secrets, product ideas, designs,
configurations, processes, techniques, formulas, software, improvements,
inventions, data, know-how, copyrightable materials, marketing plans and
strategies, sales and financial reports and forecasts, list of present and
prospective customers, and information relating to research, development,
programming, purchasing, accounting, engineering, merchandising and licensing.
Proprietary Information includes information developed by me in the course of my
employment by the Company or otherwise relating to Inventions which belong to
the Company under Section 4 below, as well as other information to which I may
have access in connection with my employment.
(b) INVENTIONS AND DEVELOPMENTS. As used in this Agreement, "Inventions and
Developments" means any and all inventions, developments, creative works and
useful ideas of any description whatsoever, whether or not patentable.
Inventions and Developments include, by way of example and without limitation,
discoveries and improvements which consist of or relate to any form of
Proprietary Information.
(c) COMPANY-RELATED INVENTIONS AND DEVELOPMENTS. For purposes of this
Agreement, "Company-Related Inventions and Developments" means all Inventions
and Developments which either (a) relate at the time of conception or
development to the actual or demonstrably anticipated business of the Company or
to its actual or demonstrably anticipated research and development; (b) result
from or relate to any work performed for the Company, whether or not during
normal business hours; (c) are developed on Company time; or (d) are developed
through the use of the Company's Proprietary Information, equipment and
software, or other facilities or resources.
(d) COMPANY. For purposes of this Agreement, all references to the
"Company" will be deemed to include the Company and its direct or indirect
subsidiaries and affiliates.
<PAGE> 2
(e) CONFLICTING PRODUCT. As used in this Agreement, a "Conflicting Product"
means any computer program, product, process, system, or service of any person
or organization other than the Company, in existence or under development, which
is the same as, or similar to, or competes with a computer program, product,
process, system or service marketed or under development by the Company at any
time during my employment with the Company.
(f) CONFLICTING ORGANIZATION. As used in this Agreement, a "Conflicting
Organization" means any person or organization other than the Company which is
engaged in or is about to become engaged in the design, research, development,
production, marketing, distribution, leasing, licensing, selling, or servicing
of a Conflicting Product.
2. CONFIDENTIALITY. I understand and agree that my employment creates a
relationship of confidence and trust between me and the Company with respect to
(a) all Proprietary Information, and (b) the confidential information of others
with which the Company has a business relationship. The information referred to
in clauses (a) and (b) of the preceding sentence is referred to in this
Agreement, collectively, as "Confidential Information." At all times, both
during my employment with the Company and after its termination, I will keep in
confidence and trust all such Confidential Information, and will not use or
disclose any such Confidential Information without the written consent of the
Company, except as may be necessary in the ordinary course of performing my
duties to the Company. The restrictions set forth in this Section 2 will not
apply to information which is generally known to the public or in the trade,
unless such knowledge results from an unauthorized disclosure by me, but this
exception will not affect the application of any other provision of this
Agreement to such information in accordance with the terms of such provision. I
likewise agree to report to my supervisor immediately any violation of the
Company's security measures or prohibited disclosure of Confidential Information
by any person or organization. I agree to report to my supervisor immediately
the names of any persons or organizations that attempt to obtain Confidential
Information from me.
3. DOCUMENTS, RECORDS, ETC. All documents, records, apparatus, equipment and
other physical property, including but not limited to papers, notebooks,
manuals, reports, computer files, software, vehicles, tools, keys, entry cards
or badges, credit authorizations, user identifications and passwords, whether or
not pertaining to Proprietary Information, which are furnished to me by the
Company or are produced by me in connection with my employment will be and
remain the sole property of the Company. I will return to the Company all such
materials and property as and when requested by the Company. In any event, I
will return all such materials and property immediately upon termination of my
employment for any reason. I will not take with me any such material or property
or any copies thereof upon such termination.
4. OWNERSHIP OF INVENTIONS AND DEVELOPMENTS. I agree that all Company-Related
Inventions and Developments which I conceive or develop, in whole or in part,
either alone or jointly with others, during the term of my employment with the
Company will be the sole property of the Company. The Company will be the sole
owner of all patents, copyrights and other proprietary rights in and with
respect to such Company-Related Inventions and Developments. To the fullest
extent permitted by law, such Company-Related Inventions and Developments will
be deemed works made for hire. I hereby transfer and assign to the Company any
proprietary rights which I may have or acquire in any such Company-
2
<PAGE> 3
Related Inventions and Developments, and I waive any moral rights or other
special rights which I may have or accrue therein. I agree to execute any
documents and take any actions that may be required to effect and confirm such
transfer and assignment and waiver. The provisions of this Section 4 will apply
to all Company-Related Inventions and Developments which a re conceived or
developed during the term of my employment with the Company, whether before or
after the date of this Agreement, and whether or not further development or
reduction to practice may take place after termination of my employment, for
which purpose it will be presumed that any Company-Related Inventions and
Developments conceived by me which are reduced to practice within one year after
termination of my employment were conceived during the term of my employment
with the Company unless I am able to establish a later conception date by clear
and convincing written evidence. The provisions of this Section 4 will not
apply, however, to any Inventions and Developments which may be disclosed in a
separate Schedule attached to this Agreement prior to its acceptance by the
Company, representing Inventions and Developments made by me prior to my
employment by the Company.
5. DISCLOSURE OF INVENTIONS AND DEVELOPMENTS. I agree promptly to disclose to
the Company, or any persons designated by it, in writing, all Company-Related
Inventions and Developments which are or may be subject to the provisions of
Section 4.
6. OBTAINING AND ENFORCING PROPRIETARY RIGHTS. I agree to assist the Company,
at the Company's request from time to time and at the Company's expense, to
obtain and enforce patents, copyrights or other proprietary rights with respect
to Company-Related Inventions and Developments in any and all countries. I will
execute all documents reasonably necessary or appropriate for this purpose. This
obligation will survive the termination of my employment, provided that the
Company will compensate me at a reasonable rate after such termination for time
actually spent by me at the Company's request on such assistance. In the event
that the Company is unable for any reason whatsoever to secure my signature to
any document reasonably necessary or appropriate for any of the foregoing
purposes (including renewals, extensions, continuations, divisions or
continuation in part), I hereby irrevocably designate and appoint the Company
and its duly authorized officers and agents as my agents and attorneys-in-fact
to act for me and on my behalf, but only for the purpose of executing and filing
any such document and doing all other lawfully permitted acts to accomplish the
foregoing purposes with the same legal force and effect as if executed by me.
7. SOLICITATION OF EMPLOYEES. I agree that for a period of twelve (12) months
immediately following the termination of my relationship with the Company for
any reason, whether with or without cause, I shall not either directly or
indirectly solicit, induce, recruit or encourage any of the Company's employees
to leave their employment, or take away such employees, or take away such
employees, or attempt to solicit, induce, recruit, encourage, or take away
employees of the Company, either for myself or for any other person or entity. I
agree that if I breach, or propose to breach, any portion of this Section 7, the
Company shall be entitled, in addition to all other remedies that it may have,
to damages, including damages associated with recruiting costs and training
costs for
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replacing Company's employee.
8. COMPETITIVE ACTIVITIES. During the term of my employment with the Company
and for a period of 12 months thereafter (the "Non-competition Period"), I will
not, directly or indirectly, whether as owner, partner, shareholder, director,
officer, consultant, agent, employee, co-venturer or otherwise, (a) participate
in, invest in, organize or assist in organizing, work for or contract with, any
Conflicting Organization; or (b) sell or assist in the design, development,
manufacture, licensing, sale or support of any Conflicting Product. I understand
that the restrictions set forth in this Section 8 are intended to protect the
Company's legitimate interest in its Proprietary Information and established
customer relationships and goodwill, and agree that such restrictions are
necessary, reasonable and appropriate for this purpose.
9. THIRD-PARTY AGREEMENTS AND RIGHTS. I hereby confirm that I am not bound by
the terms of any agreement with any previous employer or other party which
restricts in any way my use or disclosure of information or my engagement in any
business, except as may be disclosed in a separate Schedule attached to this
Agreement prior to its acceptance by the Company. I have delivered to the
Company true and complete copies of any agreements listed on said Schedule. I
represent to the Company that my execution of this Agreement, my employment with
the Company and the performance of my proposed duties for the Company will not
violate any obligations I may have to any such previous employer or other party.
In my work for the Company, I will not disclose or make use of any information
in violation of any agreements with or rights of any such previous employer or
other party, and I will not bring to the premises of the Company any copies or
other tangible embodiments of non-public information belonging to or obtained
from any such previous employment or other party.
10. OTHER EMPLOYMENT. During the term of my employment with the Company, I
agree to keep the Company informed of any outside employment rendered by me. For
a period of one (1) year after the termination of my employment with the
Company, I will inform any prospective employer, before accepting such
employment, of the terms of this Agreement.
11. EQUITABLE REMEDIES. I agree that it would be difficult to measure any
damages caused to the Company which might result from any breach by me of the
terms of this Agreement, and that in any event money damages would be an
inadequate remedy for any such breach. Accordingly, I agree that if I breach, or
propose to breach, any portion of this Agreement, the Company shall be entitled,
in addition to all other remedies that it may have to an injunction or other
appropriate equitable relief to restrain any such breach without showing or
proving any actual damage to the Company.
12. ADDITIONAL REMEDIES. Notwithstanding the availability to the Company of any
other remedy in the event of my breach of the promises set forth in this
Agreement, and without waiving or abrogating such other remedies, I agree that
the Company shall be entitled to the following additional remedies in the event
that I breach any term of this Agreement.
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<PAGE> 5
(a) REPURCHASE OF SHARES. The Company may repurchase from me any of the
shares of the Company's stock that I own as a result of exercising options under
the stock Option Agreement ("Shares"), pursuant to Section 12 of the Stock
Option Agreement.
(b) PAYMENT UPON THE SALE OF SHARES. In the event that I breach any of the
terms of this Agreement and, prior to such breach, I sold or thereafter sell any
Shares, I agree to pay to the Company the proceeds I received from any such
sale, pursuant to Section 13 of the Stock Option Agreement.
13. BINDING EFFECT. This Agreement will be binding upon me and my heirs,
executors, administrators and legal representatives and will inure to the
benefit of the Company, any subsidiary of the Company, and its and their
respective successors and assigns.
14. ENFORCEABILITY. If any portion or provision of this Agreement is to any
extent declared illegal or unenforceable by a court of competent jurisdiction,
then the remainder of this Agreement or the application of such portion or
provision in circumstances other than those as to which it is so declared
illegal or unenforceable, will not be affected thereby, and each portion and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law. In the event that any provision of this Agreement is
determined by any court of competent jurisdiction to be unenforceable by reason
of excessive scope as to geographic, temporal or functional coverage, such
provision will be deemed to extent only over the maximum geographic, temporal
and functional scope as to which it may be enforceable.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the Company and myself with respect to the subject matter hereof, and supersedes
all prior representations and agreements with respect to such subject matter
except for the Stock Option Agreement. This Agreement may not be amended,
modified or waived except by a written instrument duly executed by the person
against whom enforcement of such amendment, modification or waiver is sought.
The failure of any party to require the performance of any term or obligation of
this Agreement, or the waiver by any party of any breach of this Agreement, in
any particular case will not prevent any subsequent enforcement of such term of
obligation or to be deemed a waiver of any separate or subsequent breach.
16. NOT A CONTRACT OF EMPLOYMENT. I understand that this Agreement does not
create any obligation on the part of the Company to continue my employment for
any fixed term, and that my employment may be terminated by the Company at any
time for any reason, except as may be otherwise provided in a written agreement
executed by a duly authorized officer of the Company.
17. NOTICES. Any notices, requests, demands and other communications provided
for by this Agreement will be sufficient if in writing and delivered in person
or sent by registered or certified mail, postage prepaid, to me at the last
address which I have filed in writing with the Company or, in the case of any
notice to the Company, at its main offices, to the attention of its Chief
Executive officer.
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18. GOVERNING LAW. This is a Minnesota contract and shall be construed under
and be governed in all respects by the laws of Minnesota, without giving effect
to the conflict of laws principles of Minnesota law. Any legal action or suit
related to this Agreement shall be brought exclusively in the courts of
Minnesota. Both parties agree that the courts of Minnesota are a convenient
forum for the resolution of disputes.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS IMPORTANT RIGHTS. I HAVE READ IT
CAREFULLY AND AM SATISFIED THAT I UNDERSTAND IT COMPLETELY.
/s/ Ilya Gorelik
-------------------------------
Signature of Employee
10/22/98
--------------------------------
Date
Accepted and Agreed to by
FirePond, Inc.
By: Shirley Spoors
-----------------------------
Name: Shirley Spoors
-------------------------
Title: Director, Human Resources
-------------------------
Date: 10/22/98
-------------------------
<PAGE> 1
Exhibit 10.15
PRODUCTS USE AND GENERAL SERVICES
AGREEMENT
This Agreement dated as of this 1st day of August, 1994 is entered
into by and between Clear with Computors, Inc., 1983 Premiere Drive, P.O. Box
4459 Mankato, Minnesota, 56002-4459, a corporation of the State of Minnesota,
hereinafter called "CWC", and General Motors Corporation, 3044 West Grand
Boulevard, Detroit, Michigan 48202, a corporation of the State of Delaware,
hereinafter referred to as "GM".
WHEREAS GM has heretofore acquired the services of CWC in developing
electronic sales and training systems.
WHEREAS CWC is now willing to develop, and GM is willing to procure, an
electronic sales and training system known as GM PROSPEC and related Products
and Services pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the premises, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by CWC and GM, it is hereby agreed as follows:
1. DEFINITIONS. The following terms shall have the indicated meanings when
used with initial capital letters in this Agreement or any Statements
of Work entered into hereunder.
(a) "APPLICABLE SPECIFICATIONS" shall mean the functional,
performance, operational and compatibility characteristics of
the Product(s) as more fully set forth in the Statement of
Work.
(b) "ACCEPTANCE DATE" shall mean the date when all necessary
Documentation has been received, and the Product(s) have
successfully completed any relevant "Acceptance Test(s)"
conducted pursuant to a Statement of Work.
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(c) "ACCEPTANCE TESTS" shall mean the tests developed in
accordance with a Statement of Work used to demonstrate that
the Products perform in accordance with the Applicable
Specifications.
(d) "GM PROSPEC" shall mean the GM Sales Assistance Manager
Product as more fully described in the Statement of Work.
(e) "PRODUCTS" shall mean GM PROSPEC and such other computer
programs including, where applicable, object code (including
micro-code), source code, Documentation and any refinements,
enhancements, modifications, revisions, derivative works,
updates or releases related thereto, provided by CWC pursuant
to this Agreement.
(f) "DOCUMENTATION" shall mean Applicable Specifications, user
manuals, training materials, product descriptions, technical
manuals and supporting materials, and other printed
information relating to the Products, whether fully or
partially completed or distributed in print, electronic, or
video format, provided by CWC pursuant to this Agreement.
(g) "SERVICES" shall include, but not be limited to, consulting,
development, installation, training, support and maintenance
services, as the case may be, provided or to be provided by
CWC as more fully described in a Statement of Work.
(h) "STATEMENT(S) OF WORK" shall mean the documents substantially
in the format contained in Exhibit 1(h) which are mutually
agreed upon by the parties describing the detailed obligations
of the parties with respect to a Project.
(i) "PROJECT" shall mean an undertaking by CWC to develop a
Product(s) for GM.
(j) "COMPETITOR OF GM" shall be any entity doing business as a
motor vehicle manufacturer, assembler, or distributor anywhere
in North America, which entity, if required to report same,
would report revenues in any Standard Industrial
Classification Industry code or product class code published
by the Census Bureau ("SIC Code") in which GM is then
reporting revenues in the area of motor vehicle manufacturing
and assembly. As of the effective date of this Agreement GM is
reporting revenues in the following SIC Codes in the area of
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motor vehicle manufacturing and assembly (37111, 37116, 37117,
37118, 37119, 5012). Provided that the companies listed on
Exhibit 1(j) which are current clients of CWC reporting
revenues in SIC Code 37117, 37118, and 37119 shall not be
considered Competitors of GM for the medium and heavy duty
truck business covered by those SIC codes.
(k) "AUTHORIZED PURCHASING PERSONNEL" shall mean the members of
GM's Worldwide Purchasing and does not include GM's Project
Manager and, with respect to CWC, an executive identified by
CWC other than the CWC Project Manager.
(l) "PURCHASE ORDER" shall mean an order by GM which includes
terms and pricing which have been negotiated by Authorized
Purchasing Personnel of GM and CWC and references this
Agreement and a Statement of Work, and shall be effective upon
execution by a CWC Authorized Purchasing Personnel. "Purchase
Order" does not include any preprinted terms not expressly
negotiated by the parties and reference to this Agreement on
an Purchase Order shall be deemed to delete all standard terms
and conditions of GM's purchase order form, if such form is
used to transmit an Purchase Order, and all standard terms and
conditions found on CWC's acknowledgement form, if such form
is used to acknowledge a Purchase Order.
(m) "PROPRIETARY INFORMATION" shall mean information that relates
to the subject matter of this Agreement (i) which is in
written or other tangible form and is clearly and
conspicuously marked as confidential and proprietary or its
equivalent by the party which provides it to the other party,
or (ii) if disclosed in oral, visual or other non-written
form, is reduced to writing by the disclosing party and
transmitted to the recipient party, clearly and conspicuously
marked as confidential and proprietary within thirty (30) days
after such disclosure.
(n) "ORIGINAL INTENDED PURPOSE" shall mean the use of the
Product(s) for the purpose of helping Users learn about, sell
and/or buy products manufactured, distributed or sold by GM.
(o) "USER(S)" shall mean any GM employee, dealer, dealer
salesperson, customer, vendor or supplier who is authorized
under this Agreement to use Product(s) and who is operating at
retail, wholesale or any other level of distribution and
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is marketing, selling and/or buying products manufactured,
distributed or sold by GM.
(p) "DATA" means product data, algorithms or other product
information provided by GM for incorporation into Product(s).
2. SCOPE OF AGREEMENT AND ORDER OF PRECEDENCE
(a) SCOPE OF THIS AGREEMENT. This Agreement embodies the terms and
conditions negotiated by the parties which shall apply to each
Purchase Order or Statement of Work placed hereunder.
(b) ORDER OF PRECEDENCE. The parties intend that the provisions of
each Statement of Work and Purchase Order will be consistent
with those contained in this Agreement. However, in the event
such construction is not possible, the terms and conditions of
this Agreement shall prevail over those in the Statement of
Work (except where this Agreement has specifically stated that
the Statement of Work takes precedence) or Purchase Order and
the terms and conditions of a Statement of Work shall prevail
over those in a Purchase Order unless the conflicting
provision: in a Statement of Work or Purchase Order expressly
references the provision herein or in a Statement of Work to
be superseded or modified, and unless such Statement of Work
or Purchase Order has been signed by both GM and CWC
Authorized Purchasing Personnel.
3. PROVISION OF PRODUCTS AND SERVICES.
(a) GENERAL. CWC understands and acknowledges that any GM entity
may obtain Products and Services in accordance with this
Agreement.
(b) TIME AND MATERIALS SERVICES. Subject to a Statement of Work,
if available from CWC, GM may obtain on a time and materials
basis from CWC certain consulting, development and other
Services (excluding maintenance and support Services) agreed
upon by the parties in accordance with the following terms and
conditions:
(i) GM may specify on a Purchase Order the number and
names or skill levels of CWC employees ("Employees")
required to perform Services.
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In the event GM requests replacement of an Employee
or a proposed Employee, CWC shall, within ten (10)
working days of receipt of such notification from GM,
provide a substitute Employee of sufficient skill,
and training to perform the applicable Services. In
the event GM requests replacement of any Employee
within the first ten (10) days of such Employee's
commencement of Services, GM shall not be required to
pay for Services provided by such Employee and CWC
shall refund to GM all amounts paid for such
Employee's Services. If GM otherwise requests
replacement of an Employee, GM shall not be required
to pay for and shall be entitled to a refund of any
sums paid to CWC for such Employee's Services from
the date of GM's requested replacement of such
Employee.
(ii) CWC shall not replace any Employee, who has been
designated as a key Employee by GM ("Key Employee")
then currently performing Services without GM's
consent until the Statement of Work or Purchase Order
pursuant to which such Key Employee is providing
Services expires or is terminated. Notwithstanding
the foregoing, CWC may replace any Key Employee for
reasons relating to the Employee's termination with
CWC, promotion, illness, death, or causes beyond
CWC's control.
(iii) GM shall reimburse CWC for the reasonable direct
expenses (excluding overhead and fringe benefits) of
its Employees incurred in the performance of Services
if requested in advance and approved by GM. Expenses
related to travel, lodging, and meals shall be
reimbursed in accordance with GM's guidelines for its
own employees, as set forth in Exhibit 3(b)(iii).
(iv) CWC shall maintain records, for a period of three (3)
years following the performance of time and materials
Services, which adequately substantiate the
applicability and accuracy of charges for such
Services and related expenses to GM and shall, upon
receipt of reasonable advance notice from GM, produce
such records for audit by GM.
(v) Purchase Orders for Services provided or to be
provided under this Section may be canceled with a
thirty (30) day notice without charge or penalty,
upon written notice to CWC.
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(c) SERVICES IN GENERAL. In connection with the performance of any
Services pursuant to this Agreement:
(i) CWC warrants and agrees that Employees shall have
sufficient skill, knowledge, and training to perform
the Services and that the Services shall be performed
in a professional and workmanlike manner in
accordance with the highest reasonable commercially
applicable standards of the computer software
development industry.
(ii) Employees performing Services in the United States
must be United States citizens or lawfully admitted
in the United States for permanent residence or
lawfully admitted in the United States holding a visa
authorizing the performance of Services on behalf of
CWC.
(iii) CWC shall require all persons providing Services on
behalf of CWC, when at a GM location, to comply with
all applicable regulations and policies of GM
including, but not limited to, security regulations.
(iv) CWC shall provide for and pay the compensation and
other benefits of Employees including, but not
limited to, salary, health, accident and workers'
compensation benefits and shall pay all taxes and
contributions which an employer is required to pay
relating to the employment of employees.
(d) TIME OF PERFORMANCE. To the extent provided in a Statement of
Work, time is hereby expressly made of the essence with
respect to the specific items so provided for in the Statement
of Work. Therefore, to the extent necessary with respect to a
specific project, GM and CWC shall consider the use of
liquidated damages to help ensure timely performance.
4. PROJECT MANAGEMENT. For each Project, CWC and GM shall each designate a
project manager (the "Project Managers") who shall have the
responsibilities set forth herein and otherwise agreed upon by the
parties in the Statement of Work. Each Project Manager shall be
responsible for providing timely management decisions as required or
requested relating to the Project. The CWC Project Manager shall
provide to the GM Project Manager a written report of the status of the
Project as set forth in the
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Statement of Work. GM may also designate Divisional Representatives to
work with CWC on a specific Project.
5. APPROVAL OF DELIVERABLES. The CWC Project Manager shall submit each
item or task to be performed by CWC which must be approved by GM or
performed to the satisfaction of GM ("Deliverable") to the GM Project
Manager on or before the mutually agreed delivery date. within the time
frame mutually agreed upon by the parties in the Statement Of work, GM
shall approve or disapprove the Deliverable by providing written notice
to CWC. Any disapproval shall describe the ways in which the
Deliverable is unacceptable to GM and what corrections or improvements
are required by GM. CWC shall resubmit the Deliverable to GM for
approval as set forth herein, modified in accordance with GM's
directions, within the mutually established cure period. GM may extend
the period of time for resubmission of the Deliverable if CWC submits a
written request setting forth the specific reasons why CWC cannot
comply with the requirements together with a schedule of when CWC will
be able to resubmit the Deliverable. The parties agree that in order to
expedite the approval process, CWC may submit draft versions of a
Deliverable prior to the required date for the informal comment of the
GM Project Manager and any other relevant GM personnel. By approving a
Deliverable, GM represents only that it has reviewed the Deliverable
and detected no errors or omissions sufficient enough to warrant the
withholding or denial of payment, if any, for such Deliverable. GM's
approval of a Deliverable does not discharge CWC's obligation to
provide a completed Product that as a whole conforms to the Applicable
Specifications.
6. ACCEPTANCE OF PRODUCT(S).
(a) DELIVERY AND INSTALLATION. Immediately upon the completion of
each phase of a Project excluding maintenance services
enumerated and described in the Statements of Work, CWC shall
deliver the Product(s) and/or deliver all Documentation and
other materials required to be provided under such phase
including the Program Report provided for in Section 4
hereof). CWC shall notify GM when products are ready for
testing by GM.
(b) ACCEPTANCE TESTS. Within the time frame as set forth in the
Statement of Work after receipt of such notice, GM shall
perform the Acceptance Tests of the Product(s). In addition,
if applicable, upon completion of final phase of a Project,
the Acceptance Tests shall be performed on all products
comprising a
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Project as a whole in order to determine whether the
integration of the Product(s) and any necessary equipment
meets the Applicable Specifications and Acceptance Test
completion criteria for the Project set forth in the Statement
of Work and operates with internal consistency. If the
Products fail to meet any applicable Acceptance Tests, GM
shall forthwith notify CWC, and CWC shall, within the time
period set forth in the Statement of Work hereto, modify or
improve the Product(s) delivered to GM to ensure that the
Product(s) and the Project as a whole meet the Acceptance
Tests. GM shall thereafter have an additional test period of
equal duration to reconduct the Acceptance Tests. After a
reasonable number of acceptance tests failure of the
Product(s) to meet the aforesaid specifications and
performance standards after the additional set of Acceptance
Tests shall constitute a default by CWC under Section 14
hereof.
(c) ACCEPTANCE. GM shall notify CWC upon the Acceptance Date which
shall constitute Acceptance of the Products.
7. CHARGES, PRICES, AND FEES FOR PRODUCTS AND SERVICES.
(a) DETERMINATION. Charges, prices, and fees ("Charges") and
discounts, if any, for Products and Services related to each
Project shall be determined as set forth in the applicable
Statement of Work, in a Purchase Order, or as otherwise agreed
upon by the parties, unless modified as set forth herein, in
no event shall Charges exceed CWC's then current established
Charges.
(b) MODIFICATION TO CHARGES. Except as otherwise provided in the
Statement of Work, CWC shall provide to GM at least sixty (60)
days' prior written notice of a change in an established
Charge for Products or Services.
(i) Except as otherwise set forth herein, any increase in
a Charge 9a) shall not occur during the first twelve
(12) months of this Agreement, during the term of the
applicable Purchase Order or during the specified
period for performance of Services, whichever period
is longer, or occur more than once annually
thereafter, and (b) shall not exceed the percent
increase in the Consumer Price Index, U.S. city
Average, All Items published by the Bureau of Labor
Statistics of the United States
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Department of Labor "CPI" during the most recent
calendar year for which the CPI is available.
(ii) All Purchase Orders issued by GM prior to the end of
the required notice period will be honored at the
then current Charges so long as the scheduled
delivery date of the applicable Products or Services
is within ninety (90) days after the effective date
of the increase.
If CWC's established Charge on the scheduled delivery date is lower
than the established Charge for such Product or Service stated in the
applicable Purchase Order, then GM shall be entitled to obtain such
Product or Service at such lower Charge, less any applicable discount.
(c) PAYMENT. Payment by GM of the purchase price of Products or
Services for each Project shall be made to CWC in accordance
with the applicable Statement of Work. Provided, however, that
all payments for Product development Services shall be made to
CWC only upon successful completion of milestones and/or
deliverables for a Project, unless the GM Authorized
Purchasing Personnel specifically agrees otherwise. Payment
terms are Net 25th Prox. and payment will be made by
Electronic Data Interchange to the extent CWC qualifies for
such in accordance with GM" established policies and
procedures.
(d) INVOICES. A "correct" invoice shall contain (i) CWC's name and
invoice date, (ii) the specific Purchase Order number, (iii)
description, price, and quantity of the Products or Services
actually delivered or rendered, (iv) credits (if applicable),
(v) name (where applicable), title, phone number, and complete
mailing address of responsible official to whom payment is to
be sent. A correct invoice must be submitted to the
appropriate invoice address listed on the Purchase Order.
(e) TAXES. Unless GM provides CWC with a valid tax exemption
number or as otherwise provided herein, GM shall pay directly
or reimburse CWC for all taxes, assessments, permits, and
fees, however designated, which are levied upon this Agreement
or the Products and Services, or their use, excluding
franchise taxes and taxes based upon CWC's income.
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(f) RIGHT TO AUDIT. CWC hereby grants to the GM Audit Staff or
independent Auditors a right to audit direct labor hours and
expenses related to work authorized under this Agreement. CWC
shall maintain a separate account which shall be subject to
such audit by GM at any time during the progress of work and
after completion of work upon two (2) business days notice.
CWC further agrees to maintain the records in a manner to
facilitate an audit and agrees that such audit may be used as
a basis for settlement of charges for work authorized under
this Agreement.
8. PROVISION OF MOST FAVORABLE TERMS. Except as otherwise agreed in a
Statement of Work or in a fixed price contract, CWC warrants and agrees
that each of the Charges, terms, warranties, or benefits granted to GM
pursuant to this Agreement or in any Purchase Order are comparable to
or better than the equivalent Change, term, warranty, or benefit being
offered by CWC to any customer of CWC for similar services under
similar conditions. If CWC shall enter into arrangements with any
customer of CWC (except the United States Government) providing for
such similar more favorable Charges, terms, warranties, or benefits,
then this Agreement or the applicable Purchase Order or Statement of
Work shall thereupon be deemed amended to incorporate the more
favorable Charges, terms, warranties, or benefits and CWC shall
immediately notify GM of such more favorable Charges, terms,
warranties, or benefits.
9. CHANGE ORDERS.
(a) CHANGE REQUESTS. The GM Project Manager shall immediately
notify the CWC Project Manager in writing of changes that will
expand or reduce the scope of a Purchase Order or alter the
Applicable Specifications. CWC Authorized Purchasing Personnel
shall notify GM Authorized Purchasing Personnel in writing as
soon as practicable of technical problems/events/new
information/program changes that could result in an increase
or decrease in costs or dates. A log of such change requests
is to be maintained by the CWC Project Manager and the GM
Project Manager.
(b) IMPLEMENTING CHANGES. If GM and CWC desire to make such
changes described above, CWC Authorized Purchasing Personnel
will document the change and provide a written proposal for
incorporating the change with supporting information to the GM
Authorized Purchasing Personnel for
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consideration. Approval of both GM and CWC Authorized
Purchasing Personnel must be obtained in writing in order to
implement the changes necessitating the changes in costs,
changes in schedules, or changes to Deliverables. The
Statement of Work will be amended by GM and CWC Authorized
Purchasing Personnel to reflect the agreed upon changes. No
agreements or actions communicated during a technical contact
shall change the responsibilities, cost, schedules, or
requirements of the Statement of Work to either party, unless
reduced in writing and signed by both GM and CWC Authorized
Purchasing Personnel.
10. NONCOMPETITION. During the performance of this Agreement, CWC agrees
not to perform any Services or provide any Product(s), directly or
indirectly through third parties, for any Competitor of GM, unless
bidding for Products or Services against other suppliers who are not so
constrained.
11. LICENSE OF PRODUCT(S); OWNERSHIP OF DOCUMENTATION.
(a) Upon Acceptance of the Product(s) by GM, CWC will grant to GM
an exclusive, perpetual, irrevocable, non-transferable,
worldwide, royalty free, paid-up, license to use, modify or
permit others to do so, and create derivative works for GM to
use but only for the Original Intended Purpose under any
patents, copyrights, or other proprietary rights of CWC.
(b) GM acknowledges and agrees that the Product(s) shall be and
remain the property of CWC and that this Agreement grants GM
no title or rights of ownership in the Products except as set
forth herein. GM further agrees that selected subroutines and
modules contained within the Products are, and will continue
to be, used by other CWC customers, and said subroutines and
modules shall be considered nonexclusive to GM.
(c) Transfer of Products. The rights and license granted to GM
hereunder may not be assigned, subleased, sold, offered for
sale, disposed of, encumbered or mortgaged, except in the
event that CWC shall cease directly licensing Users, in which
case CWC hereby grants to GM the right to sublicense the
executable version of the Products to Users pursuant to the
terms and conditions attached hereto as Exhibit 11(c);
provided that each User signs such agreement prior to their
receipt of the Product.
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(d) Overseas Use. Ninety (90) days before the distribution of the
Products in any non-U.S. country, GM shall notify CWC so that
CWC can (i) approve of distributing the Products in the
non-U.S. country and (ii) obtain review if appropriate by
counsel in the non-U.S.country of this Agreement or the
applicable Statement of Work.
CWC may require changes in this Agreement or the applicable
Statement of Work from time to time or with respect to use in
a particular country.
(e) Provision of Source Code.
(i) Within thirty (30) days of the Acceptance Date for a Product,
CWC shall place with the GM Legal Staff one complete set of
source code with associated documentation for the Product
("Source Materials"). The Source Materials shall include
machine-readable, high level language code for the Product, as
well as machine-readable listings, tables and references
required to use the high level language code and shall be in
the form of 3 1/2 inch floppy disks. CWC represents and
warrants to GM that:
(1) the Source Materials constitute the source code and
documentation for the Product licensed to GM pursuant
to this Agreement or a Statement of Work; and
(2) the Source Materials are in a form suitable for
reproduction by computer and/or photocopy equipment,
and consist of a full source language statement of
the program or programs comprising the Product and
complete program maintenance documentation, including
all flow charts, schematics and annotations which
comprise the precoding detailed design
specifications, and all other material necessary to
allow a reasonably skilled third party programmer or
analyst to maintain or enhance the Product without
the help of any other person or reference to any
other material. The Source Materials shall be
delivered under seal for safekeeping to the GM Legal
Staff at P.O. Box 33122, New Center One Building,
3031 West Grand Boulevard, Detroit, Michigan 48232.
Source Materials shall not
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<PAGE> 13
be made available to anyone outside the GM Legal
Staff unless and until the occurrence of a Triggering
Event (as defined below). CWC agrees to update and
maintain the Source Materials held in safekeeping to
reflect all changes made thereto through maintenance,
enhancements, revisions or otherwise. All such
changes to the Source Materials shall also be
delivered in the required form to the GM Legal Staff
under seal.
(ii) GM may break the seal and use the Source Materials five (5)
days after written notice to CWC that the GM Legal Staff has
made a finding that one of the following "Triggering Events"
has occurred:
(1) it has established by clear and convincing evidence
that CWC is unable to meet its material obligations
to develop and/or maintain the Product(s) under any
Statement of Work for a running period of thirty (30)
days after notice to CWC in writing.
(2) CWC has been declared bankrupt, has voluntarily
petitioned a court for relief under any bankruptcy
laws, has been declared insolvent, has made an
assignment for the benefit of creditors, suffers or
permits the appointment of a receiver for its
business or assets, becomes subject to any proceeding
under any bankruptcy or insolvency law, whether
domestic or foreign, or has wound up or liquidated
its business voluntarily or otherwise and GM has
compelling reasons to believe that such event(s) will
cause CWC to fail to meet its obligations under this
Agreement or a Statement of Work in the foreseeable
future.
(3) after the applicable period of time identified in a
Statement of Work, under which GM has contracted for
CWC to provide maintenance, GM decides to use a party
other than CWC to maintain the Product. In such
event, CWC shall have the right of last refusal to
match any lower bids received by GM for such
maintenance services.
(4) the sale, assignment, or other transfer by CWC,
without the prior written consent of GM, of such of
CWC's rights in the Product
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<PAGE> 14
as would prevent CWC from the discharge of its
obligations with respect to the performance of the
Product under the Statement of Work; or
(5) the termination of this Agreement or the applicable
Statement of Work for the Product by GM for CWC's
material default. In the event that CWC shall contest
any such finding by the GM Legal Staff, GM shall
nevertheless have the use of the Source Materials as
permitted herein, and the matter shall be immediately
submitted to the dispute resolution procedures
identified in Section 14 of this Agreement.
(iii) GM shall retain a copy of the Source Materials as they existed
when unsealed and shall use a copy of the Source Materials
only to complete or maintain such Product as may be defined in
an applicable Statement of Work or to cause such Product to be
completed or maintained by a third party. In the event GM
causes a third party to use the Source Materials, GM shall
cause such third party to agree in writing that the Source
Materials shall be maintained in confidence in accordance with
the confidentiality provisions of this Agreement and shall be
used only for the Original intended purpose. If GM uses the
Source Materials or causes a third party to complete or
maintain any Product, unless otherwise determined during
dispute resolution proceedings requested by GM, CWC is
relieved of all warranties, liabilities and indemnification
provisions of this Agreement with respect to the Product to
the extent such modifications are the cause of a warranty
defect or infringement claim.
(iv) Following release of the Source Materials as permitted above,
GM shall seal the Source Materials as they existed when
unsealed and as they exist after any modifications reflecting
the permitted use and return them to the GM Legal Staff, where
they shall be secured until dispute resolution proceedings, if
any, shall determine the further use, if any, of the Source
Materials.
12. WARRANTIES. CWC hereby represents and warrants that:
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<PAGE> 15
(a) CWC has not entered into agreements or commitments which are
inconsistent with or conflict with the rights granted to GM
herein;
(b) Except for any security interest established by GM herein, the
Products shall be free and clear of all liens and
encumbrances, and GM shall be entitled to use the Products
without disturbance;
(c) Except as provided for in the Statement of Work, all Products
shall comply with all applicable provisions of standards or
draft standards issued by the international Standards
Organization (ISO);
(d) Each Product (i) shall be free from defects in manufacture,
materials, and design, (ii) shall be manufactured in a good
and workmanlike manner using a skilled staff fully qualified
to perform their respective duties, and (iii) shall function
properly under ordinary use and operate in conformance with
its Applicable Specifications and Documentation or CWC shall
repair or replace the defective Product at no charge to GM
during any period when GM is making maintenance payments to
CWC.
(e) Where applicable as indicated in a Statement of Work, the
Products are, and shall continue to be, data, program, and
upward compatible with any other Products available or to be
available from CWC so that data files created for a Product
can be utilized without adaptation of the other Products and
so that programs written for Products will operate on the
other Products and not result in the need for alteration,
emulation, or the loss of efficiency. Where applicable, as
indicted in a Statement of Work each Product is, and shall
continue t be, compatible with other Products provided by CWC
and each Product contained within a Project shall be fully
integrated, compatible, and operable with all other Products
contained within the Project. CWC shall provide to GM at least
ninety (90) days prior written notice to discontinue any
Product. If the course of the evolution of the technology,
conditions outside CWC's control limit CWC from compliance
with the condition, GM will release CWC from its
responsibility to meet this provision.
THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES WHETHER
EXPRESSED, IMPLIED OR STATUTORY INCLUDING IMPLIED WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
-15-
<PAGE> 16
13. INDEMNIFICATION
(a) Proprietary Rights Indemnification. If notified promptly in
writing of any judicial action brought against GM based on an
allegation that GM's use of the Products infringes any patent,
copyright, trademark, mask work or any rights of a third party
or constitutes misuse or misappropriation of a trade secret
(Infringement), CWC will defend such action at its expense and
will pay the costs and damages awarded in any such action or
the cost of settling such action. CWC shall have sole control
of the defense of any such action and all negotiations for its
settlement or compromise. If notified promptly in writing of
any informal claim (other than a judicial action) brought
against GM based on an allegation that GM's use of the
Products constitute Infringement, CWC will pay the costs
associated with resolving such claim and will pay the
settlement amount (if any), provided that CWC shall have sole
control of the resolution of any such claim and all
negotiations for its settlement. In the event a final
injunction shall be obtained against GM's use of the Products
by reason of infringement, or in CWC'
(i) procure for GM the right to continue to use the
Products as contemplated hereunder, or
(ii) replace or modify the Products to make its use
hereunder non-infringing while being capable of
performing the same function. If neither option as
reasonably available to CWC, then the applicable
Purchase Order or relevant part of such Purchase
Order may be terminated at the option of either party
hereto without further obligation or liability other
than as provided in Section 16 hereof, except as
follows: (i) Periodic Payment License, CWC shall
promptly refund to GM a monthly prorated amount of
the prepaid fees for the unexplored portion of the
applicable payment period; (ii) Lump Sum Payment
License. CWC shall promptly refund to GM a sum equal
to one thirty-sixth (1/36) or extension, if
applicable, of the lump sum fee paid for each month
remaining of a three (3) year period beginning from
the Acceptance Date of the Products by GM, plus a pro
rata amount of the prepaid charges for services for
the period then in effect, if any, paid by GM.
-16-
<PAGE> 17
GM shall have the right to participate in the defense
of any such claim at its own expense through counsel
of its choice.
CWC will not indemnify GM, however, if the claim of
infringement is caused by (1) GM's misuse or
modification of the Products, (2) GM's failure to use
corrections or enhancements made available by CW, (3)
GM's use of the Product in combination with any
product or information not owned or developed by CWC,
(4) GM's distribution, marketing or use for the
benefit of third parties other than Users of the
Product; or Data.
(b) If notified promptly in writing of any judicial action brought
against CWC based on al allegation that CWC's use of the Data
infringes any patent, copyright, trademark, mask work or any
rights of a third party or constitutes misuse or
misappropriation of a trade secret (infringement), GM will
defend such action at its expense and will pay the costs and
damages awarded in any such action or the cost of settling
such action. GM shall have sole control of the defense of any
such action and all negotiations for its settlement or
compromise.
(c) Cross Indemnification. While at the facilities of the other
party, in the event any act or omission of a party or its
employees, servants, agents, or representatives causes or
results in (i) loss, damage to or destruction of property of
the other party or third parties, and/or (ii) death or injury
to persons including, but not limited to, employees or
invitees of either party, then such party shall indemnify,
defend, and hold the other party harmless from and against any
and all claims, actions, damages, demands, liabilities, costs,
and expenses, including reasonable attorneys' fees and
expenses, resulting therefrom. The indemnifying party shall
pay or reimburse the other party promptly for all such loss,
damage, destruction, death, or injury.
14. DISPUTE AND TERMINATION.
(a) NEGOTIATIONS OF DISPUTES. In the event of any dispute or
disagreement between GM and CWC to the Agreement with respect
to the interpretation of any provision of the Agreement or the
performance of CWC or GM under the Agreement, upon the written
request of either party, the applicable GM and CWC Project
Managers, or a designated representative of either of them,
will meet for the purpose of resolving such dispute or
negotiating an adjustment or
-17-
<PAGE> 18
modification to such provision of the Agreement. The GM and
CWC Project Managers or designated representatives shall meet
as often as the parties reasonably deem necessary in order to
furnish to the other all information with respect to the
matter in issue which the parties believe to be appropriate
and germane in connection with its resolution. The GM and CWC
Project Managers or designated representatives will discuss
the problem and negotiate in good faith without the necessity
of any formal proceeding relating thereto. During the course
of such negotiation, all reasonable requests made by one party
to the other for information will be honored in order that
each of the parties may be fully advised in the premises. The
specific format for such discussion will be left to the
discretion of the GM and CWC Project Managers or designated
representatives but may include the preparation of agreed upon
statements of fact or written statements of position furnished
to the other party.
(b) RESOLUTION OF DISPUTES. Any dispute relating to the Agreement
which cannot be resolved by the respective GM and CWC Project
Managers or their designated representatives within thirty
(30) days of a written notice of such a dispute from one party
to the other party will be referred to the GM Director of
Dealer Communications and Systems and CWC President or their
designees for resolution within an additional thirty (30) day
period.
(c) TERMINATION. After exhausting the dispute resolution
procedures set forth above, either party shall have the right
to terminate this Agreement as follows:
(i) In the event CWC materially defaults in the
performance of a Project and fails to cure or ails to
make substantial progress to cure such default within
the sixty (60) day time period set forth in Section
14.(b) above for dispute resolutions, GM may, in its
sole discretion, elect to:
(1) terminate the Project, return to CWC all
Documentation and receive a pro-rata refund
from CWC of all amounts paid to CWC with
respect to the Project.
(2) extend the time for CWC performance at no
additional charge to GM;
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<PAGE> 19
(3) continue development itself or in
conjunction with a third party. In the event
GM elects to continue development itself or
utilizing a third party, CWC shall provide
to GM all Documentation or other CWC
Proprietary Information reasonably required
to complete such development to include
appropriate updates to the Source Materials
provided under Section 11(e). GM agrees that
any third parties pursuing such development
with GM shall agree in writing to comply
with the Restrictions on Use, and
Confidentiality obligations set forth in
Section 16 of this Agreement to protect
CWC's Proprietary Information. GM agrees and
any such third parties shall agree in
writing that they may use the information
only for the Original Intended Purpose and
as necessary in order to complete the
Project but for no other development beyond
the specific Project.
Upon any such termination under this Section
GM shall also be entitled to recover
reprocurement costs from CWC in excess of
amounts payable to CWC under this Agreement.
(ii) CWC shall have the right to terminate this Agreement
if GM commits any material breach of this Agreement
and fails to remedy or make substantial progress in
remedy such breach within the sixty (60) day time
period set forth in Section 14(b) above for dispute
resolution.
15. MAINTENANCE AND SUPPORT
(a) Mandatory Support Services. Except as otherwise set forth in
the Statement of Work, CWC shall provide the following support
Services and Products:
(i) Improvements. Improvements in the Products (which
shall mean any additions or modifications made by CWC
to or in the Products at any time after the
Acceptance Date) which will improve the efficiency
and effectiveness of this basic program function(s)
described in the Purchase Order and which do not
change such function or create one (1) or more new
functions, shall be furnished to GM at no charge.
-19-
<PAGE> 20
(ii) Program Changes. If, at any time after the Acceptance
Date, CWC shall develop any changes in the Products
which change the basic program functions of the
Products or add one (1) or more new functions, GM
shall have the right to obtain such program changes
at the lesser of (i) CWC's standard prices then in
effect for installing such changes, or (ii) the
difference between the then current price of the
Products including such changes and the applicable
fees and charges for the Products reflected herein.
(b) Additional Support Services. AT GM's request, CWC shall
provide additional support Services for the Products as set
forth in a Statement of Work;
(c) If for any reason GM decides to have maintenance and support
services performed by a third party, CWC shall have the right
of last refusal to match any third party proposal for
maintenance and other services.
16. RESTRICTION ON USE CONFIDENTIALITY
(a) This Agreement, the Products, GM pricing data, competitive
pricing data, and all other information exchanged by the
parties under this Agreement, specifically identified in
writing as confidential and proprietary or its equivalent and
transmitted by either party to the other shall be maintained
in confidence by the receiving party and the receiving party
shall use the Products and such information only as authorized
by this Agreement and for no other purpose. CWC and GM agree
to take reasonable precautions to protect against unauthorized
disclosure of the Products and such information to third
parties other than Users.
(b) Neither CWC nor GM shall be obligated to maintain any
information received from the other party as confidential and
refrain from use, if the information:
(i) becomes publicly known through no fault of the
receiving party;
(ii) is learned by the receiving party from a third party
entitled to disclose it;
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<PAGE> 21
(iii) is already known by the receiving party prior to
obtaining the information from the disclosing party;
(iv) is independently developed by the receiving party
without utilization of the information of the
disclosing party;
(v) is or becomes available on an unrestricted basis to a
third party from the disclosing party or from someone
acting under its control; or
(vi) is required to be disclosed under an order created by
a court or government agency, provided that prior
written notification of the order and opportunity to
oppose the order is provided to the owner of the
information to be disclosed.
(c) GM shall cooperate with CWC to help ensure that each User
upholds the confidentiality and use requirements imposed upon
them through the agreement set forth in Exhibit 11(c); GM
agrees to notify CWC immediately after gaining knowledge of
the possession, use, disclosure or reproduction of the
Products by any party not authorized reproduction and to
cooperate with CWC and its representatives in any
investigation of and litigation against such user.
17. NOTICES. Except as otherwise specifically provided for herein, all
notices required or permitted to be given by either party under or in
connection with this Agreement shall be in writing and shall be deemed
duly given when personally delivered or sent by registered or certified
mail, return receipt requested, postage prepaid, or by prepaid
recognized overnight delivery service, or if confirmed by letter, by
facsimile, or by cable, to the other party at the address set forth in
Exhibit 17, or such other address as may be requested by either party
by like notice.
18. MODIFICATIONS AND AMENDMENTS. No addition to, deletion from or
modification of any of the provisions of these terms and conditions
shall be binding upon the parties unless made in writing and signed by
the Authorized Contracts Personnel of each party. Any such additions,
deletions or modifications shall refer specifically to this Agreement
and shall also state that it is an amendment hereof.
-21-
<PAGE> 22
19. FORCE MAJEURE. Any delay or failure of either party to perform its
obligations hereunder shall be excused if, and to the extent that it is
caused by an event or occurrence beyond the reasonable control of the
party and without its fault or negligence, such as, by way of example
and not by way of limitation, acts of God, actions by any governmental
authority (where valid or invalid), fires, floods, windstorms,
explosions, shots, natural disasters, wars, sabotage, labor problems
(including lockouts, strikes and slowdowns), inability to obtain power,
material, labor, equipment or transportation, or court injunction or
order; provided that written notice of such delay (including the
anticipated duration of the delay) shall be given by the affected party
to the other party within ten (10) days.
20. LIMITATION OF LIABILITY AND REMEDIES. Except for the indemnification
set forth in Section 13 (with the exception of foreign patents which
shall be subject to this limitation of liability:
(a) LIMITATION OF LIABILITY. In no event shall either party be
liable for any loss of profit or revenue by the other party or
for any consequential, incidental, indirect or economic
damages incurred or suffered by either party arising as a
result of or related to this Agreement, whether arising in
contract, tort (including without limitation, negligence or
strict liability) or otherwise, even though either party has
been advised of the possibility of such loss or damages.
(b) LIMITATION OF REMEDY. The total liability of either party for
all claims of any kind arising from, or related to, this
Agreement, whether based on contract, tort including, but not
limited to, strict liability and negligence, warranty or on
other legal or equitable grounds, shall be limited to general
money damages and shall not exceed an amount equal to
$500,000.
21. INSURANCE. CWC shall remain insurance coverage in amounts not less than
the following:
(a) Worker's Compensation - Statutory Limits for the state or
states in which this Agreement is to be performed (or evidence
of authority to self-insure);
(b) Employer's Liability - $250,000;
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<PAGE> 23
(c) Comprehensive General Liability (including Products/Completed
Operations and Blanket Contractual Liability) - $1,000,000 per
person, $1,000,000 per occurrence Personal Injury, and
$1,000,000 per occurrence Property Damage, or $1,000,000 per
occurrence Personal Injury and Property Damage combined single
limit; and
(d) Automobile Liability (including owned, non-owned and hired
vehicles) - $1,000,000 per person, $1,000,000 per occurrence
Personal Injury and $1,000,000 per occurrence Property Damage,
or $1,000,000 per occurrence Personal Injury and Property
Damage combined single limit. At GM's request, CWC shall
furnish to GM certificates of insurance or other adequate
proof of self-insurance setting forth the amount(s) of
coverage, policy number(s) and date(s) of expiration for
insurance maintained by CWC and, if further requested by GM,
such certificates will provide that GM shall receive thirty
(30) days' prior written notification from the insurer of any
termination or reduction in the amount or scope of coverages.
GM shall allow CWC, upon proof of adequate self-insurance, to
self-insure the above insurance requirements. CWC's purchase
of appropriate insurance coverage or the furnishing of
certificates of insurance shall not release CWC of its
obligations or liabilities under this Agreement.
22. ADVERTISING. CWC shall not, without first obtaining the written consent
of GM, in any manner advertise or publish the fact that CWC has
contracted to furnish GM the goods or services herein ordered, or use
any trademarks or trade names of GM in CWC's advertising or promotional
materials.
23. GOVERNMENT COMPLIANCE. CWC and GM agree to comply with all federal,
state and local laws. Executive Orders, rules, regulations and
ordinances which may be applicable to CWC's performance of its
obligations under this Agreement.
24. EQUAL OPPORTUNITY AND AFFIRMATIVE ACTION. This Agreement incorporates
by reference:
(a) all provisions of 41 C.F.R. 60-1.4, as amended, pertaining to
the equal opportunity clause in government contracts;
(b) all provisions of 41 C.F.R. 60-250, as amended, pertaining to
affirmative action for disabled veterans of the Vietnam Era;
and
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<PAGE> 24
(c) all provisions of 41 C.F.R. 60-741, as amended, pertaining to
affirmative action for handicapped workers. CWC certifies that
it is in compliance with all applicable provisions of 41
C.F.R. 60-1, including but not limited to: (a) developing and
presently having in full force and effect a written
affirmative action compliance program for each of its
establishments as required by 41 C.F.R. 60-1.40, as amended,
(b) filing EEO-1 Reports as required by 41 C.F.R. 60-1.7, as
amended; and (c) neither maintaining segregated facilities nor
permitting its employees to perform services at segregated
facilities as prohibited by 41 C.F.R. 60-1.8, as amended. GM
requests that CWC adopt and implement a policy to extend
employment opportunities to qualified applicants and employees
on an equal basis regardless of an individual's age, race,
color, sex, religion or national origin.
25. NO IMPLIED WAIVER. The failure of either party at any time to require
performance by the other party of any provision of this Agreement shall
in no way affect the right to require such performance at any time
thereafter, nor shall the waiver of either party of a breach of any
provision of this Agreement constitute a waiver of any succeeding
breach of the same or any other provisions.
26. NON-ASSIGNMENT. Neither party may assign or delegate its rights and
obligations under this Agreement without the prior written consent of
the other party; provided, however, that CWC may use non-employee
contract programming personnel in the performance of design and
programming efforts, so long as such personnel are bound in writing to
provisions which are substantially similar to the Restriction on Use
and Confidentiality provisions of this Agreement.
27. RELATIONSHIP OF PARTIES. CWC and GM are independent contracting parties
and nothing in this Agreement shall make either party the agent or
legal representative of the other for any purpose whatsoever, nor does
it grant either party any authority to assume or to create any
obligation on behalf of or in the name of the other.
28. GOVERNING LAW. This Agreement is to be construed according to the laws
of the State of Michigan.
29. SEVERABILITY. If any term of this Agreement is invalid or unenforceable
under any statute, regulation, ordinance, executive order or other rule
of law, such term shall be deemed reformed or deleted, but only to the
extent necessary to comply with such
-24-
<PAGE> 25
statute, regulation, ordinance, order or rule, and the remaining of
this Agreement shall remain in full force and effect.
30. ENTIRE AGREEMENT. This Agreement, together with the attachments,
exhibits, or supplements, specifically referenced herein, constitutes
the entire agreement between CWC and GM with respect to the matter
contained herein and supersedes all prior oral or written
representations and agreements.
31. SURVIVAL. The provisions of Sections 1, 2, 7, 8, 10, 11, 12, 13, 14,
15, 16, 19, 20, 21, 22, 28, 29, 30 and 31 shall survive the termination
or expiration of this Agreement for any reason.
IN WITNESS WHEREOF, GM and CWC have caused this Agreement to be
executed in multiple counterparts by their duly authorized representatives.
CLEAR WITH COMPUTERS, INC. GENERAL MOTORS CORPORATION
By: /s/ Alan R. Bennett By: /s/ Signature Illegible
----------------------------- -----------------------------
Title: Chief Operating Officer Title: General Director
-------------------------- --------------------------
Date: 6/21/94 Date: 8/1/94
--------------------------- ---------------------------
-25-
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Boston, Massachusetts
January 12, 2000
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<PERIOD-END> OCT-31-1998
<CASH> 2,324
<SECURITIES> 0
<RECEIVABLES> 6,504
<ALLOWANCES> 290
<INVENTORY> 0
<CURRENT-ASSETS> 9,788
<PP&E> 12,017
<DEPRECIATION> 3,574
<TOTAL-ASSETS> 18,786
<CURRENT-LIABILITIES> 16,028
<BONDS> 0
0
124
<COMMON> 100
<OTHER-SE> 807
<TOTAL-LIABILITY-AND-EQUITY> 18,786
<SALES> 0
<TOTAL-REVENUES> 29,002
<CGS> 0
<TOTAL-COSTS> 11,650
<OTHER-EXPENSES> 26,067
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 616
<INCOME-TAX> (9,041)
<DISCONTINUED> 0
<EXTRAORDINARY> (9,041)
<CHANGES> 0
<INCOME-PRETAX> 0
<INCOME-CONTINUING> 0
<NET-INCOME> (9,041)
<EPS-BASIC> (0.91)
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<TABLE> <S> <C>
<ARTICLE> 5
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<PERIOD-END> OCT-31-1999
<CASH> 2,120
<SECURITIES> 0
<RECEIVABLES> 10,320
<ALLOWANCES> 410
<INVENTORY> 0
<CURRENT-ASSETS> 14,486
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<DEPRECIATION> 3,535
<TOTAL-ASSETS> 21,660
<CURRENT-LIABILITIES> 25,866
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0
191
<COMMON> 101
<OTHER-SE> (5,646)
<TOTAL-LIABILITY-AND-EQUITY> 21,660
<SALES> 0
<TOTAL-REVENUES> 34,285
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<TOTAL-COSTS> 16,551
<OTHER-EXPENSES> 45,958
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 850
<INCOME-PRETAX> (28,855)
<INCOME-TAX> 0
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<EPS-BASIC> (2.88)
<EPS-DILUTED> (2.88)
</TABLE>
